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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

July 2009: 

Recovery Act: 

States' and Localities' Current and Planned Uses of Funds While Facing 
Fiscal Stresses (Appendixes): 

GAO-09-830SP: 

Contents: 

Appendix I: Arizona: 

Appendix II: California: 

Appendix III: Colorado: 

Appendix IV: Florida: 

Appendix V: Georgia: 

Appendix VI: Illinois: 

Appendix VII: Iowa: 

Appendix VIII: Massachusetts: 

Appendix IX: Michigan: 
Appendix X: Mississippi: 

Appendix XI: New Jersey: 

Appendix XII: New York: 

Appendix XIII: North Carolina: 

Appendix XIV: Ohio: 

Appendix XV: Pennsylvania: 

Appendix XVI: Texas: 

Appendix XVII: District of Columbia: 

[End of section] 

Appendix I: Arizona: 

Overview: 

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

Use of funds: Our work in Arizona focused on eight federal programs, 
selected primarily because they have begun disbursing funds to states 
and includes existing programs receiving significant amounts of 
Recovery Act funds or significant increases in funding. Program funds 
are being directed to helping Arizona stabilize its budget and support 
local governments, particularly school districts, and are being used to 
expand existing programs. Funds from some of these programs are 
intended for disbursement through states or directly to localities. The 
funds include the following: 

* Increased Medicaid Federal Medical Assistance Percentage (FMAP) 
funds. As of June 29, 2009, Arizona has received about $535 million in 
increased FMAP grant awards, of which it has drawn down about $513 
million, or 96 percent. Arizona officials said the funds made available 
as the result of increased FMAP are critical in helping Arizona 
maintain its core Medicaid program and avoid systematic reductions in 
funding for other programs, such as the State Children’s Health 
Insurance Program. Arizona is also planning on using state funds freed 
up as a result of the increased FMAP to offset the state budget 
deficit.[Footnote 2] 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation’s Federal Highway Administration apportioned $522 
million in Recovery Act funds to Arizona. As of June 25, 2009, $262 
million has been obligated for highway projects. Arizona’s Department 
of Transportation and Arizona’s Federal Highway Administration worked 
together to identify a priority list of transportation infrastructure 
projects that could be started quickly. ADOT has awarded 24 contracts 
for Recovery Act highway projects, largely involving pavement 
preservation, shoulder widening, and road repair. 

As of June 25, 6 highway projects funded with Recovery Act dollars have 
begun construction. For example, the initial project under construction 
near Prescott involves making safety improvements and repairs to the 
roadway. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
The U.S. Department of Education has awarded Arizona about $832 
million, or about 81.8 percent of its total SFSF allocation of $1.017 
billion. Arizona has not drawn down any of the funds as of June 30, 
2009. Arizona is planning to use a portion of these funds to offset 
budget cuts, in such areas as education. For example, the state has 
allocated, for fiscal year 2009, $250 million to be used for the K-12 
program, and $183 million for community colleges and universities. 
Remaining funds will be used for education, public safety, or other 
government services. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA) funds. The U.S. Department of Education has awarded Arizona 
about $97.5 million in Recovery Act ESEA Title I, Part A, funds, or 50 
percent of its total allocation of $195 million. Of these funds, 
Arizona has allocated to state local education agencies (LEA) about 
$185 million. As of June 30, 2009, the state education agency had 
approved 24 applications for about $6.7 million. The schools are 
encouraged to use the funds in ways that will build their long-term 
capacity to service disadvantaged youth, such as through providing 
professional development of teachers. For example, a school will 
acquire an instructional data system, which integrates curriculum 
mapping, assessment, reporting, and analysis tools, to identify trends 
in student learning and make improvements in classroom instruction, and 
contract for a system coordinator. 

* Individuals with Disabilities Education Act (IDEA), Part B and C 
funds. The U.S. Department of Education has allocated about $194 
million in Recovery Act IDEA, Part B and C funds to Arizona. The 
Arizona Department of Education will receive about $184 million in IDEA 
Part B funds and the Department of Economic Security will receive about 
$10 million in IDEA Part C funds. On April 1, 2009, the U.S. Department 
of Education made available about 50 percent of the total allocation. 
The Arizona Department of Education has allocated about $178 million 
and about $6 million to state LEAs and preschools, respectively, in 
Part B funds. On June 22, 2009, Arizona opened the grant application 
process to support special education and related services for infants, 
toddlers, children, and youth with disabilities. For example, LEAs plan 
to use the funds to provide teachers with coaching services for 
improving behavior management skills, and initiate an in-school program 
for students with autism and another for medically fragile students. 

* Weatherization Assistance Program funds. The U.S. Department of 
Energy allocated about $57 million in Recovery Act weatherization 
funding to Arizona for a 3-year period. Based on information available 
on June 30, 2009, Arizona has received $28.5 million in weatherization 
funds. Arizona is using the initial funding allocation of $5.7 million 
to hire and train program staff and has received an additional $22.8 
million of the Recovery Act weatherization funds. Arizona intends to 
use this money to begin to weatherize at least 6,400 homes. 

* Edward Byrne Memorial Justice Assistance Grant Program funds. The 
U.S. Department of Justice’s Bureau of Justice Assistance has awarded 
$25.3 million directly to Arizona in Recovery Act funding. Based on 
information available as of June 30, 2009, about $23.1 million (91 
percent) of these funds have been obligated by the Arizona Criminal 
Justice Commission, which administers these grants for the state. 
[Footnote 3] These funds coming to the state are being used mostly to 
supplement current state law enforcement and criminal justice efforts. 
For example, 36 projects have been approved for funding in such areas 
as drug forensics, drug and gang prosecution, rural law enforcement, 
and information sharing initiatives. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated about $12 million in Recovery Act funding to 
15 public housing agencies in Arizona. Based on information available 
as of June 20, 2009, about $1.7 million (14 percent) had been obligated 
by 11 of those agencies. At the five public housing authorities we 
visited, this money, which flows directly to the authorities, is being 
used for various capital improvements. For example, two projects 
underway in Tucson are using the funding to repair asphalt, to do roof 
repairs, and to remodel a kitchen and bathroom and to replace the hot 
water and air-conditioning units. 

Safeguarding and transparency: Arizona has enhanced its accounting 
system to track Recovery Act funds by adding new accounting codes in 
order to segregate and track these funds separately from other funds 
that will flow through the state government. Arizona’s 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 department heads 
and program officials generally expect that they will also require 
subrecipients, through agreements, grant applications, and revised 
contract provisions, to track and report Recovery Act funding 
separately. The state comptroller and the state chief information 
officer are devising a methodology to integrate information gathered 
across the state agencies with the data in the state’s accounting 
system, the Arizona Financial Information System, into an overall 
database or data warehouse for reporting on the use of Recovery Act 
funds for the entire state. Although the state has not completed a 
separate risk assessment for these funds, the state is in the process 
of administering a survey asking state agencies for a self-assessment 
of their internal controls that includes a risk assessment, to help 
safeguard Recovery Act resources. 

Assessing the effects of spending: Arizona agencies have begun 
collecting information on jobs created and preserved, although 
different kinds of information are being submitted across programs. On 
June 22, 2009, OMB issued implementing guidance clarifying how states 
are to report the number of jobs created and preserved under the 
Recovery Act. Existing programs that are receiving Recovery Act funds 
are continuing to measure some results beyond jobs—such as program 
outcomes—through their existing program evaluations, but some programs 
are still awaiting guidance for how to assess outcomes from federal 
programs. 

Arizona Is Using Recovery Act Funds to Stabilize Budget and Support 
Programs and Infrastructure, but Expects Fiscal Challenges to Continue 
after Recovery Act Funds Expire: 

Arizona continues to face economic distress, which state officials 
expect will be partially relieved with Recovery Act funding. Arizona 
budget officials estimate that expenses to the state’s general fund 
will exceed revenues by over $10 billion for fiscal years 2009 through 
2011, with minimal or no revenue increases projected through fiscal 
year 2011. The major cause of the widening budget gap is revenue 
collections, which continue to be significantly lower than officials 
had anticipated. For example, since May 2007, the state has experienced 
consistent revenue declines in income tax, corporate income tax, and 
sales tax revenue, according to state budget officials. To help reduce 
the budget shortfall, the state has imposed budget cuts on all areas of 
state government, including education, health care, environmental 
protection, behavioral health, and public safety. However, due to the 
severity of the state’s economic situation, the state’s budget office 
estimates that the state’s general fund gap will continue to grow into 
fiscal year 2014 (see figure 1). Governor Jan Brewer recently approved 
legislation to address an even deeper fiscal year 2009 shortfall than 
expected and, as of June 30, is in negotiations with the state 
legislature to finalize plans to close an expected $4 billion deficit 
in order to balance the fiscal year 2010 budget.[Footnote 4] The 
Governor’s plans to balance the fiscal year 2010 and 2011 budgets may 
include temporary increases in tax revenues as a means to avoid 
additional cuts. As of June 30, 2009, the state’s fiscal year 2010 
budget had not been passed. 

Figure 1. Arizona General Fund Expenses, Revenues, and Federal Recovery 
Act Funding for Fiscal Year 2005 to Fiscal Year 2014 (in millions): 

[Refer to PDF for image: multiple line graph] 

FY 2005; 
Revenues: $7,799.1; 
Expenditures: $7,308.7. 

FY 2006; 
Revenues: $9,274.7; 
Expenditures: $8,355.3. 

FY 2007; 
Revenues: $9,557.7; 
Expenditures: $9,460.7. 

FY 2008; 
Recovery Act Funds: $8,789.6; 
Revenues: $8,789.6; 
Expenditures: $10,112.8. 

FY 2009 estimate; 
Recovery Act Funds: $8,106.5; 
Revenues: $7,169.9; 
Expenditures: $9,701.2. 

FY 2010 estimate; 
Recovery Act Funds: $8,142.4; 
Revenues: $7,332.9; 
Expenditures: $10,928.9. 

FY 2011 estimate	
Recovery Act Funds: $7,892.58; 
Revenues: $7,692.6; 
Expenditures: $11,468.7. 

FY 2012 estimate; 
Recovery Act Funds: $8,269.5; 
Revenues: $8,269.5; 
Expenditures: $12,328.8. 

FY 2013 estimate; 
Revenues: $8,848.4; 
Expenditures: $13,253.5. 

FY 2014 estimate; 
Revenues: $9,467.8; 
Expenditures: $14,247.5. 

Source: Arizona’s Office of Strategic Planning and Budgeting. 

[End of figure] 

Budget officials stated that Recovery Act funds will help to reduce the 
size of current and future general fund shortfalls but will not 
completely eliminate them. For example, the state used $470 million 
made available as a result of the increased FMAP to help close a gap in 
the fiscal year 2009 budget, and plans to apply $810 million of such 
funds in fiscal year 2010 and $500 million in fiscal year 2011 for the 
same purpose. In addition, the state applied $443 million in SFSF funds 
to the budget gap in fiscal year 2009 and plans to use $390 million for 
that purpose in fiscal year 2010. Recovery Act funds used to close the 
budget gap total about $2.6 billion across fiscal years 2009 to 2011—
compared to the state’s estimated general fund shortfall of over $10 
billion for that same period.[Footnote 5] 

In addition to general fund stabilization, budget officials noted that 
Recovery Act funding enabled the state to, among other things, reduce 
the number of furloughs and layoffs, avoid some service reductions, 
maintain the level of state employee benefits, and prevent some 
contract delays and reductions that otherwise would have occurred. 
Budget officials noted that they intend to develop an exit strategy 
that will prepare the state for when Recovery Act funds are no longer 
available. To do so, they will work with agencies to minimize the 
funding cliff effect that could result once Recovery Act funds expire, 
but the officials said that such instructions have not yet been 
developed. The Governor has stated that the use of Recovery Act funds 
is not intended to grow the size of Arizona’s government services to 
unsustainable levels once such funds are no longer available. 

Arizona Requires Additional Management Capacity to Oversee Recovery Act 
Funds and Is Addressing This Gap with Federal Funding: 

Budget officials stated that more staff are needed to implement the 
estimated $6.3 billion in total Recovery Act funds that are to be 
received by Arizona. Currently, there are about 15 full-time staff 
within the state’s Office of Economic Recovery, and other agencies have 
designated staff members who are primary contacts or who are called on 
an as-needed basis for Recovery Act funding issues. For example, the 
state comptroller has an internal staff of 3 that is responsible for 
communicating with the Governor’s Office and state agencies, teaching 
the state agencies what is needed to comply with the Recovery Act 
requirements, and emphasizing the need for good internal controls. To 
assure that the state has the capacity to comply with Recovery Act 
provisions, officials estimated that they will need an additional 35 
full-time staff and plan to complete an assessment of actual staffing 
needs by the end of July. 

As part of the staff planning efforts, officials are drafting a budget 
that will use the option as announced by OMB in May 2009 to charge up 
to 0.5 percent of certain Recovery Act funds in indirect costs to 
provide additional staffing resources to entities responsible for the 
oversight, monitoring, and tracking of Recovery Act funds. The 
announcement by OMB has been very helpful, according to Arizona 
officials. The comptroller noted that the state is developing 
strategies and processes to estimate the state’s indirect costs and 
plans to make subsequent adjustments to the estimated amounts after 
actual costs are incurred. In addition, some individual programs 
receiving Recovery Act funds allow agencies to use a share of these 
funds for administrative costs. For example, the Edward Byrne Memorial 
Justice Assistance Grant (JAG) Program, under the Recovery Act, allows 
up to 10 percent of funds to be used for such costs. Officials with the 
Arizona Criminal Justice Commission, which oversees JAG funds for the 
state, estimated that the workload is likely to double as a result of 
receiving additional funds through the Recovery Act. They plan to use 
some of the state’s administrative JAG funds to hire additional staff 
to help manage the heightened Recovery Act requirements and increased 
number of subrecipients. 

Federal Assistance under the Recovery Act Is Helping Arizona to 
Maintain Its Medicaid Program and to Address Budget Deficits: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state’s per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
to no more than 83 percent. The Recovery Act provides eligible states 
with an increased FMAP for 27 months from October 1, 2008 through 
December 31, 2010.[Footnote 6] 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 7] Generally, for federal FY 2009 through the first 
quarter of federal FY 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

Enrollment Growth in Arizona’s Medicaid Program Adding Pressure to 
State Budget: 

From October 2007 to May 2009, the state’s Medicaid enrollment 
increased from 1,029,184 to 1,186,848, an increase of over 15 percent. 
[Footnote 8] Enrollment varied during this period—the largest 
enrollment increase occurred between April and May 2009, and there were 
several months where enrollment decreased (figure 2). Most of the 
increase in enrollment was attributable to the population groups of (1) 
children and families, and (2) non-disabled non-elderly adults. 

Figure 2: Monthly Percentage Change in Medicaid Enrollment for Arizona, 
October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.– Nov. 2007: 
Percentage change: -0.07. 

Nov.– Dec. 2007: 
Percentage change: -0.006. 

Dec.– Jan. 2008-09: 
Percentage change: 0.70. 

Jan.– Feb. 2008: 
Percentage change: -0.20. 

Feb.– Mar. 2008: 
Percentage change: 0.60. 

Mar.– Apr. 2008: 
Percentage change: 1.04. 

Apr.– May 2008: 
Percentage change: 0.15. 

May– June 2008: 
Percentage change: 0.77. 

Jun.– Jul. 2008: 
Percentage change: 0.41. 

Jul.– Aug. 2008: 
Percentage change: 0.45. 

Aug.– Sep. 2008: 
Percentage change: 1.31. 

Sep.– Oct. 2008: 
Percentage change: -0.20. 

Oct.– Nov. 2008: 
Percentage change: 0.63. 

Nov.– Dec. 2008-09: 
Percentage change: 1.55. 

Dec.– Jan. 2009: 
Percentage change: 0.27. 

Jan.– Feb. 2009: 
Percentage change: 1.37. 

Feb.– Mar. 2009: 
Percentage change: 1.13. 

Mar.– Apr. 2009: 
Percentage change: 1.95. 

Apr.– May 2009: 
Percentage change: 2.50. 

October 2007 enrollment: 1,029,184; 
May 2009 enrollment: 1,186,848. 

Source: GAO analysis of state reported data. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

As of June 29, 2009, Arizona has drawn down almost $513 million in 
increased FMAP grant awards, which is over 96 percent of its awards to 
date.[Footnote 9] Arizona officials reported that they are planning on 
using funds made available as a result of the increased FMAP to offset 
the state budget deficit. 

Arizona officials noted that the state’s Medicaid program continues to 
experience substantial growth as the state continues to face difficult 
budget periods. Officials added that the funds made available as a 
result of the increased FMAP have been critical in helping Arizona 
maintain its core Medicaid program and avoid systematic reductions in 
funding for other programs, such as the State Children’s Health 
Insurance Program (CHIP). Officials added that in the absence of funds 
made available as a result of the increased FMAP, funding for CHIP 
would have been particularly affected because the program does not have 
the same entitlement protections as the Medicaid program. In using the 
increased FMAP, Arizona officials reported that the Medicaid program 
has incurred additional costs related to developing new systems or 
adjusting existing reporting systems associated with these funds. 

Since increased FMAP dollars became available, Arizona has raised a 
number of questions related to its ability to maintain eligibility for 
these funds. For example, on June 26, 2008, the state passed a law 
which changed the frequency of Medicaid eligibility determinations for 
childless adults who are not disabled from 12 months to 6 months. 
Because the Arizona constitution provides for a delayed effective date 
for non-emergency legislation, the change was not implemented until 
September 26, 2008. CMS determined that this change constituted a more 
restrictive eligibility standard, thus violating one of the maintenance 
of eligibility requirements under the Recovery Act.[Footnote 10] As a 
result, on April 29, 2009, the Governor signed an emergency measure to 
amend the state’s law to revert back to an annual redetermination 
process, which was effective June 1, 2009.[Footnote 11] The state had 
suspended any additional draw downs of increased FMAP until this change 
was implemented. State officials reported that CMS has not indicated 
that the state would be required to repay any dollars. 

Similarly, the officials said that the state has required political 
subdivisions—most typically counties—to contribute to the nonfederal 
share for Medicaid expenditures and that this contribution varied. Some 
officials have raised questions about how this practice relates to the 
maintenance of eligibility requirement in the Recovery Act.[Footnote 
12] For example, the largest contribution may have its annual sharing 
percentage change between the state and the counties. Other 
contributions made by counties to the state’s acute care program are 
not subject to adjustments. However, state officials reported that the 
underlying laws, which require the counties to contribute to the non-
federal share of expenditures, have not changed. 

Regarding the tracking of the increased FMAP, state Medicaid officials 
indicated that Arizona changed its accounting system to include a new 
fund for tracking revenues and expenditures specific to increased FMAP 
and that the state will use existing reconciliation processes to assure 
the completeness and accuracy of tracked and reported data on increased 
FMAP dollars. However, the Medicaid officials noted that they and 
officials from Arizona’s General Accounting Office are awaiting 
guidance from OMB about what steps auditors should follow when 
reviewing increased FMAP revenues and expenditures. The 2007 and 2008 
Single Audits for Arizona identified no material weaknesses related to 
the data systems or other aspects of the Medicaid program.[Footnote 13] 

First Round of Arizona Recovery Act Highway Projects Under Way: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The Act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms and states must 
follow the requirements of the existing program including planning, 
environmental review, contracting, and other requirements. However, the 
federal fund share of highway infrastructure investment projects under 
the Recovery Act is up to 100 percent, while the federal share under 
the existing Federal-aid Highway Program is usually 80 percent. 

Arizona Selected Quick-Start Highway Projects to Help Comply with the 
Act and Received Contract Bids That Were Lower Than Estimated: 

As we previously reported, $522 million was apportioned to Arizona in 
March for highway infrastructure and other eligible projects. As of 
June 25, 2009, $262 million had been obligated (see Table 1). The U.S. 
Department of Transportation has interpreted the term obligation of 
funds to mean the federal government’s contractual commitment to pay 
for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. As of June 25, 
2009, no funds had been reimbursed by FHWA. States request 
reimbursement from FHWA as they make payments to contractors working on 
approved projects. 

In anticipation of stimulus legislation, Arizona began planning for 
federal highway infrastructure investment before the Recovery Act was 
passed. Arizona’s Department of Transportation (ADOT) and the Arizona 
Division of the Federal Highway Administration (FHWA) worked together 
to identify a priority list of transportation infrastructure 
investments from Arizona’s Five Year Transportation Plan. Together, 
they identified projects that could be started quickly, focusing on 
projects that could be implemented in under 180 days, as well as 
projects that could be completed within a 3-year time frame. As a 
result, the initial Recovery Act funded projects advertised for bid are 
all short-term projects that require little lead time for planning and 
design, enabling contractors to begin work quickly. Many initial round 
projects were also chosen to coincide with the construction season, 
which, in the northern part of the state, excludes the winter months. 

Table 1: Highway Obligations for Arizona by Project Type as of June 25, 
2009 (Dollars in millions): 

Pavement projects: New construction: $10 million; 
Percent of total obligations: 3.7%. 

Pavement projects: Pavement improvement: $133 million; 
Percent of total obligations: 43.3%. 

Pavement projects: Pavement widening: $75 million; 
Percent of total obligations: 28.6%. 

Bridge projects: New construction: $8 million; 
Percent of total obligations: 3.1%. 

Bridge projects: Replacement: $1 million; 
Percent of total obligations: 0.4%. 

Bridge projects: Improvement: $13 million; 
Percent of total obligations: 4.8%. 

Other[A]: $42 million; 
Percent of total obligations: 16.1%. 

Total: $262 million; 
Percent of total obligations: 100%. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[End of table] 

ADOT has advertised 35 of the 41 statewide highway projects authorized 
by the FHWA’s Arizona Division. As of June 30, 2009, contracts for 24 
of these projects have been awarded. Specifically: 

* On May 15, 2009, ADOT awarded contracts for the first six projects to 
be undertaken using Recovery Act funds. Five of these six projects are 
pavement preservation projects and one is for shoulder widening and 
safety improvements. These six projects came in about $3 million below 
ADOT’s initial estimates. 

* On June 3, 2009, ADOT awarded an additional nine contracts that came 
in $4.3 million below ADOT’s initial estimates. 

* On June 19, ADOT awarded nine highway contracts that came in $2.7 
million below ADOT’s initial estimates. 

ADOT officials believe that the bids coming in below estimates are 
caused by the current low levels of economic activity in the 
construction industry due to the state’s economic downturn, as well as 
lower prices for commodities like asphalt and oil. If the trend of bids 
coming in lower than ADOT estimates continues, ADOT officials told us 
that they are considering lowering bid estimates in the future. The 
savings from these low bids likely will be reinvested in additional 
Recovery Act projects. 

Arizona Expects to Meet All Highway Spending Requirements under the 
Act: 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. The states are required to: 

* ensure that 50 percent of apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. 
[Footnote 14] The 50 percent rule applies only to funds apportioned to 
the state and not to the 30 percent of funds required by the Recovery 
Act to be suballocated. 

* give priority to projects that can be completed within 3 years, and 
to projects located in economically distressed areas (EDA). EDAs are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. 

* certify that the state will maintain the level of spending for the 
types of transportation projects funded by the Recovery Act that it 
planned to spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state is required to identify the 
amount of funds the state planned to expend from state sources as of 
February 17, 2009, for the period beginning on that date and extending 
through September 30, 2010.[Footnote 15] 

Based on the progress to date, Arizona officials are reporting that 
they are on track to meet all three of their spending requirements 
under the Recovery Act. First, Arizona has met the Recovery Act 
requirement that 50 percent of their apportioned funds are obligated 
within 120 days. Of the approximately $365 million that is subject to 
this provision 71.4 percent was obligated as of June 25, 2009. 

Second, Arizona believes it will be able to expend most of the Recovery 
Act funds in 3 years because it has made it a priority to select 
projects that could begin quickly and be completed within 2 years. 
State officials reported that, since the first projects are 
predominantly repaving projects, most are likely to be completed within 
1.5 years of award. In addition, according to ADOT officials, all 
highway projects being undertaken with Recovery Act funds will be 
located in EDAs. To meet this requirement, ADOT officials developed a 
map of economically distressed areas in the state based on home 
foreclosure rates, unemployment rates, and data on disadvantaged 
business enterprises from the Department of Commerce. ADOT outlined its 
methodology for determining EDA in a letter to FHWA, which approved the 
methodology. 

Third, on March 17, 2009, the Governor submitted Arizona’s 
certification to the Department of Transportation certifying that the 
state would maintain its projected level of spending as required in the 
act. On April 20, 2009, the Department of Transportation responded that 
the state did not list all of the programs covered under the Recovery 
Act in the maintenance of effort certification and gave the state the 
opportunity to amend its certification with the correct information. On 
May 19, 2009, Arizona resubmitted its certification. According to 
Department of Transportation officials, the department has concluded 
that the form of the certification is consistent with the additional 
guidance. The Department of Transportation is currently evaluating 
whether the states’ method of calculating the amounts they planned to 
expend for the covered programs is in compliance with the Department of 
Transportation guidance. 

Arizona’s Application for State Fiscal Stabilization Funds to Offset 
Budget Cuts Was Approved: 

The Recovery Act created the 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 provides 
several assurances. These include assurances that the state will meet 
maintenance of effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Furthermore, the state applications must 
contain baseline data that demonstrate the state’s current status in 
each of the assurances. States must allocate 81.8 percent of their SFSF 
funds to support education (education stabilization funds), and must 
use the remaining 18.2 percent for public safety and other government 
services, which may include education (government services funds). 
After maintaining state support for education at fiscal year 2006 
levels, states must use education stabilization funds to restore state 
funding to the greater of fiscal year 2008 or 2009 levels for state 
support to school districts or public institutions of higher education 
(IHE). When distributing these funds to school districts, states must 
use their primary education funding formula but maintain discretion in 
how funds are allocated to public IHEs. In general, school districts 
maintain broad discretion in how they can use stabilization funds, but 
states have some ability to direct IHEs in how to use these funds. 

The Governor submitted an application to Education on May 21, 2009, for 
SFSF funds, which will allow the state to offset budget cuts. The 
application was approved on June 11, 2009. Arizona’s SFSF allocation is 
$1.017 billion. The state specified in its application that 
stabilization funds of $433 million in fiscal year 2009 and $399 
million in fiscal year 2010 should help to offset Arizona’s budget cuts 
to education. The state has allocated, for fiscal year 2009, $250 
million of the $433 million be used for the K-12 program, and the 
remaining $183 million for community colleges and universities. The 
state similarly allocated, for fiscal year 2010, $223 million of the 
$399 million for the K-12 program, and $176 million for community 
colleges and universities. The application stated that the remaining 
18.2 percent or $185 million will be used at the Governor’s discretion 
for education, public safety, or other government services.[Footnote 
16] 

In terms of the $433 million, in May 2009, the governor had to modify 
the state’s spending for the current fiscal year, which ended June 30, 
2009, to address a widening budget gap. The governor replaced $250 
million in general funds allocated for K-12 programs education and 
backfilled this amount with the education stabilization funds. 
Specifically, in fiscal year 2009 the education stabilization funds 
allocated to elementary and secondary education will replace about 5.9 
percent of the general funds and the funds allocated to community 
colleges and universities will replace about 17 percent of the general 
fund. Similarly, it is estimated that the education stabilization funds 
will replace about the same amounts in fiscal year 2010. According to 
an official from the Governor’s Office of Strategic Planning and 
Budgeting, no funds have been drawn down as of June 30, 2009. 

The Governor stated that Arizona will not need to request a waiver from 
the Recovery Act requirement that states maintain the support for 
education programs at least at the level provided in fiscal year 2006. 
For example, the levels of state support for elementary and secondary 
education for fiscal years 2009 and 2010 ($3.976 billion and $3.926 
billion respectively) exceed the fiscal year 2006 amount of $3.464 
billion and, therefore, comply with the maintenance of effort 
requirement. Budget officials said that they had no concerns about 
being able to effectively spend the general fund resources freed up as 
a result of the federal stabilization funds because of the significant 
budget deficits and resulting program cuts the state has faced since 
fiscal year 2007. 

Local Education Agencies Are Beginning to Apply for ESEA Title I Part A 
Education Funds: 

The Recovery Act provides $10 billion to help local educational 
agencies (LEAs) educate disadvantaged youth by making additional funds 
available beyond those regularly allocated through Title I, Part A of 
the Elementary and Secondary Education (ESEA) of 1965. The Recovery Act 
requires these additional funds to be distributed through states to 
LEAs using existing federal funding formulae, which target funds based 
on factors such as high concentrations of students from families living 
in poverty. In using the funds, LEAs are required to comply with 
current statutory and regulatory requirements, and must obligate 85 
percent of its fiscal year 2009 funds (including Recovery Act funds) by 
September 30, 2010.[Footnote 17] Education is advising local 
educational agencies to use the funds in ways that will build their 
long-term capacity to serve disadvantaged youth, such as through 
providing professional development to teachers. Education made the 
first half of states’ ESEA Title I, Part A funding available on April 
1, 2009, with Arizona receiving $97.5 million of its approximately $195 
million total allocation. 

Arizona LEAs Are in the Process of Submitting Applications for ESEA 
Title I Funding Focusing on Improving Students’ Academic Achievement: 

Arizona’s State Department of Education has allocated $185 million in 
ESEA Title I Recovery Act funds to date and is accepting applications 
from LEAs that outline how they will use these funds. The state is 
requiring that LEAs use the same grant process for requesting and 
reporting on ESEA Title I Recovery Act funds as they do for non-
Recovery Act ESEA Title I funds. The process includes LEAs submitting 
applications that contain a detailed plan on how and when the funds 
will be used and State Education Agency (SEA) officials reviewing the 
application to ensure that spending plans comply with applicable laws 
and regulations. As of June 30, 2009, the SEA had approved 24 
applications for about $6.7 million. Also, another 73 LEAs have 
submitted its application for about $33.2 million, but the applications 
have not been approved. In addition, another 165 LEAs have started the 
application process but have not formally submitted applications for 
approval. The additional applications total approximately $115.5 
million. According to SEA officials, they expect to approve all 
applications by September 30, 2009. Both the SEA and the five LEAs that 
we visited were confident that they could spend the funds in the next 
school year, especially given the program cuts they have experienced 
and expect to face. Although most LEAs have not submitted applications 
for grants, because it is the end of the school year and funds are not 
needed, they are developing plans for the use of the Recovery Act ESEA 
Title I funds for next year that focus on improving students’ academic 
achievement. 

During our fieldwork, we visited five Arizona LEAs including the four 
largest school districts. We found that one LEA had submitted an 
application for Recovery Act funds; three LEAs had drafted plans for 
the use of funds but had not submitted an application because it is the 
end of the school year and they have time to consider other projects 
before school begins; and one LEA had developed projects for its 
funding allocation, but is considering additional uses of its funds 
before submitting an application. The following examples show how the 
LEAs plan to spend Recovery Act ESEA Title I funds. 

* The Phoenix Elementary School District No 1 plans to hire 36 
specialists (three at each ESEA Title I school) to provide strategic 
and intensive reading intervention to students who are not meeting 
Arizona’s reading standards. The LEA will also hire a reading 
curriculum resource specialist to oversee the ESEA Title I Recovery Act 
reading program. The LEA expects these positions to last only during 
the years of Recovery Act funding, although the LEA is hoping to make 
the resource specialist position permanent by looking for another 
source of funding. 

* Another LEA, the Imagine Charter Elementary at Desert West, will 1) 
acquire an instructional data system, which integrates curriculum 
mapping, assessment, reporting, and analysis tools, to identify trends 
in student learning and make improvements in classroom instruction; and 
2) contract for a system coordinator. The LEA piloted the system last 
year and determined that the system could improve student academic 
achievement, but that a full-time coordinator could enhance the 
effectiveness of the system by providing prompt feedback to the 
teachers regarding areas in which students need additional instruction. 
The Recovery Act funds will be used initially to contract for a 
coordinator, but the LEA plans to keep the coordinator after Recovery 
Act funds are terminated by reprioritizing its existing projects.
LEAs Will Seek Waivers So ESEA Title I Funds Can Be Used More Flexibly
LEAs we visited will likely seek waivers from requirements to provide 
funds for supplemental educational services (SES), such as tutoring, 
because they go unused and this waiver will provide more funding for 
other ESEA Title I projects. Specifically, three of the five LEAs we 
visited had schools in the district needing academic improvement and as 
a result are required to provide an amount equal to at least 20 percent 
of ESEA Title I funds transportation for public school choice and 
SES.[Footnote 18] According to officials from the three LEAs, they will 
seek a waiver from Education from this requirement, which could allow 
the LEAs to use the funds for other ESEA Title I approved purposes. The 
LEA officials said the primary reason for requesting a waiver was that 
in the past, parents and students did not use the tutoring available 
through the vendors and the LEAs had to forfeit those funds. LEA 
officials explained that the tutoring services went unused because the 
district covers hundreds of square miles, and parents are unable to get 
students to approved vendors for tutoring. Furthermore, according to 
LEA officials, their discussions with parents showed that the parents 
would prefer to have their children’s current teachers provide the 
tutoring, but they are not allowed to do so. Lastly, LEA officials said 
that since non-Recovery Act ESEA Title I funds already require a 20-
percent expenditure and are not totally used, an additional expenditure 
from 

Recovery Act funds would exacerbate this situation. For example, as a 
result of receiving additional ESEA Title I Recovery Act funds, Phoenix 
High School must spend more than $2 million for SES and $1.7 million 
for other requirements, leaving $6.5 million for spending on other ESEA 
Title I projects. If the waiver were granted, the LEA would be able to 
spend about $8.6 million for other ESEA Title I projects, which is an 
increase of about 30 percent. Figure 3 shows how the Tucson Unified 
School District’s funds to schools and private institutions would 
increase from $10.9 million to $14.5 million if the waiver were 
granted. SEA officials added that they have had discussions with LEAs 
on this subject and the state officials expect that many LEAs will seek 
a waiver. The state has also discussed this issue with the Department 
of Education although Education has not provided guidance on the 
process the SEA and LEAs are to use in seeking and approving waivers. 
According to state officials, Education may require each LEA to seek a 
waiver from Education or it may give the SEA authority to grant the 
waivers. 

Figure 3: Comparison of Tucson Unified School District Recovery Act 
ESEA Title I Budget Before and After an SES Waiver: 

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

Stimulus budget (total $18,087,222): 
Funds to schools and private instruction ($10,902,760): 60.28%; 
LEA improvement (professional development for teachers)($1,808,722): 
10.00%; 
SES and public school choice transportation ($3,617,444): 20.00%; 
Implementing effective parent/family involvement ($678,604): 3.75%; 
Services to homeless students ($90,436): 0.50%; 
Title 1 services to private schools ($20,358): 0.11%; 
Indirect cost ($968,897): 5.36%. 
Indirect cost ($968,897). 

Stimulus budget after school choice/SES waiver (total $18,087,222): 
Funds to schools and private instruction ($14,520,204): 80.28%; 
LEA improvement (professional development for teachers)($1,808,722): 
10.00%; 
Implementing effective parent/family involvement ($678,604): 3.75%; 
Services to homeless students ($90,436): 0.50%; 
Title 1 services to private schools ($20,358): 0.11%; 
Indirect cost ($968,897): 5.36%. 
Indirect cost ($968,897). 

Source: Tucson Unified School District, June 2009. 

[End of figure] 

Individuals with Disabilities Education Act Part B Funds Have Been 
Allocated to Local Education Agencies and Part C Funds Are Being Used 
to Offset Budget Reductions in Early Intervention Services: 

The Recovery Act provided supplemental funding for programs authorized 
by Part B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B includes programs that ensure preschool and school-
aged children with disabilities have access to a free and appropriate 
public education, and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities, or at risk 
of developing a disability, and their families. IDEA funds are 
authorized to states through 3 grants—Part B preschool-age, Part B 
school-age, and Part C grants for infants and families. States were not 
required to submit an application to Education in order to receive the 
initial Recovery Act funding for IDEA Parts B and C (50 percent of the 
total IDEA funding provided in the Recovery Act). States will receive 
the remaining 50 percent by September 30, 2009, after submitting 
information to Education addressing how they will meet Recovery Act 
accountability and reporting requirements. All IDEA Recovery Act funds 
must be used in accordance with IDEA statutory and regulatory 
requirements. 

The U.S. Department of Education has allocated about $194 million in 
Recovery Act IDEA Part B and Part C funds to Arizona. The Arizona 
Department of Education will receive about $184 million in IDEA Part B 
funds and the Arizona Department of Economic Security (DES) will 
receive about $10 million in IDEA Part C funds. The Arizona Department 
of Education has allocated about $178 million and about $6 million to 
state LEAs and preschools, respectively, in Part B funds. On April 1, 
2009, the U.S. Department of Education made available about 50 percent 
of the total allocation. 

The SEA Recently Opened the LEA Application Process for IDEA Part B 
Funds: 

The state has allocated $178 million of these funds among 544 LEAs. 
According to SEA officials, they plan to use the same grant process for 
Recovery Act IDEA funds that they use for non-Recovery Act IDEA funds. 
The process includes agreeing to the Recovery Act’s reporting 
requirements, submitting an application that contains a detailed plan 
on how and when the funds will be used, and the SEA officials 
conducting a subsequent review to ensure that spending plans comply 
with applicable laws and regulations. 

The SEA opened the application process for IDEA grants on June 22, 
2009. The grant process was delayed while waiting for OMB guidance on 
reporting requirements for Recovery Act funds. The SEA opened the grant 
application process on the same day OMB issued the program reporting 
requirement guidance.[Footnote 19] As of June 30, 2009, the SEA had 
approved 2 applications for about $18,000. Also, another 15 LEAs have 
submitted its application for about $1.5 million, but the applications 
have not been approved. In addition, 129 LEAs have started the 
application process but have not formally submitted applications for 
approval. The additional applications total approximately $107 million. 

Although Arizona has recently opened the application process for 
Recovery Act IDEA Part B funds, the five LEAs we visited in early June 
have determined how they will use the funds. We found that the LEAs had 
many ideas for the use of the funds, including professional development 
and assistive technology that may help the student participate in 
school (such as special computer software or a device to assist in 
holding a pencil). Specifically: 

* The Mesa Unified School District No. 4 plans to use the funds to 
provide teachers with coaching services for improving behavior 
management skills. The coaches will work with the general and special 
education teachers both on individual levels and in group settings to 
identify specific techniques to use to manage the behavior of special 
education students. These skills can be used to assist students in the 
classroom and to implement a student’s individual education plan. 

* The Phoenix Union High School District No. 210 plans to use the funds 
to initiate an in-school program for students with autism and another 
for medically fragile students. Approximately half of these funds will 
be used to purchase medical equipment and supplies, and the remainder 
will be used to employ or contract for nurses, aides, and teachers. 
School officials estimate that by moving these programs in house, the 
school district will save about $210,000, which will be spent on 
sending students to outside vendors. The savings will result in 
increased services for IDEA Part B students in areas such as improving 
reading and math skills. However, the LEA stated that the application 
delay may prohibit the projects from starting in the fall, because 
soliciting bids and obtaining equipment takes weeks to accomplish. 

* The Tucson Unified School District No. 1 plans to use part of the 
Recovery Act IDEA Part B funds to purchase, install, and pilot voice 
amplification systems in classrooms by collecting pre/post data at the 
elementary and middle school levels. The amplification system will make 
it easier for students to hear the teacher’s voice over the background 
sounds and allows the teacher to speak more quietly and still be heard. 
After reviewing research during 2008 to 2009, the LEA determined that 
the system will benefit students with low hearing and students with 
attention deficit disorder and benefit teachers who will be able to 
teach all day without straining their voices. Data will be collected on 
student and teacher perceptions as well as academic achievement, 
learning behaviors, and staff absenteeism. 

Arizona Is Using Initial IDEA Part C Funds to Support a Growing 
Caseload: 

IDEA Part C provides funds to states to implement statewide, 
comprehensive, multidisciplinary, interagency programs and make early 
intervention services available to children under age 3 with 
disabilities and their families. In Arizona, these services are 
provided by entities that contract with DES. Under the Recovery Act, 
DES is scheduled to receive a total of nearly $10 million for IDEA Part 
C. On April 1, 2009, DES received nearly $5 million and is scheduled to 
receive nearly $5 million by September 30, 2009, after it submits for 
review and approval additional information addressing how it will meet 
the accountability and reporting requirements specified in the Recovery 
Act. DES officials maintain that these funds will be used to offset 
reductions in early intervention services and to enable DES to provide 
for an increase in its caseload. 

Federal guidance states that the Secretary of Education does not have 
authority to grant waivers under IDEA for Part C’s maintenance of 
effort requirement. Guidance also states that federal provisions 
require each lead agency to ensure that the total amount of state and 
local expenditures on early intervention budgeted for a particular 
fiscal year are at least the amount of such funds expended in the prior 
fiscal year. On April 22, 2009, Education sent a letter to DES 
officials to clarify Arizona’s responsibilities under Part C of the 
IDEA, particularly with regard to service provisions and maintenance of 
effort requirements. The letter stated that the Office of Special 
Education Programs under Education had learned that DES had informed 
parents of over 2,200 children that their children would no longer be 
served under IDEA Part C because of cuts in state funding. DES 
officials explained that reductions in the IDEA Part C program 
(reflected in the Education letter) resulting from the severe, 
recession-driven budget challenges facing the state may have been 
necessary prior to the passage of the Recovery Act. But with the 
assistance of Recovery Act funds, DES officials stated that they will 
be able to serve all individuals that had received services in the 
prior fiscal year, and therefore, will be able to meet the maintenance 
of effort requirements for receiving the funds. 

Arizona’s Edward Byrne Memorial Justice Assistance Grant Program 
Funding Will Support the State’s Efforts to Control Drugs, Gangs, and 
Violent Crime in the State: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) Program within 
the Department of Justice’s Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information 
sharing initiatives, and victims’ services. Under the Recovery Act, an 
additional $2 billion in grants is available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state’s JAG allocation is awarded by BJA 
directly to the state, which must in turn allocate a formula-based 
share of those funds to local governments within the state. The 
remaining 40 percent of funds is awarded directly by BJA to eligible 
units of local government within the state.[Footnote 20] The total JAG 
allocation for Arizona state and local governments under the Recovery 
Act is about $42 million, a significant increase from the previous 
fiscal year 2008 allocation of about $3.1 million. The Arizona Criminal 
Justice Commission (ACJC) administers JAG funds for the state. 

As of June 30, 2009, Arizona has received its full state award of about 
$25.3 million.[Footnote 21] ACJC officials explained that the state’s 
direct Recovery Act funding enables them to continue to support drug 
task forces and projects throughout the state, projects that were 
otherwise at risk of being reduced given a 66 percent decrease in 
fiscal year 2008 JAG funding as well as program budget cuts by the 
state legislature. Because of its geographic location, Arizona faces 
significant law enforcement challenges associated with drug and human 
trafficking along the border. From March 31 to April 24, ACJC officials 
solicited applications for funding from state criminal justice 
agencies. To ensure funding stability for projects given the short-term 
availability of Recovery Act funding, ACJC officials proposed a budget 
that uses Recovery Act and non-Recovery Act JAG funds as well as the 
state’s matching Drug and Gang Enforcement funds to sustain projects 
through fiscal year 2014.[Footnote 22] From 52 applications received, 
ACJC officials selected 50 eligible projects for JAG funding, of which 
36 will receive only Recovery Act JAG funding. These projects received 
final committee approval and funds were made available to the criminal 
justice agencies on July 1, 2009. These agencies proposed projects for 
funding such as drug forensics, drug and gang prosecutions, rural law 
enforcement, and information sharing initiatives. All approved projects 
support the seven JAG purpose areas defined by BJA,[Footnote 23] as 
well as four priorities laid out in Arizona’s statewide strategic plan 
to control and combat drugs, gangs, and violent crime in the state. In 
addition, officials plan to use 10 percent of the funds for 
administrative purposes, as permitted by BJA. (See figure 4 for 
estimated funding distributions.) 

Priority 1: Multiagency, multijurisdictional drug, gang, and violent 
crime task forces, their tandem prosecution projects, and statewide 
civil forfeiture efforts; 

Priority 2: Criminal justice information sharing projects; 

Priority 3: Adjudication, forensic analysis, detention, and criminal 
justice system support services; and; 

Priority 4: Proven substance abuse prevention and education programs. 

Figure 4: Estimated State Distribution of Recovery Act JAG Funds: 

[Refer to PDF for image: pie-chart] 

Priority area 1 ($15,010,912): 59%; 
Priority area 3 ($4,500,000): 18%; 
Administration ($2,530,696): 10%; 
Priority area 2 ($1,265,348): 5%; 
Priority area 4 ($1,000,000): 4%; 
All other areas ($1,000,000): 4%. 

Source: GAO analysis of Arizona Criminal Justice Commission data. 

[End of figure] 

Furthermore, officials stated that, without Recovery Act JAG funding, 
local subrecipients would have experienced additional staff reductions 
as has been experienced since fiscal year 2000 because of reductions in 
federal JAG funding and reduced state funding. With Recovery Act funds, 
subrecipients plan to be able to keep key law enforcement personnel in 
the task force; prosecutorial, court and probation personnel; and 
forensic analysis staff. Of the 36 projects with Recovery Act funding, 
ACJC officials estimate that 103 full-time equivalents will be created 
or preserved. 

Arizona’s Public Housing Agencies Receive Capital Formula Grants and 
Are Funding Priority Projects: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to Public Housing Agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 24] The Recovery Act requires the Department of Housing and 
Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies for obligation, expend at least 60 percent of funds within 2 
years of that date, and expend 100 percent of the funds within 3 years 
of that date. Public housing agencies are expected to give priority to 
projects that can award contracts based on bids within 120 days from 
the date the funds are made available, as well as capital projects that 
rehabilitate vacant units, or those already under way, or are included 
in the required 5-year capital fund plans. HUD is also required to 
award $1 billion to housing authorities based on competition for 
priority investments, including investments that leverage private 
sector funding/financing for renovations and energy conservation 
retrofit investments. On May 7, 2009, HUD issued its Notice of Funding 
Availability (NOFA) that describes the competitive process for funding, 
criteria for applications, and time frames for submitting 
applications.[Footnote 25] 

Arizona has 15 public housing agencies that have received Recovery Act 
formula grant awards. As described in figure 5, all these public 
housing agencies received $12,068,449 from the Public Housing Capital 
Fund formula grant awards. As of June 20, 2009, only 11 public housing 
agencies have obligated $1,679,120 or 13.9 percent and have drawn down 
$370,566 or 3.1 percent of the total amount. 

Figure 5: Percentage of Public Housing Capital Funds Allocated by HUD 
that Have Been Obligated and Drawn Down in Arizona: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $12,068,449; 100%; 
Funds obligated by public housing agencies: $1,679,120; 13.9%; 
Funds drawn down by public housing agencies: $370,566; 3.1%. 

Number of public housing agencies: 
Entering into agreements for funds: 15; 
Obligating funds: 11; 
Drawing down funds: 5. 

Source: GAO analysis of HUD data. 

[End of figure] 

We visited five public housing agencies in Arizona: the City of Phoenix 
Housing Department, the City of Glendale Community Housing Division, 
the Housing and Community Development Department of the City of Tucson, 
the Housing Authority of Maricopa County, and the Pinal County Housing 
Authority. We selected these housing agencies based on the amount of 
funding they were allocated, the housing agency size as measured by the 
number of units the agency has, and if the authority may have received 
a recent HUD troubled designation.[Footnote 26] 

Housing Agencies Have Plans to Use Capital Funds for Rehabilitating 
Properties and Are on Track to Meet Recovery Act Time Frames: 

The five housing agencies that we visited in Arizona received a total 
of $8.8 million in Capital Fund formula grants. Officials at each 
housing agency told us that they expect to obligate and expend their 
Recovery Act allocations within the required timeframes. As of June 20, 
2009, these housing agencies obligated $458,260, or about 5.2 percent 
of the total award, and had drawn down $294,492. Officials at two 
housing agencies have planned four projects and have obligated or plan 
to obligate all of their funds and begin work in June. The other three 
housing agencies have obligated some funds to support a variety of 
projects and began some work in May. According to officials, drawdowns 
occur after funds have been expended; therefore, they expect to begin 
drawing down funds in July when invoices and receipts have been 
submitted for payment. 

The five housing agencies are funding a total of 36 projects. The types 
of projects undertaken vary from remodeling the interior and exterior 
of a vacant single-family unit, to remodeling 51 kitchens within 
occupied units and replacing roofing or elevator and lobby glass in 
high-rise complexes to achieve greater energy efficiency. For example, 
one project under way in Phoenix will use $30,163 to seal the roof 
surface of two large housing complexes, which will help maintain the 
integrity of the roof and promote energy efficiency. Two other projects 
under way in Tucson will use $35,017 and $46,700, respectively, to 
patch, repair, and seal the asphalt at 11 housing sites and to complete 
a major rehabilitation of a vacant single-family residence to include 
roof repairs; kitchen cabinet, window, hot water and air-conditioning 
unit replacements; bathroom remodeling; and painting. These three 
projects began in May 2009 and are expected to be completed by or in 
August 2009. 

Generally, the public housing agencies we visited had high occupancy 
rates; therefore, they did not give priority to the rehabilitation of 
vacant units. Rather, they gave priority to larger, more costly, 
deferred projects in their 5-year plans that met Recovery Act 
requirements and that could be awarded within 120 days of when the 
funding was made available.[Footnote 27] For example, Phoenix housing 
officials conducted a thorough evaluation of all projects contained in 
their 5-year plan; reviewed the scopes and types of work, and the 
potential for projects to have funds obligated within 120 days, be 
executed in a short time frame, and improve their HUD inspection 
scores; and selected some larger, deferred projects such as exterior 
painting, air-conditioning upgrades, and lighting improvements that 
were long overdue and could be efficiently approved through the city’s 
procurement process. Phoenix, Maricopa, and Tucson housing officials 
specifically stated that they did not consider any major reconstruction 
projects because the time frame to process and approve the 
architectural designs and obtain permits for such projects would not 
meet Recovery Act obligation and expenditure requirements. 

Lack of HUD Guidance Has Delayed Some Capital Fund Contract Awards: 

Officials from the five housing agencies we visited did not anticipate 
any challenges in accessing Capital Fund formula grants or in meeting 
the accelerated timeframes for using Recovery Act funds; however, they 
expressed concern over not having complete HUD guidance in advance of 
the funding being made available. Specifically, all housing officials 
stated that they are still awaiting guidance on: 

* what data should be measured to determine results achieved beyond the 
number of jobs created and preserved, 

* the parameters of what is considered a job created or preserved, and 

* the format on how to report the data and the entities who are to 
receive the reports. 

On June 22, OMB issued implementing guidance that describes, among 
other things, how states are to report the number of jobs created and 
preserved under the Recovery Act as well as how they are to report 
these and other data. According to several housing and procurement 
officials, the lack of clear guidance has delayed the bidding and 
awarding of some contracts. This is because officials are obtaining 
clarification from local HUD and other city officials regarding 
specific metrics the housing agencies should require contractors to 
track and measure, as well as guidance on how to interpret and 
incorporate the Buy American provision,[Footnote 28] and how to modify 
local procurement policies to adhere to federal Recovery Act 
requirements. For example, Tucson officials stated that because HUD has 
not provided any guidance on the Buy American provision, they have 
delayed the awarding of contracts so that city attorneys can research 
and provide guidance on how they should interpret and apply the Buy 
American provision, what changes need to occur to existing city 
procurement policies, and how to integrate changes into contracts. 
Furthermore, all of the housing authorities we met with stated that 
they are not aware of any quarterly report requirements nor have they 
received any guidance from HUD regarding the content of any quarterly 
reports, as well as how to measure jobs created or assess effects. 

Housing Agencies Will Include Additional Data to Meet the Recovery Act’
s Reporting Requirements in Existing Financial Systems: 

All five housing agencies that we met with stated that they will be 
able to code, separately track, monitor, and report on the Recovery Act 
formula and competitive funds as well as add any new data that need to 
be tracked to each project activity as more guidance is provided on 
what metrics must be met. Currently, the number of jobs created or 
preserved is a requirement included in contracts and will be tracked in 
Davis-Bacon Act reports.[Footnote 29] Furthermore, when asked about the 
Recovery Act requirement related to the application of prevailing wage 
rates as required by the Davis-Bacon Act, officials from the five 
public housing agencies we visited indicated that they are accustomed 
to meeting Davis-Bacon requirements and view meeting these wage levels 
as a seamless part of their contractual agreements with workers. All of 
the housing officials we met with stated that they would be able to 
track the number of jobs created or preserved through the Davis-Bacon 
reports; however, they are uncertain about what other data they should 
be tracking and how to assess impacts. 

Arizona Is One of the First Four States to Have Its Weatherization Plan 
Approved and Has Received the First Half of Recovery Act Weatherization 
Funds: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 30] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department’s progress reviews examining each 
state’s performance in spending its first 50 percent of the funds and 
the state’s compliance with the Recovery Act’s reporting and other 
requirements. 

DOE has allocated to Arizona about $57 million in funding for the 
Recovery Act Weatherization Assistance Program for a 3-year period, 
which represents a large increase in funding from previous years. 
Arizona received $1.0 million and $1.1 million for the weatherization 
program in 2007 and 2008, respectively. Arizona’s Department of 
Commerce (DOC) Energy Office is responsible for administering the 
program. Arizona submitted its Weatherization Program Plan to DOE on 
April 28. DOE verified that Arizona’s plan met the requirements 
provided in its guidance and approved the plan on June 5. 

On April 10, 2009, DOE provided the initial 10 percent allocation 
(approximately $5.7 million) to Arizona. Since receiving these funds, 
DOC officials stated that they have been ramping up the program, 
including adding staff and obtaining additional field equipment such as 
tools, diagnostic equipment, and infrared cameras, because DOE guidance 
prohibits using any of the initial 10 percent for the actual 
weatherization production activities. However, on June 9, 2009, DOE 
issued revised guidance lifting this limitation to allow states to 
provide funds to local agencies for production activities that 
previously provided services and are included in state Recovery Act 
plans. 

Once Arizona’s weatherization plan was approved, DOE provided an 
additional $22.8 million for weatherization. Arizona expects to use 
Recovery Act funding to weatherize at least 6,400 homes. The state will 
begin funding applicants as soon as grants are received and approved. 

Existing Internal Controls Will Be Used to Safeguard Recovery Act Funds 
at Various Levels in the State, Its Agencies, and Localities: 

According to the officials at the state level, with state agencies, and 
at the localities for the programs we visited, they will use their 
existing internal control processes for monitoring the receipt and 
spending of Recovery Act funds to help ensure compliance with the 
requirements of the Recovery Act. Since most of the funds will go 
through existing or long-standing programs, the procedures and controls 
that were in place for monitoring funding sources other than the 
Recovery Act have already been tested over the years. Overall, the 
controls are currently working well, according to the state officials. 
The State Comptroller’s comment that the key internal control is the 
attitude of management closely parallels a fundamental concept 
Standards for Internal Control in the Federal Government that states 
“managements sets the objectives, puts the control mechanisms and 
activities in place, and monitors and evaluates the control.” [Footnote 
31] Although, the state comptroller has a limited staff of 3 internal 
auditors, they are communicating with the Governor’s Office and state 
agencies as well as teaching the state agencies what is needed to 
comply with the Recovery Act requirements and emphasizing the need for 
good internal controls. 

Although the state has not done a separate risk assessment of the 
internal controls for the programs receiving Recovery Act funds, the 
state Department of Administration[Footnote 32] is in the process of 
administering a survey that includes asking each of the state agencies 
to complete a self-assessment of internal controls. Each of the state 
agencies was asked to complete the survey by April 30, 2009; however, 
additional follow up was needed and the analysis of the survey 
responses is expected to begin in July 2009. Additionally, in April 
2009, the Arizona comptroller issued technical guidance directing state 
agencies to mitigate risk associated with Recovery Act funds. The 
guidance stated that, at a minimum, state agencies should do such 
things as ensure that qualified personnel oversee the administration of 
Recovery Act funds, maximize competitive awards, minimize improper 
payments, and conduct audits and investigations to identify and prevent 
wasteful spending. Later on May 27, 2009, the Arizona State Comptroller 
issued another technical bulletin stating that agencies receiving 
Recovery Act dollars should implement the management activities 
provided in guidance from the Association of Government Accountants 
Risk Assessment Monitoring Tool and Financial and Administrative 
Monitoring Tool. In general, these tools provide checklists and 
questions to assist the users, in part, with evaluating programmatic 
compliance risk and determining that federal grant purposes are being 
met. The State Comptroller stated that his bottom line is to mitigate 
risk and to get agency management to assess their programs and make 
choices based on an informed awareness of risks. 

In addition, the state agencies and the localities that we met with 
have their own separate internal controls for safeguarding Recovery Act 
funds. For example, ACJC officials stated that they will use existing 
processes to safeguard the use of JAG funds. They used a peer-reviewed, 
risk-based scoring matrix to select subrecipients. Scoring criteria 
considered, among other things, the applicant’s most recent Single 
Audit results; plans for evaluating the impact resulting from the use 
of such funds; ACJC funding history, including any past compliance 
issues; and evidence of the applicant’s ability to meet Recovery Act 
requirements. ACJC officials stated that the 32 subrecipients selected 
to receive Recovery Act JAG funding have all received ACJC funding for 
the past several years and are all considered a low risk for 
noncompliance. Furthermore, officials stated that they are committed to 
working closely with subrecipients to ensure that they comply with the 
act. Once awards are granted, ACJC officials stated that they have a 
compliance team of six staff that performs ongoing financial and 
programmatic compliance reviews to ensure that subrecipients comply 
with grant guidance. For example, program compliance staff reviews 
subrecipients’ monthly and quarterly financial reports and identifies 
any areas of concern, such as if funds are drawn down too slowly or too 
quickly, if there are questionable expenses, or if monthly and 
quarterly reports do not agree. Financial compliance staff also 
performs annual onsite visits that include financial audits in addition 
to internal controls inspections of, among other things, the accounting 
system and key financial documentation. Noncompliance may be addressed 
through withholding funds, reducing funds, and placing the subrecipient 
on a high-risk list, although ACJC officials stated that subrecipients 
are often initially noncompliant as a result of error. 

Arizona’s Agencies and Localities Will Use Existing Accounting Systems 
to Separately Track Recovery Act Funds: 

Arizona and its agencies, as well as the localities that are in our 
sample, are relying on existing accounting systems to separately track 
the financial data of the Recovery Act funds. Arizona officials we 
spoke with noted that they do not foresee that it will be difficult to 
track the Recovery Act funds separately. Arizona will track receipt and 
spending of the Recovery Act funds that the state receives using its 
existing accounting system, the Arizona Financial Information System 
(AFIS). According to the State Comptroller, the state agencies have the 
primary responsibility for the tracking of the receipt and spending of 
their Recovery Act funds and, due to the decentralized nature of 
Arizona government, accounting data are housed in a variety of 
difference systems. On the other hand, the LEAs will use the existing 
state Department of Education’s accounting systems for tracking 
Recovery Act financial data. Transactions for the state are on its 
accounting system, AFIS; and transactions for some of the state 
agencies, such as Arizona’s Medicaid program and ADOT, are housed in 
their own separate accounting systems. For example, Arizona Medicaid 
officials indicated that for tracking of the increased FMAP, Arizona 
changed its accounting system to include a new fund for tracking 
revenues and expenditures specific to increased FMAP and that the state 
will use existing reconciliation processes to assure the completeness 
and accuracy of tracked and reported data on increased FMAP dollars. 
However, the Medicaid officials noted that officials from Arizona’s 
General Accounting Office (AGAO) are awaiting guidance from OMB about 
what steps auditors should follow when reviewing increased FMAP 
revenues and expenditures. 

The housing authorities that we visited each have separate accounting 
systems with some also being stand alone systems and others integrated 
into their city or county accounting system. For example, 

* The City of Phoenix has an existing financial system that is used for 
all city programs, including the Housing Department. The system codes, 
separately tracks, monitors, and reports on the regular Capital Fund 
program by project, activity, and account numbers for revenues and 
expenditures. Once a transaction is entered into the financial system, 
the information is updated throughout the entire financial system and 
modifications can be made at any time to track new information. 

* The Housing Authority of Maricopa County will use an existing 
financial system that according to Housing Authority officials will 
allow them to code, separately track, and monitor funds. Additionally, 
officials said that various internal controls are in place to compare 
the revenues and expenditures in monthly reconciliations conducted by 
five different officials tracking and monitoring each other’s 
documentation. 

* The City of Glendale Housing Authority will also be using their 
existing financial system. Housing Authority officials stated that the 
existing systems will code, separately track, monitor, and report on 
financial and program information. They will also rely on existing 
internal controls to manage the additional Recovery Act funds and 
metrics. 

The state agencies using separate accounting systems periodically 
provided to the AGAO the data for inclusion in the state’s accounting 
system, AFIS. To assist state agencies on the accounting for Recovery 
Act receipts and expenditures, the AGAO issued a technical bulletin on 
April 7, 2009, providing initial guidance on tracking receipts and 
expenditures. It directed state agencies to use specific codes for 
recording Recovery Act funds and for tracking receipts and expenditures 
in AFIS. It also stated that it is imperative that agencies that use 
systems other than AFIS also separately track and account for receipts 
and expenditures. In May 2009, we reviewed accounting structure 
information provided by the comptroller on AFIS and found that the 
system has an accounting code structure that includes separate codes 
for the agency, program, and organization, as well as distinct 
appropriation and grant codes. Additionally, the agencies have the 
discretion to assign another code as needed for their individual 
requirements. The Arizona comptroller will be able to query activity 
related to Recovery Act funds using these codes 

In April 2009, we reported that state officials were concerned that the 
state’s accounting system was old and not designed with the reporting 
capacity needed to report the uses of Recovery Act funds.[Footnote 33] 
The state comptroller and the state chief information officer (CIO) are 
investigating procuring new software with the capacity to extract data 
from AFIS and other agency systems and integrate it into an overall 
database or data warehouse. This will allow the state to analyze and 
manipulate the data in ways that they need to be able to meet the 
reporting requirements for Recovery Act funds. The CIO expected to have 
enough of the project implemented that the system will be able to 
satisfy the October reporting deadline under the act. The CIO also said 
that the project initially will address financial reporting 
requirements, but he hopes to be able to integrate reporting on program 
performance achieved with Recovery Act funds as well. While the project 
was undertaken to comply with the act, overall it will have benefits 
for reporting on other federal and state funding. 

Arizona will continue to be challenged to track funds that go directly 
to localities. State officials expressed concern that they may not be 
able to track Recovery Act funds when the funds are received directly 
from federal agencies rather than through state agencies, such as 
housing authorities that receive Recovery Act funds directly from HUD. 

Arizona Plans to Use Single Audit Reports as a Source of Information on 
Internal Control Risks: 

The Single Audit reports for Arizona and the localities are a source of 
information on internal control risks.[Footnote 34] According to the 
Arizona state comptroller and other agency and locality officials that 
we met with, they plan to use their respective Single Audit reports as 
a source of information about internal weaknesses for programs 
receiving Recovery Act Funds.[Footnote 35] 

The state comptroller’s office has met with all the agencies that have 
Single Audit findings to address the 2007 findings (the fiscal year 
2007 Single Audit report was the most recent report as of May 21, 
2009). Additionally, the state comptroller’s office and the agencies 
are assessing how any draft 2008 findings will affect the agencies. 

However, for the last 2 years, the Single Audit report for Arizona has 
been late by approximately 2 months. The report for 2008 is expected to 
be issued June 30, 2009, or approximately 3 months after initial due 
date of March 30, 2009. According to the State of Arizona Office of the 
Auditor General’s staff and the comptroller, the Department of 
Administration, which is responsible for consolidating all the 
financial data into the state’s Comprehensive Annual Financial Report 
(CAFR), does not receive the financial information from the state 
agencies in a timely manner. As a result, the state cannot issue the 
CAFR and the Single Audit report will be issued late. 

The lateness of Single Audit reports affects the usefulness of the 
information as a tool for monitoring the internal controls over 
Recovery Act funds. 

However, some of the state officials said they use the report to 
identify and correct internal control weaknesses. Additionally, LEA 
officials plan to use their own Single Audit reports to identify and 
correct internal control weaknesses specific to their LEAs. The LEA 
officials explained that their own Single Audit report is submitted by 
the contracted audit firm to the State of Arizona Office of the Auditor 
General, Arizona Department of Education, and the LEA simultaneously. 
Next, if an LEA’s internal control weaknesses are significant, the LEA 
may receive a formal letter from the Auditor General’s Office outlining 
the LEA’s weaknesses contained in the report, stressing the importance 
of taking action to implement the reports recommendations, and giving 
the LEA a statutory 90 days to correct the weaknesses. Once the 90-day 
period has passed and if LEA officials notify the Auditor General that 
they have corrected the weaknesses, the Auditor General will conduct an 
on-site follow-up to determine if the deficiencies have, in fact, been 
corrected. If the Auditor General finds that the weaknesses are not 
corrected, the Auditor General will refer the LEA to the Arizona State 
Board of Education for action. 

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

On June 22, 2009, OMB issued implementing guidance for how states are 
to report the number of jobs created and preserved under the Recovery 
Act. Even before this guidance was issued, Arizona agencies began 
collecting information on jobs created and preserved although different 
kinds of information are being submitted across programs. For example, 
ACJC officials stated that they are capturing information on the number 
of jobs created and preserved using Recovery Act funds to the best of 
their ability. As part of this effort, potential JAG fund subrecipients 
were asked to provide the number of jobs that would be created and 
preserved as part of their application; in order to demonstrate jobs 
preserved, ACJC officials requested documentation of intended layoffs 
or hiring freezes. 

Similarly, ADOT has written into all of its awarded contracts specific 
requirements that contractors will have to report monthly on the number 
of workers employed as a direct result of Recovery Act funded projects. 
FHWA worked with ADOT and a software vendor to create a custom software 
program through which ADOT can upload all indirect job creation from 
Arizona to FHWA. The vendor also developed the reports that can count 
the number of direct jobs created that will help ADOT meet reporting 
requirements under the Act. 

Phoenix housing officials stated that they are able to track the number 
of jobs created and preserved and assesses the results of the Recovery 
Act-funded projects through weekly meetings and monitoring. However, 
they are uncertain as to how to assess the effects of their funded 
projects on the community and currently lack the administrative funding 
and manpower to routinely track more than what they are directed to 
track, let alone assess effects. Alternatively, according to City of 
Glendale Housing Authority officials, besides tracking the number of 
jobs that will be created or preserved, they plan to track the amount 
of sales tax generated as well as administer a housing satisfaction 
survey to their tenants. Also, they are developing other social, 
economic, and physical tracking metrics that may provide more 
information on how various physical improvements and sources of 
funding, which includes Recovery Act funding, are making an impact on 
the City of Glendale. The officials added that while the existing 
initiative will account for some assessment of impacts, they are also 
uncertain about how to assess the effects of the Recovery Act spending 
without specific guidance from HUD. 

Similarly, Arizona has a plan in place to monitor the dwellings that 
have been weatherized to ensure that the funding was spent in 
accordance with program requirements. The monitoring plan includes 
three components: (1) inspection of every completed weatherized home by 
the local Energy provider, (2) a review by the state Energy Office 
staff of 100 percent of the data submitted to the Arizona 
Weatherization Assistance Program Web-based reporting system, and (3) 
site monitoring visits by Energy Office staff to review job files and 
perform site monitoring on a minimum of 10 percent of the completed 
dwellings. A senior state Energy Office official believes that having 
this oversight plan in place will provide the necessary assurances that 
the program is operating according to federal requirements. 

Because Arizona monitors its Recovery Act funds on an agency-by-agency 
basis, it will have to collect information on the number of jobs 
created and preserved on an agency-by-agency basis. Although some 
programs receiving Recovery Act funds, such as Federal Highways, have 
received some guidance on how to collect information on the number of 
jobs created and preserved from the federal agencies that they work 
closely with, others, such as public housing, have received no federal-
level guidance on how to collect and report those data. As a result, 
Arizona has no central repository for collecting and disseminating data 
on the effects of the Recovery Act dollars, but as we previously 
discussed, Arizona’s CIO noted that the state is updating its data 
reporting system in order to find a solution that will integrate 
gathered information across agencies. According to the Director of 
Arizona’s Office of Economic Recovery, it will soon have a system and 
staff to collect, assess, and report Recovery Act data. Currently, the 
state’s system mostly aggregates data from the disparate data sources, 
but the new system will provide the capability to report Recovery Act 
funds across the entire state. In addition, to the new state-wide 
tracking system described above, some agencies will track Recovery Act 
funds with their own in-house systems. 

State Comments on This Summary: 

We provided the Governor of Arizona with a draft of this appendix on 
June 17, 2009. The Director of the Office of Economic Recovery 
responded for the Governor on June 23, 2009. Also, on June 24, 2009, we 
received technical comments from the State of Arizona Office of the 
Auditor General. In general, the state agreed with our draft and 
provided some clarifying information which we incorporated. 

GAO Contacts: 

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

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

Staff Acknowledgments: 

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

Footnotes for Appendix I: 

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

[2] The increased FMAP available under the Recovery Act is for state 
expenditures for Medicaid services. The receipt of this increased FMAP 
may reduce the funds that states would otherwise have to use for their 
Medicaid program, and states have reported using these available funds 
for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance’s solicitation for local governments closed on 
June 17; therefore, not all of these funds have been awarded. 

[4] The fiscal year in Arizona begins July 1 and ends June 30. In our 
April report we noted that state officials were working to close an 
estimated budget gap of about $2.1 billion for state fiscal year 2009. 

[5] In our April 2009 report we noted that the state had depleted its 
budget stabilization fund, known as its rainy-day fund. 

[6] See Recovery Act, div. B, title V, §5001. 

[7] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[8] The state provided projected Medicaid enrollment data for May 2009. 

[9] Arizona received increased FMAP grant awards of almost $535 million 
for the first three quarters of federal fiscal year 2009. 

[10] 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 plans 
or waivers on July 1, 2008. See Recovery Act, div. B, title V, 
§5001(f)(1)(A). 

[11] Officials reported that prior to CMS’s ruling, the state drew down 
FMAP dollars totaling about $286 million, which the state held but did 
not distribute. 

[12] In some states, political subdivisions—such as cities and counties—
may be required to help finance the state’s share of Medicaid spending. 
Under the Recovery Act, a state that has such financing arrangements is 
not eligible for certain elements of the increased FMAP if it requires 
subdivisions to pay during a quarter of the recession adjustment period 
a greater percentage of the non-federal share than the percentage that 
would have otherwise been required under the state plan on September 
30, 2008. See Recovery Act, div. B., title V, § 5001(g)(2). The 
recession adjustment period is the period beginning October 1, 2008 and 
ending December 31, 2010. 

[13] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or non-profit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[14] The 50 percent rule applies only to funds apportioned to the state 
and not to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. 

[15] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of the each state to have its apportioned funds obligated by 
the end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[16] Four categories of other expenditures were listed as “Allocation 
to Other Services” in an attachment to Arizona’s application. The uses 
listed are (1) Education Reform; (2) Health Care and Children’s 
Programs; (3) Public Safety; and (4) Innovation, Technology, and 
Economic Development. 

[17] LEAs must obligate at least 85 percent of their ESEA Title I, Part 
A funds by September 30, 2010, unless granted a waiver, and all of 
their funds by September 30, 2011. This will be referred to as a 
carryover limitation. 

[18] Under ESEA Title I, states are required to establish performance 
goals and hold their ESEA Title I schools accountable for students’ 
performance by determining whether or not schools have made adequate 
yearly progress (AYP). Schools that have not made AYP goals for 2 or 
more consecutive years are identified for improvement and must 
implement certain activities that are meant to improve student academic 
achievement. Districts with schools are required to provide an amount 
not less than 20 percent of their ESEA Title I, Part A allocation to 
cover school choice-related transportation costs and SES. Unless a 
waiver is granted, this requirement would apply to ESEA Title I 
Recovery Act funds also. 

[19] In response to requests for more guidance on the recipient 
reporting progress and requiring data, OMB in consultation with a broad 
range of stakeholder issued additional implementing guidance for 
recipient reporting on June 22, 2009. See, OMB Memorandum, M-09-21, 
Implementing Guidance for the Reports on Use of Funds Pursuant to the 
American Recovery and Reinvestment Act of 2009. 

[20] We did not review these funds awarded directly to local 
governments in this report because the Bureau of Justice Assistance’s 
solicitation for local governments closed on June 17. 

[21] Due to rounding, this number may not exactly equal 60 percent of 
the total JAG award. 

[22] The Drug and Gang Enforcement Account is within Arizona’s criminal 
justice enhancement fund and its funds are used to enhance efforts to 
deter, investigate, prosecute, adjudicate, and punish drug offenders 
and members of criminal street gangs. Ariz. Rev. Stat. § 41-2402. 

[23] The Bureau of Justice Assistance allows JAG funding for state and 
local initiatives, technical assistance, training, personnel, 
equipment, supplies, contractual support, and information systems for 
criminal justice, as well as criminal justice-related research and 
evaluation activities that will enhance the following seven areas: 
prosecution and court programs; crime prevention and education 
programs; corrections and community corrections programs; drug 
treatment and enforcement programs; program planning and evaluation, as 
well as technology improvement programs, and crime victim and witness 
programs. 

[24] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[25] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and timeframes for application, and to funding limits. 

[26] HUD developed a Public Housing Assessment System (PHAS) to 
evaluate the overall condition of housing agencies and measure 
performance in major operational areas of the public housing program. 
These include financial condition, management operations, and physical 
condition of the housing agencies’ public housing programs. Housing 
agencies that are deficient in one or more of these areas are 
designated as troubled performers by HUD and are statutorily subject to 
increased monitoring. 

[27] The 5-year plan addresses the housing agency’s mission and their 
overall plan and priority list of projects to achieve their mission 
goals. 

[28] The Buy American provision of the Recovery Act prohibits, with 
certain exceptions, the use of Recovery Act funds for the construction, 
alteration, maintenance, or repair of a public building or work unless 
all of the iron, steel, and manufactured goods used in the project are 
produced in the United States. Recovery Act, div, A, title XVI, § 1605 

[29] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. §§ 3141-3148. 

[30] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Indian tribe, and the Northern Arapahoe 
Indian tribe. 

[31] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[32] The State Comptroller’s office is in the Department of 
Administration. 

[33] GAO, Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential, 
[hyperlink, http://www.gao.gov/products/GAO-09-580] (Washington, D.C.: 
Apr. 23, 2009). 

[34] The Single Audit Act of 1984, as amended (31 U.S.C ch. 75), 
requires that each state, local government, or non-profit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[35] For Arizona, the Auditor General serves as the state’s auditor for 
the Single Audit; however, some of the audits are performed by the 
Auditor General but others are contracted out with independent 
accounting firms. 

[End of Appendix I] 

Appendix II: California: 

Overview: 

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

Use of funds: GAO’s work focused on nine federal programs, selected 
primarily because they have begun disbursing funds to states, include 
new programs, or include existing programs receiving significant 
amounts of Recovery Act funds. Program funds are being directed to help 
California stabilize its budget and support local governments, 
particularly school districts, and several are being used to expand 
existing programs. Funds from some of these programs are intended for 
disbursement through states or directly to localities. The funds 
include the following: 

* Funds Made Available as a Result of Increased Medicaid Federal 
Medical Assistance Percentage (FMAP). As of June 29, 2009, California 
has received about $3.3 billion in increased FMAP grant awards, of 
which it has drawn down almost $2.8 billion, or about 83 percent of its 
awards to date. California is planning on using funds made available as 
a result of the increased FMAP to help offset the state budget deficit. 
[Footnote 2] 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation’s Federal Highway Administration (FHWA) apportioned 
$2.570 billion in Recovery Act funds to California for highway 
infrastructure and other eligible projects. As of June 25, 2009, $1.558 
billion of the $2.570 billion had been obligated and $1.21 million had 
been reimbursed to California. As of June 11, California had awarded 23 
contracts totaling $134 million, 2 of which—totaling $71 million—are 
under construction: a highway rehabilitation project on Interstate 80 
and construction of 3 miles of six-lane freeway on State Route 905 in 
San Diego County. 

* U.S. Department of Education (Education) State Fiscal Stabilization 
Fund (SFSF). Education has awarded California about $3.99 billion for 
SFSF, and as of June 30, 2009, California state officials reported that 
about $2.14 billion in education stabilization funds had been expended. 
California is using most of the education stabilization funds—81.8 
percent of total SFSF—to restore state aid to school districts (75 
percent) and institutes of higher education (25 percent). The two 
school districts (Los Angeles and San Bernardino Unified) and 
university systems (University of California and California State 
University) we visited are generally using the funds to help avert 
layoffs. The other 18.2 percent of SFSF, government services funds, 
must be spent on public safety and other government services at the 
Governor’s discretion and is expected to be directed to public safety, 
specifically, corrections. As of June 30, 2009, California state 
officials reported that $727 million in government services funds had 
been expended. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). Education has awarded California $565 million in Recovery 
Act ESEA Title I, Part A, funds or 50 percent of its total allocation 
of $1.1 billion. California’s Department of Education is urging local 
districts to use these funds in ways that will build their long-term 
capacity to serve disadvantaged youth. The two school districts we 
visited told us that their preliminary plans for these funds include 
investment in additional training and coaching for teachers, class size 
reduction, support for learning centers, and the purchase of reading 
intervention curriculum materials. 

* Individuals with Disabilities Education Act (IDEA), Part B & C. 
Education has awarded California $661 million in Recovery Act IDEA, 
Part B and C, funds, or 50 percent of its total allocation of $1.32 
billion. The state plans to make these funds available to local 
education agencies to support special education and related services 
for infants, toddlers, children, and youth with disabilities through, 
among other things, saving jobs and investing in additional training 
and coaching for teachers. The two school districts we visited told us 
that they plan to use the funds to hire coaches or other specialists 
who will help teachers and assistants increase their skills in meeting 
the special needs of children with disabilities. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $186 million in total Recovery Act weatherization 
funding to California for a 3-year period. On April 1, 2009, DOE 
provided $18.6 million to California. Based on information available on 
June 30, 2009, California has obligated none of these funds. On June 
18, DOE announced that California received an additional 40 percent of 
the Recovery Act weatherization money, or $74.3 million. California 
plans to begin disbursing its funds in July 2009 for weatherizing over 
50,000 low-income family homes. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
allotted about $187 million to California in Workforce Investment Act 
Youth Recovery Act funds. California has allocated about $159 million 
to local areas, based on information available as of June 30, 2009. 
California’s 49 local areas are free to determine how much of their 
Recovery Act Workforce Investment Act Youth funding will be spent on 
summer activities, although in April the Governor issued a letter to 
local elected officials across the state encouraging them to ensure 
that most of the funding be expended on summer activities. The 
California Workforce Association estimates that over 47,000 California 
youth will participate in Recovery Act-funded summer employment 
activities in 2009. 

* Edward Byrne Memorial Justice Assistance grants. The Department of 
Justice’s Bureau of Justice Assistance has awarded $135 million 
directly to California in Recovery Act funding. Based on information 
available as of June 30, 2009, none of these funds have been obligated 
by the California Emergency Management Agency (CalEMA), which 
administers these grants for the state.[Footnote 3] About 90 percent is 
to be allocated by the state to local law enforcement agencies to 
support local drug reduction efforts. These funds will allow California 
law enforcement to concentrate efforts on the widespread apprehension, 
prosecution, adjudication, detention, and rehabilitation of offenders 
by enabling law enforcement agencies to create and retain from 275 to 
300 positions over the next 4 years. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated approximately $117 million in Recovery Act 
formula grant awards from the Public Housing Capital Fund to 55 public 
housing agencies in California. Based on information available as of 
June 20, 2009, about $12.55 million had been obligated by those 
agencies. At the three housing agencies we visited—Area Housing 
Authority of the County of Ventura, Sacramento Housing and 
Redevelopment Agency, and San Francisco Housing Authority—this money, 
which flows directly to public housing agencies, will be used for 
various capital improvements, including replacing windows and
roofs and rehabilitating vacant units. 

Safeguarding and transparency: California’s Recovery Act Task Force 
(the Task Force) has overarching responsibility for ensuring that the 
state’s Recovery Act funds are spent efficiently and effectively and 
are tracked and reported in a transparent manner. The Task Force is 
relying on the state’s existing internal control structure, enhanced to 
include internal readiness reviews and activities of the state’s 
Recovery Act Inspector General, to fulfill this responsibility. The 
State Auditor will also be expanding the scope of her work to include 
specific focus on state programs receiving Recovery Act funds. The Task 
Force will continually report on the use and status of Recovery Act 
funds using the state’s Web site [hyperlink, 
http://www.recovery.ca.gov]. The Task Force has notified state agencies 
of their responsibility to separately track and account for Recovery 
Act funds that both they and their subrecipients receive. State agency 
and subrecipient officials we interviewed told us that they will 
establish separate accounting codes within their existing accounting 
systems that will enable them to effectively track Recovery Act funds. 
However, accumulating this information at the statewide level will be 
difficult using existing mechanisms, which currently consist of 
lengthy, manually updated spreadsheets. The state has issued a request 
for proposal for a system to effectively track and report all state-
level Recovery Act funds to the federal government. State agency and 
subrecipient officials we spoke with also told us that they will use 
their existing internal control and oversight processes to maintain 
accountability for Recovery Act funds at the program level. 

Assessing the effects of spending: California state officials and local 
recipients continue to express concern about the lack of clear federal 
guidance on assessing the results of Recovery Act spending. 
Additionally, officials expressed concerns about the potential for 
inconsistent reporting among subrecipients or contractors. For example, 
California’s Department of Transportation (Caltrans) is planning to 
rely on job reports and payroll information submitted by contractors, 
while education programs are planning to estimate the number of 
employees who would have been otherwise laid off. Aside from job 
creation, several recipient agencies we spoke with are also developing 
and implementing plans to evaluate other effects of Recovery Act 
spending. For example, CalEMA officials told us that they have been 
given new draft performance measures by the Department of Justice that 
include Justice Assistance Grant funds. These 71 separate measures are 
to be assessed each quarter by local law enforcement agencies and 
submitted to CalEMA for reporting to the department’s Bureau of Justice 
Assistance 30 days after the end of each quarter. 

California’s Fiscal Crisis Deepens, despite Recovery Act Funds: 

California’s fiscal situation has deteriorated significantly, as the 
state’s projected budget gap has grown to $24.3 billion from $8 billion 
in April. The Governor has proposed a list of unprecedented budget 
solutions totaling $24 billion, including cutting or eliminating many 
major programs in order to close this gap.[Footnote 4] For example, the 
Governor has proposed borrowing property tax receipts from local 
governments; major cuts to welfare, education, and other programs; 
cutting pay for state workers; and selling state assets. The budget 
gap, which constitutes roughly one quarter of the state’s annual budget 
expenditures, has grown because state revenue projections have declined 
much faster than anticipated. According to the Legislative Analyst’s 
Office (LAO), revenue forecasts are down over $15.4 billion since last 
February’s revision for fiscal years 2008-09 and 2009-10. The LAO cited 
a weakening economy as the year progressed, which reduced collections 
from personal, sales, and corporate taxes. According to officials in 
the California Department of Finance, the state legislature is now 
considering these and other measures to balance the state’s budget. 

According to state officials, California needs to resolve its budget 
deficit and cash shortage soon. On May 13, the California Treasurer 
asked the U.S. Secretary of the Treasury for assistance from the 
Troubled Asset Relief Fund (TARP) to back state debt issuances. The 
Treasurer requested that TARP funds be used to guarantee state debt 
against default; otherwise, issuing new debt in the current budget 
environment would be very difficult. He warned that the state risked 
running out of cash in July unless it could issue new debt and that a 
“fiscal meltdown” by California could destabilize U.S. and global 
financial markets. On May 21, the Secretary of the Treasury stated that 
the law did not allow the use of TARP for nonfinancial entities, and 
the state has not pursued federal guarantees from TARP any further. On 
May 29 and June 10 of this year, the State Controller notified the 
state legislature and Governor that the state needed to resolve its 
budget crisis by June 15 or face running out of cash in late July. The 
California Department of Finance noted that some extreme measures, such 
as delaying or not making certain payments, could forestall this date. 
The State Treasurer has warned that delaying payments to cash strapped 
school districts could force some into bankruptcy. 

The Department of Finance estimates that Recovery Act funds will 
provide approximately $8 billion in general budget relief for this 
fiscal year and next, principally because of increased Federal Medicaid 
Assistance Percentage and State Fiscal Stabilization Funds. This level 
of budget relief may fluctuate as the state economic crisis deepens and 
the state loses the federal match in Temporary Assistance for Needy 
Families (TANF) or the Medicaid caseload increases significantly. While 
the February 2009 budget cuts discussed in our April report were not 
affected by Recovery Act funds, according to state officials, the 
Recovery Act funds helped delay and reduce the state’s budget cuts. 
Even so, the current budget gap of $24 billion is three times the size 
of the general budget relief from Recovery Act funds. Further, the 
state may have to forgo billions of dollars in federal aid if proposed 
cuts in TANF and Medicaid programs are undertaken, according to state 
officials. 

Even if the state can balance its budget for next year, it still faces 
a structural deficit in later years at the same time that Recovery Act 
funds will be diminishing. The LAO estimates a budget gap of $15 
billion for fiscal year 2010-11, even if all current proposed measures 
are adopted. State officials indicated that fundamental changes are 
needed in federal program requirements, along with economic recovery, 
if California is going to overcome its long-term fiscal problems. 

California’s Drawdown of Increased FMAP Is the Largest in the United 
States, but Maintaining Eligibility for Funds Is a Concern in Light of 
the State’s Financial Crises: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state’s per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
to no more than 83 percent. The Recovery Act provides eligible states 
with an increased FMAP for 27 months from October 1, 2008, through 
December 31, 2010.[Footnote 5] 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 6] 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 would otherwise 
have to use for their Medicaid programs, and states have reported using 
these available funds for a variety of purposes. 

From October 2007 to May 2009, the state’s Medicaid enrollment 
increased from 6,597,846 to 6,777,781, an increase of almost 3 percent, 
with most of the increase attributable to the children and families 
population group.[Footnote 7] There was a slight decrease in the 
nondisabled, nonelderly adults population group. Enrollment generally 
varied during this period—a larger increase occurred from August 
through September 2008, and there were several months where enrollment 
decreased (see figure 1). 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for 
California, October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: -0.04. 

Nov.–Dec. 2007: 
Percentage change: -0.17. 

Dec.–Jan. 2007-08: 
Percentage change: 0.5. 

Jan.–Feb. 2008: 
Percentage change: 0.35. 

Feb.–Mar. 2008: 
Percentage change: 0.4. 

Mar.–Apr. 2008: 
Percentage change: 0.21. 

Apr.–May 2008: 
Percentage change: 0.19. 

May–June 2008: 
Percentage change: 0.2. 

Jun.–Jul. 2008: 
Percentage change: 0.31. 

Jul.–Aug. 2008: 
Percentage change: -2.32. 

Aug.–Sep. 2008: 
Percentage change: 3.1. 

Sep.–Oct. 2008: 
Percentage change: 0.1. 

Oct.–Nov. 2008: 
Percentage change: -0.18. 

Nov.–Dec. 2008: 
Percentage change: 0.16. 

Dec.–Jan. 2008-09: 
Percentage change: 0.22. 

Jan.–Feb. 2009: 
Percentage change: -0.24. 

Feb.–Mar. 2009: 
Percentage change: 1.59. 

Mar.–Apr. 2009: 
Percentage change: -0.19. 

Apr.–May 2009: 
Percentage change: -1.41. 

October 2007 enrollment: 6,597,846; 
May 2009 enrollment: 6,777,781. 

Source: GAO analysis of state reported data. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

California received increased FMAP grant awards of $3.3 billion for the 
first three quarters of federal fiscal year 2009. As of June 29, 2009, 
California had drawn down almost $2.8 billion in increased FMAP grant 
awards, which is about 83 percent of its FMAP awards to date. 
California officials reported that they are planning on using funds 
made available as a result of the increased FMAP to help offset the 
state budget deficit. In using these funds, California officials 
reported that the Medicaid program has incurred additional costs 
related to: 

* the resources required to verify on a daily basis that the state is 
meeting prompt payment requirements; 

* systems development or adjustments to existing reporting systems; 
and; 

* the personnel associated with ensuring compliance with reporting 
requirements related to increased FMAP. 

California officials have ongoing concerns regarding meeting 
requirements for increased FMAP.[Footnote 8] Recently, the Governor 
indicated that the current growth of the state’s Medicaid program is 
unsustainable in light of the financial crises facing the state and 
requested that the administration work with the state to secure program 
flexibilities. Specifically, in a May 18 letter to the President, the 
Governor said that his proposed program changes, which were necessary 
if California was to manage the program with available resources, were 
no longer permitted under federal requirements related to the Recovery 
Act and asked the President to support the state’s authority to 
determine eligibility, the scope of benefits, and the adequacy of 
provider rates. When asked about the content of this letter, CMS 
officials confirmed that the Recovery Act precludes waivers of 
maintenance of eligibility requirements in the act.[Footnote 9] 

In addition, in a May 20, 2009, letter to the Governor, CMS clarified 
its position regarding California’s compliance with the Recovery Act’s 
requirements related to contributions to the nonfederal share made by 
political subdivisions.[Footnote 10] In particular, California had 
asked CMS to clarify whether this requirement would be violated if a 
county voluntarily used county-only funds to make up for a decrease in 
the amount appropriated by the state to the Medicaid program for 
payment of wages of personal care service providers.[Footnote 11] In a 
letter to the state, CMS noted that the state plan in effect on 
September 30, 2008, allowed the state Medicaid program to consider a 
county election to pay a greater percentage of the nonfederal share in 
determining whether to approve Medicaid provider wage rates recommended 
by the county for personal care services. Because the provisions of the 
state plan in effect on September 30, 2008, permit counties to elect to 
pay a higher percentage of the nonfederal share for the payment of 
wages, the increased payment by the county would not affect the state’s 
eligibility for increased FMAP under the Recovery Act. A CMS official 
confirmed that if counties elect to use county-only funds to pay the 
difference in the provider rate, and the state certifies the rate by 
which the county will pay for these services, the county payment can be 
claimed as a Medicaid reimbursable expenditure, and can be claimed 
against the increased FMAP. Conversely, if the state approves provider 
wage rates at the lower rate—that is, with no county contribution above 
what the state plan specifies—the state plan must provide that Medicaid 
providers are limited to the approved rate as payment in full. 
Additionally, the state needs to ensure that the lack of funding from 
local sources will not result in lowering the amount, duration, scope 
or quality of care and services available under the plan. 

California Is Beginning to Spend Recovery Act Funds for Highway 
Infrastructure Investment and Is on Track to Meet Requirements: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing Federal-Aid highway program mechanisms, and states 
must follow the requirements of the existing program, including 
planning, environmental review, contracting, and other requirements. 
However, the federal fund share of highway infrastructure investment 
projects under the Recovery Act is up to 100 percent, while the federal 
share under the existing Federal-Aid Highway Program is usually 80 
percent. 

Funds Have Been Obligated for Highway Infrastructure in California, and 
Construction Is Under Way on Two Projects: 

As we previously reported, California was apportioned $2.570 billion in 
March 2009 for highway infrastructure and other eligible projects. As 
of June 25, 2009, $1.558 billion had been obligated. The U.S. 
Department of Transportation has interpreted “obligation of funds” to 
mean the federal government’s contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government signs a project agreement. As of June 25, 2009, 
$1.21 million had been reimbursed by FHWA. The state requests 
reimbursement from FHWA as the state makes payments to contractors 
working on approved projects. 

Of the obligated funds, approximately 65 percent are slated to fund 
pavement improvement and widening projects, 1 percent are slated to 
fund bridge replacement and improvement projects, and 34 percent are 
slated to fund other projects, including safety improvement projects 
and transportation enhancement projects. (See table 1.) For state-level 
projects, Caltrans has prioritized State Highway Operation and 
Protection Program (SHOPP) projects to receive Recovery Act funds. 
Officials from Caltrans told us that these projects were prioritized 
because they can be started quickly. The state expects to expend most 
of its funds in fiscal years 2010-11 and 2011-12. While some Recovery 
Act funds for highway projects have been obligated for localities, much 
of the funding has yet to be obligated. 

Table 1: Highway Obligations for California by Project Type as of June 
25, 2009 (Dollars in millions): 

Pavement projects: New construction: $0; 
Pavement projects: New construction: Percent of total obligations: 0.0; 
Pavement projects: Pavement improvement: $883; 
Pavement projects: Pavement improvement: Percent of total obligations: 
56.6; 
Pavement projects: Pavement widening: $136; 
Pavement projects: Pavement widening: Percent of total obligations: 
8.7; 
Bridge projects: New construction: $0; 
Bridge projects: New construction: Percent of total obligations: 0.0; 
Bridge projects: Replacement: $12; 
Bridge projects: Replacement: Percent of total obligations: 0.7; 
Bridge projects: Improvement: $3; 
Bridge projects: Improvement: Percent of total obligations: 0.2; 
Other[A]: $526; 
Other[A]: Percent of total obligations: 33.7; 
Total[B]: $1,558; 
Total[B]: Percent of total obligations: 100.0. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects, such as improving safety at railroad 
grade crossings, and transportation enhancement projects, such as 
pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. 

[B] Total may not add because of rounding. 

[End of table] 

As of June 11, California had awarded 23 contracts for a total of $134 
million. Of these, two contracts totaling $71 million have begun 
construction. The first contract—funded solely with Recovery Act funds— 
is for a highway rehabilitation project on Interstate 80, located in 
Solano County (between Sacramento and San Francisco). (See figure 2.) 
Construction on the project began in mid-May 2009 and is expected to be 
substantially completed in October 2009. The second contract will build 
3 miles of six-lane freeway on State Route 905 in San Diego County. 

Figure 2: Road Rehabilitation on Interstate 80: 

[Refer to PDF for figure: two photographs] 

(1) Removal of debris after demolition of a deteriorated pavement slab. 
(2) Placement and consolidation of rapid strength concrete in prepared 
roadbed. 

Source: © 2009 California Department of Transportation. 

[End of figure] 

Caltrans officials indicated that the state’s current bidding 
environment is very competitive and should remain so until the economy 
rebounds. As of late May, Caltrans was receiving 8 to 10 bids per 
project, compared to 2 to 4 bids per project prior to the economic 
downturn. Additionally, Caltrans officials stated that low bids for 
Recovery Act projects are, on average, 30 percent under engineer 
estimates, and nearly all contracts are being awarded for less than 
obligated. For the Interstate 80 project, $27.7 million was obligated 
initially, but following a competitive bid process, officials revised 
the project cost to $19.6 million.[Footnote 12] FHWA California 
Division Office de-obligated about $8.2 million on June 1, 2009. 
According to Caltrans officials, the state currently has projects lined 
up to be funded with de-obligated funds from other projects. As of June 
12, 11 projects totaling $54 million have been approved to use these 
funds. Despite the difference between the original amount obligated and 
the revised project cost following the bid process, Caltrans officials 
stated that they do not plan to change estimating practices because 
estimations for state-level highway Recovery Act projects are already 
complete. 

California Anticipates Being Able to Meet Requirements for Obligation 
of Funds, Economically Distressed Areas, and Maintenance of Effort: 

Funds appropriated for highway infrastructure spending must conform to 
requirements of the Recovery Act. The states are required to do the 
following: 

* Ensure that 50 percent of apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. 
[Footnote 13] The Secretary of Transportation is to withdraw and 
redistribute to other states any amount that is not obligated within 
these time frames. 

* Give priority to projects that can be completed within 3 years and to 
projects located in economically distressed areas (EDA). EDAs are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. 

* Certify that the state will maintain the level of spending for the 
types of transportation projects funded by the Recovery Act that it 
planned to spend the day the Recovery Act was enacted (referred to as 
maintenance of effort). As part of this certification, the Governor of 
each state is required to identify the amount of funds the state 
planned to expend from state sources as of February 17, 2009, for the 
period beginning on that date and extending through September 30, 
2010.[Footnote 14] 

California has met the 120-day obligation requirement. As of June 25, 
2009, $1.189 billion (66 percent) of the $1.799 billion subject to the 
50 percent requirement for the 120-day redistribution had been 
obligated.[Footnote 15] Caltrans and FHWA California Division Office 
officials are confident that the state will also meet the 1-year 
obligation requirement. 

Caltrans officials stated that they do not anticipate difficulty in 
meeting EDA requirements. Caltrans used unemployment data from January 
2009 generated by the state's Employment Development Department and 
determined that 49 of the state's 58 counties meet the EDA threshold of 
having an unemployment rate of at least 1 percent more than the 
national unemployment average.[Footnote 16] Caltrans officials told us 
that in selecting projects for funding they first considered how 
quickly the project could be started and its potential to create or 
retain jobs. Officials told us that they then considered the extent of 
need within each EDA. 

On March 5, California submitted its maintenance of effort 
certification. As we reported in our April report, California was one 
of the several states that qualified its certification, prompting the 
U.S. Department of Transportation to review these certifications to 
determine if they were consistent with the law. On April 20, 2009, the 
Secretary of Transportation informed California that conditional and 
explanatory certifications were not permitted, provided additional 
guidance, and gave the state the option of amending its certification 
by May 22, 2009. The department also indicated that California may need 
to amend the maintenance of effort amount because of the method of 
calculation and advised the state to resubmit the certification by May 
22. The state resubmitted its certification on May 22, without a 
qualification and with a revised maintenance of effort calculation. 
According to U.S. Department of Transportation officials, the 
department has reviewed California's resubmitted certification letter 
and has concluded that the form of the certification is consistent with 
the additional guidance. The department is currently evaluating whether 
the states' method of calculating the amounts they planned to expend 
for the covered programs is in compliance with DOT guidance. Caltrans 
officials told us that they do not anticipate difficulty in meeting 
maintenance of effort requirements. 

U.S. Department of Education Recovery Act Funding Will Aid School 
Districts and Universities: 

As part of our review of Recovery Act funding supporting K-12 education 
and institutions of higher education (IHE), we looked at three programs 
administered by the U.S. Department of Education (Education), 
specifically, the State Fiscal Stabilization Fund (SFSF); Title I, Part 
A, of the Elementary and Secondary Education Act of 1965 (ESEA); and 
the Individuals with Disabilities Education Act (IDEA), Part B & C. 
During the course of our work, we met with officials at the California 
Department of Education (CDE) and two school districts--Los Angeles 
Unified School District (LA Unified) and San Bernardino City Unified 
School District (San Bernardino Unified). We selected these districts 
in part because they are among the largest 10 California districts in 
terms of their ESEA Title I Recovery Act fund allocations, they 
represent communities of varying size and population, and they have a 
high percentage of schools in improvement status.[Footnote 17] 
Additionally, we met with officials from the state's 4-year IHEs, 
specifically, the University of California (UC) and the California 
State University (CSU) systems. 

California State Fiscal Stabilization Funds Are Being Used at the K-12 
and University Levels to Help Avert Layoffs: 

The Recovery Act created the SFSF to be administered by 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 provides 
several assurances. These include assurances that the state will meet 
maintenance of effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Further, the state applications must contain 
baseline data that demonstrate the state's current status in each of 
the assurances. States must allocate 81.8 percent of their SFSF funds 
to support education (education stabilization funds) and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). After 
maintaining state support for education at fiscal year 2006 levels, 
states must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
school districts or public IHEs. When distributing these funds to 
school districts, states must use their primary education funding 
formula but maintain discretion in how funds are allocated to public 
IHEs. In general, school districts maintain broad discretion in how 
they can use stabilization funds, but states have some ability to 
direct IHEs in how to use these funds. 

As of June 18, 2009, California had received about $3.99 billion in 
SFSF funds, of its total $5.96 billion allocation for SFSF. About $3.27 
billion of this amount for education stabilization and about $727 
million is for government services, which the Governor has proposed to 
be directed to public safety, specifically, corrections. Based on the 
state's current application, the state will allocate about 75 percent 
of the education stabilization funds to school districts and about 25 
percent to IHEs. As of June 18, 2009 California has made $2.5 billion 
available to school districts and $323 million available to IHEs. As of 
June 18, districts had not obligated funding, and IHEs had obligated 
$323 million. As part of a state's application for SFSF funds, it must 
include an assurance that the state will maintain support for education 
from fiscal year 2009 through fiscal year 2011 at least at the level it 
did in fiscal year 2006. California's application made this assurance. 

The CDE had allocated a total of approximately $2.57 billion of its 
education stabilization funds to support K-12 school districts. For the 
school districts that we visited, LA Unified was allocated about $359.4 
million in education stabilization funds, and San Bernardino Unified 
was allocated $22.3 million. On our visits to LA Unified and San 
Bernardino Unified, officials told us that the K-12 education 
stabilization funds will be used to preserve jobs and services rather 
than start new programs. For example, LA Unified officials said they 
hope to reduce the number of layoffs by about 4,600 with the education 
stabilization funds. However, district officials recognize that if 
state budget conditions do not improve, they may face even more severe 
issues after education stabilization funds are used up. San Bernardino 
Unified officials told us that they were also struggling with budget 
shortages and potential teacher layoffs. However, San Bernardino 
Unified teachers and other staff have agreed to sacrifice several days 
pay through voluntary furloughs to save 72 jobs. District officials 
said they hope that the education stabilization funds along with 
retirements, normal staff attrition, and other cost saving efforts will 
allow them to retain 94 more positions. However, they are concerned 
that further budget cuts are forthcoming because of the continued 
deterioration of the state's fiscal condition. 

The $537 million of education stabilization funds allocated to higher 
education was divided equally between the UC and the CSU systems, with 
$268.5 million allocated to each system.[Footnote 18] UC and CSU 
officials told us that the funds will be used during the current fiscal 
year to help pay salaries at their universities. They said that at CSU, 
monthly payroll runs about $290 million, so the education stabilization 
funds will pay for almost 1 month's payroll. As of May 29, the CSU 
system had drawn down $130 million for payroll for May. CSU officials 
expected to draw down the remaining funds by June 30 for payroll. The 
CSU officials stated that using the funds in this way allowed them to 
partially mitigate the impact of anticipated cuts to their state 
general funds and help avert layoffs. Because the proposed cuts came so 
late in the fiscal year, officials said that if they had to make up for 
the reductions by tuition fee increases alone, tuition would have been 
increased far more than the approved 10 percent increase for school 
year 2009-10. CSU officials noted that the lead time needed to plan 
their enrollment, along with the state guarantee that a certain 
percentage of qualified graduating high school seniors be accepted at 
CSU, restricted their ability to reduce enrollment levels for the 
immediate future. UC officials said that they would use all of their 
$268.5 million to help pay salaries at their universities and would 
help avert layoffs. In addition a senior budget official said that if 
this funding were not provided and fee increases were used to cover the 
shortfall, an additional 15 percent increase in mandatory systemwide 
fees would have been required on top of the approved 9.3 percent 
increase. This would have led to a 24.3 percent increase in one year. 

California's initial allocation to higher education did not include any 
funds for the community college system because its budget had not been 
as severely cut as those for 4-year institutions. However, the 
worsening state economic conditions have caused the Governor to propose 
increased budget cuts to the community college system. As a result, the 
state may revise the higher education funds allocation to include the 
community college system if the proposed budget cuts are enacted. 

School Districts We Visited Have Preliminary Plans for ESEA Title I, 
Part A, Funds: 

The Recovery Act provides $10 billion to help local education agencies 
(LEA) educate disadvantaged youth by making additional funds available 
beyond those regularly allocated through Title I, Part A, of ESEA of 
1965. The Recovery Act requires these additional funds to be 
distributed through states to LEAs using existing federal funding 
formulas, which target funds based on such factors as high 
concentrations of students from families living in poverty. In using 
the funds, LEAs are required to comply with current statutory and 
regulatory requirements, and must obligate 85 percent of their fiscal 
year 2009 funds (including Recovery Act funds) by September 30, 
2010.[Footnote 19] Education is advising LEAs to use the funds in ways 
that will build their long-term capacity to serve disadvantaged youth, 
such as through providing professional development to teachers. 
Education made the first half of states' ESEA Title I, Part A, funding 
available on April 1, 2009, with California receiving $562 million of 
its approximately $1.1 billion total allocation. As of June 12, 2009, 
CDE had drawn down about $450 million.[Footnote 20] For the two school 
districts that we visited, LA Unified was allocated $312 million and 
San Bernardino Unified was allocated $15.8 million. At the time of our 
review, an LA Unified official reported the district had received 
$140.6 million and an official from San Bernardino Unified said the 
district had received $7.1 million. 

LA Unified and San Bernardino Unified officials told us they have 
preliminary plans for the Title I funding their schools will receive. 
LA Unified officials said they are planning to encourage schools to, 
for example, pursue efforts to reduce class size by rescinding teacher 
lay off notices, add coaches for teachers, and acquire special programs 
based on individual school needs. A San Bernardino Unified official 
said the district plans to use their funds to help finance 
implementation of recommendations in recent capacity study and a 
district improvement plan required by the CDE. These recommendations 
include support for learning centers at schools, more coaching for 
teachers, and monitoring individual students on a weekly basis. 

CDE and school districts we visited plan to seek waivers from Education 
on the use of ESEA Title I funds.[Footnote 21] CDE officials said they 
will probably request a waiver to allow school districts to carry funds 
over to the next fiscal year. LA Unified officials said they plan to 
ask for waivers to increase their flexibility in the use of Recovery 
Act funds. According to these officials, a carryover waiver would help 
the district meet spending requirements. San Bernardino Unified 
officials said they plan to seek a waiver for the transportation for 
public school choice requirement and for the maintenance of effort 
requirement if future budget decreases make it necessary. 

Both CDE and district officials continue to voice concerns about the 
lack of specific guidance, particularly regarding reporting on their 
use of ESEA Title I funds. CDE officials said that the only guidance 
they were providing to districts was what had been issued by Education. 
They said they do not want to issue their own guidance on acceptable 
uses of funds and then find out that these uses do not meet Education's 
guidance. Officials in both districts said that they were apprehensive 
about interpreting what they characterized as the general guidance they 
had received, and then finding out at a later date that CDE or 
Education had interpreted it differently. 

School Districts We Visited Plan to Use IDEA Part B Funding to Help 
Increase Capacity, but California Does Not Plan to Apply for Part C 
Funding: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of IDEA, the major federal statute that supports 
special education and related services for infants, toddlers, children, 
and youth with disabilities. Part B includes programs that ensure that 
preschool and school-aged children with disabilities have access to a 
free and appropriate public education, and Part C programs provide 
early intervention and related services for infants and toddlers with 
disabilities or at risk of developing a disability and their families. 
IDEA funds are authorized to states through three grants--Part B 
preschool-age, Part B school-age, and Part C grants for infants and 
families. States were not required to submit applications to Education 
in order to receive the initial Recovery Act funding for IDEA, Part B & 
C (50 percent of the total IDEA funding provided in the Recovery Act). 
States will receive the remaining 50 percent by September 30, 2009, 
after submitting information to Education addressing how they will meet 
Recovery Act accountability and reporting requirements. All IDEA 
Recovery Act funds must be used in accordance with IDEA statutory and 
regulatory requirements. 

Education allocated the first half of states' IDEA allocations on April 
1, 2009, with California receiving a total of $661 million for all IDEA 
programs. The largest share of IDEA funding is for the Part B school-
aged program for children and youth. The state's initial allocation 
was: 

* $21 million for Part B preschool grants, 

* $613 million for Part B grants to states for school-aged children and 
youth, and: 

* $27 million for Part C grants to states for infants and families for 
early intervention services. 

CDE has allocated funds through Local Assistance and Preschool grants 
to 125 special education local planning areas based on a federal three-
part formula that considers 1999 special education enrollment, 
population (K-12 enrollment public and private), and poverty (free and 
reduced meal counts K-12). Table 2 highlights how these funds were 
allocated at the districts we visited. District officials told us at 
the time of our visits, in May 2009, that CDE had issued IDEA grant 
award letters but had not transferred any funds to the two districts we 
visited. 

Table 2: IDEA Fund Allocations for the Two School Districts We Visited: 

School district allocations: Part B - Preschool Local Entitlement; 
LA Unified: $12.66 million; 
San Bernardino Unified: $0.31 million. 

School district allocations: Part B - Special Education Preschool 
Grant; 
LA Unified: $4.94 million; 
San Bernardino Unified: $0.39 million. 

School district allocations: Part B - Local Assistance; 
LA Unified: 133.98 million; 
San Bernardino Unified: $11.34 million. 

Total; 
LA Unified: $151.58 million; 
San Bernardino Unified: $12.04 million. 

Source: CDE Recovery Act Web site. 

[End of table] 

Officials in both districts said they plan to use funds to hire coaches 
or other specialists who will help teachers and assistants increase 
their skills in meeting the special needs of children with 
disabilities. District officials said these uses are consistent with 
the goal of not creating an unsustainable program, because the coaches 
or specialists will be temporary positions that will expire when 
Recovery Act funds are spent. However, the skills learned will continue 
paying dividends for a long time after the funding has ceased. 

The Department of Developmental Services administers IDEA Part C in 
California and is not requesting any IDEA Part C incentive funds to 
expand the state's Part C program, which currently serves children up 
to age 3, to serve children up to age five. According to the state's 
Part C Coordinator, the cost to expand the current statewide program to 
include children up to age five has been estimated at around $300 
million. Yet, the Coordinator said that only about $14 million in 
Recovery Act funds are potentially available to the state to fund such 
an expansion. Nevertheless, the Coordinator has asked Education if it 
is possible to fund the expansion on a pilot basis only in region-
specific programs; if this is allowed, the state may need to reconsider 
its decision not to seek Part C funds. 

California Is Finalizing Plans for an Expected $186 Million in 
Weatherization Assistance Program Funds: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 22] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating and air 
conditioning equipment. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its 
strategy for using the weatherization funds, metrics for measuring 
performance, and risk mitigation strategies. DOE plans to release the 
final 50 percent of the funding to each state based on the department's 
progress reviews examining each state's performance in spending its 
first 50 percent of the funds and the state's compliance with the 
Recovery Act's reporting and other requirements. 

DOE has allocated about $186 million in total Recovery Act funds for 
California for the Weatherization Assistance Program for a 3-year 
period. California sent its application to DOE on March 31, 2009, and 
on April 1, 2009, DOE provided an initial 10 percent allocation, or 
about $18.6 million, in Weatherization Assistance Program funds to 
California, which the state will use to "ramp up" the program, 
including training and equipment purchases.[Footnote 23] According to 
DOE, the initial funding could not provide for actual physical 
weatherization. However, on June 9, 2009, DOE issued revised guidance 
lifting this limitation to allow states to provide funds for production 
activities to local agencies that previously provided services and are 
included in the state Recovery Act plans. California's Department of 
Community Services and Development (CSD), the responsible state agency, 
developed a plan for the use of the Weatherization Assistance Program 
funds that was submitted to DOE on the May 12 deadline. California 
officials received the Recovery Act guidance to use in developing their 
plan and expected a quick review of their application. On June 18, the 
state announced that its weatherization plan was approved, and DOE 
provided an additional $74.3 million. 

The California state plan and application for Recovery Act funds 
estimated that 50,080 units will be weatherized and 250 units will be 
re-weatherized under the program, for a total of 50,330 units. The 
state plan and application also projected the creation of 1,017 
administration and field jobs for the Recovery Act program. 
California's state plan shows that of the approximately $186 million, 
$18.6 million will be used for program administration and $32.5 million 
will be used for training and technical assistance. 

CSD plans to use its existing network of Weatherization Assistance 
Program subgrantees to provide services under the Recovery Act. The 
2009 funding for DOE weatherization in California is about $14.1 
million, so Recovery Act funds represent over a 13-fold increase. 
According to testimony provided by the Director of CSD before a state 
legislative committee on May 13, 2009, CSD and its subgrantees have the 
capacity to administer the funds provided by the Recovery Act. CSD 
elected to administer all Weatherization Assistance Programs through 
the existing network that it uses for its Low-Income Home Energy 
Assistance Program. This subgrantee network comprises community action 
agencies or public or private nonprofit agencies that have many years 
of experience providing public assistance programs to the low-income 
clientele in their respective communities. According to the Director of 
CSD, the subgrantees are already geared up to handle the larger Low-
Income Home Energy Assistance Program, based on their prior experience 
managing the program, and should be able to handle the Weatherization 
Assistance Program as well. Additionally, CSD officials reported that 
they are not concerned about identifying eligible recipients since they 
can currently only serve about 1 in 10 eligible applicants. CSD 
officials told us that there is an extensive waiting list of eligible 
applicants. 

California Is Planning to Use WIA Youth Recovery Act Funds to Provide 
Summer Youth Employment Activities: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth program to 
facilitate the employment and training of youth. The WIA Youth program 
is designed to provide low-income in-school and out-of-school youth 
ages 14 to 21, who have additional barriers to success, with services 
that lead to educational achievement and successful employment, among 
other goals. The Recovery Act extended eligibility through age 24 for 
youth receiving services funded by the act. In addition, the Recovery 
Act provided that of the WIA Youth performance measures, only the work 
readiness measure is required to assess the effectiveness of summer 
only employment for youth served with Recovery Act funds. Within the 
parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains. The 
program is administered by the U.S. Department of Labor, and funds are 
distributed to states based upon a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
up to 15 percent for statewide activities. The local areas, through 
their local workforce investment boards, have flexibility to decide how 
they will use these funds to provide required services. In the 
conference report accompanying the bill that became the Recovery 
Act,[Footnote 24] the conferees stated that they were particularly 
interested in states using these funds to create summer employment 
opportunities for youth. Summer employment may include any set of 
allowable WIA Youth activities--such as tutoring and study skills 
training, occupational skills training, and supportive services--as 
long as it also includes a work experience component. Work experience 
may be provided at public sector, private sector, or nonprofit work 
sites. The work sites must meet safety guidelines and federal/state 
wage laws.[Footnote 25] 

California received about $187 million in Recovery Act funds for its 
WIA Youth program. On April 7, the state announced that it was 
distributing the remaining funds--about $159 million after reserving 15 
percent for statewide activities--to local areas not later than 30 days 
after being available, as required. As of June 30, about 4 percent of 
California's Recovery Act WIA Youth funds had been spent, and about 89 
percent obligated. We visited two local areas, Los Angeles and San 
Francisco, the former with a long-established summer program funded 
from local sources and the latter now establishing a program with 
Recovery Act funds (see table 3). 

Table 3: Description of WIA Youth Programs GAO Reviewed: 

Recovery Act WIA funding allocation; 
City of Los Angeles: $20.3 million; 
City and County of San Francisco: $2.3 million. 

Planned allocation for WIA Youth summer programs; 
City of Los Angeles: $13.1 million; 
City and County of San Francisco: $1.0 million. 

Number of expected WIA summer program participants; 
City of Los Angeles: 6,550; 
City and County of San Francisco: 450. 

Anticipated length of WIA Youth summer program; 
City of Los Angeles: 6-8 weeks - 3 phases from May through September; 
City and County of San Francisco: 6-8 weeks. 

Plan to hire additional staff to administer program; 
City of Los Angeles: No; 
City and County of San Francisco: Yes. 

Sources: California Employment Development Department, Los Angeles 
Community Development Department, and San Francisco Office of Economic 
and Workforce Development. 

Note: Recovery Act WIA funding figures are from the California 
Employment Development Department. All other figures are from the Los 
Angeles Community Development Department and San Francisco Office of 
Economic and Workforce Development. 

[End of table] 

While the WIA Youth program requires a summer employment component to 
be included in its year round program, Labor has issued guidance 
indicating that local areas have the program design flexibility to 
implement stand alone summer youth employment activities with Recovery 
Act funds. Local areas may design summer employment opportunities to 
include any set of allowable WIA Youth activities--such as tutoring and 
study skills training, occupational skills training, and supportive 
services--as long as it also includes a work experience component. 
Accordingly, California Employment Development Department (EDD) 
officials told us that local areas are free to determine how much of 
these funds to spend on summer programs and how many participants to 
target. EDD officials remarked that based on their understanding of the 
congressional intent of the Recovery Act and Department of Labor 
guidance, their goal is for the local areas to spend the majority of 
funds during the summer of 2009. They added that the 15 percent that 
can be retained for statewide activities is unlikely to be used for 
summer programs, although the state is still determining where to focus 
it. The California Workforce Association, a nonprofit membership 
organization that represents all the state's local workforce investment 
boards, estimates that over 47,000 youth will participate in Recovery 
Act-funded summer employment activities across the state in 2009. 

State and local officials we contacted do not anticipate challenges 
identifying enough summer program participants. State officials also 
told us that the local areas' existing WIA partnerships with community-
based youth service organizations providing year-round activities will 
mitigate the challenges of running a stand-alone summer program for the 
first time in a decade. State officials said that local boards could 
meet their requirement to include a summer youth employment component 
in the WIA program by extending the regular youth program a few weeks 
into the summer rather than have a stand-alone youth component. 
[Footnote 26] Although officials expect a majority of the summer jobs 
to be in the public sector, a state official added that in light of the 
economy, they are concerned about locating enough employment 
opportunities because many local government agencies have currently 
implemented hiring freezes and may, therefore, need to take additional 
steps to secure the authority to add temporary positions. Los Angeles 
officials told us that they do not anticipate problems locating 
employment opportunities because they have historically had a surplus 
of work sites, nor do they believe that they need to advertise 
opportunities because of existing high demand for them. 

Unlike San Francisco, which is developing a new summer youth employment 
program, Los Angeles already has a large program that is funded through 
various local sources, including the city's general fund. Los Angeles 
officials told us that the overall youth program currently serves 
12,347 year-round participants. Therefore, the infrastructure, 
processes, and contracts with summer youth service providers are 
already in place. San Francisco officials told us that the city and its 
service providers are in the process of developing work sites--about 
one-third are already in place, according to officials.[Footnote 27] 

California Has Received JAG Program Funds and Is Finalizing Plans for 
the Funds: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) Program within 
the Department of Justice's Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice 
information sharing initiatives, and victims' services. Under the 
Recovery Act, an additional $2 billion in grants are available to state 
and local governments for such activities, using the rules and 
structure of the existing JAG program. The level of funding is formula 
based and is determined by a combination of crime and population 
statistics. Using this formula, 60 percent of a state's JAG allocation 
is awarded by BJA directly to the state, which must in turn allocate a 
formula-based share of those funds to local governments within the 
state. The remaining 40 percent of funds is awarded directly by BJA to 
local governments within the state.[Footnote 28] The total JAG 
allocation for California state and local governments under the 
Recovery Act is about $225.4 million, a significant increase from the 
previous fiscal year 2008 allocation of about $17.1 million. 

As of June 15, 2009, California has received its full state award of 
about $135 million. An additional $89 million will be made available 
directly to local governments from BJA through the local solicitation 
for a total of about $225 million. The amount of JAG money awarded to 
California has been sharply reduced in the last few years. Officials 
with the California Emergency Management Agency (CalEMA), the state's 
administering agency, said that they believe the Recovery Act funds 
will help restore lost opportunities and provide jobs in law 
enforcement. 

CalEMA officials said that they will be providing over 90 percent of 
the $135.6 million to local law enforcement agencies. (They are 
required to provide at least 67.34 percent to local governments under 
Department of Justice guidelines.) According to California's 
application to the Department of Justice, 

* $122 million is to be allocated to local units of government and the 
state Bureau of Narcotics Enforcement to implement multi-jurisdictional 
task forces, 

* $11.4 million is to be allocated to local units of government and 
state law enforcement agencies to implement innovative new programs or 
enhance exiting programs to address emerging drug and crime trends 
(several programs are under consideration), and: 

* $2 million is to be allocated to CalEMA as the state's administrative 
agency to pay for personnel, benefits, and overhead to administer the 
JAG program under the Recovery Act.[Footnote 29] 

According to the Department of Justice application for JAG money, 
states are strongly encouraged to develop and undertake a strategic 
planning process using a community-based engagement model in order to 
guide JAG spending under the Recovery Act and future fiscal year 
allocations. According to CalEMA officials, California's expenditure 
plan for use of the JAG funds provided by the Recovery Act was still in 
draft form as of June 30, 2009. The statewide expenditure plan has been 
approved by the California Council on Criminal Justice but has not yet 
been approved by the state legislature. As a result, CalEMA officials 
said that their final dollar amounts are not yet associated with each 
proposed project. A CalEMA official stated that the legislature can 
make changes to the planned use of funds associated with individual 
projects and may look toward retaining more funds at the state level. 
Once approved, all spending under the JAG program is expected to be in 
accordance with the statewide strategic plan and with the White House 
Office of National Drug Control Policy. 

Most California Public Housing Capital Grant Funding Has Not Been 
Spent: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 30] The Recovery Act requires the U.S. Department of Housing 
and Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies, expend at least 60 percent of funds within 2 years of that 
date, and expend 100 percent of the funds within 3 years of that date. 
Public housing agencies are expected to give priority to projects that 
can award contracts based on bids within 120 days from the date the 
funds are made available, as well as projects that rehabilitate vacant 
units, or those already under way or included in the required 5-year 
capital fund plans. HUD is also required to award $1 billion to housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding for renovations and 
energy conservation retrofit investments. On May 7, 2009, HUD issued 
its Notice of Funding Availability, which describes the competitive 
process, criteria for applications, and time frames for submitting 
applications.[Footnote 31] As shown in figure 3, California has 55 
public housing agencies that have received Recovery Act formula grant 
awards. In total these public housing agencies received $117.56 million 
from the Public Housing Capital Fund formula grant awards. As of June 
20, 2009, 26 public housing agencies have obligated $12.55 million and 
have expended $114,104. 

Figure 3: Percentage of Public Housing Capital Funds Allocated by HUD 
That Have Been Obligated and Drawn Down in California: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $117,560,751: 99.7%; 
Funds obligated by public housing agencies: $12,545,917; 10.6%; 
Funds drawn down by public housing agencies: $114,104; 0.1%. 

Number of public housing agencies: Entering into agreements for funds: 
55; 
Number of public housing agencies: Obligating funds: 26; 
Number of public housing agencies: Drawing down funds: 6. 

Source: GAO analysis of HUD data. 

Note: HUD allocated Capital Fund formula dollars from the Recovery Act 
to one additional public housing agency in California, but the housing 
agency either chose not to accept Recovery Act funding or no longer had 
eligible public housing projects that could utilize the funds. As a 
result, these funds have not been obligated by HUD. 

[End of figure] 

GAO visited three public housing agencies in California: Area Housing 
Authority of the County of Ventura, Sacramento Housing and 
Redevelopment Agency, and San Francisco Housing Authority.[Footnote 32] 
These public housing agencies received capital fund formula grants 
totaling $25.61 million. As of June 20, 2009, these public housing 
agencies had obligated $4.61 million, or 18.01 percent of the total 
award. They had drawn down $9,500, or 0.04 percent of the total award. 

The Area Housing Authority of the County of Ventura[Footnote 33] is the 
first public housing agency in California to draw down funds from HUD. 
Officials from the Ventura housing authority told us that they drew 
down $9,500 on May 1, 2009, and obligated funds for architectural and 
engineering consulting expenditures. Ventura housing officials 
prioritized projects from those already included in their 5-year 
Capital Fund plan that could be awarded contracts based on bids within 
120 days of funds being made available. They told us that they plan to 
use all of their allocated $614,448 in Recovery Act funds to replace 
and install energy-efficient windows in their five public housing 
projects, which consist of 270 units.[Footnote 34] The window 
replacements will enable both the housing authority and tenants to save 
money because of increased energy efficiency (see figure 4). For the 
two of public housing projects we visited, officials estimated that 
work will begin in August 2009 and be completed in November 2009. 
Because of the small amount of Recovery Act funds received, and the 
straightforward nature of their projects, they do not foresee any 
issues related to the use of funds or implementation of their Recovery 
Act program. 

Sacramento Housing and Redevelopment Agency[Footnote 35] officials told 
us that they were allocated $7.12 million in capital funds, which are 
ready to be drawn down from HUD. Officials told us that they 
prioritized projects in their 5-year capital fund plan, have several 
contracts out to bid, and expect to award contacts within 120 days from 
the date the funds were made available to them. They plan to use 
Recovery Act funds on 17 projects for 602 units. Plans for initial work 
include architectural and engineering work in early June 2009 on 41 of 
their vacant units. Recovery Act funding will be used mostly for 
exterior rehabilitation, such as painting and roofing work, which 
officials told us is needed and can create more jobs for contractors 
and subcontractors. Sacramento housing officials told us that for two 
of the public housing projects that we visited, they are leveraging 
Recovery Act funding with non-Recovery Act capital funds. For example, 
an elderly-only property will rely on Recovery Act funding for 75 
percent of its funding. The two projects are estimated to be completed 
in November/December of 2009. 

San Francisco Housing Authority[Footnote 36] officials told us that 
they are waiting for HUD approval of the obligation submitted and are 
not yet able to draw down their capital fund allocation of $17.87 
million from HUD's ELOCCS. According to these officials, they are 
designated as a troubled performer under HUD's Public Housing 
Assessment System and are therefore required to submit additional 
documentation and obtain HUD approval before they are able to draw down 
Recovery Act funds.[Footnote 37] Officials stated that they planned to 
use Recovery Act funds to fill critical financing gaps for 10 large 
public housing projects, which consist of 191 vacant units. They 
anticipate using Recovery Act funding for structural, exterior, and 
interior rehabilitation, such as painting, roofing, carpeting, and 
repairing electrical fixtures (see figure 4). Additionally, in 
selecting 
public housing projects officials prioritized projects in their 5-year 
Capital Fund plan, those identified with high needs in their physical 
needs assessments, and feedback from their property management and 
resident advisory board. If they are able to draw down Recovery Act 
funding from HUD soon, most of their projects are estimated to begin by 
July 2009, and are estimated to be completed within 90 to 150 calendar 
days. 

Figure 4: Public Housing Project Rehabilitations Using Recovery Act 
Funding: 

[Refer to PDF for image: two photographs] 

(1) Kitchen rehabilitation to be started in San Francisco. 
(2) Window soon to be replaced with energy-efficient, double-pane 
windows in Ventura. 

Source: GAO. 

[End of figure] 

California Is Implementing Plans for Tracking and Oversight of Recovery 
Act Funds: 

California's Recovery Task Force (Task Force), which has overarching 
responsibility for ensuring that California's Recovery Act funds are 
spent efficiently and effectively, intends to use California's existing 
internal control and oversight structure, with some enhancements, to 
maintain accountability for Recovery Act funds. State agencies, housing 
agencies, and other local Recovery Act funding recipients we 
interviewed told us that using separate accounting codes within their 
existing accounting systems will enable them to effectively track 
Recovery Act funds. However, officials told us that accumulating this 
information at the statewide level will be difficult using existing 
mechanisms. The state, which is currently relying on lengthy manually 
updated spreadsheets, is awaiting additional Office of Management and 
Budget (OMB) guidance to design and implement a new system to 
effectively track and report statewide Recovery Act funds. Most state 
and local program officials told us that they will apply existing 
controls and oversight processes that they currently apply to other 
program funds to oversee Recovery Act funds. 

State Agencies and Other Fund Recipients Do Not Anticipate Problems 
Establishing Separate Accounting Codes within Existing Systems to Track 
Recovery Act Funds, but Subrecipient Capabilities Are Unknown: 

State agencies, housing agencies, and other local Recovery Act funding 
recipients that we spoke with plan to use, or are already using, 
separate accounting codes to track Recovery Act funds. Agencies we 
spoke with did not anticipate any problems with tracking their Recovery 
Act funds. For example, all three housing agencies we visited told us 
that they are capable of separately identifying and tracking Recovery 
Act funds. Similarly, state and local officials responsible for the WIA 
Youth program told us that using Recovery Act codes in their existing 
accounting systems will enable them to track Recovery Act-funded 
programs separately from previously existing programs. CSD officials 
said the same about their ability to use separate codes to track 
Recovery Act Weatherization Assistance Program funds within their 
accounting system. Additionally, CalEMA officials also told us that 
they plan to use a separate code for JAG money received under the 
Recovery Act and will continue to monitor the spending rate and 
obligation of funds for all grantees and subgrantees, including 
Recovery Act fund recipients, using CalEMA's existing systems. 

Both Caltrans and CDE officials told us that they would be able to 
track Recovery Act funds at the state level using separate accounting 
codes assigned for Recovery Act funds. According to Caltrans officials, 
the ability of local agencies to track federal funds separately is 
assessed during the pre-award audit process; however, the extent to 
which local entities actively track Recovery Act highway infrastructure 
funds separately is unknown.[Footnote 38] Officials from the City of 
Seaside stated that its Del Monte Boulevard pavement rehabilitation 
project will be easy to separately track because it is being funded 
solely by Recovery Act funds. 

According to CDE, school districts, and higher education officials, 
tracking of funds will be conducted through existing accounting systems 
using separate Recovery Act accounting codes. While officials from the 
two school districts that we visited did not foresee any problems 
tracking Recovery Act funds, there are about 1,000 other California 
school districts that may receive Recovery Act funds that according to 
CDE officials, possess varying levels of sophistication in their 
accounting systems. CDE officials reported that all of these entities 
will be monitored using existing mechanisms, and they will report 
quarterly and annually on the use of the funds. However, there are some 
concerns about LEAs' ability to meet Recovery Act reporting 
requirements. For example, CDE's Deputy Superintendent recently sent 
written comments to OMB raising concerns over the timing and the extent 
of information on the quarterly reporting required by section 1512 of 
the Recovery Act. Specifically, this section requires each recipient 
that receives Recovery Act funds to submit quarterly reports within 10 
days after the end of the quarter that include: 

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

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

* a detailed list of all projects or activities for which Recovery Act 
funds were expended or obligated; and: 

* detailed information on any subcontracts or subgrants awarded by the 
recipient to include the data elements required to comply with the 
Federal Funding Accountability and Transparency Act of 2006 (Pub. L. 
No. 109-282), allowing aggregate reporting on awards below $25,000 or 
to individuals, as prescribed by the Director of OMB. 

According to CDE officials, at issue is whether the school districts 
have the ability to prepare accurate and timely reports on this type of 
information on a quarterly basis. 

State Will Need New System to Effectively Track and Report Statewide 
Recovery Act Funds: 

Because California does not have a central accounting system with the 
capacity to track and report Recovery Act funds across agencies, the 
state is currently relying on a lengthy spreadsheet to manually 
accumulate Recovery Act funding information. The spreadsheet is 
periodically sent to Task Force members, who represent the various 
state agencies, to update with current information; the Department of 
Finance program budget managers subsequently verify the submitted 
information.[Footnote 39] Task Force members and the office of the 
state's Chief Information Officer acknowledged that the spreadsheet is 
not an ideal means with which to account for statewide Recovery Act 
funds. The state issued a request for proposal on June 10 to purchase a 
database system that can track and report state Recovery Act funds. 
However, because data and reporting requirements provided by OMB could 
change, the request for proposal incorporates additional OMB guidance 
by reference. State officials plan to have the new system in place in 
time for the first report due to OMB in October 2009. 

California Plans to Use Its Existing Internal Control and Oversight 
Structure, with Some Enhancements, to Maintain Accountability for 
Recovery Act Funds at the Statewide Level: 

As mentioned in our April report, the Task Force was established by the 
Governor to track Recovery Act funds that come into the state and 
ensure that those funds are spent efficiently and effectively.[Footnote 
40] The Task Force intends to rely on California's existing internal 
control framework to oversee Recovery Act funds, supplemented by 
additional oversight mechanisms. Several agencies and offices play key 
roles in overseeing state operations and helping ensure material 
compliance with state law and policy. The key agencies and their 
oversight and compliance roles are summarized below. 

* The Department of Finance has general powers of supervision over all 
matters concerning the state's financial policies. The department is 
responsible for maintaining the state's uniform accounting system and 
providing directives to other departments regarding accounting 
procedures and reporting requirements. Within the department is the 
Office of State Audits and Evaluations (OSAE), which is responsible for 
internal controls at the state level. This includes compliance with the 
state's Financial Integrity and State Manager's Accountability Act of 
1983 (FISMA),[Footnote 41] which was enacted to reduce wasted resources 
and to strengthen accounting and administrative control. 

* The State Controller's Office, the state's primary accounting and 
disbursing office maintains central accounts for each appropriation for 
all funds operating through the state treasury and provides monthly 
reports to departments to reconcile accounts. The office also audits 
claims for payments submitted by state agencies and provides internal 
audit services to some state agencies, such as Caltrans, for Recovery 
Act funds. It is also the state's repository for local and subrecipient 
Single Audit Act audits (Single Audits), which the State Controller's 
Office annually compiles and distributes to the responsible state 
agency. 

* The Recovery Act Inspector General was appointed on April 3, 2009, by 
the Governor to ensure that Recovery Act funds are spent as intended 
and identify instances of waste, fraud, and abuse. California's 
Recovery Act Inspector General is currently assessing the state's 
oversight needs, educating state officials and the public on her role-
-which includes conducting and reviewing audits--and helping integrate 
existing state and local oversight activities. 

* The State Auditor is California's independent auditor who conducts 
the statewide Single Audit, a combined independent audit of the state's 
financial statement and state programs receiving federal funds. 
[Footnote 42] The State Auditor also conducts performance audits 
as requested and approved by the California Joint Legislative Audit 
Committee or as mandated in statute. 

To help carry out its charge of transparency, the Task Force is 
managing 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, in 
June 2009 the Governor signed an executive order to improve the 
transparency over state funds, including Recovery Act funds, by making 
all internal and external audits and all contracts over $5,000 in value 
publicly available on another state Web site [hyperlink, 
www.reportingtransparency.ca.gov].[Footnote 43] Internal 
financial, operational, compliance, and performance audits dating back 
to January 1, 2008, conducted by both internal auditors and outside 
auditors will be posted on the Web site. In addition, summary 
information on all state contracts reported to the Department of 
General Services, dating back to March 2009, will be posted on the Web 
site within 5 working days. 

Internal Control Assessments Have Been Expanded to Include "Readiness 
Reviews" of Agencies Receiving Recovery Act Funds: 

OSAE has primary responsibility for reviewing whether state agencies 
receiving Recovery Act funds have established adequate systems of 
internal control to maintain accountability over those funds. According 
to state officials, OSAE has been using two primary approaches to 
assessing internal controls at agencies receiving Recovery Act funds--
FISMA reviews (an existing internal control assessment tool) and 
readiness reviews (a new internal control assessment tool). Both the 
FISMA reviews and the readiness reviews rely primarily on information 
that is self-certified by agency officials. 

FISMA reviews are an integral part of California's existing statewide 
internal control structure. A key aspect of the FISMA review is to 
identify risk areas for state agencies. 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 biennially review and prepare a report on 
the adequacy of the agency's systems of internal accounting and 
administrative control. Agency heads are responsible for evaluating 
their respective agencies' internal controls and systems and submitting 
reports to OSAE. Seventeen state agencies maintain internal audit 
units, which perform the FISMA reviews, while other agencies contract 
out these reviews to OSAE, the State Controller's Office, or private 
audit firms. According to OSAE officials, FISMA reports vary in quality 
and thoroughness, and OSAE is in the process of meeting with all state 
agencies to improve the quality of the FISMA reviews. When deficiencies 
are identified in the reports, agencies are required to submit 
corrective action plans to OSAE every 6 months until the deficiencies 
are resolved. 

As requested by the Task Force, OSAE has initiated readiness reviews of 
some state agencies due to receive Recovery Act funds, with specific 
emphasis on accountability and oversight processes. OSAE completed the 
first review on April 30, 2009, which focused on six departments. As of 
June 12, OSAE had completed nine readiness reviews. The readiness 
reviews have covered several agencies that are responsible for programs 
that we are reviewing, including Caltrans, EDD, CalEMA, and CSD. These 
reviews, which largely consist of self-reported information, concluded 
that Caltrans, EDD, and CalEMA have adequate oversight and 
accountability controls in place related to Recovery Act funding. 
However, the CSD review concluded that several concerns and 
recommendations identified in the review need to be addressed in order 
to achieve adequate oversight and accountability readiness.[Footnote 
44] 

As a result of these readiness reviews, the Task Force has recommended 
that all state agencies continue to coordinate with state and federal 
authorities to obtain clear guidance on allowable administrative and 
overhead expenses, oversight roles and responsibilities for direct 
funding to localities (if applicable), and additional specific Recovery 
Act reporting requirements. The Task Force has also identified four 
core readiness areas that state agencies expecting to receive Recovery 
Act funds must review and implement prior to receiving and distributing 
Recovery Act funds. (See table 4 for these four core readiness areas 
and related actions to be taken by agencies.) 

Table 4: Core Readiness Areas for Agencies Receiving and Disbursing 
Recovery Act Funds: 

1. Oversight and fraud prevention: 
* Agencies are to perform a Recovery 
Act-related risk assessment in order to identify and mitigate potential 
risks; 
* Agencies are to provide fraud awareness training to their 
employees and recipients to make them aware of potential 
vulnerabilities of Recovery Act funds to fraudulent use. 

2. Grants management and accountability: 
* Agencies are to provide training to recipients regarding proper grant 
management and accountability; 
* Agencies are to develop standard grant templates with specific 
Recovery Act language and written guidance for recipients; 
* Agencies are to develop tracking mechanisms for specific Recovery Act 
data elements, including number of jobs created. 

3. Reporting requirements: 
* Agencies must be prepared to separately track the receipt and 
disbursement of Recovery Act funds in their accounting systems; 
* Agencies must develop and maintain systems to track and identify 
administrative costs associated with administering Recovery Act funds. 

4. Transparency: 
* Agencies are to develop clear and informative information reporting 
systems. 

Source: California Recovery Task Force Recovery Act Bulletin 09-01. 

[End of table] 

New State Inspector General Function Is Still under Development: 

In addition to OSAE, California's Recovery Act Inspector General has 
oversight responsibility for Recovery Act funds. According to the 
Inspector General's office, her overarching objective is to protect the 
integrity and accountability of the expenditure of Recovery Act funds 
disbursed to California in a manner consistent with the Governor's 
executive order and the Recovery Act's core objective of promoting 
transparency and accountability. The Inspector General proposes to 
achieve this objective by developing the inspector general function in 
three phases: (1) assess California's Recovery Act oversight needs, 
educate government officials and the public, and assist in integrating 
the existing oversight capabilities of state and local government; (2) 
ensure that adequate controls exist over the management, distribution, 
expenditure, and reporting to detect and deter fraud, waste, and abuse 
of Recovery Act funds; and (3) disclose fraud, waste, and abuse in the 
handling and disbursement of Recovery Act funds and, as appropriate, 
refer and report matters involving suspected fraud, waste, and abuse to 
appropriate law enforcement officials and state executive and 
legislative officials for further action. The Inspector General is 
currently in the first phase of this plan. 

State Auditor Is Expanding Single Audit Work and Conducting Special 
Reviews of Recovery Act Funds: 

The California State Auditor, as the state's independent auditor, is 
also responsible for oversight of Recovery Act funds. This 
responsibility is being carried out not only through the production of 
the Single Audit reports that encompass Recovery Act funds, but also 
through special targeted reviews of state agencies receiving Recovery 
Act funds. Because the State Auditor added California's system for 
administering federal Recovery Act funds to its list of statewide high-
risk issue areas, the State Auditor will execute her authority to 
conduct audits and reviews of the state's and selected departments' 
readiness to comply with applicable Recovery Act requirements. 
According to the State Auditor, the state system's high-risk 
designation resulted from a number of concerns, including the amount of 
Recovery Act funds expected to be distributed to California, the 
extensive requirements the Recovery Act places on fund recipients, the 
risk of losing Recovery Act funds if the state fails to comply with 
requirements, and previously identified concerns related to certain 
state agencies' internal controls over their administration of federal 
programs. 

The State Auditor issued her first Recovery Act funding-related review 
on June 24, 2009. This review, which covered CDE, the Department of 
Healthcare Services, EDD, and the Department of Social Services, 
concluded that none of the four departments is fully prepared to 
implement all of the Recovery Act provisions. Specifically, the State 
Auditor noted in the report that each of the four departments generally 
planned to rely on existing internal controls for maintaining 
accountability and oversight of Recovery Act funds. While the report 
stated that this is a reasonable approach, the most recent Single Audit 
report identified 30 internal control weaknesses in programs within 
these departments that expect to receive Recovery Act funds. Of these, 
only 4 had been corrected, 22 were in the process of being corrected, 
and no action had been taken on the 4 remaining deficiencies. 
Consequently, the State Auditor concluded that without correcting these 
internal control deficiencies, relying on existing internal controls 
may not provide sufficient assurance that recipients of Recovery Act 
funds will comply with one or more of the various Recovery Act 
provisions. 

The State Auditor also anticipates that the amount of Recovery Act 
funds will increase the number of programs covered by the statewide 
Single Audit report, and that most programs receiving Recovery Act 
funds will be covered by the audit. The most recent statewide Single 
Audit report was issued on May 27, 2009, and covered the fiscal year 
ending June 30, 2008.[Footnote 45] More than half of the 138 findings 
in this report were also reported in the prior year's single audit 
report. The audit found that the state did not comply with certain 
federal requirements in 20 of the 39 major programs or program clusters 
that were audited. The Single Audit report also identified 234 material 
and significant deficiencies in internal controls. Identified internal 
control deficiencies that may be relevant to Recovery Act funds include 
the following: 

* The state's automated accounting system does not identify 
expenditures of federal awards for each individual federal program. 

* The state still does not have adequate written policies and 
procedures to accurately calculate federal and other interest 
liabilities by program as required in its cash management agreement 
with the federal government. 

* The database the state uses to prepare its statewide cost allocation 
plan, which is used to recover a portion of the state's costs for 
administering federal programs, is problematic in that the programming 
is difficult to understand and inadequately documented, and errors are 
difficult to identify and correct. 

* The state cannot ensure that local governments are taking prompt and 
appropriate corrective action to address audit findings after it 
receives the local governments' audit reports. 

The most recent Single Audit report identified a number of significant 
deficiencies or material weaknesses in several of the programs we 
reviewed. For example, the report cited continued problems with CDE 
ESEA Title I cash management, specifically that CDE routinely disburses 
Title I funds to districts without determining whether the LEAs need 
program cash at the time of the disbursement.[Footnote 46] According to 
CDE officials, in response to these issues, CDE has developed a cash 
management improvement plan that involves LEAs reporting federal cash 
balances on a quarterly basis using a Web-based reporting system. In 
addition, officials stated that CDE has developed cash management 
fiscal monitoring procedures to verify LEAs' reported cash balances and 
to ensure their compliance with federal interest requirements. CDE 
plans to implement the new plan beginning with a pilot program, Title 
II Improving Teacher Quality, for the quarter ending October 31, 
2009.[Footnote 47] CDE was also cited for inadequate review and 
approval controls associated with the CDE ESEA Title I reporting, as 
well as several material control weaknesses and deficiencies with 
school district processes and controls that may pose compliance issues 
for some school districts. 

The Single Audit report also cited concerns about CSD's contracts with 
local agencies to determine eligibility for certain programs. CSD, 
which is also responsible for the Weatherization Assistance Program, 
responded that it will update guidance provided to local agencies and 
continue its current practice of monitoring and providing assistance 
and training to local agencies. Additionally, both the 2007 and 2008 
Single Audit reports identified material weaknesses in the state's 
Medicaid program. The 2007 Single Audit report for California 
identified a number of material weaknesses related to the Medicaid 
program, including insufficient documentation for provider and 
beneficiary eligibility determinations and the risk of noncompliance 
with allowable costs principles. The report indicates that state 
officials concurred with all the findings and noted that corrective 
actions would be taken. The 2008 Single Audit report identified some of 
these same weaknesses. 

State Officials Express Concerns about the Lack of Clear Guidance on 
Reimbursement for Administrative and Oversight Activities: 

California officials told us that while OMB's May 11, 2009, guidance 
that allows states to recover some of their administrative costs 
associated with Recovery Act activities is helpful, many questions 
remain as to what costs can be recovered and how they should structure 
their activities to ensure payment. Given that the state is largely 
relying on existing systems to manage and oversee Recovery Act funds, 
the guidance is not clear on how to segregate the administration of an 
increased workload for reimbursement. For example, the state hopes that 
the Recovery Act readiness reviews performed by OSAE, which is 
diverting resources from its regular internal control work, can be 
reimbursed so that it can hire additional staff to cover the increased 
workload. Similarly, the State Auditor's Office hopes that its 
increased workload can be reimbursed, but it believes that because it 
is an independent audit function, separate from the administration, 
there is no process through which this can occur. Finally, the Task 
Force and the Chief Information Officer both expressed hope that the 
new data platform they are purchasing to track and report Recovery Act 
funds can be reimbursed with Recovery Act funds but are uncertain if 
they have to locate the system within one of the program agencies to be 
eligible for reimbursement. The Task Force has sought, but not yet 
received, clarification on cost reimbursement issues from OMB. 

State Agencies, Housing Authorities, and Subrecipients We Interviewed 
Generally Plan to Use Existing Internal Control Processes to Oversee 
Recovery Act Funds: 

State agencies, public housing authorities, and various subrecipients 
we met with plan to use existing internal control systems and resources 
to oversee Recovery Act funds.[Footnote 48] For example, both the FHWA 
California Division Office and Caltrans reported plans to conduct 
oversight activities on a subset of projects, based either on random 
sample or other criteria. Caltrans District Office staff will use 
existing systems and resources to conduct contract administration and 
construction inspection oversight for the Interstate 80 project in 
Solano County and will meet with city contract engineers to ensure 
adequate record keeping (i.e., completion of daily logs and quality 
assurance) during the construction period for the Del Monte Boulevard 
pavement rehabilitation project in the City of Seaside.[Footnote 49] 

Likewise, CDE and school district officials said that they plan to rely 
on existing internal controls and automated and manual processes to 
track the receipt and expenditure of education-related Recovery Act 
funds. Additionally, they each said they have other oversight entities 
in place that could specifically monitor Recovery Act activities. For 
example: 

* LA Unified has its own Office of Inspector General that helps the 
school board oversee district funds. Recently, the Inspector General 
recommended that the district establish a task force to communicate 
Recovery Act requirements, establish monitoring mechanisms, and ensure 
that such mechanisms function as intended. The school district 
subsequently established a Recovery Act task force, comprising budget, 
fiscal, and program personnel. 

* San Bernardino Unified administratively falls under the San 
Bernardino County Schools Superintendent's Office, which has its own 
internal audit function. According to San Bernardino Unified officials, 
the district's Recovery Act activities are subject to review by the 
county. 

Additionally, CSD officials stated that they have internal controls at 
the agency and subgrantee levels, including four in-house auditors and 
one retired annuitant who perform desk audits of the subgrantees. For 
Recovery Act weatherization funds, it is anticipated that the auditors 
will also perform annual site audits. Similarly, CalEMA has three in-
house audit staff plus a chief of staff who monitor internal controls 
of all aspects of CalEMA, including the JAG program and its 
subgrantees. CalEMA officials told us they plan to hire five program 
specialists to monitor the projects (including conducting site visits) 
for compliance with JAG guidelines for projects funded by the Recovery 
Act. For the WIA Youth program, EDD officials told us that federal 
regulations already require the department to conduct fiscal and 
program reviews of whether local areas are meeting WIA requirements, 
although they noted that they are uncertain if they will be able to 
review all 2009 summer programs on their own or in conjunction with 
U.S. Department of Labor.[Footnote 50] EDD officials also told us that 
they plan to have tools in place in July 2009 to address the monitoring 
requirements of the Recovery Act and that they plan to begin oversight 
at that time. 

Officials from several state agencies also told us that they will use 
subrecipient Single Audit report results as an additional oversight 
mechanism. For example, the Caltrans Office of Audits and 
Investigations uses findings from Single Audit reports and its own 
audits of local agencies to identify any issues and track corrective 
actions. If a locality fails to act on an identified problem, the 
Office of Audits and Investigations can recommend that its Division of 
Local Assistance designate the locality as high risk, which then 
requires the locality to pass several conditions, audits, or both to be 
removed from the high-risk list. Similarly, CDE has an Audit Resolution 
Unit that reviews LEA Single Audit reports to identify unresolved 
findings. According to Audit Resolution staff, such unresolved audit 
findings are entered into an access database that is used to track the 
status until the finding is resolved. Unit staff send follow-up letters 
to LEAs with unresolved findings that request corrective action plans. 
If a response is not received within a month, unit staff will make 
follow-up contact until an adequate response is received. Officials at 
LA Unified and San Bernardino Unified confirmed that CDE is following 
up with them on Single Audit report findings. For WIA Youth programs, 
EDD officials also reported that they routinely monitor Single Audit 
report results for local areas and work with the state Workforce 
Investment Board to resolve findings and help local areas develop 
corrective action plans. Officials reported that in-house audit staff 
are responsible for follow-up on Single Audit report findings. 

State Officials and Local Recipients Continue to Express Concerns about 
the Lack of Clear Guidance on Measuring Impacts of Recovery Act Funds: 

Several state agency officials, subrecipients, and housing authorities 
believe that additional guidance is needed from OMB and other federal 
agencies before they can fully address the issues of impact and jobs 
assessments.[Footnote 51] The first required quarterly report 
containing estimates of the number of jobs created and retained by 
projects or activities supported by Recovery Act funds is due October 
10, 2009. The Task Force is planning to rely on each state agency to 
collect and report information on job creation for the recipient 
programs and subrecipient organizations.[Footnote 52] Several 
officials reiterated that they anticipate it will be difficult to 
separate the specific impacts of Recovery Act funds when those funds 
are combined with other federal, state, or local funds, as they will be 
in many situations. Additionally, officials expressed concerns about 
the potential for inconsistent reporting among subrecipients or 
contractors. For example: 

* CSD officials told us that they would like to see guidance from DOE 
on how to measure the creation of jobs related to the Recovery Act. CSD 
officials reported that they are currently preparing their best 
estimates without the benefit of any guidance. 

* CDE and school district officials told us that additional guidance is 
needed on the specific requirements for reporting on the number of jobs 
retained or created. The lack of guidance could result in reporting 
inconsistent data to CDE. Additionally, officials told us that 
assessing the effects of Recovery Act funds will be difficult because 
the state's extreme budget cuts and reduction in funding for education 
programs and staffing will only be partially mitigated by Recovery Act 
stabilization funds, and many jobs will still be lost. Consequently, 
officials generally reported that they will be measuring the number of 
jobs retained rather than jobs created, but they have not received 
guidance for measuring such impacts. 

* EDD officials told us that they would like clarification from the 
U.S. Department of Labor on how to assess and measure jobs preserved 
and created as a result of increased WIA funding. California Workforce 
Investment Board and EDD officials stated that WIA Youth programs 
promote job creation, but do not necessarily create jobs themselves. 
Also, they noted that WIA prohibits the use of funds for economic-
generating activities not tied to participants, and therefore its 
programs are unlikely to be used to create jobs other than for program 
participants. These officials told us that the state's existing system 
can track the number of youth placed into employment, but it is not 
designed to track jobs created or retained because of Recovery Act 
funding. 

* Caltrans officials said that contracts will require contractors to 
report the number of workers and payroll amounts, among other things, 
to Caltrans on a monthly basis. Caltrans will then provide the data to 
the FHWA California Division Office, which, in turn, will provide it to 
FHWA Headquarters. Using the data provided, FHWA Headquarters plans to 
calculate the number of direct, indirect, and induced jobs. The 
contract for the Interstate 80 project, for example, included this type 
of reporting requirement, and the contractor reported May 2009 data to 
Caltrans in early June 2009. However, as of June 12, 2009, no formal 
training or guidance on job reporting requirements had been provided to 
contractors or local officials. A Caltrans official told us that they 
will be working with contractors to answer questions that arise about 
job reporting requirements and to ensure that the numbers reported 
match reporting criteria. 

* Local housing officials expressed concern with the lack of guidance 
from OMB on measuring job creation. They told us that they would take 
measures to meet OMB's guidance when it becomes available. Housing 
officials generally told us that they plan to track jobs created by 
obtaining feedback and certified payroll information from contractors 
and subcontractors. 

Aside from job creation, many of the recipient agencies that we spoke 
with are also developing and implementing plans to evaluate other 
effects of Recovery Act funds. For example: 

* According to CalEMA officials, their primary challenge will be timely 
reporting on new performance measures that the Department of Justice's 
BJA provided in draft on May 11, 2009, including for the JAG funds 
provided under the Recovery Act. The 71 separate performance measures 
are to be assessed each quarter by local law enforcement agencies and 
submitted to CalEMA for reporting to BJA within 30 days after the 
quarter ends. According to officials, these measures are far more 
complex and numerous than those currently required for this program. 
Additionally, CalEMA officials anticipate that it will be a challenge 
to get all participants to report within these time frames. CalEMA 
officials are looking to develop a secure Web site to help obtain the 
required information in an efficient and timely manner. According to 
Office of Justice Programs (OJP) officials in the Department of 
Justice, JAG grant recipients are to begin reporting on these updated 
measures in January 2010. OJP is also in the process of developing an 
online performance measurement tool for JAG grantees to use to report 
these data, which it expects to be finalized by October 2009. 

* According to school district officials, no new evaluations or studies 
are planned just for Recovery Act activities or funding. Nevertheless, 
officials told us that they plan to perform a variety of evaluations 
and studies that could assist them in reporting Recovery Act impacts. 
For example, LA Unified's Special Education program, which is operating 
under a modified consent decree, is monitoring 18 performance-based 
outcomes as part of that decree, which could provide useful data for 
reporting on Recovery Act impacts. For example, an outcome already met 
was having at least 95 percent of students with disabilities in state-
identified grade levels participate in the statewide assessment program 
with no accommodations or standard accommodations. Similarly, officials 
from San Bernardino Unified said that assessments and studies called 
for in the district's Special Education Master Plan could help report 
on Recovery Act impacts. 

* The Recovery Act provides that work readiness is the only indicator 
to be used for youth who only participate in WIA summer employment 
activities. However, for reporting to EDD, local areas will also be 
required to track the number of participants enrolled in summer 
employment and the completion rate of those in summer employment 
programs. For example, San Francisco's program is requiring service 
providers to track the number of youth provided work experience 
opportunities, those receiving training and academic enrichment 
activities, and other data. 

State Comments on This Summary: 

We provided the Governor of California with a draft of this appendix on 
June 19, 2009. 

In general, California state officials 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: 

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

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

Staff Acknowledgments: 

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

[End of section] 

Footnotes For Appendix II: 

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

[2] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's solicitation for local governments closed on 
June 17; therefore, not all of these funds have been awarded. 

[4] The state has maintained a relatively small rainy-day fund 
currently targeted at $2 billion. Even if the full $24 billion in 
proposed measures are adopted, the state estimates that it will end the 
current budget year with a reserve of $1.5 billion this fiscal year and 
$4.5 billion next fiscal year. 

[5] See Recovery Act, div. B, title V, § 5001. 

[6] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[7] State projected enrollment for May 2009. 

[8] 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. See Recovery Act, div. B, title V, § 
5001(f)(1)(A). The state previously reversed a policy that had 
increased the frequency at which it conducted eligibility 
redeterminations for children from annually to every 6 months. 

[9] See Recovery Act, div. B, title V, § 5001(f)(4). 

[10] In some states, political subdivisions--such as cities and 
counties--may be required to help finance the state's share of Medicaid 
spending. Under the Recovery Act, a state that has such financing 
arrangements is not eligible for certain elements of the increased FMAP 
if it requires subdivisions to pay during a quarter of the recession 
adjustment period a greater percentage of the nonfederal share than the 
percentage that would have otherwise been required under the state plan 
on September 30, 2008. See Recovery Act, div. B., title V, § 
5001(g)(2). The recession adjustment period is the period beginning 
October 1, 2008, and ending December 31, 2010. 

[11] According to CMS, the rate-setting methodology under the 
California state plan gives counties a primary role in developing and 
recommending Medicaid personal care service provider wage rates to the 
state agency that administers the Medicaid program. In February 2009, 
the state enacted a law that as of July 1, 2009, would change the 
amount that the state contributed for wages and benefits for personal 
health care service workers from $12.10 to $10.10 an hour. The 
California Medicaid plan in effect on September 30, 2008, provides for 
counties to contribute 100 percent of the nonfederal share of personal 
care service expenditures furnished through the county when those 
expenditures exceed funds appropriated by the legislature for that 
purpose. California requested that CMS explain whether the county's 
payment of amounts above the amount appropriated by the state would 
implicate section 5001(g)(2) of the Recovery Act. 

[12] The low bid for the project was approximately $13.4 million. The 
$19.6 million obligation includes a construction allotment of $15.6 
million that includes additional funds for unexpected costs plus 
approximately $4 million for costs including traffic management, safety 
enhancement, and other support costs. 

[13] The 50 percent rule applies only to funds apportioned to the state 
and not to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. 

[14] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of the each state to have its apportioned funds obligated by 
the end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[15] Of the $2.570 billion California received under the Recovery Act, 
the act allocates $1.799 billion (70 percent) to state-level projects 
and another $771 million (30 percent) to local projects. 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 SHOPP projects for highway 
rehabilitation and eligible maintenance and repair, $29 million will 
fund transportation enhancement projects, and $310 million will be 
loaned to fund stalled capacity expansion projects. The state law does 
not change federal obligation requirements under the Recovery Act. 

[16] Caltrans officials stated that county-level unemployment data 
generated by the Bureau of Labor Statistics were not sufficiently 
representative of the current unemployment situation in California 
because they were based on data from December 2006 through November 
2008. 

[17] ESEA Title I requires that local education agencies identify for 
school improvement any elementary or secondary school that fails, for 2 
consecutive years, to make adequate yearly progress as defined in its 
state's plan for academic standards, assessments, and accountability. 

[18] These two systems comprise multiple university campuses--UC with 
10 campuses and CSU with 23. 

[19] School districts must obligate at least 85 percent of their 
Recovery Act ESEA Title I, Part A, funds by September 30, 2010, unless 
granted a waiver, and all of their funds by September 30, 2011. This 
will be referred to as a carryover limitation. 

[20] As discussed later in the report, CDE has been cited in the Single 
Audit report and by Education's Office of Inspector General for 
weaknesses in its cash management system--including for ESEA Title I. 

[21] Education will consider waiving the following requirements with 
respect to Recovery Act Title I funds: (1) a school in improvement's 
responsibility to spend 10 percent of its ESEA Title I funds on 
professional development; (2) a school district in improvement's 
responsibility to spend 10 percent of its ESEA Title I, Part A, Subpart 
2, allocation on professional development; (3) a school district's 
obligation to spend an amount equal to at least 20 percent of its ESEA 
Title I, Part A, Subpart 2, allocation on transportation for public 
school choice and on supplemental education services such as tutoring; 
(4) a school district's responsibility to calculate the per-pupil 
amount for supplemental education services based on the district's 
fiscal year 2009 ESEA Title I, Part A, Subpart 2, allocation; (5) the 
prohibition on a state education agency's ability to grant to its 
districts waivers of the carryover limitation of 15 percent more than 
once every 3 years; and (6) the ESEA Title I, Part A, maintenance of 
effort requirements. 

[22] DOE also allocates funds to Indian tribes and U.S. territories 
(American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and 
the Virgin Islands). 

[23] The California Department of Finance approved the use of these 
initial funds for program administration, and the California Joint 
Legislative Budget Committee approved $10 million in expenditures for 
the current fiscal year. The $10 million includes $1.5 million to 
support state activities and $8.5 million for local support. The 
remaining $8.6 million will be expended in California's fiscal year 
2009-10. 

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

[25] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where federal 
and state law have different minimum wage rates, the higher standard 
applies. 

[26] According to EDD officials, the Job Training Partnership Act, 
which WIA replaced about 10 years ago, funded a stand alone summer 
youth program. They explained that some local areas have continued to 
run self-funded summer programs, however, local areas have not 
typically placed an emphasis on these activities nor operated summer 
programs in isolation from other youth services. 

[27] San Francisco's existing network of youth program employers 
includes 250 nonprofit, community-based organizations and 27 city 
departments. Local officials estimate that about one-fifth of San 
Francisco's 2009 summer opportunities will be with private sector 
employers. 

[28] We did not review these funds awarded directly to local 
governments in this report because the Bureau of Justice Assistance's 
solicitation for local governments closed on June 17. 

[29] According to the Department of Justice application for the JAG 
money, a state administering agency may use up to 10 percent of the 
state award, including up to 10 percent of any accrued interest, for 
costs associated with administering JAG funds. 

[30] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[31] HUD released a revised Notice of Funding Availability for 
competitive awards on June 3, 2009. The revision included changes and 
clarifications to the criteria and time frames for application and to 
funding limits. 

[32] We selected these agencies based on the amounts of Recovery Act 
funds that were drawn down, our intention to follow up with the agency 
that we met with for our prior report, and other risk-based factors, 
such as San Francisco's troubled performer designation by HUD. 

[33] The Area Housing Authority of the County of Ventura is an 
independent, nonprofit agency serving the residents of Camarillo, 
Fillmore, Moorpark, Ojai, Simi Valley, Thousand Oaks, and the 
unincorporated areas of Ventura County. The Area Housing Authority is 
governed by a 15-member Board of Commissioners. 

[34] Ventura housing does not have any vacant units. 

[35] The Sacramento Housing and Redevelopment Agency is a Joint Powers 
Authority created by the City and County of Sacramento to represent 
both jurisdictions for affordable housing and community redevelopment 
needs. The agency serves as the housing authority for the City and 
County of Sacramento and oversees residential and commercial 
revitalization activities in 14 redevelopment areas throughout the city 
and county. The agency has a fiscal year 2009 budget of $294 million 
and approximately 291 employees. The agency owns and manages 3,144 
units of public housing and is one of the largest landlords in 
Sacramento. The agency also administers approximately 11,000 rental 
assisted vouchers per month. 

[36] The San Francisco Housing Authority is the oldest housing 
authority in California. While the Mayor appoints the seven members of 
the authority's Board of Commissioners, the authority is an 
independent, state-chartered corporation. Two commissioners are 
authority residents who represent the families, seniors, and disabled 
persons who are residents. The Board of Commissioners appoints an 
executive director to lead the authority workforce of more than 400 
employees in various executive, administrative, and craft occupations. 

[37] HUD developed the Public Housing Assessment System to evaluate the 
overall condition of housing agencies and measure performance in major 
operational areas of the public housing program. These include 
financial condition, management operations, and physical condition of 
the housing agencies' public housing programs. Housing agencies that 
are deficient in one or more of these areas are designated as troubled 
performers by HUD and are statutorily subject to increased monitoring. 
HUD designated the San Francisco Housing Authority as troubled 
performer because of its score of less than 60 percent in the physical 
condition of its housing units. 

[38] Local entities will receive $1.606 billion for projects of their 
selection, and how they will track these Recovery Act funds varies by 
locality. 

[39] The Task Force includes one representative from the administration 
for each of the state's main program areas through which the federal 
funding will flow, including: health and human services, 
transportation, housing, energy, environment/water quality, general 
government, education, labor, and broadband. 

[40] The Task Force is also charged with working with the President's 
administration; helping cities, counties, nonprofits, and others access 
the available funding; and maintaining a Web site [Hyperlink, 
http://www.recovery.ca.gov] that contains updated information about 
California's Recovery Act funds. 

[41] Cal. Gov't Code § 13400-13407. 

[42] The Single Audit Act, as amended (31 U.S.C. ch. 75), requires that 
each state, local government, or nonprofit organization that expends 
$500,000 or more a year in federal awards must have a Single Audit 
conducted for that year subject to applicable requirements, which are 
generally set out in OMB Circular No. A-133, Audits of States, Local 
Governments and Non-Profit Organizations (June 27, 2003). If an entity 
expends federal awards under only one federal program, the entity may 
elect to have an audit of that program. 

[43] Executive Order S-08-09, June 4, 2009. 

[44] As discussed later, the State Auditor has also conducted recent 
reviews of four state agencies receiving Recovery Act funds, and has 
reported concerns over these departments' readiness to implement all of 
the applicable Recovery Act provisions. 

[45] California State Auditor, State of California: Internal Control 
and State and Federal Compliance Audit Report for the Fiscal Year Ended 
June 30, 2008, Report 2008-002 (May 2009). 

[46] In March 2009, Education's Office of Inspector General also 
reported persistent Title I cash management problems at CDE, as well as 
material control weaknesses and deficiencies with school district 
processes and controls. 

[47] According to CDE officials, once the pilot program is deemed to be 
working as intended, other federal programs, including Title I, will be 
phased into CDE's new cash management system and processes. 

[48] As previously discussed, the State Auditor's recent report on four 
agencies receiving Recovery Act funds concluded that without correcting 
existing internal control deficiencies, CDE, the Department of Health 
Services, EDD, and the Department of Social Services may not be in a 
position to rely on existing internal controls to provide sufficient 
assurance that they will be able to comply with the applicable 
requirements of the Recovery Act. 

[49] In the past, FHWA has reported that there are risks associated 
with local implementation of federal regulations, including difficulty 
maintaining compliance with these federal regulations. 

[50] Program reviews include interviews with local officials, service 
providers, and participants; reviews of applicable policies and 
procedures; and reviews of sample expenditures, procurements, and 
participant case files. 

[51] On June 22, 2009, OMB issued implementing guidance for the 
reporting on the use of Recovery Act funds (M-09-21). 

[52] As previously discussed, the state plans to use agency and 
subrecipient reporting to collect information on Recovery Act funds, 
including impacts, but has not yet purchased the data platform to 
achieve this and is awaiting further guidance on data standards from 
OMB. 

[End of Appendix II] 

Appendix III: Colorado: 

Overview: 

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

Use of Funds: Our work in Colorado focused on eight federal programs, 
[Footnote 2] selected primarily because these programs have begun 
disbursing funds to states and include existing programs receiving 
significant amounts of Recovery Act funds or significant increases in 
funding, and new programs. Colorado estimates that it will receive a 
total of $3.5 billion in Recovery Act funds, and is targeting funds to 
help restore the state's budget and to meet key program needs during 
the current budget crisis. Funds from some of these programs are 
intended for disbursement through states or directly to localities. The 
funds include the following: 

* U.S. Department of Education (Education) State Fiscal Stabilization 
Fund. Education has awarded Colorado $509 million, or about 67 percent 
of the state's total State Fiscal Stabilization Fund (SFSF) allocation 
of $760 million. Colorado had obligated a total of almost $176 million 
of the funds as of June 30, 2009.[Footnote 3] Colorado is using these 
funds primarily to support its higher education system; without the 
funds, according to state officials, budget cuts could have resulted in 
the closure of some institutions and increased tuition at others. Local 
education officials we spoke with stated that their districts do not 
yet have specific plans for the funds, but anticipate using them to 
retain teachers and reduce the potential for layoffs. 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $404 
million in Recovery Act funds to Colorado, of which 30 percent was 
suballocated to metropolitan and other areas. As of June 25, 2009, the 
federal government's obligation was $244 million, and Colorado had 
awarded 29 projects. Colorado plans 92 projects using Recovery Act 
funds, with the initial projects consisting primarily of routine paving 
projects and later projects involving highway construction and bridge 
replacement. For example, one ongoing project in central Colorado 
involves paving 12.5 miles of highway, while a planned project in the 
Denver metro area will replace two bridges on Interstate 76. 

* Funds made available as a result of increased Medicaid Federal 
Medical Assistance Percentage (FMAP). As of June 29, 2009, Colorado had 
received almost $241 million in increased FMAP grant awards, of which 
it had drawn down more than $197 million, or almost 82 percent of 
funds. Colorado reported using funds made available as a result of the 
increased FMAP to offset the state budget deficit[Footnote 4] in an 
effort to avoid or mitigate Medicaid benefit cuts and provider rate 
cuts resulting from the state's economic conditions.[Footnote 5] 

* Individuals with Disabilities Education Act (IDEA), Parts B and C. 
Education has provided Colorado $80.5 million in Recovery Act IDEA Part 
B and C funds, or 50 percent of the state's total allocation of $161 
million. These funds, which are managed by two different state 
departments in Colorado, are targeted for, among other things, 
assistive technology for students with disabilities and professional 
development for special education teachers. As of June 29, 2009, 
Colorado's Department of Education had reimbursed school districts more 
than $3.9 million for Part B and had obligated an additional $156,000. 
As of June 30, 2009, the Department of Human Services had obligated 
more than $3.3 million for contracts with service providers under Part 
C. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). Education has awarded Colorado $55.6 million in Recovery 
Act ESEA Title I, Part A, funds or 50 percent of its total allocation 
of $111 million. As of June 29, 2009, Colorado had reimbursed 
individual school districts about $279,000. Planned uses of the funds 
in Colorado include preschool education, family literacy improvements, 
and teacher development. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $79.5 million in Recovery Act weatherization 
funding to Colorado. As of June 30, 2009, DOE had provided $7.95 
million to the state and Colorado had obligated $5.25 million of these 
funds, of which almost $1 million had been spent. Colorado plans to 
hire additional staff and purchase equipment to help it weatherize more 
than 16,000 housing units using Recovery Act funds. 

* Edward Byrne Memorial Justice Assistance Grant Program. The 
Department of Justice's Bureau of Justice Assistance has allocated a 
total of $29.9 million for state and local governments in Colorado. As 
of June 26, 2009, Colorado had received its full state award of $18.3 
million and had obligated and spent about $13,700 of these funds. 
[Footnote 6] The Colorado Department of Public Safety, which 
administers these grants for the state, received nearly 200 
applications from state and local entities for grant funds, and will 
select applications for funding in July 2009, for award beginning 
October 1, 2009. Of available funds, 60 percent will be awarded to 
local government entities while 40 percent will be awarded to state 
agencies. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development (HUD) has allocated almost $17 million in Recovery Act 
funding to 43 public housing agencies in Colorado. Based on information 
available as of June 20, 2009, about $2.4 million (14 percent) had been 
obligated by those agencies and about $201,000 (1 percent) had been 
spent. At the three housing authorities we visited, this money, which 
flows directly from HUD to public housing agencies, is being used for 
various projects including construction of new units, rehabilitation of 
existing units, and smaller-scale projects such as fence and window 
replacement at rural housing units. 

Safeguards and Internal Controls: 

Colorado has, since our April 2009 report,[Footnote 7] developed a 
coding structure to account for Recovery Act funds separately from non- 
Recovery Act funds, addressing officials' concerns that tracking the 
funds might be difficult with the state's aging central accounting 
system. The responsibility for tracking and monitoring of, and 
exercising internal controls over, Recovery Act funds has largely been 
delegated to the individual state departments, which will generally use 
existing systems and internal control procedures. Although the State 
Controller initially expressed concerns that the state does not have a 
centralized process for monitoring the effectiveness of state 
departments' internal controls, that office has taken steps to address 
these concerns. In addition, the state departments use their Single 
Audit Act audits (Single Audit), among other information, as a source 
of information to assess program risks and monitor funds.[Footnote 8] 
The Office of the State Auditor (which is responsible for conducting 
the state's Single Audit) had concerns about the lack of timely 
guidance from the Office of Management and Budget (OMB) on specific 
audit requirements related to state departments' expenditures of 
Recovery Act funds. In addition, the office noted that additional 
funding will be needed to cover the cost of the Recovery Act audit 
work. State officials told us that the state might be able to provide 
Recovery Act funds to cover these audit costs, consistent with OMB 
guidance on using Recovery Act funds to cover certain administrative 
costs associated with implementing the act, but that no proposal has 
been developed.[Footnote 9] 

Assessing the Effects of Recovery Act Spending: 

While it is still too early to assess the impacts of Colorado's 
Recovery Act funding, state officials are planning to track and monitor 
centrally the results of this spending, including identifying the 
number of jobs created and retained through Recovery Act spending. 
Officials with the Colorado Recovery office said that they are still 
evaluating whether they will modify and use an existing system or 
acquire a new system to track and monitor effects. The state plans to 
report data centrally on jobs created and retained, but some state 
department officials said that reporting guidelines have not yet been 
finalized and that they need guidance, particularly on counting jobs 
created and retained. 

Colorado Is Relying on Recovery Act Funds to Help Stabilize Its Budget 
and to Meet Various Program Needs across the State: 

In the face of declining tax revenues and large proposed cuts in the 
previous and current fiscal years' budgets, Colorado is using Recovery 
Act funding to help it continue providing services in key programs such 
as higher education and Medicaid, according to state budget officials, 
as well as to maintain funding in other programs. Colorado's budget 
situation continues to worsen; the Governor signed a balanced budget on 
May 1, 2009, based on then-current legislative estimates showing 
general fund revenues declining $800 million in fiscal year 2008-2009 
from the previous fiscal year and declining an additional $100 million 
from fiscal year 2008-2009 to fiscal year 2009-2010 (out of an 
operating budget of about $18 billion).[Footnote 10] The actions taken 
by the state to balance the budget--which it is constitutionally 
required to do--included transferring reserves from cash funds (special 
funds created from the collection of fees, such as waste disposal fees, 
for specific purposes) into the general fund, cutting programs, 
establishing a state hiring freeze and imposing 4 furlough days on 
nonessential state employees, and spending half the state's 4 percent 
budget reserve.[Footnote 11] The state's subsequent June 22, 2009, 
revenue forecast showed an additional shortfall of almost $250 million 
in revenues for fiscal years 2008-2009, which the state addressed by 
transferring additional cash reserves that had been designated to 
balance the 2009-2010 budget.[Footnote 12] The state will then need to 
take action to balance the 2009-2010 budget, although the need for this 
action may be mitigated by a slight increase in general fund revenues 
($85 million) predicted by the June forecast in contrast to the decline 
in revenues predicted in the March forecast. 

The Recovery Act helped the state avoid more severe actions, including 
proposals to cut as much as 60 percent of the state's contribution to 
its higher education system; according to the state budget officials, 
the most important sources of Recovery Act funds in alleviating the 
state's budget crisis are the increased FMAP award for Medicaid, which 
has allowed the state to maintain a level of service that it would not 
have without Recovery Act funds, and the SFSF, which will be used to 
support higher education and, to a lesser degree, K-12 education 
programs. State budget officials said that their future year budget 
plans anticipate continued weak revenues as well as the phasing out of 
Recovery Act funds. In balancing budgets over the next few years, the 
officials noted that although the state will have less flexibility to 
transfer cash fund reserves because the excess in the funds was largely 
used in balancing the fiscal year 2008-2009 budget, the state passed 
legislation that allows it to set aside larger amounts of reserves to 
be used in future years.[Footnote 13] When revenues recover, the 
state's ability to restore cuts will be aided by recently passed 
legislation removing restrictions on how state revenues can be 
allocated. 

State Fiscal Stabilization Fund: 

The Recovery Act created the 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 SFSF award requires each state to submit an application to 
Education that provides several assurances. These include assurances 
that the state will meet maintenance of effort requirements (or it will 
be able to comply with waiver provisions) and that it will implement 
strategies to meet certain educational requirements, including 
increasing teacher effectiveness, addressing inequities in the 
distribution of highly qualified teachers, and improving the quality of 
state academic standards and assessments. Furthermore, the state 
applications must contain baseline data that demonstrate the state’s 
current status in each of the assurances. States must allocate 81.8 
percent of their SFSF funds to support education (education 
stabilization funds), and must use the remaining 18.2 percent for 
public safety and other government services, which may include 
education (government services funds). After maintaining state support 
for education at fiscal year 2006 levels, states must use education 
stabilization funds to restore state funding to the greater of fiscal 
year 2008 or 2009 levels for state support to school districts or 
public institutions of higher education (IHE). When distributing these 
funds to school districts, states must use their primary education 
funding formula but maintain discretion in how funds are allocated to 
public IHEs. In general, school districts maintain broad discretion in 
how they can use stabilization funds, but states have some ability to 
direct IHEs in how to use these funds. 

Under the Recovery Act, Colorado was allocated more than $760 million 
in SFSF funds, $622 million of which will be used as education 
stabilization funds and $138 million of which will be used as 
government services funds. The state sent its application for the 
stabilization funds to Education on May 29, 2009; after receiving 
questions from Education, the state revised the application and 
resubmitted it on June 8, 2009. Education approved the application and 
awarded Colorado $509 million, or about 67 percent of the total, on 
June 10, 2009. As of June 30, 2009, the state had obligated a total of 
$175.6 million of these funds: $150.7 million of the education 
stabilization funds and $24.9 million of the government services funds. 
The state plans to spend the majority of the SFSF education 
stabilization funds—$452 million—for higher education, while allocating 
the remaining $170 million to the state’s K-12 system. This focus on 
using Recovery Act funds for higher education is a result of the state’
s constitutional requirement to maintain its level of funding for K-12 
programs, according to state officials. The requirement is for the 
state to increase its share of K-12 education funding by an amount 
equal to inflation plus 1 percent annually through fiscal year 2010-
2011. As a result of this requirement, Colorado’s K-12 programs were 
not jeopardized to the same extent as higher education when the state 
was considering budget cuts, and thus local school districts will 
receive a lower amount from the SFSF program. 

The $452 million for higher education will be spent in increments of 
roughly $150 million per year over the next 3 years, beginning in 
fiscal year 2008-2009 and has been designated for the state’s 4-year, 2-
year, and vocational institutions. According to state officials, 
without the State Fiscal Stabilization Fund, the state’s general fund 
contribution to higher education could have been cut by 60 percent, 
with the effect of drastically restructuring the system of higher 
education. According to officials, during budget debates, cuts of 
anywhere from $30 million to about $450 million in general fund 
contributions to higher education were discussed. Although the effects 
of such cuts are unknown because they did not occur, officials told us 
that if the larger amount had been cut, some schools could have become 
privately funded, others could have been closed, and tuition could have 
been raised significantly. The state plans on having higher education 
institutions apply for the funds, as provided for in Education’s 
guidance for the Recovery Act, and having the institutions sign a 
letter stating that the funds will be used to mitigate tuition 
increases if they are accepted. State officials said they do not 
anticipate institutions declining to apply. 

The $170 million in K-12 funding will be spent over 2 fiscal years. The 
state will allocate the funds to schools based on the state’s school 
finance formula, which provides a per-pupil amount of money plus 
additional money to recognize variation among districts created by cost 
of living, personnel costs, size, and pupils at risk. This includes, 
for example, a total of $10.4 million for Denver County School District 
1 and $14.8 million for Jefferson County School District R-1, two 
school districts we visited during our work.[Footnote 14] Officials at 
the two school districts said that they are waiting for instructions 
from the state on what requirements they must meet to apply for 
stabilization funds and, as such, do not yet have formal plans for the 
use of the funds. However, the officials stated that, in part, they 
intend to use the funds to retain teachers, reduce the potential for 
layoffs, and restore funding cuts to programs. Denver County School 
District 1 officials added that they would likely use the funds to 
improve the academic achievement of low performing students and sustain 
existing programs to increase teacher effectiveness and the 
distribution of highly qualified teachers. According to state 
officials, school districts will need to apply for their funds by 
signing a letter supporting the four education assurances outlined in 
the Recovery Act, specifically (1) improving equity in teacher 
distribution; (2) improving collection and use of data; (3) enhancing 
the quality of academic standards and assessments; and (4) supporting 
struggling schools. 

Colorado officials applied $70 million of the $138 million in SFSF 
government services funds to the state's general fund to avoid cuts to 
government services in the Department of Corrections. In addition, the 
state plans to use $10 million to pay for education incentives such as 
Race to the Top, a competitive grant to improve education quality and 
results statewide. State officials said that they have not decided how 
to use the remaining $58 million of government services funds. One 
possible use, according to officials, could be to pay for 
administrative costs associated with Recovery Act funds. We previously 
reported that Colorado officials were concerned about how they could 
pay for the management and oversight of Recovery Act funds. State 
officials are still concerned that state offices that have oversight 
over Recovery Act funds, such as the Office of State Controller, the 
State Auditor's office, and the Governor's Recovery office, did not 
receive direct funds for their Recovery Act work and were not sure how 
this work would be funded. State officials said that the state is 
considering whether to use a portion of the remaining government 
services funds to pay for administrative costs, or whether to use the 
0.5 percent of total Recovery Act funds received by the state that may 
be used for such costs, as described in OMB guidance issued May 11, 
2009. 

Highway Infrastructure Investment: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms, and states 
must follow the requirements of the existing program including 
planning, environmental review, contracting, and other requirements. 
However, the federal fund share of highway infrastructure investment 
projects under the Recovery Act is up to 100 percent, while the federal 
share under the existing Federal-Aid Highway Program is generally 80 
percent. 

As we previously reported, $403,924,130 was apportioned to Colorado in 
March 2009 for highway or other eligible projects in Colorado. As of 
June 25, 2009, $243,910,077 had been obligated. The U.S. Department of 
Transportation (USDOT) has interpreted the term "obligation of funds" 
to mean the federal government's contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government signs a project agreement. As of June 25, 2009, 
$40,938 had been reimbursed by FHWA. States request reimbursement from 
FHWA as the state makes payments to contractors working on approved 
projects. 

According to officials with the Colorado Department of Transportation 
(CDOT), 92 Recovery Act projects are planned throughout the state. 
While the initial set of projects under contract are mostly routine 
pavement preservation and improvement projects, CDOT also plans to use 
Recovery Act funds for highway construction, bridge replacement, and 
other more complex projects. For example, one planned project in the 
Denver metropolitan area will replace two bridges on Interstate 76. For 
types of projects which have had funds obligated as of June 25, 2009, 
see table 1. 

Table 1: Highway Obligations for Colorado by Project Type as of June 
25, 2009: 

Pavement projects: New construction: $4 million; 
Pavement projects: Pavement improvement: $134 million; 
Pavement projects: Pavement widening: $70 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $17 million; 
Bridge projects: Improvement: $0 million; 
Other[A]: $19 million; 
Total: $244.0 million. 

Percent of total obligations[B]: 
Pavement projects: New construction: 1.5%; 
Pavement projects: Pavement improvement: 55.1%; 
Pavement projects: Pavement widening: 28.8%; 
Bridge projects: New construction: 0.0%; 
Bridge projects: Replacement: 6.9%; 
Bridge projects: Improvement: 0.0%; 
Other[A]: 7.6%; 
Total: 100.0%. 

Source: GAO analysis of FHWA data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[B] Total does not add to 100 due to rounding. 

[End of table] 

As of June 26, 2009, CDOT had awarded contracts on 29 projects and, as 
of June 29, had completed construction on 1 project. GAO reviewed two 
projects with awarded contracts, including a $5.2 million repaving 
project along US-24/US-285 in Chaffee County, an economically 
distressed rural area in central Colorado,[Footnote 15] and a $700,000 
repaving project on Belleview Avenue in Arapahoe County, in the Denver 
metropolitan area.[Footnote 16] Although conditions along Belleview 
Avenue had deteriorated beyond the point at which routine maintenance 
would be useful, CDOT officials reported that without Recovery Act 
funds, the project would likely not have been completed until 2010 or 
2011. With Recovery Act funds, the project was completed by June 29, 
2009. Similarly, despite poor road conditions along US-24/US-285, that 
project would not have been scheduled for construction until fiscal 
year 2011, but will likely be completed by October 2009 with Recovery 
Act funds. 

CDOT officials reported that bids for the initial Recovery Act projects 
had come in lower than the engineers' estimates, freeing up funds for 
other projects. The awarded bid on the Belleview Avenue project was 30 
percent below CDOT's estimate, partially due to low asphalt prices, 
[Footnote 17] which came in at $53 per ton, compared to the engineers' 
estimate of $90 per ton. Similar cost savings on the US-24/US-285 
project allowed CDOT to add an additional 4 miles of repaving to the 
project, increasing the total project length to 12.5 miles. CDOT 
officials attributed the low bids to the economic recession, with many 
contractors in need of work, as well as to downward trends in the 
prices of certain key commodities such as asphalt. Officials stated 
that they did not know how long this bidding climate would continue, 
but the department has adjusted its cost estimates to account for it. 
Consequently, bids on more recently advertised projects have come in 
closer to engineers' estimates. As of June 26, 2009, Colorado had total 
bid savings of $26,653,841--that is, the cumulative difference between 
engineers' estimates and the awarded contract amounts. FHWA has been 
deobligating funds as a result of contracts being awarded for less than 
originally estimated, but CDOT has chosen to wait to use these funds 
until it knows whether it will need them for any projects with higher 
than anticipated bid amounts, or whether it will be able to allocate 
funds to additional projects in targeted areas. 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. The states are required to ensure that 50 
percent of apportioned Recovery Act funds are obligated within 120 days 
of apportionment (before June 30, 2009) and that the remaining 
apportioned funds are obligated within 1 year.[Footnote 18] The 
Secretary of Transportation is to withdraw and redistribute to other 
states any amount that is not obligated by any state within these time 
frames. Under the act, the states are to give priority to projects that 
can be completed within 3 years, and to projects located in 
economically distressed areas. The states are also to certify that the 
state will maintain the level of spending for the types of 
transportation projects funded by the Recovery Act that it planned to 
spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state is required to identify the 
amount of funds the state planned to expend from state sources as of 
February 17, 2009, for the period beginning on that date and extending 
through September 30, 2010.[Footnote 19] 

In Colorado, as of June 25, 2009, 74.5 percent of the $283 million that 
FHWA has determined is subject to the 50 percent rule for the 120-day 
redistribution had been obligated, thereby meeting the 50 percent 
obligation requirement. According to officials with both CDOT and FHWA, 
Colorado plans to expend all Recovery Act highway funds within 3 years. 
While a few projects with multiple funding sources may extend beyond 3 
years, CDOT is planning to expend Recovery Act funds first in these 
cases. 

Although the Recovery Act directs states to prioritize projects in 
economically distressed areas, CDOT and its local partners began 
planning in anticipation of the Recovery Act in December of 2008, 
before the Recovery Act was passed--and, as a result, selecting 
projects in economically distressed areas was not initially one of 
CDOT's top priorities. CDOT officials stated that, in selecting 
projects, they prioritized those that (1) would create construction 
jobs, (2) would be shovel ready, and (3) could meet obligation and 
completion timeframes; in addition, CDOT selected projects using 
existing agreements to share transportation funds equitably across the 
state. Nevertheless, in keeping with the Recovery Act's direction on 
economically distressed areas, CDOT officials said they have since 
encouraged their local partners to prioritize projects in economically 
distressed areas when selecting additional projects, and together they 
have selected 36 projects in economically distressed areas within the 
state. 

On March 19, 2009, Colorado submitted its required maintenance-of- 
effort certification to USDOT. CDOT determined its maintenance of 
effort using the amount of state dollars planned, as of February 17, 
2009, for expenditure during the remainder of fiscal year 2008-2009, 
all of 2009-2010, and a portion of 2010-2011. In our April report, we 
noted that USDOT was reviewing conditional and explanatory 
certifications, such as the one submitted by Colorado, to determine 
whether they were consistent with the law. The Secretary of 
Transportation informed Colorado on April 20, 2009, that conditional 
and explanatory certifications were not permitted, and gave Colorado 
the option of amending its certification by May 22, 2009, which the 
state did. According to USDOT officials, USDOT is reviewing Colorado's 
resubmitted certification letter and has concluded that the form of the 
certification is consistent with the additional guidance. USDOT is 
currently evaluating whether the state's method of calculating the 
amounts it planned to expend for the covered program is in compliance 
with USDOT guidance. 

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 rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
FMAP, which may range from 50 percent to no more than 83 percent. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months from October 1, 2008, through December 31, 2010.[Footnote 20] On 
February 25, 2009, the Centers for Medicare & Medicaid Services 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 21] 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 would otherwise have to use for their Medicaid programs, and 
states have reported using these available funds for a variety of 
purposes. 

From October 2007 to May 2009, the state's Medicaid enrollment grew 
from 388,469 to 465,246, an increase of 20 percent.[Footnote 22] The 
increase in enrollment was generally gradual during this period, and 
most of the increase in enrollment was attributable to the population 
group of children and families. (See figure 1.) 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for 
Colorado, October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: -0.08. 

Nov.–Dec. 2007: 
Percentage change: -0.59. 

Dec.–Jan. 2007-08: 
Percentage change: 0.68. 

Jan.–Feb. 2008: 
Percentage change: 0.82. 

Feb.–Mar. 2008: 
Percentage change: 1.16. 

Mar.–Apr. 2008: 
Percentage change: 1.39. 

Apr.–May 2008: 
Percentage change: 1.11. 

May–June 2008: 
Percentage change: 0.86. 

Jun.–Jul. 2008: 
Percentage change: 0.85. 

Jul.–Aug. 2008: 
Percentage change: 1.04. 

Aug.–Sep. 2008: 
Percentage change: 0.51. 

Sep.–Oct. 2008: 
Percentage change: 0.81. 

Oct.–Nov. 2008: 
Percentage change: 0.84. 

Nov.–Dec. 2008: 
Percentage change: 0.77. 

Dec.–Jan. 2008-09: 
Percentage change: 1.53. 

Jan.–Feb. 2009: 
Percentage change: 0.9. 

Feb.–Mar. 2009: 
Percentage change: 1.87. 

Mar.–Apr. 2009: 
Percentage change: 2.05. 

Apr.–May 2009: 
Percentage change: 1.65. 

October 2007 enrollment: 388,469; 
May 2009 enrollment: 465,246. 

Note: The state provided projected Medicaid enrollment for May 2009. 

[End of figure] 

As of June 29, 2009, Colorado had drawn down $197,034,548 in increased 
FMAP grant awards, which is almost 82 percent of its awards to date. 
[Footnote 23] Of the states we studied, Colorado was the only state 
that had not drawn down increased FMAP funds as of GAO's first report 
in April 2009.[Footnote 24] Colorado officials reported that they are 
using funds made available as a result of the increased FMAP to offset 
the state budget deficit--specifically, to avoid or mitigate Medicaid 
benefit cuts and provider rate cuts resulting from the state's economic 
conditions.[Footnote 25] Officials noted that in December 2008, the 
Colorado legislature realized that significant provider rate cuts would 
be necessary in light of the state's economic climate. While the 
Medicaid program cut rates by 2 percent, the funds made available as a 
result of the increased FMAP allowed the state to forgo a more 
substantial reduction in rates of 4 percent--which officials noted 
would have had a severe impact on access to services for Medicaid 
beneficiaries. Additionally, Colorado Medicaid officials noted that 
without funds made available as a result of the increased FMAP, the 
state would have explored more stringent cuts in addition to provider 
rates, such as prescription drugs. 

In using the increased FMAP, Colorado officials reported that the 
Medicaid program has incurred additional costs related to: 

* personnel needed to ensure programmatic compliance with requirements 
associated with the increased FMAP; 

* personnel needed to ensure compliance with reporting requirements 
related to the increased FMAP; and: 

* personnel associated with routine administration of the state's 
Medicaid program.[Footnote 26] 

Officials told us that the delay in drawing down increased FMAP funds 
was partially due to the state needing to implement coding requirements 
that were established by the Office of the State Controller on a 
statewide basis for funding from the Recovery Act. The coding 
requirements were established on a statewide basis to track and report 
on the increased FMAP funds per OMB guidelines. Specifically, new funds 
and legislative line items were created on a statewide basis to assist 
the Office of the State Controller with the tracking and reporting of 
funding from ARRA. Official guidance on the use of these funds and 
budget line items was provided by the Office of the State Controller. 
In addition, new grant budget lines were created to track and report 
the receipt of increased FMAP dollars separately from regular FMAP 
dollars at the department level and a reconciliation process was 
created to reconcile increased FMAP expenditures to the additional FMAP 
grant awards. With the completion of these modifications, the state 
officials noted that they do not have concerns regarding the state's 
ability to maintain eligibility for the increased FMAP.[Footnote 27] 

Individuals with Disabilities Education Act, (Parts B and C): 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B includes programs that ensure preschool and school-
aged children with disabilities have access to a free and appropriate 
public education and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities or at risk 
of developing a disability and their families. IDEA funds are 
authorized to states through three grants--Part B preschool-age, Part B 
school-age, and Part C grants for infants and families. States were not 
required to submit an application to Education in order to receive the 
initial Recovery Act funding for IDEA Parts B and C (50 percent of the 
total IDEA funding provided in the Recovery Act). All IDEA Recovery Act 
funds must be used in accordance with IDEA statutory and regulatory 
requirements. 

The Department of Education made available the first half of states' 
IDEA allocations on April 1, 2009, with Colorado receiving a total of 
$80.5 for all IDEA programs of its approximately $161 million 
allocation. As of June 29, 2009, Colorado had reimbursed $3,943,067 in 
Part B funds to individual school districts and had obligated an 
additional $156,050. The largest share of IDEA funding is for the Part 
B school-aged program for children and youth. The first half of the 
state's allocation consisted of: 

* $2.6 million in Part B preschool grants, 

* $74.4 million in Part B grants to states for school-aged children and 
youth, and: 

* $3.5 million in Part C grants for infants and families for early 
intervention services. 

States will receive the remaining 50 percent by September 30, 2009, 
after submitting information to Education addressing how they will meet 
Recovery Act accountability and reporting requirements. Denver County 
School District 1 officials stated that they have drafted a plan for 
the use of funds, and that it provides intensive professional 
development for special education teachers who focus on innovative and 
proven strategies in reading, math, writing, and science. It also 
proposes obtaining state-of-the-art assistive technology devices and 
associated training to enhance access to the general curriculum for 
students with disabilities. Jefferson County School District R-1 
officials said they have not completed a plan for how to use funds; 
however, one proposal they are considering is the retention of about 88 
paraprofessional staff to support teachers. Additionally, they intend 
to use their IDEA Recovery Act funds to provide professional 
development in the areas of transition planning, literacy, and math as 
well as to obtain state-of-the-art assistive technology devices. 

In Colorado, the Department of Human Services is responsible for 
managing IDEA Part C. The department, which received the first half of 
its allocation, or $3.5 million, had obligated $3,336,454 as of June 
30, 2009. State officials said that the funds would generally go to 
contracts with community centered boards and some universities that 
provide professional and paraprofessional development as well as 
technology and services, such as video equipment, speech and 
occupational therapy, and transitional assistance needed to provide 
service to preschool children and their families. 

Elementary and Secondary Education Act, Title I, Part A: 

The Recovery Act provides $10 billion to help local educational 
agencies educate disadvantaged youth by making additional funds 
available beyond those regularly allocated through Title I, Part A of 
the Elementary and Secondary Education Act of 1965 (ESEA). The Recovery 
Act requires these additional funds to be distributed through states to 
local education agencies using existing federal funding formulae, which 
target funds based on such factors as high concentrations of students 
from families living in poverty. In using the funds, local educational 
agencies are required to comply with current statutory and regulatory 
requirements, and must obligate 85 percent of their fiscal year 2009 
funds (including Recovery Act) by September 30, 2010.[Footnote 28] 

The U.S. Department of Education made the first half of states' Title 
I, Part A Recovery Act funds available on April 1, 2009, with Colorado 
awarded $55.6 million of its approximately $111 million total 
allocation, with actual distributions subject to reimbursement 
requests. As of June 29, 2009, Colorado had reimbursed districts a 
total of $278,962. The Colorado Department of Education is urging local 
districts to use these funds in ways that will build their long-term 
capacity to serve disadvantaged youth, such as through providing 
professional development to teachers. The two school districts we 
visited, Denver County School District 1 and Jefferson County School 
District R-1, received the first half of their allocation, or $15.7 
million and $4.7 million, respectively. Denver County School District 1 
officials said they plan to use the funds for professional development 
activities that will expand student intervention programs, parent and 
community engagement, teacher standards and evaluations, and use of 
data and assessment tools. Jefferson County School District R-1 
officials said that funds will be disbursed across all Title I schools 
ensuring they have an increased Title I allocation for the next two 
years. Among others, they intend to use the funds to improve the 
district's Home Instruction for Parents of Preschool Youngsters 
program, which is aimed at improving family literacy, and for 
instructional coaches in elementary and secondary schools to provide 
professional development to teachers, particularly in reading and math. 

The state will require school districts to apply for their Title I 
funds, and the districts we visited told us they are in the process of 
applying. The Colorado Department of Education summarized federal 
guidance to assist the school districts as they develop their 
applications. Specifically, the state informed the districts they 
should address the extent to which their proposed use of funds will (1) 
drive improved results for students in poverty, (2) increase educators' 
long-term capacity to improve results, (3) accelerate reform and school 
improvement plans, (4) avoid the funding cliff effect (resulting from 
the expiration of Recovery Act funds) and improve productivity, and (5) 
foster continuous improvement through measurement of results. State and 
local education officials have expressed concern about avoiding the 
funding cliff, which is described as the degree to which proposed uses 
of funding avoid recurring costs that districts and schools are 
unprepared to assume when this funding ends. State officials also 
emphasized the importance of investing Recovery Act funds in ways that 
increase the long-term capacity of local schools to develop high 
achieving students. Officials at both school districts we visited 
indicated they are considering employing teachers on a temporary basis 
with the expectation that by the time Recovery Act money runs out, 
attrition will allow employment of some teachers on a permanent basis. 

U.S. Department of Energy Recovery Act Weatherization Assistance 
Program: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and Washington, D.C.[Footnote 29] This 
funding is a significant addition to the annual appropriations for the 
weatherization program that have been about $225 million per year in 
recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and Washington 
D.C., using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department's progress reviews examining each 
state's performance in spending its first 50 percent of the funds and 
the state's compliance with the Recovery Act's reporting and other 
requirements. 

DOE allocated about $79.5 million in Recovery Act weatherization 
funding to Colorado for a 3-year period. In Colorado, the Governor's 
Energy Office is responsible for administering the program. Colorado 
applied for the initial 10 percent allocation (about $7.9 million) on 
March 17, 2009, and DOE provided the funds to the office on April 1, 
2009. According to officials, DOE advised the Governor's Energy Office 
to use these funds for ramp-up purposes, such as hiring and training 
new staff and purchasing materials and equipment. DOE guidance issued 
on April 1, 2009, prohibited using the initial allocation for 
production of weatherized homes; however, DOE subsequently issued 
guidance on June 9, 2009, that lifted this limitation.[Footnote 30] 
Officials said they are using these funds to, among other things, hire 
new personnel, provide training and technical assistance, and purchase 
new equipment. The Governor's Energy Office also committed almost $7.4 
million or about 93 percent of this initial allocation to its 
subgrantees (the agencies that contract for weatherization services in 
10 regions around the state). As of June 30, 2009, the Governor's 
Energy Office had obligated $5,252,506 or 66 percent of its initial 
allocation, of which about $997,873 had been spent. 

The Governor's Energy Office undertook a planning process to develop 
its Weatherization Program Plan, which it submitted to DOE on May 8, 
2009. To guide development of state plans, DOE issued a Funding 
Opportunity Announcement on March 12, 2009, which provided registration 
and submission requirements, and also issued additional guidance on 
accessing weatherization funds under the Recovery Act, such as 
providing revised eligibility provisions. Officials from the Governor's 
Energy Office said that Colorado's plan is expected to be approved by 
DOE on July 1, 2009, the timing of which concerned the officials 
because the office plans to begin its program and contracts with 
subgrantees on July 1, 2009. 

With the Recovery Act funds, the Governor's Energy Office plans to 
weatherize 16,280 units and increase its number of weatherization 
subgrantees and areas of coverage. In developing the state plan for 
spending Recovery Act funds, officials from the Governor's Energy 
Office talked to their subgrantees to determine how much additional 
weatherization funding the subgrantees believed they could reasonably 
spend--in 2008, Colorado received almost $5.5 million from DOE for the 
program, compared to almost $80 million allocated under the Recovery 
Act--and, in doing so, recognized that not all subgrantees may be 
equipped to handle the influx of funds. In compiling the numbers from 
the subgrantees, officials at the Governor's Energy Office determined 
that there was a gap between available Recovery Act funds and the 
amount of work the subgrantees believed they could deliver, so the 
Governor's Energy Office initiated two new requests for proposals to 
identify entities who could fill in the gaps to conduct weatherization 
work in certain regions of the state. The Governor's Energy Office also 
plans to initiate two statewide requests for proposals. 

In the fall of 2008, before the Recovery Act passed, the Governor's 
Energy Office conducted a comprehensive assessment of its 
Weatherization Assistance Program, which officials said helped position 
Colorado to handle the influx of Recovery Act funds. The assessment 
included a review of internal operations, tracking mechanisms, and 
oversight of subgrantees and their performance. As a result of this 
assessment, the Governor's Energy Office hired additional staff, 
including an additional quality assurance staff member, a new client 
manager, an outreach manager, and an information technology specialist. 

Edward Byrne Memorial Justice Assistance Grant Program: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) program within 
the Department of Justice's Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information 
sharing initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants is available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state's JAG allocation is awarded by BJA 
directly to the state, which must in turn allocate a formula-based 
share of those funds to local governments within the state. The 
remaining 40 percent of funds is awarded directly by BJA to eligible 
units of local government within the state. The total JAG allocation 
for Colorado's state and local governments under the Recovery Act is 
about $29.9 million, a significant increase from the fiscal year 2008 
allocation of about $2.2 million. 

As of June 26, 2009, Colorado had received its full state award of 
$18.3 million[Footnote 31] and had spent $13,743 for computers and 
staff time to support the program, according to state officials. The 
state Department of Public Safety administers the JAG program in 
Colorado and plans to use 10 percent of the full award for 
administrative costs as allowed for under the JAG program. The 
department plans to allocate the remainder of the full award to be 
consistent with the JAG pass-through requirements (which are based on a 
formula that takes into account a state's crime expenditures). As a 
result, approximately 60 percent of the remaining funds are to be 
awarded to local government entities and 40 percent to state entities. 

The department intends to allocate these funds through a competitive 
process, for which it solicited applications starting on March 27, 
2009. The department is now evaluating the 193 applications that it 
received by the May 1, 2009, deadline. Department of Public Safety 
program managers are reviewing the applications for thoroughness, 
completeness, ability to report in a timely way, and other information. 
According to the department's application, final awards should be made 
to applicants whose proposals, among other things, have an ability to 
create and preserve jobs, clearly address a priority area, and clearly 
address a funding need through the use of statistics, among other 
criteria. The priority areas for awarding JAG funds include, among 
other programs, community and neighborhood programs that assist in 
preventing and controlling crime; planning, evaluation, and technology 
improvement programs; and law enforcement programs, in particular those 
focusing on the integration of services so that law enforcement 
agencies can better prioritize service requests. 

After its review, the department plans to present the applications, the 
week of July 6, 2009, to the JAG Board, a group of individuals 
appointed by the Governor to represent state and local levels of the 
state's criminal justice system, including, among others, police 
chiefs, prosecutors, adult and juvenile corrections representatives, 
and mental health and substance abuse treatment providers. The board 
will discuss, score, and select applications for funding. After an 
appeals process in August, the Department of Public Safety will then 
finalize the grant documents and provide awards for funding to begin on 
October 1, 2009. Monitoring of those awarded funds will be conducted by 
program staff and additional temporary staff the department has hired 
specifically to be responsible for Recovery Act funds. The department 
plans to conduct monitoring through review of the quarterly reports 
submitted by subgrantees, and as well, to conduct a site visit of each 
subgrantee receiving Recovery Act funds. 

Public Housing Capital Grants: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies for improving the physical 
condition of their properties; developing, financing, and modernizing 
public housing; and improving management.[Footnote 32] The Recovery Act 
requires HUD to allocate $3 billion through the Public Housing Capital 
Fund to public housing agencies using the same formula for amounts made 
available in fiscal year 2008. Recovery Act requirements specify that 
public housing agencies must obligate funds within 1 year of the date 
they are made available to public housing agencies for obligation, 
expend at least 60 percent of funds within 2 years of that date, and 
expend 100 percent of the funds within 3 years of that date. Public 
housing agencies are expected to give priority to projects that can 
award contracts based on bids within 120 days from the date the funds 
are made available, as well as capital projects that rehabilitate 
vacant units, or those already underway or included in the required 5- 
year capital fund plans. HUD is also required to award $1 billion to 
housing agencies based on competition for priority investments, 
including investments that leverage private sector funding/financing 
for renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability (NOFA) that 
describes the competitive process, criteria for applications, and 
timeframes for submitting applications.[Footnote 33] 

Colorado has 43 public housing agencies that have received Recovery Act 
formula grant awards. In total these public housing agencies received 
$16,949,529 from the Public Housing Capital Fund formula grant awards. 
As of June 20, 2009, the state's public housing agencies had obligated 
$2,402,476 (14 percent) and spent $200,751 (1 percent). (See figure 2.) 
Officials from the Housing Authority of the City and County of Denver 
told us the authority has been slow to spend Recovery Act funds because 
of regulatory requirements that must be met, including amending its 5- 
year plan, completing environmental clearances, and getting projects 
approved by its board of commissioners. 

Figure 2: Percent of Public Housing Capital Funds Allocated by HUD that 
Have Been Obligated and Drawn Down in Colorado: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $16,949,529; 96.3%; 
Funds obligated by public housing agencies: $2,402,476; 13.6%; 
Funds drawn down by public housing agencies: $200,751; 1.1%. 

Number of public housing agencies: Entering into agreements for funds: 
43; 
Number of public housing agencies: Obligating funds: 20; 
Number of public housing agencies: Drawing down funds: 7. 

Source: GAO analysis of HUD data. 

Note: HUD allocated $653,763 in Capital Fund formula grants from the 
Recovery Act to four additional public housing agencies in Colorado, 
but these housing agencies either chose not to accept Recovery Act 
funding or no longer had eligible public housing projects that could 
utilize the funds. As a result, these funds have not been obligated by 
HUD. 

[End of figure] 

The three public housing agencies we visited in Colorado--the Housing 
Authority of the City and County of Denver, Holyoke Housing Authority, 
and Housing Authority of the Town of Kersey--received Capital Fund 
formula grants totaling almost $7.9 million.[Footnote 34] HUD allocated 
$7,799,206 in formula capital funds to the Housing Authority of the 
City and County of Denver, $59,934 to the Holyoke Housing Authority, 
and $29,193 to the Housing Authority of the Town of Kersey. As of June 
20, 2009, the Housing Authority of the City and County of Denver had 
obligated about $14,000 and had not drawn down any Recovery Act funds, 
the Holyoke Housing Authority had obligated about $32,000 and drawn 
down about $21,000, and the Housing Authority of the Town of Kersey had 
not obligated or drawn down any Recovery Act funds. 

The Housing Authority of the City and County of Denver--a large, urban 
housing authority--plans to use its Capital Fund formula grants to 
build 90 new housing units[Footnote 35] and rehabilitate 389 housing 
units across three projects.[Footnote 36] For example, one project 
planned by the Housing Authority is to use about $250,000 in Capital 
Fund formula grants to replace existing water heaters in 200 units with 
energy-efficient water heaters and to complete exterior painting. 
According to Denver officials, this project is scheduled to begin in 
June 2009 and will be completed by December 2009. The Housing 
Authorities of Holyoke and the Town of Kersey are small, rural housing 
authorities that have used or are planning to use Recovery Act funds 
for smaller-scale projects. For example, the Holyoke Housing Authority 
plans to use about $14,000 in Recovery Act funds to replace wooden 
patio fences at 30 units with vinyl fences and attached solar lights. 
This project began in June 2009 and is scheduled to be completed in 
July 2009. Figure 3 shows before and after views of two adjacent units 
whose fences were replaced early in the project. The Housing Authority 
of the Town of Kersey plans to use some of its Recovery Act funds to 
replace older windows in 18 units with energy-efficient windows. This 
project is scheduled to begin in July 2009 and be completed in 
September 2009. Figure 4 shows a housing unit at the Kersey housing 
authority; the lower windows have already been replaced with energy- 
efficient windows (using past Capital Fund formula dollars) while the 
four upper windows are original, single-pane windows that the Kersey 
housing authority plans to replace using Recovery Act funds. 

Figure 3: Two Public Housing Units at the Holyoke, Colorado Housing 
Authority Before and After New Fences Were Installed: 

[Refer to PDF for image: two photographs] 

Depicted on the photographs: 

(1) Before: 
A. Old wooden fence; 
B. Missing fence. 

(2) After: 
A. New fence; 
B. New fence. 

Sources: GAO and Holyoke Housing Authority. 

[End of figure] 

Figure 4: One Public Housing Unit at the Kersey, Colorado Housing 
Authority Before New Energy-Efficient Windows Were Installed (Upper 
Windows): 

[Refer to PDF for image: photograph] 

Depicted on the photograph: 

A. Old windows; 
B. Previously replaced window. 

Source: GAO. 

[End of figure] 

Officials from the three housing authorities we visited said that they 
selected projects to fund with Capital Fund formula grants based on 
needs assessments and their 5-year project plans. As noted, the 
Recovery Act directs housing agencies to give priority to projects that 
can award contracts based on bids within 120 days from the date the 
funds are made available, projects that rehabilitate vacant rental 
units, and capital projects that are already underway or are included 
in the 5-year capital funds plans. According to officials from the 
Housing Authority of the City and County of Denver, in prioritizing 
projects to fund with Capital Fund formula grants, they mainly focused 
on ongoing and planned projects, including projects that were already 
through the design phase and one that was already under contract. The 
Housing Authority of the City and County of Denver has a very low 
vacancy rate, so rehabilitating vacant rental units was not a key 
concern, according to officials, although they do plan to address two 
long-term vacant units using Recovery Act funds. Officials from the 
Housing Authorities of Holyoke and the Town of Kersey said that they 
also focused on ongoing or planned projects to fund with Recovery Act 
formula grants; these housing authorities also have few vacant units. 
Once the housing authorities' project lists were compiled, they had to 
be approved by each authority's board of commissioners. 

Officials from the three housing authorities we visited did not 
anticipate any challenges in accessing Capital Fund formula grants or 
in meeting accelerated time frames for spending Recovery Act funds. 
Officials from the Housing Authority of the City and County of Denver 
said that they had already begun the environmental clearance process 
for the projects they plan to fund with Recovery Act funds. In 
addition, one of the projects they plan to fund with Recovery Act funds 
was already under contract when the project was selected, so the 
officials said that they were able to change the contract to add in 
elements that they originally did not have the funds to complete. 
Officials from the Housing Authorities of Holyoke and the Town of 
Kersey said that they planned to spend all Recovery Act funds by the 
end of 2009. 

Colorado Will Track Recovery Act Funds Separately, but Officials 
Continue to Have Concerns about the State's Capacity to Audit Recovery 
Act Funds: 

Since we last reported, Colorado has implemented a separate coding 
structure in its state accounting system, the Colorado Financial 
Reporting System (COFRS), to identify and track Recovery Act funds. The 
unique coding will allow the state to track and report on state 
departments' use of Recovery Act funds. During the current reporting 
cycle, we discussed internal controls with state and local officials. 
Historically, the state's internal controls over funds have been 
decentralized, in that the state relies on its departments to ensure 
that funds are properly tracked and appropriate internal controls are 
in place; furthermore, according to the Controller, the state does not 
have responsibility for local entities' internal controls. With the 
additional reporting requirements in the Recovery Act, the Controller 
believes it is necessary to begin monitoring the departments' internal 
controls to help them ensure their internal controls are sound. In 
addition, state departments and local entities rely on internal and 
external audits, including their Single Audit reports, to identify 
weaknesses in their fund management. However, state officials continue 
to express concerns about having resources to cover the potentially 
increased audit workload associated with the Recovery Act, particularly 
in fiscal year 2009-2010 when the bulk of the funds will be spent. 
State officials have considered providing additional funding to the 
State Auditor's office to cover this workload but have not made a final 
proposal or decision. 

Colorado Has Established a Coding Structure to Track and Report 
Recovery Act Funds Separately: 

Colorado officials continue to modify their accounting system and 
processes to meet requirements for tracking Recovery Act funds. In 
April, we reported that state officials were concerned that COFRS's age 
might make it difficult to use the system to track Recovery Act funds 
in a timely way, and that some individual state departments do not use 
the COFRS grant module and therefore must manually post aggregated 
revenue and expenditure data to the system. In particular, the Colorado 
Department of Transportation and the state's institutions of higher 
education have their own accounting systems. We also reported that 
state officials had concerns about the tracking and reporting of funds 
received by local entities directly from federal agencies without 
passing through the state. 

Since our April 2009 report, the Controller has integrated a new coding 
structure in COFRS that allows the state's departments and agencies to 
distinguish Recovery Act funds from other federal funds. The Controller 
issued guidance on May 13, 2009, that established unique coding for 
Recovery Act grants that will allow the state to segregate Recovery Act 
funds from regular federal funds in reporting operating revenues and 
expenditures, financial statements, and grant activity. In addition, 
the guidance requires state departments that use COFRS as their main 
accounting system to also use the COFRS grant management module to 
separately track Recovery Act grants. According to the Controller, 
reporting requirements will be worked out with the Colorado Department 
of Transportation and the state's institutions of higher education. 

This new coding structure will not affect local entities that receive 
Recovery Act funds directly from federal agencies. These local entities 
have their own accounting systems and are responsible for tracking and 
reporting their Recovery Act activities to the federal government 
directly. For example, the three public housing authorities we visited 
will use their established systems to track Recovery Act funds 
separately from other funds. 

Colorado's Internal Control Responsibilities Are Traditionally 
Decentralized, but the State Controller Is Taking Action to Provide 
More Central Oversight of Recovery Act Funds: 

Colorado's internal control structure is decentralized, in that the 
Controller's office manages the state's fiscal policies and procedures 
while each department is responsible for ensuring that its programs 
have sufficient internal controls. Under Colorado law, each principal 
department of the executive branch of the state government must 
maintain systems of internal accounting and administrative control for 
all agencies in the department. These systems of internal accounting 
and administrative control must provide for, among other things, (1) 
adequate authorization and record-keeping procedures to provide 
effective control over state assets, liabilities, revenues, and 
expenditures; and (2) an effective process of internal review and 
adjustments for changes in condition.[Footnote 37] The head of each 
principal department of the state is to file a written statement that 
the department's system of internal accounting and control either does 
or does not fully comply with the specified requirements.[Footnote 38] 
Although the Controller's office ensures that these statements are 
filed every year, historically, the Controller has not had the 
resources to ensure that proper internal controls are in place. 

Overall, state departments and local entities will use their existing 
internal controls to manage Recovery Act funds and programs. For 
example, CDOT officials said that they are using the department's 
existing processes to manage Recovery Act funds and projects. The 
processes include accounting and project management controls throughout 
all phases of a project. CDOT processes all payments through a secure 
software system that reports data down to the unit level and requires 
at least two people to be involved in all payments. CDOT prepares 
independent cost estimates before accepting bids and allows only pre- 
qualified contractors to submit bids; it also uses a computer program 
that checks for bid collusion. During the construction phase, 
contractors must comply with detailed specifications and keep daily 
diaries of work accomplished. CDOT project personnel remain on site to 
ensure that the project is built in accordance with the contract 
requirements. During final review, a CDOT engineer who was not involved 
in the design or construction phases reviews the final project 
documentation. Moreover, Recovery Act projects are receiving additional 
oversight. For example, CDOT assigned a manager to ensure and 
coordinate CDOT's compliance with the Recovery Act at all levels and is 
increasing site visits, holding weekly progress reviews, and requiring 
more documentation at all levels for Recovery Act projects. 

Similarly, the housing authorities we visited are using their 
established internal controls to oversee Recovery Act funds and 
projects. For example, officials from these housing authorities said 
that they already monitor projects funded with Capital Fund formula 
grants on a regular basis and did not plan to increase site visits to 
Recovery Act projects. The offices for the two small housing 
authorities we visited were located on site with the housing 
authorities' units, so officials said that it is easy to monitor all 
projects. Officials from the Housing Authority of the City and County 
of Denver said that they do regular site visits to monitor projects, 
although an official from this authority said that they may increase 
their monitoring to ensure compliance with the Buy American provision 
of the Recovery Act,[Footnote 39] depending on reporting guidance 
received from OMB. 

Some state officials expressed concerns that some programs might be at 
increased risk for improper use of, and reporting on, Recovery Act 
funds due to long standing material weaknesses or inadequate accounting 
systems. One of these programs, Medicaid, is operated by the Department 
of Health Care Policy and Financing and audits have identified areas of 
significant risk related to state expenditures of Medicaid funds. Both 
the fiscal year 2007 and fiscal year 2008 Single Audits identified 
material weaknesses in the state's Medicaid program. The 2007 Single 
Audit found that Colorado Medicaid did not process initial applications 
or eligibility redeterminations in a timely manner and that the program 
lacked documentation to support its eligibility decisions. Program 
officials agreed with nearly all of the material weaknesses that were 
identified and proposed corrective actions for each. The 2008 Single 
Audit found similar themes as those raised in 2007, as well as 
additional issues related to items such as cash management, provider 
licensing, and training of staff. The Legislative Audit Committee held 
a hearing on the program in the spring of 2009 and the State Auditor 
subsequently requested that the Department of Health Care Policy and 
Financing develop a plan to correct its problems. In May 2009, the 
Department issued a corrective action plan addressing the identified 
material weaknesses. 

Another program that some state officials said was at increased risk 
for improper use of, and reporting on, Recovery Act funds is the 
weatherization program because of the large increase in federal funds 
that it is receiving under the Recovery Act. Officials in the 
Governor's Energy Office stated that they plan to conduct monthly 
visits of all subgrantees, in contrast to the semiannual or annual 
visits they made before the Recovery Act passed. Officials further 
stated that putting all reports online--which will be done through a 
new Web-based tracking system--will enable them to monitor subgrantee 
performance in real time. As a result, they hope to be able to identify 
problems at their inception. For example, subgrantees have monthly 
performance requirements laid out in their contracts. By monitoring 
performance in real time, officials with the Governor's Energy Office 
should immediately become aware of any underperformance by subgrantees 
and can take proactive measures, such as providing help or additional 
expertise to that subgrantee. 

According to the Controller, the Recovery Act's emphasis on 
accountability and transparency heightens the need for the state to 
have a centralized process for monitoring the effectiveness of state 
departments' internal controls. According to the Controller, his office 
has not historically had the resources to carry out that role. Given 
the increased need for and attention to the state's internal controls, 
the Controller's office is developing an internal control toolkit that 
will provide state departments information on internal control systems 
and checklists to formalize and improve their existing processes and 
identify potential weaknesses. In addition, the Controller's office is 
in the process of filling its internal auditor position, which has been 
vacant for over 2 years. According to the Controller, the auditor will 
work with state departments to promote and monitor internal controls, 
as well as monitor proper tracking and reporting of Recovery Act funds. 

State Officials Are Concerned about Capacity to Audit Recovery Act 
Funds: 

Under the Single Audit Act, any nonfederal entity that spends over 
$500,000 in federal awards in one fiscal year is required to have a 
Single Audit. In Colorado, the State Auditor's office is responsible 
for carrying out, or contracting portions of, the state's annual Single 
Audit of state departments. (Local entities, such as the school 
districts we visited, which exceed the $500,000 amount, are required to 
have a Single Audit separate from the state audit.) The State Auditor's 
office, in conducting its annual Single Audit, must plan to provide 
adequate audit coverage each year.[Footnote 40] We reported in April 
that state officials were concerned about the increasing need for 
internal and external audit coverage of Recovery Act funds, including 
coverage by the State Auditor's office. 

Effective Single Audit coverage is important because state department 
officials told us that they use their Single Audit reports to identify 
and correct weaknesses in their internal controls. As noted above, for 
example, the Department of Health Care Policy and Financing was 
identified in statewide Single Audit reports as having significant 
weaknesses. In addition, CDOT uses the Single Audit reports submitted 
by localities to identify areas of high risk that could affect their 
transportation programs. Most of the time, local entities do not 
conduct audit testing on transportation projects they manage because 
the expenditures on these projects are relatively small. For this 
reason, CDOT's audit division reviews local entities' Single Audit 
reports to assess those entities' controls, and may require corrective 
action plans if weaknesses are found. Further, CDOT requires full 
documentation of expenses for localities managing transportation 
projects unless they provide CDOT with evidence that they have 
sufficient controls to manage projects with less oversight. Finally, 
the Colorado Department of Education relies on audits from the local 
school districts to assess and determine if there are weaknesses in a 
district's management of federal funds. They also use audits to 
identify districts that may receive a site visit from department staff. 

At the local level, the Denver housing authority's management of 
federal funds has been reviewed through its annual Single Audit and 
other audits. Because no material weaknesses related to the housing 
authority's financial systems have been identified, housing authority 
officials do not anticipate any challenges or system changes related to 
Recovery Act funds. Similarly, each of the two rural housing 
authorities we visited is audited each year by external auditors. 

While state departments and local entities use their Single Audit 
reports to identify weaknesses in their management of federal funds, 
state officials continued to express concerns about the state's 
capacity to handle the potential increase in internal and external 
audit workload associated with Recovery Act funds and additional 
reporting requirements. The Office of the State Auditor is currently 
performing the Single Audit for fiscal year 2008-2009 and, according to 
officials, they will be able to adjust their audit plan to include 
audit work for Recovery Act funds expended by state departments in this 
fiscal year. At the same time, they are developing the audit plan for 
fiscal year 2009-2010, the period when the bulk of Recovery Act funds 
will be spent. Officials with the Office of the State Auditor said that 
without OMB guidance on audit and reporting requirements, they cannot 
finalize the plan and therefore do not know what resources they will 
need to carry it out. However, they expect the workload to increase 
beyond the resources available. State officials have discussed using 
administrative funds to cover some of the costs of additional audit 
work by the State Auditor's office, but no proposal or decision has 
been made about the use of these funds. 

Colorado May Use Additional Data Gathering Systems to Assess the Effect 
of Recovery Act Dollars in the State, But State Officials Said Guidance 
on Job Creation and Retention Is Needed: 

Although it is still too early to assess the impacts of Colorado's 
Recovery Act funding, state officials are planning to centrally track 
and monitor the results of this spending.[Footnote 41] State Recovery 
office officials said they are still evaluating whether to modify an 
existing system or acquire a new system to report on the effects of 
Recovery Act funds. The state will gather data including the number of 
jobs created and retained by the funds. However, some state department 
officials said that reporting guidelines have not yet been finalized 
and that they need guidance, particularly guidance on counting jobs 
created and retained.[Footnote 42] 

Colorado Is Assessing Systems to Track and Report on the Effects of 
Recovery Act Funding: 

State officials said that they plan to centrally track and report 
nonfinancial information to demonstrate the effects of Recovery Act 
spending across Colorado. To accomplish this, the state Recovery office 
is still assessing whether it will modify and use an existing state 
system or acquire an off-the-shelf system available from private 
companies. This decision will be made during the next few months; the 
state plans to participate in OMB's July 10, 2009, reporting effort and 
assess that effort and the options available to report Recovery Act 
information, although officials said that they have not heard from OMB 
regarding the state's participation.[Footnote 43] The state is awaiting 
additional OMB guidance on reporting requirements to make a 
determination about what it will need to report, according to state and 
department officials. 

Some state agencies, such as the state Departments of Education and 
Transportation, plan to use their existing systems to track and report 
performance information. At least one state agency may modify a 
recently developed system to track Recovery Act results, while another 
state department will use a federal system to gather program results. 
The Governor's Energy Office developed a new Web-based tracking system, 
which it plans to roll out on July 1, 2009, that will facilitate real- 
time reporting of program performance. The system compares costs across 
the program and monitors certain performance measures, such as 
installations of energy conservation measures and units. The state 
already reports to DOE on progress and funding, but officials from the 
Governor's Energy Office said that until they receive additional 
guidance from OMB, they will not know whether additional data may need 
to be collected. However, these officials noted that because they 
developed their tracking system in house, they can customize it to 
track any additional requirements provided by DOE or OMB. 

Officials at the Colorado Department of Public Safety said that they 
will need to report on new JAG-specific programmatic performance 
measures created by BJA, and will need to report more frequently than 
in the past. The officials said that BJA is developing a system to 
gather and report information on these measures, but that depending on 
the system's capabilities and BJA's reporting requirements, the 
department may develop an electronic reporting system for subgrantees 
to report to the state. The department is concerned about the accuracy 
of the data reported by subgrantees directly to the federal government 
because the measures are new and complex. Officials stated that the 
data would be more accurate if the reporting time frames were 
lengthened--from the 30 days required by BJA for JAG-specific measures 
to a minimum of 45 days--to provide the state time to review the 
information and work with the subgrantees to refine it. 

Some State Departments Said Guidance Is Needed to Report Jobs Created 
and Retained: 

State departments and local entities plan to track and report on the 
number of jobs created and retained, but some officials said that they 
are waiting for OMB guidance on how to count these positions. For 
example, some state and local education officials told us they need 
clear guidance on the information they will be required to report, so 
that they can adjust their existing monitoring and reporting processes 
and systems accordingly. Similarly, officials from the Housing 
Authority of the City and County of Denver said that they track certain 
information on housing projects, such as occupancy rates, resident 
complaints, section 3 employment,[Footnote 44] and women and minority 
business goals, and were awaiting guidance on how to track data on jobs 
created or retained. They noted that they may reserve some funds to do 
an assessment of their projects' effects on the economy and job 
creation. Officials from the two rural housing authorities we visited 
said that they do not currently track any performance measures, other 
than ensuring work is completed. They noted that because of the size of 
their projects, the projects funded with Recovery Act funds would not 
result in substantial job creation, other than creating short-term work 
for some contractors. 

Finally, Department of Public Safety officials continued to have 
concerns about reporting jobs data, as we reported in our April 2009 
report. Although officials said that the applicants' ability to report 
will be one way of scoring the applications for funding, they are still 
concerned that the requirement to report jobs data 10 calendar days 
after the quarter will be difficult for the state and subgrantees to 
meet. The officials said they are also awaiting guidance from OMB on 
how to count jobs created and retained. In particular, the officials 
questioned how jobs should be counted from one quarterly report to the 
next and were concerned about avoiding duplication in counting jobs. 

On the other hand, CDOT has received guidance on measuring jobs created 
or retained from the U.S. Department of Transportation and has directed 
local entities and contractors to gather specific data. Although only a 
few of Colorado's Recovery Act-funded highway projects have begun 
construction, CDOT does not anticipate any difficulties in reporting 
jobs created or retained. However, officials added that it would be 
difficult for them to report these categories separately if required to 
in the future. Officials stated that the information contractors are 
being asked to provide under the Recovery Act is similar to information 
already reported by contractors for other purposes. In particular, 
contractors have experience providing data about workers on CDOT-funded 
construction sites because they must submit certified payroll records 
to CDOT for themselves and their subcontractors to comply with Davis- 
Bacon Act reporting requirements.[Footnote 45] On June 12, 2009, CDOT 
submitted its second monthly employment report to the U.S. Department 
of Transportation. In total, CDOT has reported 65 direct on-project 
jobs created or retained as a result of Recovery Act funding. 

Colorado's Comments on This Summary: 

We provided officials in the Colorado Governor's Recovery office, as 
well as other pertinent state officials, with a draft of this appendix 
on June 19, 2009. State officials generally agreed with this summary of 
Colorado's recovery efforts to date. The officials also provided 
technical comments, which 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, Paul Begnaud, Steve Gaty, 
Kathy Hale, Susan Iott, Jennifer Leone, Tony Padilla, Ellen Phelps 
Ranen, Lesley Rinner, and Mary Welch made significant contributions to 
this report. 

Footnotes for Appendix III: 

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

[2] In some states, GAO also reviewed a ninth program receiving funds 
under the Recovery Act, the Workforce Investment Act Youth Program. GAO 
did not review this program in Colorado. 

[3] Obligation, as used by the state, refers to funds that have been 
encumbered with a contract or other agreement. 

[4] Colorado officials noted that the use of the words budget deficit 
is not necessarily applicable, because the state's constitution 
requires it to have a balanced budget annually and does not permit a 
budget deficit. Therefore, while Medicaid officials' response to our 
data collection instrument indicated that the funds made available as a 
result of the increased FMAP were being used to offset the state budget 
deficit, officials believe that a more accurate description of the use 
of these funds is that they are allowing the state to minimize needed 
program cuts and provider rate cuts. 

[5] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[6] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's solicitation for local governments closed on 
June 17; therefore, not all of these funds have been awarded. 

[7] GAO, Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues is Essential, 
[hyperlink, http://www.gao.gov/products/GAO-09-580] (Washington, D.C.: 
Apr. 23, 2009). 

[8] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget Circular No. A-133, Audits of States, Local Governments and Non- 
Profit Organizations (June 27, 2003). If an entity expends federal 
awards under only one federal program, the entity may elect to have an 
audit of that program. 

[9] See OMB Memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities. 

[10] The estimate is from the state's March 20, 2009, legislative 
council forecast. 

[11] According to budget officials, the General Assembly passed 
legislation to allow the reserve to be reduced to zero in fiscal year 
2008-2009 and to settle at 2 percent in fiscal year 2009-2010. 

[12] The estimate is from the state's June 22, 2009, legislative 
council forecast. 

[13] Prior to this legislation the state was permitted to retain as a 
reserve 4 percent of the amount appropriated for the general fund for 
fiscal years 2007-2008 and after. This legislation permits Colorado to 
retain 4.5 percent for fiscal year 2012-2013, and that percentage 
increases by one-half percent each fiscal year to 6.5 percent in fiscal 
year 2016-2017. After fiscal year 2016-2017 it remains at 6.5 percent. 
2009 Colo. Sess. Laws 2254. 

[14] We selected these two school districts for inclusion in our work 
because (1) they are receiving large amounts of Recovery Act funding 
relative to other school districts in the state; (2) they were both 
identified as districts having several schools in improvement status, 
which, according to Department of Education guidance, is a formal 
acknowledgement that the school is not meeting the challenge of 
successfully teaching all of its students; and (3) they represent both 
urban and suburban districts. 

[154] Economically distressed areas are defined by the Public Works and 
Economic Development Act of 1965, as amended. 

[16] In selecting Recovery Act highway projects for further review, we 
looked for projects that were (1) of varying size, (2) in areas with 
varying economic characteristics, and (3) under contract or 
construction. Because no locally-administered projects were under 
contract at the time of our review, we used the list of 10 CDOT- 
administered projects under contract as of May 11 as the basis for our 
selection. The projects we selected consisted of one relatively small 
project in a large urban area (the Belleview Avenue project in 
metropolitan Denver) and one relatively large project in an 
economically distressed area (the US 24/US-285 project in Chaffee 
County). 

[17] Asphalt is a material used to pave roads. 

[18] The 50 percent rule applies only to funds apportioned to the state 
and not to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. 

[19] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of each state to have its apportioned funds obligated by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[20] See Recovery Act, div. B, title V, §5001. 

[21] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[22] The state provided projected Medicaid enrollment for May 2009. 

[23] Colorado received increased FMAP grant awards of almost $241 
million for the first three quarters of federal fiscal year 2009. 

[24] Colorado officials said that the delay in drawing down increased 
FMAP was a result of two issues: (1) the state's extensive review of 
the five attestations that accompanied the increased FMAP and the 
development of the state's responses to these attestations to ensure 
compliance and (2) the state's coordination with the Office of the 
State Controller and other state departments on the development of a 
statewide coding and reporting mechanism for funds received through the 
Recovery Act. 

[25] As noted above, Colorado officials said the use of the words 
budget deficit is not necessarily applicable, because the state's 
constitution requires it to have a balanced budget annually and does 
not permit a budget deficit. Officials believe that a more accurate 
description of the use of these funds is that they are allowing the 
state to minimize needed program cuts and provider rate cuts. 

[26] According to Colorado Office of State Planning and Budgeting 
officials, the department of Health Care Policy and Financing (HCPF) 
has not received approval to hire any new personnel, and therefore 
increased FMAP has resulted in an increase in workload for HCPF rather 
than an increase in personnel. 

[27] In their technical comments to us, Colorado officials said that 
the implementation of the processes for the tracking and reporting of 
increased FMAP expenditures do not directly relate to the state's 
ability to maintain eligibility for the increased FMAP. It is the 
state's responses to the five attestations that ensure the state's 
ability to maintain eligibility for the increased FMAP. Quarterly 
updates will help the state ensure compliance with the five 
attestations and its eligibility for increased FMAP. 

[28] Local education agencies must obligate at least 85 percent of 
their Recovery Act ESEA Title I, Part A funds by September 30, 2010, 
unless granted a waiver, and all of their funds by September 30, 2011. 
This will be referred to as a carryover limitation. 

[29] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Nation, and the Northern Arapahoe tribe. 

[30] DOE's June 9, 2009, guidance lifted this limitation for local 
agencies that previously provided services and are included in the 
state's Recovery Act plan. New providers, however, remain subject to 
the limitation until the state's plan is approved. 

[31] Due to rounding, this number does not exactly equal 60 percent of 
the total JAG award. 

[32] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[33] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and timeframes for application, and to funding limits. 

[34] We selected three housing agencies throughout the state that 
received varying amounts of Recovery Act funds and were of varying 
sizes; the Housing Authority of the City and County of Denver is a 
large housing authority that received almost $7.8 million in Recovery 
Act funds whereas the Housing Authorities of Holyoke and the Town of 
Kersey are very small housing authorities that each received well under 
$100,000 in Recovery Act funds. We also selected these housing agencies 
because one had already spent Recovery Act funds at the time of our 
visit while the other two had not. 

[35] The 90 new units that the Housing Authority of the City and County 
of Denver plans to build will include public housing and low-income 
housing tax credit units. 

[36] These projects include one that is currently not on the Housing 
Authority's list of projects to fund with Capital Fund formula grants. 
However, officials expect to be able to fund it with Capital Fund 
formula grants because they expect to fund other projects with 
competitive grants, therefore making formula grants available to fund 
this project. 

[37] Colo. Rev. Stat. § 24-17-102. 

[38] Colo. Rev. Stat. § 24-17-103. In the event that a statement is 
filed that indicates that the systems employed by the department are 
not in compliance with the applicable requirements, the statement must 
further detail specific weaknesses known to exist, together with plans 
and schedules for correcting any such weaknesses. 

[39] With certain exceptions, Recovery Act funds may not be used for 
construction, alteration, maintenance, or repair of a public building 
or public work unless all the iron, steel, and manufactured goods used 
in the project are produced in the United States. Recovery Act, div. A, 
title XVI, § 1605. 

[40] The office develops an annual audit plan that includes about 35 to 
40 financial and 20 to 25 performance audits, and considers three key 
components when developing the plan: (1) audits required by law or 
other legal requirements; (2) audits requested; and (3) audits 
identified by the office on the basis of risk. 

[41] On June 11, 2009, the state issued a status report on Recovery Act 
funds and will update this report periodically. The report is: 
Governor's Economy Recovery Team, The American Recovery and 
Reinvestment Act: A Colorado Status Report (Denver, Colo., 2009), 
[hyperlink, 
http://www.colorado.gov/governor/press/pdf/ColoradoStatusReport.pdf] 
(accessed June 12, 2009). 

[42] As noted on the following pages, several state and local officials 
told us that they were seeking additional guidance on how to report on 
Recovery Act funds. OMB provided such guidance on June 22, 2009; 
however, we did not subsequently discuss the guidance with officials to 
determine whether it met their needs. See OMB Memorandum, M-09-21, 
Implementing Guidance for the Reports on Use of Funds Pursuant to the 
American Recovery and Reinvestment Act of 2009. 

[43] In July 2009, OMB and the Recovery Accountability and Transparency 
Board plans to conduct a small-scale pilot test of the reporting 
procedures and data collection system developed for recipient 
reporting. Actual required reporting will begin October 10, 2009, for 
the quarter ending September 30, 2009. 

[44] Under section 3 of the Housing and Urban Development Act of 1968, 
employment and other opportunities generated by federal financial 
assistance for housing and community development programs are to be 
directed, to the greatest extent possible, toward low-and very low- 
income persons, particularly those who are recipients of government 
assistance for housing. 12 U.S.C. § 1701u. 

[45] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis-Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. §§ 3141-3148. 

[End of Appendix III] 

Appendix IV: Florida: 

Overview: 

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

Use of funds: GAO's work focused on nine federal programs, selected 
primarily because they have begun disbursing funds to states, and 
includes existing programs receiving significant amounts of Recovery 
Act funds or significant increases in funding, and new programs. 
Program funds are being directed to helping Florida stabilize its 
budget and support local governments, particularly school districts, 
and are being used to expand existing programs. Funds from some of 
these programs are intended for disbursement through states or directly 
to localities. The funds include the following: 

* Funds Made Available as a Result of Increased Medicaid Federal 
Medical Assistance Percentage (FMAP). As of June 29, 2009, Florida has 
drawn down almost $1.3 billion in increased FMAP grant awards, which is 
almost 91 percent of its awards to date.[Footnote 2] Florida is using 
freed up state funds made available as a result of the increased FMAP 
to cover the state's increased Medicaid caseload, and maintain current 
Medicaid populations, and level of benefits and offset the state budget 
deficit.[Footnote 3] 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
Florida's request for stabilization funds was approved on May 12, 2009, 
and the state received $1.8 billion of its total SFSF allocation of 
$2.7 billion. Almost $1.5 billion is for education stabilization, and 
$329 million is for government services. Based on Florida's approved 
application, it will allocate 79 percent of the education stabilization 
funds to local education agencies (LEA) and 21 percent to institutions 
of higher education (IHE). Florida will make the funds available to 
LEAs and IHEs on July 1, 2009, the beginning of the school budgeting 
year. Florida will be using these funds to restore state aid to LEAs, 
helping to stabilize their budgets and, among other uses, retain staff. 
For example, Miami-Dade school district officials estimate that the 
Recovery Act funds will allow them to save 1,919 positions or 10 
percent of the district's teacher workforce. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). The Department of Education (Education) has awarded 
Florida $245 million in Recovery Act ESEA Title I, Part A, funds, or 50 
percent of its total allocation of $490 million. Of these funds, the 
state has allocated state LEAs $231 million, as of June 25, 2009. 
Florida made these funds available to LEAs after April 1, 2009, to help 
them educate disadvantaged youth. For example, Miami-Dade school 
district officials reported that they are using the Recovery Act funds 
to deploy reading coaches to high-poverty, low-performing schools, and 
to provide supplemental, enrichment services to students enrolled in 
prekindergarten in schools implementing the Title I School-wide 
Program. 

* Individuals with Disabilities Act (IDEA), Parts B and C. Education 
has awarded $335 million in Recovery Act IDEA, Parts B and C, funds, or 
50 percent of its total allocation of $670 million. Florida has 
received $9.8 million of Part B funds for preschool grants and $313.6 
million of Part B funds for school-aged children and youth. Florida 
made these funds available to LEAs upon receipt of an approved 
application, to support special education and related services for 
infants, toddlers, children, and youth with disabilities. The Florida 
Department of Health received $11.5 million of Part C funds for infants 
and families for early intervention services, and it has allocated $7 
million of the funds across 15 contracts to local organizations for 
service delivery for its Early Steps Program, as of July 1, 2009. 

* Workforce Investment Act (WIA) Youth Program. The U.S. Department of 
Labor allotted about $43 million of Recovery Act funds for the WIA 
Youth program. The state has allocated all of the funds to local 
workforce boards, based on information available on June 30, 2009. The 
Florida workforce boards' summer youth programs plan to create about 
16,000 to 20,000 summer jobs for Florida youth. 

* Edward Byrne Memorial Justice Assistance Grants. The Department of 
Justice's Bureau of Justice Assistance has awarded $81.5 million 
directly to Florida in Recovery Act funding, of which about 65 percent-
-about $53 million--is to be allocated by the state to eligible local 
jurisdictions.[Footnote 4] As of June 30, 2009, the state has obligated 
and expended $8,300 for administrative expenses. Grant funds coming to 
the state of Florida will be used mostly to expand existing drug court 
programs. The remaining funds will be used for providing detention and 
treatment services for youth, purchasing radio equipment upgrades for 
the Department of Corrections, and developing a new seaport access 
database. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated about $86 million in Recovery Act funding to 
82 public housing agencies in Florida. Based on information available 
as of June 20, 2009, about $12 million (14 percent) had been obligated 
by 35 of those agencies. At the three housing agencies we visited-- 
Venice Housing Authority, Tampa Housing Authority, Tallahassee Housing 
Authority--these funds, which flow directly to public housing agencies, 
are being used for various capital improvements, including modifying 
kitchens, replacing roofs and windows, and improving energy efficiency. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $176 million in Recovery Act weatherization 
funding to Florida for a 3-year period. As of June 30, 2009, DOE has 
provided about $88 million to Florida, and the Department of Community 
Affairs (DCA) will have obligated almost $113,000 and expended about 
$77,000 of the initial program funds for such expenses as payroll for 
DCA staff, contract services, and travel and supplies. Florida also 
plans on using its initial funding to hire additional staff to monitor 
the program, prepare subgrantee agreements with its 29 local service 
providers, and provide start-up training for new agency staff and 
subgrantees. The additional 40 percent of the Recovery Act 
weatherization funds received on June 18, 2009, will be used to begin 
weatherizing at least 19,000 homes. 

* Highway Infrastructure Investment Funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $1.4 
billion in Recovery Act funds to Florida. As of June 25, 2009, the 
federal government obligated about $1 billion. According to Florida 
Department of Transportation officials, the state has received bids for 
nine highway construction projects, and is currently advertising 39 
additional Recovery Act projects--funded with $555 million in Recovery 
Act funds and $945 million in other federal, state, and local funds. 
Funding from the first round of FHWA obligations are being used for 
resurfacing projects, bridge repairs, and new construction. For 
example, in Hillsborough County, a major interstate project--costing 
over $445 million and using over $105 million in Recovery Act funds-- 
will connect a major expressway to Florida's Interstate 4 to improve 
the flow of traffic and create a truck-only lane to provide direct 
access to the Port of Tampa. 

Safeguards and transparency: Florida's accounting system will be used 
to separately track Recovery Act funds that flow through the state 
government, using selected identifiers such as a grant number or 
project number. The local entities that we visited have tracking 
systems in place, or are in the process of establishing tracking 
systems for Recovery Act funds, whether those funds are passed-through 
from the state agency or are directly awarded from a federal agency. 
While Florida law requires state agencies to establish and maintain 
internal controls, the state oversight agencies are preparing for the 
infusion of Recovery Act funds into the state. The Florida Department 
of Financial Services is planning to obtain separate agency 
representation letters from agency heads that say internal controls are 
in place for Recovery Act funds. Florida's Chief Inspector General 
established a communitywide working group of agency Inspectors General 
to address risk assessment, fraud prevention and awareness, and 
training. The Auditor General is monitoring the state's plans for 
accounting for and expending Recovery Act funds and tracking the 
expected changes in the Office of Management and Budget's (OMB) 
implementing guidance for the Single Audit Act's requirements. 

Assessing the effects of spending: Florida agencies continue to have 
some concerns about the lack of clear federal guidance on assessing the 
results of Recovery Act spending and were awaiting final OMB and 
federal agency guidance on reporting on jobs retained and created. The 
recovery czar reported participating in conference calls with OMB 
regarding the guidance and having input into its development. On June 
22, 2009, OMB issued additional guidance on reporting on the use of 
Recovery Act funds.[Footnote 5] Florida is in the process of developing 
an automated Web-based system to collect data and report on Recovery 
Act requirements for funds that flow through state agencies. In 
addition, since most state agencies have yet to obligate or expend 
Recovery Act funds, little, if, any data on actual jobs retained or 
created is available for Florida. Instead, some state agencies have 
estimated the number of jobs retained or created. For example, 
officials from one university stated that the Recovery Act 
stabilization funds would be used exclusively to retain about 400 of 
their 1,100 adjunct instructors. 

Florida Will Use Recovery Act Funds in Conjunction with Other Revenue- 
Producing Activities to Address Budget Gap: 

On May 27, 2009, Florida passed a $66.5 billion budget for the state's 
2009-2010 fiscal year. While developing this budget, officials noted 
that the state was facing a projected $4.8 billion gap in general 
revenue funds. This general revenue gap is due to the state's declining 
general revenue receipts, which have been decreasing over the past 3 
years. For example, Florida's general revenue is estimated to be $21 
billion for fiscal year 2009 and $20 billion for fiscal year 2010. To 
assist in closing the gap, $1.6 billion of Recovery Act funding will be 
used primarily from the State Fiscal Stabilization Fund (SFSF), and 
child support funds, in the form of increased federal matching funds. 
Funds made available as a result of the increased FMAP will also be 
used. For 2009-2010, Florida has budgeted a total of $5.3 billion in 
Recovery Act funds. We reported in April that the state planned to use 
about $3 billion in Recovery Act funds to reduce the state's budget 
shortfall for state fiscal year 2009-2010.[Footnote 6] As shown in 
figure 1, the state is expecting over a 26 percent decrease in revenues 
between fiscal year 2005-06 and 2009-10. 

Figure 1: Florida's General Revenue, Fiscal Years 2002-2013 (Dollars in 
millions): 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2001-2002; 
General revenue (actual): $19,329. 

Fiscal year: 2002-2003; 
General revenue (actual): $19,984. 

Fiscal year: 2003-2004; 
General revenue (actual): $21,824. 

Fiscal year: 2004-2005; 
General revenue (actual): $24,969. 

Fiscal year: 2005-2006; 
General revenue (actual): $27,075. 

Fiscal year: 2006-2007; 
General revenue (actual): $26,404. 

Fiscal year: 2007-2008; 
General revenue (actual): $24,112. 

Fiscal year: 2008-2009; 
General revenue (actual): $20,945. 

Fiscal year: 2009-2010; 
General revenue (estimated): $19,998. 

Fiscal year: 2010-2011; 
General revenue (estimated): $21,091. 

Fiscal year: 2011-2012; 
General revenue (estimated): $23,008. 

Fiscal year: 2013-2014; 
General revenue (estimated): $24,951. 

Source: GAO analysis of Florida Office of Policy and Budget Data. 

[End of figure] 

The state has also substantially reduced its reserve funds to counter 
the decreases in general revenues. If Florida did not receive or use 
Recovery Act funds, the state would have potentially needed to consider 
options such as additional budgetary cuts, revenue enhancements, or 
further trust fund reductions. For example, in 2008, Florida had a 
reserve fund balance of $6.2 billion, while the current reserve balance 
is about $2.2 billion. As shown in figure 2, the state's reserve funds 
are estimated to substantially decrease in 2009. 

Figure 2: Florida's Revenue Reserves, Fiscal Years 2002-2011 (Dollars 
in millions): 

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

Fiscal year: 2001-2002; 
Budget stabilization fund: $941; 
Tobacco Reserves: $1,293; 
Trust Funds: $100; 
Unencumbered general revenues (nonrecurring): $984; 
Total: $3,318. 

Fiscal year: 2002-2003; 
Budget stabilization fund: $959; 
Tobacco Reserves: $1,521; 
Trust Funds: $50; 
Unencumbered general revenues (nonrecurring): $682; 
Total: $3,212. 

Fiscal year: 2003-2004; 
Budget stabilization fund: $966; 
Tobacco Reserves: $1,739; 
Trust Funds: $432; 
Unencumbered general revenues (nonrecurring): $2,457; 
Total: $5,594. 

Fiscal year: 2004-2005; 
Budget stabilization fund: $988; 
Tobacco Reserves: $1,874; 
Trust Funds: $840; 
Unencumbered general revenues (nonrecurring): $3,571; 
Total: $7,273. 

Fiscal year: 2005-2006; 
Budget stabilization fund: $1,069; 
Tobacco Reserves: $2,025; 
Trust Funds: $1,807; 
Unencumbered general revenues (nonrecurring): $4,990; 
Total: $9,891. 

Fiscal year: 2006-2007; 
Budget stabilization fund: $1,249; 
Tobacco Reserves: $2,228; 
Trust Funds: $1,352; 
Unencumbered general revenues (nonrecurring): $3,019; 
Total: $7,847. 

Fiscal year: 2007-2008; 
Budget stabilization fund: $1,345; 
Tobacco Reserves: $2,088; 
Trust Funds: $2,477; 
Unencumbered general revenues (nonrecurring): $321; 
Total: $6,230. 

Fiscal year: 2008-2009[A]; 
Budget stabilization fund: $281; 
Tobacco Reserves: $554; 
Trust Funds: $1,104; 
Unencumbered general revenues (nonrecurring): $218; 
Total: $2,158. 

Fiscal year: 2009-2010[A]; 
Budget stabilization fund: $281; 
Tobacco Reserves: $537; 
Trust Funds: $686; 
Unencumbered general revenues (nonrecurring): $1,040; 
Total: $2,554. 

Fiscal year: 2010-2011[A]; 
Budget stabilization fund: $281; 
Tobacco Reserves: $619; 
Trust Funds: $686; 
Unencumbered general revenues (nonrecurring): $724; 
Total: $2,311. 

[A] Estimated. 

Source: GAO analysis of Florida Office of Policy and Budget data. 

The state has also experienced an increase in demand for some services 
with the downturn in the economy. For example, the number of unemployed 
people in the state has increased, which in turn increases the demand 
for unemployment compensation and other social services, such as food 
stamps. Other state-funded programs, such as higher-education 
institutions, have recently seen increasing enrollment of people trying 
to increase their marketable skills. This increased enrollment has 
strained institutions, which are also struggling with budget cuts. 
Other agencies--such as school districts--have laid off staff to meet 
the budget demands. According to state officials, these layoffs would 
have been significantly worse without Recovery Act funding. 

However, Florida officials are not planning to continually rely on 
funding from the federal government to sustain Florida's budget for 
future years. Instead, Florida's legislature and Governor recently 
passed a number of new revenue-producing initiatives to help close the 
state's budget gap, as shown in figure 3. For example, according to 
state officials, the recently passed legislation, once ratified by the 
Seminole Tribe, will tax certain gambling profits on the Seminole 
Indian reservations and is estimated to produce about $170 million in 
revenue for the state on an annual basis. Other initiatives include 
levying a tobacco surcharge of $1 per pack, increasing motor vehicle 
fees, "trust fund sweeps" which move funds from department trust funds 
to general revenue, and saving $165 million in general revenue funds by 
financing the construction of new prisons with bond proceeds. State 
officials currently estimate these revenue generating actions will 
produce more than $2.0 billion in new general revenues. 

Figure 3: Florida's Plan for Filling the General Revenue Gap (Dollars 
in millions): 

[Refer to PDF for image: illustration] 

This illustration depicts the following data: 

Florida's Plan for Filling the General Revenue Gap: 

American recovery and 2009-10, $1,613.3 (34%); 
Revenue increases from user fees, $863.0 (18%); 
Tobacco surcharge, $837.4 (17%); 
Trust fund reserves, $582.0 (12%); 
Gaming compact, $303.5 (6%); 
Spending cuts, $231.2 (5%); 
Court filing fee, $220.0 (5%); 
Bonding prisons, $165.5 (3%); 
Filling the general revenue gap, fiscal year 2009-2010, total: $4.8 
billion. 

Source: GAO analysis of Florida Office of Policy and Budget Data. 

[End of figure] 

Florida's capacity to oversee the recovery act funds may be strained 
due to the current budget situation and the potential increases in 
auditing requirements from the Office of Management and Budget's (OMB) 
guidance for implementing the Single Audit Act. The Florida Offices of 
Inspector General (OIG) currently estimates that there are 34 full-time 
employees available to work on Recovery Act-related activities, with 7 
of these positions solely dedicated to Recovery Act funding oversight. 
The OIG has also determined that the Inspector General community may 
require additional resources to fully accomplish its total oversight 
activities through 2010; however, exact estimates are not available at 
this time. On the other hand, officials in the Auditor General's office 
stated that their office has adequate staffing to conduct the Single 
Audit reviews for the programs affected in the state. However, if the 
auditor's office will be required to monitor internal controls in the 
state agencies on an accelerated time frame and increase the number of 
programs that must be audited, then the auditor's office is unsure of 
its staffing needs, absent more specific direction on OMB's 
expectations. 

Florida Medicaid Enrollment Has Increased 18 Percent since October 
2007: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
percent to no more than 83 percent. The Recovery Act provides eligible 
states with an increased FMAP for 27 months from October 1, 2008, 
through December 31, 2010.[Footnote 7] 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 8] 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 
would otherwise have to use for their Medicaid programs, and states 
have reported using these available funds for a variety of purposes. 

From October 2007 to April 2009, the state's Medicaid enrollment grew 
from 2,117,174 to 2,497,440, an increase of 18 percent. While the 
increase in enrollment was generally gradual during this period, larger 
increases occurred between June and July 2008 and February and March 
2009. (See figure 4.) Most of the increase in enrollment was 
attributable to the children and families population group. 

Figure 4: Monthly Percentage Change in Medicaid Enrollment for Florida, 
October 2007 to April 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: 0.27. 

Nov.–Dec. 2007: 
Percentage change: 0.52. 

Dec.–Jan. 2007-08: 
Percentage change: 0.84. 

Jan.–Feb. 2008: 
Percentage change: 0.85. 

Feb.–Mar. 2008: 
Percentage change: 0.84. 

Mar.–Apr. 2008: 
Percentage change: 0.86. 

Apr.–May 2008: 
Percentage change: 0.8. 

May–June 2008: 
Percentage change: -0.62. 

Jun.–Jul. 2008: 
Percentage change: 3.71. 

Jul.–Aug. 2008: 
Percentage change: -0.96. 

Aug.–Sep. 2008: 
Percentage change: 0.85. 

Sep.–Oct. 2008: 
Percentage change: 1.54. 

Oct.–Nov. 2008: 
Percentage change: 1.29. 

Nov.–Dec. 2008: 
Percentage change: 0.42. 

Dec.–Jan. 2008-09: 
Percentage change: 1.1. 

Jan.–Feb. 2009: 
Percentage change: 1.25. 

Feb.–Mar. 2009: 
Percentage change: 3.44. 

Mar.–Apr. 2009: 
Percentage change: -0.29. 

October 2007 enrollment: 2,117,174; 
April 2009 enrollment: 2,497,440. 

Source: GAO analysis of state reported data. 

[End of figure] 

As of June 29, 2009, Florida has drawn down almost $1.3 billion in 
increased FMAP grant awards, which is almost 91 percent of its awards 
to date.[Footnote 9] Florida officials reported that they are using 
funds made available as a result of the increased FMAP to offset the 
state budget deficit, cover the state's increased Medicaid caseload, 
and maintain the state's current Medicaid populations and benefits. 

According to state officials, the availability of the increased FMAP 
provided Florida with the ability to maintain existing services and 
eligibility requirements in the state's Medicaid program, despite 
decreases in revenues. In particular, Medicaid funding for two 
population groups--certain low-income individuals and medically needy 
individuals--had relied on nonrecurring state revenues for the state 
fiscal year 2008-2009, but with funds made available as a result of 
increased FMAP, the funding is now augmented by Recovery Act funds and 
will continue at least through the end of calendar year 2010. State 
officials noted that continuing to cover these populations is a 
requirement for the state to maintain eligibility for increased FMAP 
funds. In addition, the state had lowered reimbursement rates to 
institutional providers over the last couple of years as part of an 
annual review of program size, populations, and cost--due in part to 
the shortage of these nonrecurring state revenue sources. Florida 
officials said it is difficult to speculate on how the legislature will 
use funds made available as the result of increased FMAP to build the 
Medicaid budget for the coming state fiscal year. They further noted 
that the Medicaid program had incurred no additional costs related to 
the administrative and reporting requirements associated with use of 
these funds. 

Regarding the tracking of increased FMAP, state officials said that 
they will rely on an internal software program to track standard and 
increased FMAP funds separately in their existing accounting system. 
The internal software allows state officials to track increased FMAP by 
appropriation and expenditure. Florida officials said the state has 
internal controls in place, including periodic reconciliation 
processes, to ensure that the amount of adjudicated Medicaid claims 
that Florida processes equals the state's drawdown of FMAP funds. 
Florida officials said that regarding the use of FMAP funds, the 
state's internal controls do distinguish between regular and increased 
FMAP and that all FMAP funds are only used for Medicaid purposes. 
Auditors from the state's Medicaid Program Integrity Division within 
the Office of the Inspector General routinely review the state's 
Medicaid program for instances of fraud, waste, and abuse, and will 
continue to use existing protocols to review use of funds made 
available as the result of increased FMAP. 

Due to concerns that the method the state uses to determine prompt 
payment could violate the Recovery Act,[Footnote 10] Florida officials 
made several changes to the state's payment methodology and implemented 
system enhancements to comply with the Recovery Act's requirement. 
Regarding the Single Audit, the 2007 and 2008 audits each identified 
one material weakness in the state's Medicaid program, which was 
related to insufficient documentation that data exchanges to verify 
eligibility were performed.[Footnote 11] The 2008 Single Audit also 
raised additional concerns related to the documentation of eligibility 
decisions. 

School Districts and Colleges Report Plans to Use State Fiscal 
Stabilization Funds to Retain Teaching Staff and Establish Systems to 
Track Funds: 

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 provides 
several assurances. These include assurances that the state will meet 
maintenance-of-effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Further, the state applications must contain 
baseline data that demonstrate the state's current status in each of 
the assurances. States must allocate 81.8 percent of their SFSF funds 
to support education (education stabilization funds), and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). After 
maintaining state support for education at fiscal year 2006 levels, 
states must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
school districts or institutions of higher education (IHEs). When 
distributing these funds to school districts, states must use their 
primary education funding formula but maintain discretion in how funds 
are allocated to public IHEs. In general, school districts maintain 
broad discretion in how they can use stabilization funds, but states 
have some ability to direct IHEs in how to use these funds. 

Florida's request for stabilization funds was approved in May 2009, and 
it received $1.8 billion of its total $2.7 billion SFSF allocation. 
Almost $1.5 billion is for education stabilization, and $329 million is 
for government services. Based on the state's approved application, the 
state will allocate 79 percent of the education stabilization funds to 
local education agencies (LEAs) and 21 percent to IHEs. Florida will 
make the funds available to LEAs and IHEs on July 1, 2009, the 
beginning of the school budgeting year. Florida submitted a waiver for 
its maintenance-of-effort requirement, and a state official told us it 
was approved May 12, 2009. 

We selected the Miami-Dade and Hillsborough County school districts to 
visit because they are the first and third largest local school 
districts in the state with regard to Recovery Act funding and student 
population, respectively. Both school districts reported decreases in 
state funding for the upcoming 2009-2010 school year. Miami-Dade and 
Hillsborough County school district officials cited budget shortfalls 
of $173 million and $77 million respectively, for school year 2009-2010 
and said they will use their SFSF allocations of $119 million and $66 
million respectively, to partially fill those gaps. The amount of funds 
allocated was determined by the state's formula for base funding, and 
the funds will be made available to the local school districts through 
the Florida Education Finance Program on July 1, 2009. Local school 
districts have to apply to the Florida Department of Education for the 
funds, and those applications were received June 8, 2009. 

Selected School Districts' Planned Use of Stabilization Funds and 
Monitoring: 

The Miami-Dade and Hillsborough school districts will place the 
stabilization funds in their general funds, and they plan to use them 
primarily to help the school districts retain positions, or create new 
jobs, or both. The Florida Department of Education published strategies 
and guidance for all Recovery Act education funding streams on its Web 
site, and there are 21 recommended strategies for spending 
stabilization funds. The local school district officials we spoke to 
told us they were establishing systems and processes to track the 
stabilization funds and report on their uses to the state. 

Miami-Dade: Miami-Dade school district officials estimate that the 
stabilization funds will help them save 1,919 positions, or 10 percent 
of the district's teacher workforce.[Footnote 12] In addition to 
retaining positions, they said that they plan to use some of the SFSF 
funds to focus on more professional development and the continued 
hiring of Teach for America teachers. Moreover, Miami-Dade officials 
said its controller is setting up unique accounting codes for its funds 
and programs as required by the state to track and report on their 
usage. 

Hillsborough: Hillsborough County school district officials estimate 
that the funds will save roughly 1,100 positions. These officials 
reported that they have created accounting codes for their Recovery Act 
funds that will allow them to track the funds on specific projects. 
They plan to oversee their use of funds via the quarterly reports that 
must be filed with the state Department of Education as well as through 
their annual self-evaluation. 

Stabilization Funds Will Allow Institutions of Higher Education to 
Maintain Staff and Will Mitigate Tuition Increases: 

All three of the IHEs we visited in Florida have reported decreases in 
state funding that they will compensate for with stabilization funds. 
The SFSF they receive will not fill the gaps completely. (See table 1.) 

Table 1: Decreases in State Funding and Stabilization Funds Received by 
Institutions of Higher Education We Visited: 

School: Hillsborough Community College (HCC); 
Decrease in state funds: $6[A] million; 
Stabilization funds received: $3.9 million; 
Stabilization funds as a percent of decrease: 65%. 

School: University of South Florida (USF); 
Decrease in state funds: $36[B] million; 
Stabilization funds received: $15.1 million; 
Stabilization funds as a percent of decrease: 42. 

School: Florida Agricultural and Mechanical University (FAMU); 
Decrease in state funds: $16.2[B] million; 
Stabilization funds received: $7.9 million; 
Stabilization funds as a percent of decrease: 49. 

Source: HCC, USF, FAMU. 

Notes: Figures were provided by program officials at HCC, USF, FAMU. 

[A] Decrease was in the state's 2008-2009 fiscal year. 

[B] Decrease is for state's 2009-2010 fiscal year, which began July 1. 

[End of table] 

While the schools we visited were still deciding on what and when the 
funds will be spent--their budgets were finalized July 1, 2009--all 
three of these institutions reported that they will use stabilization 
funds to retain teaching staff or create new jobs, or both. With regard 
to retaining teaching staff, Hillsborough Community College (HCC) 
reported that it would use stabilization funds exclusively to retain 
about 400 of its 1,100 adjunct instructors. A University of South 
Florida (USF) official said the university would use the funds to hire 
a sufficient number of short-term adjunct professors to maintain 
delivery of academic programs, so that students could make progress 
toward graduation. Florida Agricultural and Mechanical University 
(FAMU) officials said that stabilization funds would enable the 
university to retain instructional faculty to provide courses. With 
regard to creating new jobs, USF officials said they would hire 
postdoctoral fellows to stimulate research and additional staff members 
to address reporting requirements and compliance. FAMU officials said 
they would hire both undergraduates and graduates for assistantships. 

State officials who oversee the systems that govern the state's college 
and university systems said that stabilization funds helped mitigate 
tuition increases. According to state officials, the state legislature 
sets tuition for the system and increased tuition by 8 percent for the 
2009-2010 school year. Officials estimated that without stabilization 
funds the increase in tuition necessary to compensate for decreases in 
state funding would have been 21 percent for students at community 
colleges and 35 percent for students at universities. 

All of the IHEs we visited will be required to submit an application by 
June 15, 2009, to receive SFSF. The application requires program- 
specific assurances related to distribution and use of the funds (e.g., 
spend funds quickly to save and create jobs) and prohibited uses of the 
funds (e.g., to increase university endowment), and required a budget 
narrative that provided descriptions of costs, jobs created, and jobs 
continued. Officials at all three IHEs said they had received 
substantive guidance on allowable uses and tracking, but only two of 
the three said they had received substantive guidance on reporting of 
SFSF. 

All three institutions we visited said that they can track SFSF funds 
separately, but only one could articulate plans to track jobs created 
and saved. All three schools said they would add codes to their 
accounting systems to distinguish SFSF funds from others. However, only 
FAMU said that it could link jobs created or saved back to 
stabilizations funds. According to FAMU officials, program 
administrators will be asked to identify which positions would have 
been cut without SFSF and are being continued or created because of 
them. Both HCC and USF acknowledged that they had not yet resolved this 
issue. 

Districts We Visited Did Not Anticipate Any Challenges Meeting Their 
Required Elementary and Secondary Education Act Title I Funds Spending 
Time Frames and Are Modifying Systems to Ensure Adequate Controls and 
Compliance: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through Title I, Part A, of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be distributed through states to LEAs using 
existing federal funding formula, which target funds based on such 
factors as high concentrations of students from families living in 
poverty. In using the funds, LEAs are required to comply with current 
statutory and regulatory requirements, and must obligate 85 percent of 
their fiscal year 2009 funds (including Recovery Act funds) by 
September 30, 2010.[Footnote 13] Education is advising LEAs to use the 
funds in ways that will build their long-term capacity to serve 
disadvantaged youth, such as through providing professional development 
to teachers. Education allocated the first half of states' ESEA Title 
I, Part A, allocations on April 1, 2009, with Florida receiving $245 
million of its approximately $490 million total allocation. Of these 
funds, the state has allocated $231 million to LEAs, as of June 25, 
2009. 

The Florida Department of Education published strategies and guidance 
for all education-related Recovery Act funding streams on its Web site. 
Of the 21 strategies, 18 applied to ESEA Title I funding. In its 
Recovery Act, ESEA Title I application, the state required the 
districts to identify how each line of the budget narrative aligned 
with one of the four principles suggested by Education for Recovery Act 
funding (e.g., spend the funds quickly to save and create jobs). 

The two school districts we visited received their Recovery Act, ESEA 
Title I allocations. Miami-Dade and Hillsborough County schools 
districts received $48 million and $17 million, respectively. Miami- 
Dade has begun obligating and expending these funds for reading 
coaches, for supplemental, enrichment services to prekindergarten 
students, and for supplemental, core subject-area teachers allocated to 
schools. Hillsborough County school district officials reported they 
would begin obligating and expending funds in June. Officials from both 
districts reported that they did not anticipate any challenges meeting 
their required spending time frames. Miami-Dade school district 
officials told us that the state had requested a waiver from Education 
for the maintenance of effort requirement on behalf of the 67 school 
districts in Florida. 

Miami-Dade County school district officials told us they will be adding 
104 public and 50 nonpublic schools[Footnote 14] to its ESEA Title I 
program, and they anticipate challenges providing monitoring and 
oversight, especially to these 104 new public schools adding additional 
staff in order to process and meet set-aside requirements to spend a 
specific amount of funds on a particular activity,[Footnote 15] and 
needing thorough and strategic planning to minimize the funding cliff 
effect at the end of the grant period. Hillsborough County school 
district is adding one school to its ESEA Title I program and does not 
anticipate any additional challenges. State officials told us that they 
repeatedly stressed the importance of avoiding the funding cliff by 
using the ESEA Title I funds in the most effective and efficient 
manner, and planning for long-term impact with short-term funds. 

Both school districts plan on using the funds for instruction, 
technology, and other purposes such as supporting parental involvement. 
[Footnote 16] For preschools, Miami-Dade plans to use the funds for 
supplemental, enrichment educational services at schools implementing 
the ESEA Title I Schoolwide Program, which allows ESEA Title I funds to 
be used to benefit all students in certain schools, and for at-home 
instructional services for parents of preschool children through the 
Home Instructional Program for Parents of Preschool Youngsters. For 
secondary schools, officials said they will use the funds for guidance 
and support services from the Student Services (i.e., College Advisors 
Program) staff for students in high schools, for supplemental, core 
subject-area teachers, and for reading coaches. Hillsborough County 
school districts plan to use the preschool funds to provide additional 
instructional resources and technology for each of its preschool 
classes. The funds for secondary schools will be used for the purposes 
of technology, parent involvement resources, incentive pay, staff 
development, and supporting leadership development. 

Both districts are required to report to the Florida Department of 
Education on the use of the Recovery Act ESEA Title I funds and modify 
their systems to help ensure adequate internal controls and compliance. 
Hillsborough County school district has created accounting codes for 
their funds that will allow them to tag funds to a project so, for 
example, it will be able to report how much is spent on guidance 
counseling using Recovery Act ESEA, Title I, Part A funds. School 
district officials also told us that they will have project managers 
and fund managers who will have knowledge across their program areas, 
and they will hire program managers, who in turn, will hire people to 
go to schools to ensure monitoring is being done and data collected. In 
addition, they will also have a fiscal compliance and reporting person 
to ensure that the funds they are spending is meeting Recovery Act 
goals. To help ensure its oversight, Miami-Dade school district has 
identified and redeployed the additional staff needed to process and 
meet set-aside requirements for its much larger funding amounts, and it 
has developed a strategic planning process for the evaluation of all 
program initiatives and activities. This approach was used to maximize 
effectiveness and efficiency in the use of the funds and to minimize 
the cliff effect at the end of the grant period. 

Officials Reported Individuals with Disabilities Act Funding Guidance 
Met Their Needs and They Documented Their Planned Activities for Funds 
in Applications: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B includes programs that ensure preschool and school-
aged children with disabilities have access to a free and appropriate 
public education, and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities or at risk 
of developing a disability and their families. IDEA funds are 
authorized to states through three grants--Part B preschool-age, Part B 
school-age, and Part C grants for infants and families. States were not 
required to submit an application to Education in order to receive the 
initial Recovery Act funding for IDEA Parts B and C (50 percent of the 
total IDEA funding provided in the Recovery Act). States will receive 
the remaining 50 percent by September 30, 2009, after submitting 
information to Education addressing how they will meet Recovery Act 
accountability and reporting requirements. All IDEA Recovery Act funds 
must be used in accordance with IDEA statutory and regulatory 
requirements. 

Education allocated the first half of states' total IDEA allocations on 
April 1, 2009, with Florida receiving $335 million of its $670 million 
total allocation for all IDEA programs. The largest share of IDEA 
funding is for the Part B, school-aged program for children and youth. 
The state's initial allocation was: 

* $9.8 million for Part B preschool grants, 

* $313.6 million for Part B grants for school-aged children and youth, 
and: 

* $11.5 million for Part C grants for infants and families for early 
intervention services. 

Officials at the Miami-Dade and Hillsborough County school districts 
said that the Recovery Act, IDEA guidance they received met their 
needs. The Florida Department of Education published strategies and 
guidance on all Recovery Act education-related funding streams on its 
Web site, and 15 of the 21 strategies dealt with IDEA funding. In 
addition, the department conducted a series of teleconference calls 
with local school districts as well as providing supplementary written 
materials. Officials from the Miami-Dade and Hillsborough County school 
districts told us they did not anticipate any challenges with respect 
to using the IDEA Recovery Act funds. 

Florida required local school districts to submit project applications 
for IDEA funds that list the activities and the strategy they are 
aligned with, positions saved and created, and the funding for the 
project. In the application, the school district has to agree to six 
specific assurances the state has required for Recovery Act funds, such 
as one pertaining to using funds quickly to create and save jobs. Both 
school districts have received their project award notifications from 
the state. Officials from both school districts reported that they will 
be measuring and reporting on the impact of their IDEA funds to the 
state Department of Education and that they would conduct program 
evaluations on key activities and initiatives funded with IDEA funds. 
Table 2 provides some examples of how they plan to spend their IDEA 
funds in accordance with each of five usages. 

Table 2: Selected Examples of Miami-Dade and Hillsborough County School 
Districts' IDEA Spending Plans: 

Use 1: Expand Inclusive Placement Options for Preschoolers with 
Disabilities: 

Miami-Dade County School District: Training will be provided on Social 
Emotional Competence to prekindergarten teachers to build capacity for 
serving pre-K children with challenging behaviors, and funds will be 
provided to prekindergarten teachers to purchase materials and 
equipment; 
Hillsborough County School District: The school district wants to 
increase its early intervening services to children not identified as 
having a disability. The hiring staff is continuing to complete 
evaluations in a timely manner (The goal is to place children into 
school by 3rd birthday); They are looking to support this with 
assessment teams. Additionally, they are exploring opportunities with 
voluntary pre-K programs. 

Use 2: Develop or Expand the Capacity to Collect and Use Data to 
Improve Teaching and Learning: 

Miami-Dade County School District: The school district will be working 
with its Information Technology Services group to expand existing 
systems to collect, report and provide easy access to data that will 
help improve teaching and learning; 
Hillsborough County School District: The school district wants to 
upgrade technology for computer access to create a structure to include 
student data storage capacity for curriculum, student work, and a 
reporting data system to analyze learner outcomes. 

Use 3: Provide Professional Development for Teachers to Improve 
Outcomes for Students with Disabilities: 

Miami-Dade County School District: A Response to Intervention Institute 
will offer professional development for teachers, social workers, 
psychologists, administrators and other professionals to expand 
capacity in effectively addressing the assessment, instruction, and 
interventions needed by students; 
Hillsborough County School District: The school district will provide 
professional development for teachers, support staff, bus drivers, and 
so forth, to enhance knowledge of state or local procedures, policies, 
curriculum, behavior strategies, and access points. 

Use 4: Obtain Job Placements for Youths with Disabilities: 

Miami-Dade County School District: Expansion of transition services and 
programs for students in the 18-22 age brackets are planned. For 
example, they plan to increase and expand capacity of on-the-job 
training programs whereby students are provided on-the-job training and 
supported employment at business sites in the community; 
Hillsborough County School District: The school district will employ 
career specialists to assist with training of employable skills, job 
training, and employment of students with disabilities. 

Use 5: Acquire Assistive Technology Devices: 

Miami-Dade County School District: The district has developed a Five- 
Year Plan to increase capacity and infrastructure to address the 
assistive technology needs of its students. Plans for 2009-10 IDEA 
Recovery Act funds includes purchasing a wider variety of computer and 
assistive technology equipment and devices for students, and providing 
funding for hourly personnel to conduct evaluations to determine a 
student's need for assistive technology; 
Hillsborough County School District: The school district is pursuing 
opportunities to enhance adaptive technology and do additional testing 
(e.g., communication skills). 

Source: Miami-Dade and Hillsborough County School District Officials. 

[End of table] 

Miami-Dade school district officials said they will avoid the cliff 
effect after the funding expires by using the funds to support 
expansion of programs that can be sustained, by limiting the number of 
jobs created to a minimum, holding firm with the current district 
hiring freeze, and covering salaries for individuals who are currently 
in the Florida Deferred Option Retirement Program and have 2 years left 
of employment. Hillsborough County school district officials told us 
they will avoid unsustainable, continuing commitments by only 
allocating these funds to one time expenditures during the time period 
allowed. 

The Florida Department of Health received $11.5 million of Part C funds 
for infants and families for early intervention services. It has 
allocated $7 million of the funds across 15 contracts to local 
organizations for service delivery for its Early Steps Program, based 
on information available as of July 1, 2009. 

Workforce Boards Were Working to Fill Available Slots for Summer Youth 
Employment Activities Combining Work Readiness and On-Site Job 
Experiences: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth program to 
facilitate the employment and training of youth. The WIA Youth program 
is designed to provide low-income, in-school and out-of-school youth 
age 14 to 21, who have additional barriers to success, with services 
that lead to educational achievement and successful employment, among 
other goals. The Recovery Act extended eligibility through age 24 for 
youth receiving services funded by the act. In addition, the Recovery 
Act provided that, of the WIA Youth performance measures, only the work-
readiness measure is required to assess the effectiveness of summer-
only employment for youth served with Recovery Act funds. Within the 
parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains. The 
program is administered by the Department of Labor, and funds are 
distributed to states based upon a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
up to 15 percent for statewide activities. The local areas, through 
their local workforce investment boards, have flexibility to decide how 
they will use these funds to provide required services. In the 
conference report accompanying the bill that became the Recovery Act, 
[Footnote 17] the conferees stated that they were particularly 
interested in states using these funds to create summer employment 
opportunities for youth. Summer employment may include any set of 
allowable WIA Youth activities--such as tutoring and study skills 
training, occupational skills training, and supportive services--as 
long as it also includes a work-experience component. Work experience 
may be provided at public sector, private sector, or nonprofit work 
sites. The work sites must meet safety guidelines and federal/state 
wage laws.[Footnote 18] 

In Florida, a 45-member board appointed by the Governor oversees and 
monitors the administration of the state's workforce policy, programs, 
and services. These programs and services are carried out by the 24 
business-led Regional Workforce Boards and the Agency for Workforce 
Innovation. Direct services are provided at nearly 100 One-Stop Centers 
with locations in every county in the state. We selected three regional 
workforce boards--South Florida Workforce (Miami-Dade County), 
Workforce One, Employment Solutions (Broward County), and the Tampa Bay 
Workforce Alliance (Hillsborough County)--because they were among the 
largest recipients of Recovery Act dollars and were among those 
programs with the largest anticipated participation. In addition, they 
represented different geographic regions of the state. 

The state of Florida received $42,873,265 for WIA Youth activities 
under the Recovery Act and set the goal of creating roughly 16,000 to 
20,000 summer jobs in 2009 through its WIA Youth program. The state 
does not plan to use any of the 15 percent of Recovery Act youth funds 
that can be retained for statewide activities. All of the workforce 
boards in Florida have procurement agreement plans approved by the 
state workforce board so that they can contract with service providers; 
in addition, the state sought and was given two waivers by the 
Department of Labor: one that allowed workforce boards to expand 
contracts with existing service providers rather make existing 
providers go through a competitive bidding process and another that 
allowed them to collect only one performance measure--readiness for 
work--for youth who participate in summer youth programs and continue 
on in work experience. 

Programs have begun to draw down funds. (See table 3 for the amounts 
they received and the amounts they have expended.) 

Table 3: Allocations Workforce Boards Received and Funds Expended As-of 
Dates: 

Workforce board: Miami-Dade County; 
Funds received: $7,200,000; 
Funds expended: $25,892[A]; 
As-of date: April 30, 2009. 

Workforce board: Hillsborough County (Tampa); 
Funds received: $2,534,737; 
Funds expended: $150,000; 
As-of date: April 30, 2009. 

Workforce board: Broward County; 
Funds received: $2,362,791; 
Funds expended: $108,977; 
As-of date: May 29, 2009. 

Source: Workforce boards. 

[A] Miami-Dade County reported this figure as the year-to-date Recovery 
Act youth expenditures. 

[End of table] 

Each of the three local areas will offer work-readiness training and on-
site job experiences that incorporate green jobs. Hillsborough County 
was the only site we visited where the activities differed for older 
versus younger youth. Specifically, all youth will participate in work-
readiness activities, but 20-to 24-year-olds will work at work sites 
and 17-to 19-year-olds will participate in a business simulation where 
they create and work on an on-line magazine.[Footnote 19] Hillsborough 
officials estimated that between 60 to 80 youth ages 20-to 24 would 
participate. All three counties said that they will assess 
participants' learning through pre-and post-testing and collect 
feedback from businesses and work site supervisors. All plan to include 
green jobs in some way. In Broward County, for example, some 
participants will do clerical work at a roofing company that installs 
roofing materials with integrated solar circuits for heating and 
cooling; others will help dismantle computer components that are sold 
to a company that recycles components. 

Each of the local areas either has or is working to ensure that it has 
an adequate number of entities to provide job-readiness training, 
employers to provide jobs, and participants to fill available slots. 
Miami-Dade County, with a target of 4,000 participants, already has in 
place its three service providers--Miami-Dade County Public School 
System, the Monroe County Public School System, and the Florida Keys 
Community College--that will provide the work-readiness training and on-
site job experience. As of May 20, 2009, the board has identified 3,000 
jobs. Miami-Dade has more eligible participants than slots. It has an 
on-line application system that automatically determines eligibility. 
It has so many applicants it will use a lottery to fill slots. 
Hillsborough County, with a target of 940 participants, also has in 
place enough community and faith-based organizations to provide work-
readiness training. Its program has enrolled 436 youth: 276 are 17-to 
19-year-olds, and 160 are 20-to 24-year-olds. They have secured a 
corresponding number of jobs for the 20-24 year olds. Broward County, 
with a target of 725 participants, has its service provider in place, 
has enrolled about 880 participants, and has secured a corresponding 
number of jobs. 

The challenges workforce boards faced getting their summer youth 
programs up and running seemed to depend, in part, on their previous 
experience with such programs. Miami-Dade County officials reported no 
challenges. Officials there noted that they had had a large summer 
youth program in the summer of 2008 funded from a charitable trust. One 
of their service providers that summer was the Miami-Dade County Public 
School System, which will serve again as a service provider this 
summer. In contrast, Hillsborough County, which did not have a 
separate, stand-alone summer youth program in 2008, reported that 
enrolling youth posed their greatest challenge. Hillsborough officials 
said that for the 2009 summer program, they anticipated a rush that did 
not happen. To boost enrollment, they have taken a number of steps, 
including buying advertising in local movie theaters, radio spots, and 
mass mailings to targeted groups. Other challenges reported by the 
three local areas included: time frames for setting up programs; 
demands on existing staff before additional staff could be hired; the 
volume of paper work; the need to collect documentation required for 
eligibility determination, and determining what constituted a "green" 
job. 

The Majority of Florida's State-Retained Byrne Justice Assistance 
Grants Will Be Used for Drug Court Programs, while State Officials 
Expect Local Entities Will Use Funds for Equipment Purchases: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) program within 
the Department of Justice's Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information-
sharing initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants are available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula-based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state's JAG allocation is awarded by BJA 
directly to the state, which must in turn allocate a formula-based 
share of those funds to local governments within the state. The 
remaining 40 percent of funds is awarded directly by BJA to eligible 
units of local government within the state.[Footnote 20] The total JAG 
allocation for Florida state and local governments under the Recovery 
Act is about $135.1 million, a significant increase from the previous 
fiscal year 2008 allocation of about $10.1 million. About $81.5 million 
of the total JAG allocation is included in the Florida state budget, 
with the remaining $53.6 million allocated directly by BJA to local 
governments throughout the state. The Florida Department of Law 
Enforcement (FDLE) is the state administering agency for the JAG 
program. 

As of June 30, 2009, Florida has received its full state award of about 
$81.5 million.[Footnote 21] Of this amount, about $29 million, or 35 
percent, will be retained for state criminal justice agencies, and 
about $53 million, or 65 percent, will be passed through to local 
governments--counties and cities.[Footnote 22] As of June 30, 2009, the 
state has obligated and expended $8,300 for FDLE administrative 
expenses. 

Almost 75 percent of the state retained JAG program funds are to be 
used by the Florida courts, state attorneys, and public defenders for 
drug court programs. The remaining funds are to be used by the 
Department of Juvenile Justice for detention and treatment services for 
youth, by the Department of Corrections to purchase radio equipment 
upgrades, and by FDLE to develop a database that enables seaport 
security authorities to determine if individuals meet Florida statutory 
requirements to enter secure or restricted areas of the seaport. The 
funds for the drug court programs are for a significant expansion of 
existing drug court programs, while the funds for the juvenile justice 
programs, radio equipment, and seaport database are for new JAG 
programs. Even though the state legislature authorized the Recovery Act 
JAG program funding for the state agencies related to the state- 
retained funds, each state criminal agency is required to submit an 
application to FDLE with a detailed description of the project, budget, 
and related performance measures. At this time, FDLE cannot establish 
an application submission date for the Recovery Act funds allocated to 
the drug court programs until they receive additional information from 
the joint Legislative Budget Commission.[Footnote 23] Applications for 
the three remaining programs are due to FDLE by June 30, 2009. For the 
state-retained funds that are going to be used for drug-based court 
programs, juvenile justice programs, and the seaport database, a FDLE 
official said that the vast majority of the funds would result in job 
retention and creation with very little going for equipment other than 
some computers and office equipment. The funds for the Department of 
Corrections are to be used primarily for the purchase of new equipment. 

The JAG program applications for the $52.5 million that is passed 
through the state to the local governments are due to FDLE by June 12, 
2009. Each local application will also include a detailed description 
of each project to be funded along with a detailed budget and 
performance measures. Each local application must represent agreement 
on expenditure of grant funds among a majority of the local units of 
government that also represents a majority of the population within the 
geographic boundaries of the applicant's county.[Footnote 24] Once the 
applications are approved, the local entities can begin using the 
funds. However, FDLE officials did not believe that local entities 
would begin drawing down funds before October 1, 2009. For local 
projects, FDLE officials stated that they do not yet have a sense of 
the extent to which JAG program funds will contribute to job creation 
or retention, and that it is likely most of the funds will be used by 
the local entities for equipment purchases. Thus, it may be difficult 
to identify the number of jobs retained and created. FDLE officials 
also said that some of the local JAG program funds maybe used to retain 
personnel on special tasks forces. 

Selected Housing Authorities We Visited Plan to Meet Accelerated 
Obligation and Expenditure Time Frames and Have Systems in Place to 
Assess Results: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties for the development, financing, and modernization 
of public housing developments, and for management improvements. 
[Footnote 25] The Recovery Act requires the Department of Housing and 
Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies for obligation, expend at least 60 percent of funds within 2 
years of that date, and expend 100 percent of the funds within 3 years 
of that date. Public housing agencies are expected to give priority to 
projects that can award contracts based on bids within 120 days from 
the date the funds are made available, as well as capital projects that 
rehabilitate vacant units, or those already underway, or included in 
the required 5-year capital fund plans. HUD is also required to award 
$1 billion to housing agencies based on competition for priority 
investments, including investments that leverage private sector 
funding/financing for renovations and energy conservation, and retrofit 
investments. On May 7, 2009, HUD issued its Notice of Funding 
Availability (NOFA) that describes the competitive process, criteria 
for applications, and time frames for submitting applications.[Footnote 
26] 

As described in figure 5, Florida has 82 public housing agencies that 
have received Recovery Act formula grant awards. In total, these public 
housing agencies received about $86 million from the Public Housing 
Capital Fund formula grant awards. As of June 20, 2009, 35 of the 
state's public housing agencies have obligated about $12 million, and 7 
have expended $628,890. We visited three public housing agencies in 
Florida. These are: the Venice Housing Authority, the Tampa Housing 
Authority, and the Tallahassee Housing Authority. We selected the 
Venice Housing Authority because it is a small public housing agency 
with a $99,008 capital fund allocation and is currently designated 
"troubled"[Footnote 27] by HUD. We selected the Tampa Housing Authority 
because it received the second-largest capital fund allocation in 
Florida--$10.5 million.[Footnote 28] Lastly, we selected the 
Tallahassee Housing Authority with a $1.4 million capital fund 
allocation, because it was visited for the first 60-day report. These 
housing authorities' grants were awarded on the basis of the Public 
Housing Capital Fund formula used for awards made in fiscal year 2008. 

Figure 5: Percent of Public Housing Capital Funds Allocated by HUD That 
Have Been Obligated and Drawn Down in Florida: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $85,505,627; 100%; 
Funds obligated by public housing agencies: $12,105,057; 14.2%; 
Funds drawn down by public housing agencies: $628,890; 0.7%. 

Number of public housing agencies: 
Entering into agreements for funds: 82; 
Obligating funds: 35; 
Drawing down funds: 7. 

Source: GAO analysis of HUD data. 

[End of figure] 

As of June 20, 2009, of the three housing authorities we visited, only 
Tampa had obligated and expended any Recovery Act funding. One of the 
housing authorities is engaged in the construction of new units, 
another is engaged in both the construction of new units and the 
rehabilitation of old ones, and the third is solely engaged in 
rehabilitation. These housing authorities prioritized projects based on 
whether they were part of their plans, shovel-ready, and urgent. 

The Venice Housing Authority Will Completely Rebuild with Recovery Act 
and Other Funding and Has Systems in Place to Monitor Results: 

The Venice Housing Authority, which received $99,008, has not obligated 
or expended any Recovery Act funds because it is in the process of 
finalizing its infrastructure and demolition plans. The housing agency 
consists of only one project with 50 housing units. (See figure 6). It 
plans to demolish all 50 units and construct 117 rental units 
consisting of a 60-unit building for senior citizens and 57 family 
housing units. Currently all of the units are vacant. The housing 
agency plans to expend all of its Recovery Act funds by the end of 2009 
and entirely complete the project by the end of 2013. The housing 
agency will first use Recovery Act funding to demolish the existing 
housing, and once the funds are expended, it will use other funding-- 
Community Development Block Grant and tax credits--to complete the 
project. Housing agency officials said that they have been planning 
this initiative for years and only recently did the planning and 
financing come together. 

Figure 6: Front and Back View of Vacant Rental Units Scheduled for 
Demolition by Venice Housing Authority: 

[Refer to PDF for image: two photographs] 

Source: GAO. 

[End of figure] 

Venice tracks demolition, site preparation, and infrastructure work 
with development reports and through project-manager oversight. The 
housing agency uses QuickBooks[Footnote 29] to capture fund 
expenditures as well as to produce reports that are sent to HUD, the 
county, and the state. According to a Venice Housing Authority 
official, goals and performance measures have been included in the 
housing agency's development contract and will be monitored closely by 
the project manager and the housing authority board of directors. Job 
creation and retention will be tracked by the project manager as well 
as by reports provided by the developer, which are part of the 
authority's standard project-management process. The data will also be 
captured by in-house documentation using spreadsheets and memorandums. 

The Tampa Housing Authority Will Rehabilitate Existing Units with 
Recovery Act Funding and Has Systems to Track Results: 

While the Tampa Housing Authority has awarded all of its Recovery Act 
projects, as of June 20, 2009, it has only obligated $3,733,365 of the 
$10,540,573 it was allocated, and expended $346,871. According to a 
housing agency official, funds are expended as work is completed. The 
Tampa Housing Authority will build a new 69-unit development with a 
portion of its Recovery Act allocation and rehabilitate 18 existing 
projects, consisting of 2,770 units. The initiatives will focus on (1) 
improving energy efficiency, such as installing windows with double 
panes, and replacing inefficient heating and air conditioning systems, 
(2) life safety concerns, such as replacing deteriorated roofs, and 
floors, and (3) curb appeal such as improving sidewalks, parking lots, 
and landscaping. The housing agency identified its projects through a 
physical needs assessment, brainstorming with responsible departments, 
resident meetings and feedback, and a review of its 5-year plan. It 
based its priorities on whether the projects were shovel-ready--able to 
be contracted within 90 to 120 days. One example of a current project 
is roof replacement at the North Boulevard Homes development. (See 
figure 7.) The $550,715 project will involve the replacement of 
deteriorated roofs on 33 buildings. The project started on April 4, 
2009, and was scheduled to be completed on June 5, 2009. In addition, 
the housing agency plans to rehabilitate all 34 of its vacant units 
with Recovery Act funding. All of the projects that were underway as of 
the date of our visit are scheduled to be completed by the end of 2009. 

Figure 7: Workers Repairing Roof at Public Housing Development for 
Tampa Housing Authority: 

[Refer to PDF for image: photograph] 

Source: GAO. 

[End of figure] 

[End of figure] 

Tampa tracks grants, budgets, costs, work progress, progress payments, 
and several other factors with Yardi Systems software.[Footnote 30] 
According to a Tampa Housing Authority official, the housing agency 
will ensure credible results through site visits, progress meetings, 
city inspections, and reviews of project schedules, scope of work, 
specifications, shop drawings, code compliance, and progress payments. 
Progress payments will be made as progress is achieved with a 10 
percent withholding until the project is completed. In addition, the 
housing agency will conduct resident surveys as part of its measurement 
process. It will also track the number of jobs created with Recovery 
Act funding on a real-time basis and the contracts awarded to minority 
business enterprises and Section 3 contractors (low-income residents in 
the area). 

The Tallahassee Housing Authority's Budget Has Not Yet Been Approved: 

The Tallahassee Housing Authority has not obligated or expended any of 
its $1,392,275 Capital Fund grant because it is waiting for the HUD 
field office to approve its budget. HUD asked for more detail in 
certain line items. The housing agency will rehabilitate three projects 
consisting of 296 units, including 5 vacant units, with Recovery Act 
funds. These are estimated to begin before July 2009 and be completed 
by March 2010. The initiatives include new roofs, damaged driveway and 
walkway replacements, siding replacements, energy-efficient window 
installations, and kitchen upgrades. The housing agency selected the 
projects from its 2008, 5-year plan. According to a Tallahassee 
official, it gave priority to projects that were shovel-ready and 
considered to be urgent, such as roof replacements. Additionally, the 
housing agency selected 33 "scattered site units"--single family homes 
that are scattered throughout the community--for upgrades, because of 
the difficulty in obtaining funding for those units. 

Tallahassee's Modernization Director utilizes the TEN MAST software 
spreadsheet function to track costs by project and unit.[Footnote 31] 
This software also enables the housing agency to capture detailed 
information on work orders and funds spent by project. In addition, the 
housing agency plans to use current project-management procedures and 
practices to track project cost, timeliness, and quality. It will also 
use standard project documentation to track the number of jobs created, 
retained, and contracted with Recovery Act funding. 

Housing Agencies Use Electronic Line of Credit Control System as Their 
Internal Control: 

All housing authorities access HUD's Electronic Line of Credit Control 
System (eLOCCS)[Footnote 32] to track Recovery Act grants and draw down 
funds for expenditure. According to a Tampa Housing Authority official, 
the system is a control in itself because it precludes housing 
authorities from drawing down Recovery Act funds for non-Recovery Act 
projects. With the exception of perhaps hiring additional project- 
management staff, the three housing authorities we visited anticipate 
no changes to their internal controls to accommodate the infusion of 
Recovery Act funding. 

Housing Authorities Believe They Can Meet Accelerated Time Frames: 

While, of the housing authorities we visited, only the Tampa Housing 
Authority had obligated and expended Recovery Act funding, none 
considered meeting the accelerated obligation and expenditure time 
frames a problem. For example, the Tampa Housing Authority fast-tracked 
the award and obligation of most of its Recovery Act projects through 
Job Order Contracting (JOC). According to Tampa Housing Authority 
officials, JOC minimizes unnecessary engineering, design, and other 
procurement processes by awarding long-term contracts for a wide array 
of project improvements and renovations. Similarly, the Tallahassee 
Housing Authority utilizes a "small works roster list," which is a list 
of contractors that the housing agency has already approved for 
specific services such as painting. The list enables the housing agency 
to get rehabilitation projects underway quickly because it obviates the 
need for formal advertising. The list is reviewed and updated annually. 
When asked about the application of prevailing wage rates as required 
by the Davis-Bacon Act,[Footnote 33] a Tampa Housing Authority official 
indicated that it is a nonissue because Florida's minimum wage is 
higher than Davis-Bacon requirements. 

The State Plans to Weatherize about 19,000 Homes and Hire a Contractor 
to Implement an Inspection Plan for Recovery Act Weatherization 
Projects: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 34] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more-pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, the 
state's plans for using the weatherization funds and for monitoring and 
measuring performance. DOE plans to release the final 50 percent of the 
funding to each state based on the department's progress reviews 
examining each state's performance in spending its first 50 percent of 
the funds and the state's compliance with Recovery Act's reporting and 
other requirements. 

DOE allocated to Florida about $176 million in funding for the Recovery 
Act Weatherization Assistance Program for a 3-year period. Florida's 
Department of Community Affairs (DCA) is responsible for administering 
the program. DCA received a DOE Funding Opportunity Announcement on 
March 12, 2009, along with a Weatherization Program Notice 09-1B 
[Footnote 35] and subsequently received additional guidance on using 
the initial 10 percent allocation and in developing the state 
weatherization program plan by means of e-mail, FedConnect,[Footnote 
36] and regional conference calls. After DCA submitted its initial 
application for funding on March 23, 2009, to DOE, it continued its 
planning and finalized its 2009-2012 Weatherization Assistance Program 
State Plan, which it submitted to DOE on May 11, 2009. DOE approved the 
state plan on June 18, 2009. DCA officials stated that they are still 
waiting for guidance from DOE on the application of the Davis-Bacon 
Act. DCA officials also stated that their state weatherization plan 
includes, and the contracts with subgrantees will require, that workers 
are paid prevailing wage rates for the different skill sets based on 
the county where the project is located. 

On April 10, 2009, DOE provided the initial 10 percent allocation 
(approximately $18 million) to Florida. According to DCA officials, the 
department will be using the initial 10 percent funding to hire 
additional DCA staff to monitor the program, prepare initial subgrantee 
agreements with its 29 local service providers,[Footnote 37] and 
provide start-up training for new DCA staff and subgrantees. As of June 
30, 2009, DCA will have obligated almost $113,000 and expended about 
$77,000 of the initial program funds for such expenses as payroll for 
DCA staff, contract services, and travel and supplies. On June 18, 
2009, DOE approved Florida's state weatherization plan and provided an 
additional $70 million. Florida plans to use these funds to implement 
actual weatherization projects. 

As stated in its state plan, DCA's goals include weatherizing at least 
19,090 dwellings. According to a DCA official, DOE estimates that each 
household receiving weatherization services could realize about $300 to 
$350 of savings on their utility bill annually, which could result in 
as much as $5.7 million in overall energy savings annually. Of the $176 
million the state will receive, the planned allocation is about $137 
million for weatherization production including about $34 million for 
multifamily housing, and about $30 million for training and technical 
assistance. Initially, most of the training and technical assistance 
funds will be retained by DCA for monitoring, oversight, and training 
of subgrantees. For example, DCA is working with the Florida Solar 
Energy Center to develop a weatherization inspector training curriculum 
that all new hires will be required to attend and pass. 

A recent DCA Inspector General audit identified some internal control 
weakness in monitoring of Florida's weatherization assistance program. 
[Footnote 38] For example, one of the three subgrantees reviewed could 
not provide complete and accurate supporting documentation for incurred 
expenses reimbursed by DCA and submitted final status reports prior to 
completion of the work on the weatherized homes. The DCA Inspector 
General stated that the findings in this audit would also be applicable 
to Recovery Act weatherization funds. However, the Inspector General 
believed that the DCA's plan to hire a contractor to implement an 
inspection plan for Recovery Act weatherization projects should correct 
this control weakness. The contractor will have field inspectors 
stationed across the state to inspect homes weatherized with Recovery 
Act funds and to check subgrantees' files to ensure they contain 
sufficient supporting financial and programmatic documentation, such as 
invoices, building permits, and income eligibility, before DCA 
reimburses the subgrantee. 

Recovery Act Funds Have Been Obligated for Highway Projects: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms and states must 
follow the requirements of the existing program including planning, 
environmental review, contracting, and other requirements. However, the 
federal fund share of highway infrastructure investment projects under 
the Recovery Act is up to 100 percent, while the federal share under 
the existing federal-aid highway program is usually 80 percent. 

Florida was apportioned $1.4 billion in Recovery Act funds for highway 
infrastructure and other eligible projects. As of June 25, about $1 
billion in apportioned funds had been obligated. The U.S. Department of 
Transportation (DOT) has interpreted the term "obligation of funds" to 
mean the federal government's contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government signs a project agreement and the project agreement 
is executed. As of June 25, 2009, no funds had been reimbursed by 
Federal Highway Administration (FHWA). States request reimbursement 
from FHWA as the state makes payments to contractors working on 
approved projects. 

Florida Will Use Recovery Act Funds for Resurfacing Projects, Bridge 
Repairs, and New Construction: 

In Florida, the largest percentage of the Recovery Act funds are being 
used on a few high-dollar statewide projects to increase capacity. Over 
47 percent of the funds or $494 million, are dedicated to such 
projects. For example, in Hillsborough County, a major interstate 
project--costing over $445 million and using over $105 million in 
Recovery Act funds--will connect a major expressway to the Florida's 
Interstate 4 to improve the flow of traffic and create a truck-only 
lane to provide direct access to the Port of Tampa. According to state 
officials, these new construction projects will accelerate the 
completion of some of the state's long-term interstate projects, given 
that some Recovery Act-funded projects had previously been approved and 
included in the department's 5-year work program, but were removed due 
to a lack of funding. 

A smaller portion of the remaining Recovery Act funds--9 percent or $93 
million--are being used for multiple small-dollar projects, primarily 
resurfacing projects, in rural economically distressed areas (EDA). Of 
the 524 highway projects that Florida has selected for Recovery Act 
funding, approximately 193 or 37 percent are resurfacing projects. The 
cost of these resurfacing projects varies, ranging from about $4,000 to 
$13 million. The resurfacing highway projects were largely approved for 
locally administered projects and projects located in rural EDAs. 
Florida Department of Transportation (FDOT) and local county officials 
stated that in addition to other factors, these resurfacing projects 
were selected primarily because the highways were in need of repair and 
a larger number of projects could be started and completed quickly. For 
example, in two of the three EDAs we visited--Citrus and Hernando-- 
where recovery funds totaling $14 million will be used for 17 of the 20 
locally administered Recovery Act funded projects--county officials 
stated the resurfacing projects should be completed within 3 years and 
have an immediate impact on the local economy and create jobs quickly. 

As shown in table 4, as of June 25, 2009, about 78 percent of Florida's 
Recovery Act funds have been obligated. According to FDOT, the state 
has received bids for nine highway construction projects, and is 
currently advertising 39 additional Recovery Act projects--funded with 
$555 million in Recovery Act funds and $945 million in other federal, 
state, and local funds. 

Table 4: Highway Obligations for Florida by Project Type as of June 25, 
2009: 

Pavement projects: New construction: $140 million; 
Pavement projects: Pavement improvement: $93 million; 
Pavement projects: Pavement widening: $494 million; 
Bridge projects: New construction: $140 million; 
Bridge projects: Replacement: $0 million; 
Bridge projects: Improvement: $54 million; 
Other[A]: $128 million; 
Total: $1,049 million. 

Percent of total obligations: 
Pavement projects: New construction: 13.4; 
Pavement projects: Pavement improvement: 8.9; 
Pavement projects: Pavement widening: 47.1; 
Bridge projects: New construction: 13.3; 
Bridge projects: Replacement: 0.0; 
Bridge projects: Improvement: 5.1; 
Other[A]: 12.2; 
Total: 100.0. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects, such as improving safety at railroad 
grade crossings, transportation enhancement projects, such as 
pedestrian and bicycle facilities, engineering, and right-of-way 
purchases. 

[End of table] 

Florida Expects to Meet Recovery Act's Requirements: 

The Recovery Act includes a number of specific requirements for highway 
infrastructure spending. First, the states are required to ensure that 
50 percent of apportioned Recovery Act funds are obligated within 120 
days of apportionment (before June 30, 2009) and that the remaining 
apportioned funds are obligated within 1 year. The 50 percent rule 
applies only to funds apportioned to the state and not to the 30 
percent of funds required by the Recovery Act to be suballocated-- 
primarily based on population--for metropolitan, regional, and local 
use. The Secretary of Transportation is to withdraw and redistribute to 
other states any amount that is not obligated within these time frames. 
FDOT officials stated that the state is on track to meet all of the 
Recovery Act's requirements for transportation funds. As of June 25, 
2009, 93 percent of the $943 million that FHWA has determined is 
subject to the 50 percent rule for the 120-day redistribution had been 
obligated. FDOT officials expect that all of the remaining funds will 
be obligated within the 1-year limit. 

Second, the Recovery Act requires states to give priority to projects 
located in EDA[Footnote 39] and projects that can be completed within 3 
years. In selecting highway projects to recommend for Recovery Act 
funding, state officials took steps to ensure at least one Recovery Act-
funded highway project was approved for each county identified as an 
EDA. Over 60 percent of Florida's 67 counties--41 counties--have been 
designated as EDAs. Figure 8 shows a map of statewide, local, and 
transportation enhancement projects throughout the state, and EDAs. 
However, there seemed to be confusion on the Recovery Act 3-year- 
completion requirement--completion of the construction highway project 
versus expenditure of the Recovery Act funds. Officials we interviewed 
in three EDA counties--Citrus, Hernando, and Pasco--considered the 3- 
year completion of highway project as a requirement for Recovery Act 
funding. However, FDOT officials stated that the actual construction of 
the highway projects does not have to be completed within 3 years, just 
those expenditures being paid for with Recovery Act funds. For example, 
a multimillion dollar 5-year interstate highway project will be built 
with both Recovery Act and state funds. Recovery Act funds will be used 
first and are anticipated to be expended within the first 3 years of 
the project. 

Figure 8: Map of Florida Showing Projects Recommended for Recovery Act 
Funding, as of April 15, 2009: 

[Refer to PDF for image: map of Florida] 

Depicted on the map are locations of the following: 

* Statewide projects; 
* Enhancement projects; 
* Local projects; 
* "Economically distressed" counties[A]. 

[A] Eligibility is based on either (1) county per capita income per
the U.S. Department of Commerce or (2) county unemployment
rate average for 24 months per the U.S. Department of Labor. 

This is not associated with any state of Florida designations. 

Based on information “to assist the states in determining where their 
ARRA (American Recovery and Reinvestment Act) projects are relative to 
economically distressed areas” obtained on March 18, 2009, from the 
Federal Highway Administration (FHWA) Web site for implementing 
guidance for the American Recovery and Reinvestment Act of 2009. 

Source: Florida Department of Transportation. 

[End of figure] 

Third, the Recovery Act required the governor of each state to certify 
that the state would maintain the level of spending for the types of 
transportation projects funded by the Recovery Act that the state had 
planned to spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state had to identify the amount of 
funds the state planned to expend from its sources as of February 17, 
2009, for the period beginning on that date and extending through 
September 30, 2010.[Footnote 40] On March 19, 2009, Florida submitted 
its maintenance-of-effort certification to DOT. As we reported in our 
April report, the state submitted a "conditional" maintenance-of-effort 
certification, meaning that the certification was subject to conditions 
or assumptions, future legislative action, future revenues, or other 
conditions. Specifically Florida stated that funds were derived from 
dedicated funding sources by Florida law and were subject to 
fluctuations resulting from economic conditions; however, the sources 
remain dedicated to transportation projects and the funding mechanisms 
will remain unchanged. On April 22, 2009, DOT Secretary informed states 
that conditional and explanatory certifications were not permitted, 
provided additional guidance, and gave states the option of amending 
their certifications by May 22, 2009. Florida removed the conditions 
and resubmitted its certification on May 22, 2009. The DOT has reviewed 
Florida's resubmitted certification letter and has concluded that the 
form of the letter is consistent with the additional guidance. The DOT 
is currently evaluating whether the states method of calculating the 
amounts they planned to expend for the covered programs is in 
compliance with DOT guidance. Although state officials are optimistic 
about the state being able to maintain its level of effort, the fiscal 
strength of Florida's economy remains a key factor in the state's 
ability to meet the Recovery Act's maintenance-of-effort requirement. 

Florida Has Tracking Systems in Place and Is Developing Oversight Plans 
for the Recovery Act: 

According to officials from Florida's Department of Financial Services, 
once the governor's office submits authorized budget releases to the 
Department of Financial Services for Recovery Act funds that were 
separately appropriated, this information will be loaded into the 
state's accounting system--Florida Accounting Information Resource 
(FLAIR)--which will be used to track Recovery Act funds that flow 
through the state government. The state agencies will also record the 
Recovery Act funds separately from other state and federal funds in 
their systems using selected identifiers in FLAIR such as a grant 
number or project number. 

The local entities that we visited have tracking systems in place, or 
are in the process of establishing tracking systems for Recovery Act 
funds, whether those funds are passed-through from the state agency, or 
are directly awarded from a federal agency. For instance: 

* Officials from all three of the IHEs that we visited in Florida said 
that they can track stabilization funds separately by adding codes to 
their accounting systems to distinguish stabilization funds from 
others. 

* Officials from two local school districts that we visited told us 
they were establishing systems and processes to track the stabilization 
funds and report on their uses to the state. 

* Officials from the three public housing agencies we interviewed told 
us that they use HUD's eLOCCS to separately code and track Recovery Act 
Public Housing Capital Fund grants. Additionally, they all have their 
own in-house systems used for tracking expenditures. 

Plans for Statewide Monitoring and Oversight Activities Are Underway: 

Florida law requires that each state agency establish and maintain 
management systems and controls that promote and encourage compliance; 
economic, efficient, and effective operations; reliable records and 
reports; and the safeguarding of assets.[Footnote 41] However, while 
Florida law requires state agencies to have such internal controls, the 
state oversight agencies are preparing for the infusion of Recovery Act 
funds into the state. 

Florida Is Increasing Financial Management over Recovery Act 
Disbursements: 

The Florida Department of Financial Services is responsible for 
settling the state's expenditures and the reporting of financial 
information. Currently, it obtains a representation letter every year 
from each agency head stating that they are responsible for 
establishing and maintaining effective controls over financial 
reporting and preventing and detecting fraud for all funds administered 
by their agency. However, Department of Financial Services officials 
stated that, this year, they will ask the agency heads to also to sign 
a separate representation letter for Recovery Act funds that says 
internal controls are in place for Recovery Act funds and that these 
funds will be tracked separately from other funds. They are also 
drafting a Chief Financial Officer memorandum that they plan to send to 
state agencies before the end of June establishing the requirements for 
processing Recovery Act revenues and expenditures. For the next fiscal 
year (July 1, 2009 to June 30, 2010), the Department of Financial 
Services' Bureau of Auditing will include methodologies for sampling 
and testing Recovery Act expenditures in its audit plan. 

Inspectors General Are Conducting Risk Assessments of Recovery Act 
Funds: 

Each state agency has an OIG that is responsible for conducting audits, 
investigations, and technical assistance, and promoting accountability, 
integrity, and efficiency in the state government. In response to the 
Recovery Act, Florida's Chief Inspector General established a 
communitywide working group of agency Inspectors General to address 
risk assessment, fraud prevention and awareness, and training. 

For risk assessments, the OIGs surveyed state agencies to determine if 
they will receive Recovery Act funds, if they have completed a 2009- 
2010 risk assessment, and if the risk assessment for Recovery Act funds 
will be included as part of their annual risk assessment or as a 
separate risk assessment. Currently, 21 of the 33 state agencies 
surveyed indicated that they should be receiving Recovery Act funds, 
while 8 will not receive any funds, and 4 agencies are unsure if they 
will receive Recovery Act funds that will flow through the state. The 
OIGs are now in the process of administering a more-detailed risk- 
assessment survey on agency programs that receive Recovery Act funds to 
identify, among other things, whether there are systems in place to 
capture performance measurements, staff in place to perform program 
oversight, and what is the resolution of findings from past audit 
reports. Finally, the OIGs have developed a document for agencies to 
record monitoring and oversight activities for programs that will 
receive Recovery Act funds. 

The OIG community has established a Recovery Act Fraud Deterrence 
Committee that is developing a number of activities centered on fraud 
prevention and detection. For example, the committee is developing a 
template for fraud awareness briefings that OIGs can customize when 
giving briefings to both external partners and agency officials. The 
Fraud Deterrence Committee is also in the process of developing 
interagency fraud alerts by collecting and sharing examples of 
contractor fraud violations since some contractors may be doing 
business with more than one agency. The Fraud Deterrence Committee also 
contacted the Florida Institute of Certified Public Accountants, which 
is allowing the committee to post information on the institute's Web 
site for their members who conduct audits of recipients receiving 
Recovery Act funds to make them aware of the oversight and 
accountability provisions of the act. In addition, the FDOT OIG is 
producing a fraud awareness video that will be used at pre-construction 
conferences as well as being posted on the OIG Web site. 

The OIG community also has a reporting committee that has conducted and 
is continuing to conduct work in three primary areas, which includes 
conducting and reporting on agency workforce assessment surveys, 
succession planning, and developing a Florida OIG Recovery Act Web 
site. The survey and report on agency workforce assessment showed that 
the OIG community needs to plan for successions: of the 31 respondents, 
8 of the Inspectors General are eligible to retire. The reporting 
committee is also developing an OIG Web site that will provide 
visibility of all OIG Recovery Act initiatives as well as links to 
other state and federal Recovery Act Web sites. According to OIG 
officials, the Web site will be accessible by both agency staff and the 
public and became operational at the end of June 2009. [Footnote 42] 

State Auditor Expects the Recovery Act to Impact Florida's Annual 
Single Audit: 

The Auditor General is appointed by Florida's legislature and serves as 
the state's independent auditor for the annual Single Audit. The Single 
Audit includes determining if federal expenditures are in compliance 
with significant applicable laws and regulations and assessing the 
effectiveness of key internal controls. The auditing of federal awards, 
including grant funds, administered by state and local governments and 
nonprofit organizations is intended to be a key accountability 
mechanism over the proper use of federal funding.[Footnote 43] Given 
that the Recovery Act imposes new transparency and accountability 
requirements on federal awarding agencies and their recipients, the 
Auditor General is anticipating the new requirements to have some 
impact on the Single Audit and is preparing to adapt to this new 
environment. In preparation for the Single Audits for 2008-2009, the 
Auditor General is monitoring the state's plans for accounting for and 
expending Recovery Act funds and tracking the expected changes in OMB's 
guidance for implementing the Single Audit Act's requirements. OMB 
issued updated guidance on April 3, 2009, and is scheduled to issue 
additional auditing guidance by June 30, 2009. 

Even though the Auditor General expects the number of major federal 
programs[Footnote 44] in Florida to increase as a result of the large 
infusion of Recovery Act funds into the state, and thus be included as 
part of the state's annual Single Audit, officials from the Auditor 
General's office noted that they have enough resources to conduct the 
audit. Additionally, they also stated that they have the option of 
shifting staff around if deemed necessary to address issues related to 
the Recovery Act. 

Single Audit Results Used by Various State Officials for Oversight 
Activities: 

Under current Single Audit Act requirements, non-federal recipients of 
federal awards are required to follow up and take corrective action on 
audit findings.[Footnote 45] According to Florida officials, corrective 
action is monitored by the OIGs serving in the agencies that receive 
financial assistance. Officials from both of Florida's OIGs for FDOT 
and the Florida Department of Education outlined how they use Single 
Audit results. 

To address Single Audit results, the OIG for FDOT has a Single Audit 
Coordinator and eight Single Audit District Liaisons, which have been 
in place in excess of 5 years and approximately 2 years, respectively. 
The Single Audit Coordinator performs single audit compliance reviews; 
advises the FDOT district and central offices' program and project 
managers on Single Audit issues and audit findings; provides feedback 
and concerns about subrecipient's audit findings and questioned costs; 
utilizes an automated system to track Single Audit and monitoring 
efforts; and routinely communicates with program managers through 
phone, e-mails, and newsletters to share Single Audit information. The 
Single Audit District Liaison serves as a point of contact within each 
of the eight districts and works with the 100 program managers to 
address and ensure accountability for Single Audit issues. State and 
district office program managers review Single Audit reports and 
determine whether there are any reported questioned costs or material 
findings. When there are, the program manager requests and reviews 
subrecipients' corrective action plans and in doing so, works with the 
Single Audit District Liaison.[Footnote 46] 

Officials for the Florida Education Department's OIG said they use 
Single Audit results in the risk assessment for all audits they perform 
of contractors and grant subrecipients to identify areas to cover in 
their audit procedures. They also said that they inquire about results 
of Single Audits when performing the annual risk assessment of the 
department and to develop annual and long-range audit plans. Within the 
Florida Department of Education, there is an Audit Resolution and 
Monitoring Unit that oversees the resolution of Single Audit findings 
and program fiscal audit findings for the department's subrecipients of 
federal and state funds. This office works with the LEAs and program 
staff to resolve each finding applicable to the identified programs. 
State program managers are provided copies of all Single Audit reports 
with findings related to the program areas as well the resolution of 
those findings. 

While Little Data on the Effects of Recovery Act Spending Is Currently 
Available, Florida Is Developing a Tracking System: 

While Florida state officials had concerns about the lack of clear 
federal guidance on assessing results of Recovery Act spending 
especially in the area of jobs, they provided input on OMB's guidance 
issued June 22, 2009. On April 3, 2009, OMB issued guidance indicating 
that it would be developing a comprehensive system to collect 
information, including jobs retained and created, on Recovery Act funds 
sent to all recipients. Florida officials endorsed the idea of a single 
uniform system for data reporting as outlined in this guidance. 
Florida's recovery czar, as part of an informal working group, 
participated in two conference calls with OMB staff working on the 
reporting requirements and provided input on them. Based on this, the 
czar said he expected that Florida's reporting system will be 
consistent with OMB's reporting requirements. OMB's June guidance 
provides additional information on reporting on the use of Recovery Act 
funds, including a methodology for calculating the number of jobs 
created or retained and additional information on subrecipient and 
vendor reporting. The new guidance also includes a supplement that 
contains a recipient reporting template and data dictionary.[Footnote 
47] OMB plans to continue to foster a series of forums, meetings, and 
small-scale data collection pilots during the month of July 2009. This 
will provide an opportunity for federal agencies and recipients to 
clarify such items as logistics surrounding the October 10, 2009, 
reporting of data; troubleshoot potential data-reporting challenges by 
fostering a common understanding of data definitions, reporting 
instructions, and data quality responsibilities; and to share best 
practices for planning and implementing the Recovery Act reporting 
requirements. However, according to the Florida recovery czar, the 
guidance does not specify how non-recipients with oversight 
responsibility, such as recovery czars, will be able to have access to 
information submitted by recipients in their state. 

During our visits to Florida, program officials were also still in the 
early stages of developing plans to assess the effects of the Recovery 
Act spending, because they were waiting for the final guidance from OMB 
and their federal agency on how to measure jobs retained and created 
with Recovery Act funds. For example, FDOT officials stated that 
contractors would document the number of workers retained and hired to 
build a road resurfacing project, but it would be difficult to 
determine the number of indirect jobs created or saved as a result of 
this project, such as the jobs retained and created by the company that 
provided the asphalt for the roads. FDOT officials said the state will 
not be responsible for providing information on indirect jobs created. 
Instead, FHWA will develop the methodology for counting and reporting 
the number of indirect jobs created as a result of Recovery Act 
funding. 

Florida is in the process of developing an automated Web-based system 
to report on Recovery Act requirements for funds that flow through 
state agencies. According to the recovery czar, they have taken the OMB 
reporting elements from the April 3, 2009, guidance, added some of 
their own reporting requirements, and developed the first draft of the 
architecture for the state's reporting database. As of June, they have 
populated the database with information from three programs and 
completed the pilot test of the system. Currently the database has 11 
data sets that would allow them to analyze data in various ways, 
including for example, by congressional district, geographic area, and 
zip code. 

Although Florida is only required to collect data on jobs created and 
retained 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 retained and created with Recovery Act funds in 
Florida. The state has requested that OMB allow it to obtain data 
relevant to Florida collected by the national reporting system on all 
jobs retained and created with Recovery Act funds. According to Florida 
officials, this will reduce duplication and increase the efficiency of 
their reporting. 

Some state agencies have estimated the number of jobs that will be 
created or retained as a result of Recovery Act funds. For example, one 
university stated that the Recovery Act stabilization funds would be 
used exclusively to retain about 400 of their 1,100 adjunct 
instructors. Two local school districts estimated that the education 
stabilization funds will fund over 3,000 teacher positions. While the 
state has not estimated the number of jobs that would be created as the 
result of the Recovery Act weatherization funds, the state estimates 
that it would be able to weatherize at least 19,000 low-income homes 
and could save as much as $5.7 million annually in energy costs. 

State Comments on This Summary: 

We provided the Governor of Florida with a draft of this appendix on 
June 18, 2009. The Special Advisor to Governor Charlie Christ, Florida 
Office of Economic Recovery, responded for the Governor on June 22, 
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, Patrick di 
Battista, Dervla Carmen Harris, Kevin Kumanga, Frank Minore, Cherié 
Starck, and Robyn Trotter made major contributions to this report. Anna 
Kelley, Jennifer McDonald, and Vernette Shaw assisted with quality 
assurance, and Susannah Compton assisted with writing. 

[End of section] 

Footnotes For Appendix IV: 

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

[2] Florida received increased FMAP grant awards of about $1.4 billion 
for the first three quarters of federal fiscal year 2009. 

[3] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[4] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's (BJA) solicitation for local governments closed 
on June 17; therefore, not all of these funds have been awarded. 

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

[6] Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential, 
[hyperlink, http://www.gao.gov/products/GAO-09-580] (Washington, D.C.: 
Apr. 23, 2009). 

[7] Recovery Act, div. B, title V, §5001. 

[8] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[9] Florida received increased FMAP grant awards of about $1.4 billion 
for the first three quarters of federal fiscal year 2009. 

[10] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers within 30 days of receipt and 99 percent of these claims 
within 90 days of receipt. See 42 U.S.C. §1396a(a)(37)(A). 

[11] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[12] These estimates may be understated because they are based on 
average salaries and the positions eliminated would most likely be 
lower-cost, newer hires. 

[13] LEAs must obligate at least 85 percent of their Recovery Act, ESEA 
Title I, Part A funds by September 30, 2010, unless granted a waiver, 
and all of their funds by September 30, 2011. This is referred to as a 
carryover limitation. 

[14] Under ESEA Title I, Part A, LEAs are required to provide services 
for eligible private school students, as well as eligible public school 
students. 

[15] ESEA Title I, Part A, has several requirements under which an LEA 
must spend a specific amount of funds on activities such as 
professional development. 

[16] Miami-Dade school district officials told us the Florida 
Department of Education encouraged the local school districts to use 
additional ESEA Title I funds for preschool and secondary schools by 
means of technical assistance meetings, conference phone calls, and 
printed materials. 

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

[18] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where federal 
and state laws have different minimum wage rates, the higher standard 
applies. 

[19] The 17-to 19-year-olds receive a stipend for participating in the 
business simulations. 

[20] We did not review these funds awarded directly to local 
governments in this report because BJA's solicitation for local 
governments closed on June 17, 2009. 

[21] Due to rounding, this number may not exactly equal 60 percent of 
the total JAG award. 

[22] While the Recovery Act, JAG program allows the state administering 
agency to retain 10 percent of the funds for administrative costs, FDLE 
plans to only retain about 1.1 percent of the $81.5 million for 
administrative purposes. Some of these funds maybe used to hire 
temporary staff to assist in the increased workload due to the 
additional Recovery Act funds. 

[23] While the Florida budget authorized over $21 million for the drug 
court programs, it did not provide detailed information on how the 
funds would be allocated among the different courts, state attorneys 
and public defenders' offices. Florida appropriation act language 
requires the Chief Justice to develop a plan, including a budget that 
allocates the funds among the different drug court programs and 
offices. The Legislative Budget Commission must approve the plan before 
the drug court program funds can be expended. No deadline has been set 
to complete the plan nor a date set for the Legislative Budget 
Commission to meet and approve the plan. 

[24] If a majority of the local units of government are unable to agree 
upon the expenditure of funds, then the funds are to be distributed at 
the discretion of the FDLE. Fla. Admin. Code 11D-9.002. 

[25] Public housing agencies receive funds directly from HUD. Funds 
awarded to the public housing agencies do not pass through the state 
budget. 

[26] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and time frames for application, and to funding limits. 

[27] HUD developed the Public Housing Assessment System to evaluate the 
overall condition of housing agencies and measure performance in major 
operational areas of the public housing program. These include 
financial condition, management operations, physical condition of the 
housing agencies' public housing programs, and the residents' 
assessment (through a resident survey) of the housing agencies' 
performance. Housing agencies that are deficient in one or more of 
these areas are designated as troubled performers by HUD and are 
statutorily subject to increased monitoring. 

[28] While the Miami-Dade Housing Authority received the largest 
allocation, we chose Tampa because the HUD Inspector General is 
currently reviewing Miami-Dade. 

[29] QuickBooks is small-business financial-management software. 

[30] Yardi Systems is real-estate investment and property-management 
software. 

[31] TEN MAST, a public housing software, is used for managing tenant 
and financial data, tracking maintenance activities, performing unit 
inspections, and producing standard HUD and agency-specific reports and 
data reporting. 

[32] The Line of Credit Control System (LOCCS) is the U.S. Department 
of Housing and Urban Development's (HUD) primary grant disbursement 
system, handling disbursements for the majority of HUD programs. 
Previously, the only access by grantees to LOCCS was through the Voice 
Response System (VRS), which allows touchtone telephone access to LOCCS 
for query and drawdown purposes. eLOCCS is the Internet version of 
LOCCS VRS, providing drawdown and significantly more query and 
reporting capability. Introduced in October 2001, eLOCCS access is 
currently limited to public housing authorities. Query access is 
available for all public housing authority supported program areas, but 
drawdown activity is limited to program areas supported by eLOCCS. For 
those program areas not supported by eLOCCS, voucher draws must be done 
through LOCCS VRS. 

[33] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis-Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. §§ 3141-3148. 

[34] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Indian tribe, and the Northern Arapahoe 
Indian tribe. 

[35] Grant Guidance to Administer the American Recovery and 
Reinvestment Act of 2009 Funding. 

[36] FedConnect is an online marketplace where federal agencies post 
opportunities and make awards via the Web site. Registered users also 
have the ability to electronically submit applications or questions to 
DOE directly through this site. [hyperlink, http://www.fedconnect.net]. 

[37] Local providers include community action agencies, local 
governments, nonprofit housing agencies, and urban leagues. 

[38] Department of Community Affairs, Office of Inspector General, 
Audit Report: Weatherization Assistance Program, ACN: 08-A401 
(Tallahassee, FL.: June 30, 2009). 

[39] What constitutes an EDA is defined by the Public Works and 
Economic Development Act of 1965, as amended. 

[40] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of each state to have its apportioned funds obligated by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[41] Fla. Stat. §215.86. 

[42] [hyperlink, http://www.floridaoig.org]. 

[43] The Single Audit Act, as amended, requires each reporting entity 
that expends $500,000 or more in federal awards, including grants and 
other assistance, in a fiscal year to obtain an annual "single audit," 
which includes an audit of the entity's financial statements and a 
schedule of the expenditure of federal awards, and review of related 
internal controls. 

[44] The auditor uses a risk-based approach to determine which federal 
programs are considered major programs. The risk-based approach 
includes consideration of current and prior audit experience, oversight 
by federal agencies and pass-through entities, and the inherent risk of 
the federal program. 

[45] 31 U.S.C § 7502(i) 

[46] The program manager must contact the subrecipient in writing to 
either accept the corrective action plan or make further 
recommendations. This response must occur within 6 months of receipt of 
the audit report. 

[47] OMB Supplement 2, Recipient Reporting Data Model, V2.0.1 (June 22, 
2009). 

[End of Appendix IV] 

Appendix V: Georgia: 

Overview: 

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

Use of funds: GAO's work focused on nine federal programs, selected 
primarily because they have begun disbursing funds to states. The 
programs include existing programs receiving significant amounts of 
Recovery Act funds or significant increases in funding, and new 
programs. Program funds are being directed to helping Georgia stabilize 
its budget and support local governments, particularly school 
districts, and several are being used to expand existing programs. 
Funds from some of these programs are intended for disbursement through 
states or directly to localities. The funds include the following: 

* Funds made available as a result of increased Medicaid Federal 
Medical Assistance Percentage (FMAP).[Footnote 2] As of June 29, 2009, 
Georgia had received more than $541 million in increased FMAP grant 
awards, of which it had drawn down about $498 million, or 92 percent. 
Georgia officials reported they are using funds made available as a 
result of the increased FMAP to offset the state budget deficit. State 
officials also reported they are planning to use these funds to cover 
the state's increased caseload, to maintain current Medicaid 
populations and benefits, and avoid cuts to eligibility, pending state 
approval to do so. 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $932 
million in Recovery Act funds to Georgia. As of June 25, 2009, the 
federal government's obligation for Georgia was $449 million. Georgia 
has selected the first phase of projects to be completed with Recovery 
Act funds and has awarded 44 contracts totaling $88 million. The 
projects selected include a bridge-widening project in Gwinnett County 
and a road-widening and -expansion project in Henry County. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
The U.S. Department of Education has awarded Georgia its entire $1 
billion initial allocation. As of June 30, 2009, the state had 
allocated $698 million of these funds to local education agencies and 
institutions of higher education. These entities plan to use the funds 
to stabilize their budgets and retain staff. For example, the 
University of Georgia plans to use its $19 million allocation for 
fiscal year 2010 to retain approximately 160 full-time faculty 
positions. 

* Title I, Part A, of the Elementary and Secondary Education Act (ESEA) 
of 1965. The U.S. Department of Education has awarded Georgia about 
$176 million in Recovery Act ESEA Title I, Part A funds, or 50 percent 
of its total allocation of approximately $351 million. The state 
allocated all of these funds to the local education agencies within the 
state in late April 2009. Local education agencies plan to use these 
funds to help educate disadvantaged youth by, among other things, 
providing training and other professional development opportunities for 
teachers. For example, the Richmond County School System plans to use 
its funds to expand services to 23 additional elementary, middle, and 
high schools. 

* Individuals with Disabilities Education Act, Part B and C. The U.S. 
Department of Education has awarded Georgia about $169 million in 
Recovery Act IDEA, Part B and C funds, or 50 percent of its total 
allocation of about $339 million. Georgia allocated all of its IDEA, 
Part B funds to the local education agencies within the state in late 
April 2009. Local education agencies plan to use these funds to support 
special education and related services for preschool and school-aged 
children with disabilities. For instance, the Atlanta Public Schools 
plans to use its funds to provide training for its staff and retain 49 
special education paraprofessionals. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
allotted to Georgia about $31.3 million in Workforce Investment Act 
Youth Recovery Act funds. As of June 30, 2009, the state had allocated 
$26.7 million of these funds to local workforce boards. As of June 19, 
2009, about 8,700 youth were enrolled in summer youth programs 
statewide. Overall, the state expects the funds to create more than 
10,000 summer jobs for its youth. 

* Edward Byrne Memorial Justice Assistance grants. The U.S. Department 
of Justice's Bureau of Justice Assistance has awarded $36 million in 
Recovery Act funding directly to Georgia. As of June 25, 2009, none of 
these funds had been obligated by the Georgia Criminal Justice 
Coordinating Council, which administers these grants for the 
state.[Footnote 3] The state plans to use these funds to support 
positions at state agencies with criminal justice missions and fund 
assistance for victims of crime, among other things. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated to Georgia about $125 million in Recovery Act 
weatherization funding for a 3-year period. As of June 26, 2009, DOE 
had provided $62.5 million to Georgia, and the state had obligated none 
of these funds. Georgia plans to get weatherization activities under 
way in August 2009 and ultimately weatherize about 13,600 homes owned 
by low-income families. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated about $113 million in Recovery Act funding to 
184 public housing agencies in Georgia. As of June 20, 2009, these 
public housing agencies had obligated about $8 million (7.5 percent). 
At the two public housing agencies we visited (Atlanta and Athens), 
these funds--which flow directly to public housing authorities--will be 
used for various capital improvements, including modifying bathrooms 
and kitchens and replacing roofs, windows, and elevators. 

Safeguarding and transparency: Georgia has issued unique accounting 
codes to track Recovery Act funds separately. In addition, the 
Governor's Office of Planning and Budget has issued a risk management 
handbook that requires each agency that is a direct recipient of 
Recovery Act funding to prepare a risk mitigation plan. The State 
Auditor has provided internal controls training to state agency 
personnel but is awaiting additional federal guidance on targeting its 
risk assessments to include programs receiving Recovery Act funding. In 
addition, the individual state agencies that administer Recovery Act 
funds have implemented internal controls, such as risk assessments and 
monitoring plans. 

Assessing the effects of spending: While waiting for additional federal 
guidance, the state proceeded with plans to adapt an automated system 
used for financial management to meet Recovery Act reporting 
requirements. The system is operational, and the state has begun 
collecting data on jobs created and retained. 

Georgia Is Using Recovery Act Funds to Offset Declining Revenues: 

To offset declining revenue, Georgia included Recovery Act funding in 
both its amended fiscal year 2009 budget and its fiscal year 2010 
budget. Our work, which focused on nine selected federal programs, 
indicated that Georgia has started spending its Recovery Act funds. The 
nine programs on which we focused included the Medicaid program, three 
education programs, and the federal-aid highway program. 

During fiscal year 2009, Georgia took a number of cost-saving measures 
due to its declining fiscal condition: 

* A few agencies furloughed staff. For instance, the Georgia Department 
of Transportation required all full-time employees to take 1 furlough 
day during the months of April, May, and June 2009 and plans to 
continue the furloughs in fiscal year 2010. The Georgia Department of 
Education required all employees to take 1 furlough day from November 
17, 2008, through February 13, 2009. 

* A number of programs were cut or eliminated. For instance, the 
primary funding mechanism for elementary and secondary education was 
reduced by approximately $550 million in the amended fiscal year 2009 
budget and by about $431 million in the fiscal year 2010 budget. At the 
Georgia Department of Human Services, a reduction of $16 million 
impacted the level of service staff could provide in the food stamp, 
Medicaid, and child protective services programs. The Georgia 
Department of Community Affairs saw a reduction of $76 million in its 
amended fiscal year 2009 budget and $74 million in its fiscal year 2010 
budget. These reductions will impact programs that provide grants and 
assistance to rural areas of the state and state-funded community 
development programs that assist homeless families in achieving housing 
stability, among other things. 

* Some agencies canceled or delayed contracts. For example, when 
funding for the Georgia Department of Corrections' general operations 
was reduced by $25 million, the department decreased its procurement of 
goods and services, among other things. In addition, budget cuts at the 
Georgia Department of Administrative Services delayed the full 
implementation of an upgrade of the state's procurement system. 

Georgia's amended fiscal year 2009 budget and its fiscal year 2010 
budget were signed by the Governor on March 13, 2009, and May 13, 2009, 
respectively. According to state budget officials, the inclusion of 
Recovery Act funds in both budgets reduced the number of cuts required 
to balance the budgets. The amended fiscal year 2009 budget included 
$477 million in Recovery Act funds for Medicaid. The fiscal year 2010 
budget included $727 million for Medicaid, $521 million in State Fiscal 
Stabilization Funds for education stabilization, and $140 million in 
State Fiscal Stabilization Funds for government services (such as 
staffing costs at state prisons and the state's forensic laboratory 
system).[Footnote 4] 

Since the amended fiscal year 2009 budget was signed in March 2009, the 
state's revenue projections have continued to decline. The state's net 
revenue collections for May 2009 were 14.4 percent less than they were 
in May 2008, representing a decrease of approximately $212 million in 
total tax and other collections. On May 28, 2009, the lower-than- 
expected revenue projections led the Governor to instruct the Office of 
Planning and Budget to reduce available funds by 25 percent for the 
month of June (the last month of fiscal year 2009). 

The lower-than-expected revenue numbers also caused Georgia to use more 
Recovery Act funds in fiscal year 2009 than it had anticipated using. 
In addition to using the Recovery Act Medicaid funds approved in its 
amended fiscal year 2009 budget, it used $177 million in education 
stabilization funds and approximately $12 million in government 
services funds. Further, the state used more of its reserves in fiscal 
year 2009 than originally planned. Instead of the $200 million it 
planned to use from its Revenue Shortfall Reserve, or "rainy day" fund, 
in fiscal year 2009, the state may use up to $650 million.[Footnote 5] 
The state also has budgeted an additional $259 million in fiscal year 
2010, further depleting Georgia's rainy-day fund. 

The Governor's office has required state agencies to spend funds 
judiciously and develop action plans that recognize that the funding is 
temporary. However, Georgia is still in the process of developing a 
strategy for winding down its use of Recovery Act funds. In part, such 
a strategy is dependent on revenue and expenditure projections, which 
will be updated as part of the fiscal year 2011 budget planning 
process. In addition, risk mitigation plans currently being developed 
by state agencies may impact the state's exit strategy. 

State resources for oversight of Recovery Act funds continue to be 
limited. The State Auditor highlighted the need for increased staffing 
to complete single audits for fiscal years 2009-2011. Approximately 140 
of his current staff will have some Recovery Act auditing 
responsibilities. To meet additional auditing responsibilities, the 
State Auditor estimated that his office would need 7 to 8 additional 
staff for the fiscal year 2009 audits, at least 16 additional auditors 
over current staffing levels for the fiscal year 2010 audits, and at 
least 10 auditors over current staffing levels for the fiscal year 2011 
audits. The Georgia Inspector General's office currently has 4 staff, 2 
of which have Recovery Act responsibilities. According to the Inspector 
General, the office needs about 5 more staff in order to monitor 
compliance with Recovery Act provisions. These staff would be 
responsible for overseeing and monitoring the state agencies' 
distribution of funds, reviewing contracts, and investigating 
allegations of wrongdoing related to the funds. 

Increased FMAP Funds Are Allowing Georgia to Maintain Its Medicaid 
Program: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
percent to no more than 83 percent. The Recovery Act provides eligible 
states with an increased FMAP for 27 months from October 1, 2008, 
through December 31, 2010.[Footnote 6] 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 7] 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 
would otherwise have to use for their Medicaid programs, and states 
have reported using these available funds for a variety of purposes. 

From October 2007 to April 2009, the state's Medicaid enrollment grew 
from 1,244,889 to 1,343,756, an increase of almost 8 percent. 
Enrollment during this period varied, and there were several months 
where enrollment decreased (see figure 1). The increase in enrollment 
was mostly attributable to the population group of children and 
families, and there was a decline in the disabled individuals' 
population group. 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for Georgia, 
October 2007 to April 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: 1.24. 

Nov.–Dec. 2007: 
Percentage change: -0.26. 

Dec.–Jan. 2007-08: 
Percentage change: 0.64. 

Jan.–Feb. 2008: 
Percentage change: 0.15. 

Feb.–Mar. 2008: 
Percentage change: 0.41. 

Mar.–Apr. 2008: 
Percentage change: 0.29. 

Apr.–May 2008: 
Percentage change: 0.34. 

May–June 2008: 
Percentage change: -0.59. 

Jun.–Jul. 2008: 
Percentage change: 2.23. 

Jul.–Aug. 2008: 
Percentage change: 0.97. 

Aug.–Sep. 2008: 
Percentage change: -0.23. 

Sep.–Oct. 2008: 
Percentage change: 1.83. 

Oct.–Nov. 2008: 
Percentage change: -0.16. 

Nov.–Dec. 2008: 
Percentage change: -0.93. 

Dec.–Jan. 2008-09: 
Percentage change: -0.43. 

Jan.–Feb. 2009: 
Percentage change: 1.66. 

Feb.–Mar. 2009: 
Percentage change: -1.92. 

Mar.–Apr. 2009: 
Percentage change: 2.51. 

October 2007 enrollment: 1,244,889; 
May 2009 enrollment: 1,343,756. 

Source: GAO analysis of state reported data. 

[End of figure] 

As of June 29, 2009, Georgia had drawn down about $498 million in 
increased FMAP grant awards, which is about 92 percent of its awards to 
date.[Footnote 8] Georgia officials reported they are using funds made 
available as a result of the increased FMAP to offset the state budget 
deficit. State officials also reported they are planning to use these 
funds to cover the state’s increased caseload, to maintain current 
Medicaid populations and benefits, and avoid cuts to eligibility, 
pending state approval to do so. 

As a result of Georgia’s economic climate in the fall of 2008, the 
state had delayed provider rate increases and began exploring options 
that would avoid potential cuts to the program, such as to certain 
eligibility categories and optional Medicaid benefits. An official 
noted that with the increased FMAP funds, Georgia has been able to 
maintain its Medicaid eligibility categories and benefits. In using the 
increased FMAP, Georgia officials reported that the Medicaid program 
has incurred additional costs related to 

* personnel needed to ensure programmatic compliance with requirements 
associated with the increased FMAP, 

* personnel needed to ensure compliance with reporting requirements 
related to the increased FMAP, and, 

* the administrative processes devoted to project management and the 
creation of communication avenues for internal and external tracking of 
the use of stimulus funds. 

Georgia officials said they did not have any concerns about maintaining 
eligibility for increased FMAP. The state was not considering any 
changes to program eligibility and was already in compliance with the 
prompt pay requirements.[Footnotes 9 and 10] In terms of tracking the 
use of these funds, the state relies on an existing accounting system 
to track the use of increased FMAP and uses unique identifiers for 
these funds, which are tracked separately from regular FMAP. State 
officials also noted that the state separately codes expenditure 
transactions related to the increased FMAP and conducts reconciliations 
to ensure correctness. In addition, the officials noted that the 
Governor’s office has appointed an individual to work with the state 
audit and accounting offices to generate a weekly report on both 
receipts and expenditures related to the increased FMAP. To further 
ensure correctness, a staff person independently reviews the details of 
services for which increased FMAP was obtained, according to officials. 

Regarding the Single Audit, both the 2007 and 2008 audits identified 
material weaknesses in the state's Medicaid program. The 2007 Single 
Audit for Georgia identified one material weakness related to the 
Medicaid program.[Footnote 11] Specifically, the audit found examples 
of where fee-for-service payments and capitation payments were made for 
the same services. These double payments were estimated to total $52.7 
million. The state concurred with the finding, noting that the double 
payment was the result of an imperfect transmittal of a member database 
update from the Medicaid Management Information System. The state 
implemented corrective action procedures, which included efforts to 
improve monitoring. The 2008 Single Audit identified concerns related 
to documentation of eligibility and problems in calculating and 
reconciling accounts receivable. 

Funds Have Been Obligated for Georgia Federal-Aid Highway Projects: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program and for other 
eligible surface transportation projects. The Recovery Act requires 
that 30 percent of these funds be suballocated for projects in 
metropolitan and other areas of the state. Highway funds are 
apportioned to the states through existing federal-aid highway program 
mechanisms, and states must follow the requirements of the existing 
program including planning, environmental review, contracting, and 
other requirements. However, the federal fund share of highway 
infrastructure investment projects under the Recovery Act is up to 100 
percent, while the federal share under the existing federal-aid highway 
program is generally 80 percent. 

As we reported in April 2009, $932 million was apportioned to Georgia 
in March for highway infrastructure and other eligible projects. As of 
June 25, 2009, $449 million had been obligated. The U.S. Department of 
Transportation has interpreted the term "obligation of funds" to mean 
the federal government's contractual commitment to pay for the federal 
share of the project. This commitment occurs at the time the federal 
government signs a project agreement. As of June 25, 2009, no funds had 
been reimbursed by FHWA. States request reimbursement from FHWA as the 
state makes payments to contractors working on approved projects. 
[Footnote 12] 

Status of Planning for Highway Infrastructure Spending: 

As of June 12, 2009, the Governor had certified three rounds of 
projects to be funded with Recovery Act funds, completing the Georgia 
Department of Transportation's first phase of planning. The selection 
process for the second phase of projects was to be completed by the end 
of June 2009. According to FHWA data, the majority of the funds that 
had been obligated as of June 25, 2009, were for pavement projects (see 
table 1). 

Table 1: Highway Obligations for Georgia by Project Type as of June 25, 
2009: 

Pavement projects: New construction: $80 million; 
Pavement projects: Pavement improvement: $200 million; 
Pavement projects: Pavement widening: $12 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $41 million; 
Bridge projects: Improvement: $0 million; 
Other[A]: $116 million; 
Total: $449 million. 

Percent of total obligations: 
Pavement projects: New construction: 17.8; 
Pavement projects: Pavement improvement: 44.6; 
Pavement projects: Pavement widening: 2.6; 
Bridge projects: New construction: 0.0; 
Bridge projects: Replacement: 9.2; 
Bridge projects: Improvement: 0.0; 
Other[A]: 25.8; 
Total: 100. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[End of table] 

As of June 12, 2009, the Georgia Department of Transportation had 
awarded 44 contracts, for a total of $88 million.[Footnote 13] Most of 
these contracts were awarded for an amount that was less than 
originally estimated. According to Georgia Department of Transportation 
officials, bids have been coming in lower than expected due to current 
economic conditions. The first of these contracts is estimated to be 
completed by December 2009. The majority of the remaining phase one 
projects are expected to be bid on in June or July 2009. 

We visited the Gwinnett County and Henry County Departments of 
Transportation to discuss their Recovery Act highway projects.[Footnote 
14] During phase one, seven projects totaling $81 million were selected 
in Gwinnett County. Of these, the Gwinnett County Department of 
Transportation will administer two projects that aim to manage traffic 
more effectively through the use of surveillance equipment and remote 
traffic signal controls. Gwinnett County expects to award the contracts 
in August 2009 and complete the projects in 2010. The remainder of the 
projects in Gwinnett County will be administered by the Georgia 
Department of Transportation. For example, the state has budgeted about 
$13 million for a bridge-widening project in Gwinnett County. Gwinnett 
County officials stated that the project was "shovel ready" because the 
county had invested about $33 million in widening the road on either 
side of the bridge and engineering and land acquisition costs. (See 
figure 2 for a picture of the bridge to be widened.) County officials 
noted that if the state had not received Recovery Act funds, this 
project might have been moved to the long-range project list and not 
started until 2014 at the earliest. 

Figure 1: Bridge-Widening Project in Gwinnett County, Georgia, to Be 
Funded with Recovery Act Funds: 

[Refer PDF for image: photograph] 

Indicated on the photograph is the section of road and bridge that will 
be expanded from two lanes to four. 

Source: Gwinnett County Department of Transportation. 

[End of figure] 

During phase one, three projects totaling about $37 million were 
selected in Henry County, an economically distressed area. Of these, 
Henry County will administer one road-widening and -expansion project. 
Henry County officials noted that this project had been identified on 
the Transportation Improvement Program as high priority to help 
alleviate congestion and encourage economic development in the area. 
The proposed cost of the project is about $34 million. Henry County 
expects to award the contracts for this project by October 2009 and 
complete it in 2012. 

Recovery Act Requirements for Highway Infrastructure Spending: 

The Recovery Act includes a number of specific requirements for highway 
infrastructure spending. First, states are required to ensure that 50 
percent of apportioned Recovery Act funds are obligated within 120 days 
of apportionment (before June 30, 2009) and that the remaining 
apportioned funds are obligated within 1 year. The 50 percent rule 
applies only to funds apportioned to the state and not to the 30 
percent of funds required by the Recovery Act to be suballocated, 
primarily based on population, for metropolitan, regional, and local 
use. The Secretary of Transportation is to withdraw and redistribute to 
other states any amount that is not obligated within these time frames. 
As of June 25, 2009, 59 percent of the $652 million that is subject to 
the 50 percent rule for the 120-day redistribution had been obligated. 

Second, the Recovery Act requires states to give priority to projects 
that can be completed within 3 years and projects located in 
"economically distressed areas." Economically distressed areas are 
defined by the Public Works and Economic Development Act of 1965, as 
amended.[Footnote 15] As shown in figure 3, the Georgia Department of 
Transportation considered a number of different factors when selecting 
its first phase of projects in order to ensure that it met the act's 
requirements. Specifically, the department considered whether projects 
were "shovel ready" and could be completed within 3 years. Of the 
Recovery Act projects selected to date, the department expects all but 
one to be completed by February 2012. The Georgia Department of 
Transportation also took into account the location of the potential 
projects--that is, whether they were in an economically distressed 
area, as identified by FHWA. Its goal was for 50 percent of the 
projects it selected to be located in these areas. Of the 138 projects 
selected during phase one, 77 (or about 56 percent) are located in 
economically distressed areas. 

Figure 3: Georgia Department of Transportation's Process for Selecting 
Highway Projects That Qualify for Recovery Act Funds: 

[Refer to PDF for image: illustration] 

Proposals A, B, C, D, E, F, G are submitted; 

Step 1 requirements: 
* All standard FHWA eligibility requirements satisfied; 
* Project is shovel ready; 
* Works toward obligating 50% of funds by June 30, 2009; 
* Project can be completed by February 17, 2012. 

Proposals pared to: Proposal A, C, D, E, F. 

Step 2 considerations: 
* Geographic dispersion; 
* Type of project (bridges, safety, capacity, maintenance, and 
enhancements); 
* Project located in an economically distressed area. 

Certified project list (Phase I): 
Project C, D, F. 

Source: GAO. 

Note: According to state transportation officials, Georgia law requires 
highway funding to be distributed equally among the state's 
congressional districts. However, the Georgia Board of Transportation 
waived this requirement for the first phase of Recovery Act projects, 
and transportation officials expect the board to waive it for the 
second phase of projects, as well. 

[End of figure] 

Third, the Recovery Act required the governor of each state to certify 
that the state would maintain the level of spending for the types of 
transportation projects funded by the Recovery Act at the level planned 
the day the Recovery Act was enacted. As part of this "maintenance of 
effort" certification, the governor is required to identify the amount 
of funds the state planned to expend from state sources as of February 
17, 2009, for the period beginning on that date and extending through 
September 30, 2010.[Footnote 16] On March 18, 2009, Georgia submitted 
its maintenance-of-effort certification. As we reported in April, 
Georgia was one of several states that qualified its certification, 
prompting the U.S. Department of Transportation to review these 
certifications to determine if they were consistent with the 
law.[Footnote 17] On April 22, 2009, the Secretary of Transportation 
informed states that conditional and explanatory certifications were 
not permitted, provided additional guidance, and gave states the option 
of amending their certifications by May 22, 2009. Georgia resubmitted 
its certification on May 20, 2009. In addition to deleting the 
conditional statement, the Georgia Department of Transportation 
recalculated its maintenance of effort based on April guidance from 
FHWA.[Footnote 18] According to U.S. Department of Transportation 
officials, the department is reviewing Georgia's resubmitted 
certification letter and has concluded that the form of the 
certification is consistent with the additional guidance. The U.S. 
Department of Transportation is currently evaluating whether the 
states' method of calculating the amounts they planned to expend for 
the covered programs is in compliance with its guidance. 

Georgia Has Started Expending Recovery Act Funds for Education: 

The Recovery Act makes funds available for education under three 
different programs. The first program--the State Fiscal Stabilization 
Fund--provides funding for education, as well as public safety and 
other government services. The other two programs provide funding to 
improve the academic achievements of disadvantaged youth and for 
special education. Georgia has begun using these funds to retain 
instructors at all levels and is making plans to provide additional 
services to disadvantaged youth and disabled students. 

State Fiscal Stabilization Funds: 

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 provides 
several assurances. These include assurances that the state will meet 
maintenance-of-effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Further, the state applications must contain 
baseline data that demonstrate the state's current status in each of 
the assurances. States must allocate 81.8 percent of their SFSF funds 
to support education (education stabilization funds) and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). After 
maintaining state support for education at fiscal year 2006 levels, 
states must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
school districts or public Institutions of Higher Education (IHE). When 
distributing these funds to school districts, states must use their 
primary education funding formula but maintain discretion in how funds 
are allocated to public IHEs. In general, school districts maintain 
broad discretion in how they can use stabilization funds, but states 
have some ability to direct IHEs in how to use these funds. 

Georgia has received its entire $1 billion initial allocation for SFSF. 
Of that amount, $845 million is for education stabilization and $188 
million is for government services. Based on the state's current 
application (which was approved in May 2009), the state will allocate 
approximately 74 percent of the education stabilization funds to local 
education agencies (LEA) and approximately 26 percent to IHEs. As of 
June 10, 2009, the state had made $177 million available to LEAs and 
IHEs, and the LEAs and IHEs had expended the entire amount. The state's 
application provided assurance that the state will maintain state 
support for education at least at fiscal year 2006 levels. 

As previously mentioned, the state used $177 million in education 
stabilization funds and $12 million in government services funds to 
help offset budget shortfalls at the end of fiscal year 2009. As of 
June 10, 2009, all $189 million had been expended. The state's budget 
for fiscal year 2010 includes $521 million in education stabilization 
funds and $140 million in government services funds. Georgia plans to 
use the government services 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. 

The Georgia Department of Education received $413 million in education 
stabilization funds for fiscal year 2010. The department utilized the 
state's primary funding formula for elementary and secondary education 
to determine allocations of funds for the LEAs in the state and 
suggested that the funds be used for personnel, teachers, and benefits. 
[Footnote 19] In order to receive these funds, LEAs must submit an 
application via the state's consolidated application that includes 
planned uses for the funds in fiscal year 2010, detailed budget data 
such as jobs created and saved, and program-specific assurances such as 
agreeing to track and account for education stabilization funds 
separately and to avoid prohibited uses of the funds (for example, 
payment of maintenance costs and restoring or supplementing a "rainy 
day" fund).[Footnote 20] The Georgia Department of Education has not 
set a specific deadline for these applications, and LEAs whose 
applications are approved must then submit a detailed budget. As of 
June 8, 2009, 106 of the 186 LEAs in the state had successfully 
submitted applications and were developing their budgets; however, no 
budgets had been approved. 

We visited two LEAs--Atlanta Public Schools and the Richmond County 
School System--that had been allocated about $8 million and $9 million, 
respectively, in education stabilization funds for fiscal year 2010. 
[Footnote 21] Both school districts will add the funds to their general 
funds. The Atlanta Public Schools plans to use the majority of the 
funds for curriculum instruction. The Richmond County School System 
plans to use the funds to save jobs. Officials reported that the 
district will target positions that support its schools, such as 
teachers, paraprofessionals, nurses, media specialists, and guidance 
counselors. For both school districts, the funds have helped address 
budget shortfalls. The Atlanta Board of Education adopted a budget for 
the 2009-2010 school year that was $9 million less than the previous 
year's budget. According to district officials, the budget cuts would 
have been even greater had it not been for Recovery Act funds. In 
Richmond County, the education stabilization funds will be used to help 
fill an initial funding gap of about $24 million for the 2009-2010 
school year. According to Richmond County officials, even with the 
inclusion of stabilization funds in the budget proposal, they will have 
to cut salaries, eliminate programs, and reduce staff. 

The Georgia Board of Regents received about $93 million in education 
stabilization funds for the state's universities and colleges to use in 
fiscal year 2010.[Footnote 22] In April 2009, the board allocated these 
funds to each of the 35 institutions in the state's university system 
based on the degree to which each institution's budget had been cut. 
The Board of Regents encouraged the institutions to use the funds to 
cover faculty costs. It required all state institutions to submit 
applications that included a description of the planned use of 
education stabilization funds, affirmation that the funds would not be 
spent on prohibited uses, a list of any research and capital projects 
applied for under other Recovery Act programs, and a description of 
accounting and tracking mechanisms in place. These applications had to 
be signed by the President of each college or university and submitted 
by May 20, 2009. According to state officials, all 35 institutions' 
applications have been approved. 

The two IHEs we visited--the University of Georgia and Georgia 
Perimeter College--stated that they would be using the education 
stabilization funds to retain full-time and part-time faculty.[Footnote 
23] Specifically, the University of Georgia plans to use its $19 
million allocation to retain approximately 160 full-time faculty 
positions in various departments.[Footnote 24] Georgia Perimeter 
College intends to use its $3 million allocation to retain 51 full-time 
and 17 part-time positions in its Science department. According to 
college officials, this funding was critical because, in fiscal year 
2009, approximately 41 vacant positions were cut because of a $7.6 
million budget reduction. 

Title I, Part A of the Elementary and Secondary Education Act of 1965: 

The Recovery Act provides $10 billion to help LEAs educate 
disadvantaged youth by making additional funds available beyond those 
regularly allocated through Title I, Part A of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be distributed through states to LEAs using 
existing federal funding formulas, which target funds based on such 
factors as high concentrations of students from families living in 
poverty. In using the funds, LEAs are required to comply with current 
statutory and regulatory requirements and must obligate 85 percent of 
its fiscal year 2009 funds (including Recovery Act funds) by September 
30, 2010.[Footnote 25] The U.S. Department of Education is advising 
LEAs to use the funds in ways that will build their long-term capacity 
to serve disadvantaged youth, such as through providing professional 
development to teachers. The U.S. Department of Education made the 
first half of states' ESEA Title I, Part A funding available on April 
1, 2009, with Georgia receiving about $176 million of its approximately 
$351 million total allocation. 

On April 28, 2009, the Georgia State Board of Education approved the 
allocations of Recovery Act ESEA Title I, Part A funds to LEAs in 
Georgia.[Footnote 26] Prior to receiving their Recovery Act ESEA Title 
I funds, LEAs must submit a seven-point addendum to their comprehensive 
local improvement plan via the state's consolidated application. This 
addendum serves as a joint application for ESEA Title I, Part A and 
funds under the Individuals with Disabilities Education Act (IDEA), 
Part B. The first five points apply to both programs and cover topics 
such as how the LEA plans to use the funds, how the funds will be used 
to create and save jobs, and what type of internal controls the LEA has 
in place for the funds. One of the final two points is specific to ESEA 
Title I and covers how the district will expand support to schools that 
it has not previously served.[Footnote 27] The department has not set a 
specific application deadline. Once their applications are approved, 
LEAs will be asked to submit their budgets for fiscal year 2010 and 
cannot draw down their allocated funds until their budgets have been 
approved. As of June 17, 2009, 78 of the 186 LEAs had submitted their 
applications, and 52 had been approved. As of the same date, no funds 
had been expended. 

The Georgia Department of Education has provided a great deal of 
guidance to LEAs on how to obtain and use this type of Recovery Act 
funding. In addition to issuing guidance applicable to all LEAs, the 
department formed cross-functional teams comprising ESEA Title I and 
IDEA staff to develop specific recommendations for each LEA. According 
to department officials, this was the first time staff from both 
programs had worked together to develop comprehensive strategies for 
improving student achievement. The teams met with each school 
superintendent to discuss their findings and recommendations, including 
the following: 

* funding activities to provide intensive support for dropout 
prevention at the middle and high school levels; 

* providing intensive training and professional learning for general 
education teachers in the areas of math and reading; 

* identifying literacy specialists in middle schools to provide 
professional development; and: 

* providing professional learning opportunities for all teachers at 
middle and high schools. 

The two LEAs we visited plan to use their Recovery Act ESEA Title I 
funds in different ways. The Atlanta Public Schools plans to use its 
$16.9 million allocation to enhance the services already provided to 
the ESEA Title I schools in its district. Specifically, ESEA Title I 
funds will be utilized to retain 11 instructional mentor positions (7 
high school and 4 middle school) and 5 middle school counselor 
positions.[Footnote 28] In addition, three additional instructional 
mentor positions will be created at the high school level using ESEA 
Title I funds. Funding will also be used to expand professional 
development opportunities for district staff. Because all of the 
schools in the district currently eligible for ESEA Title I funds 
receive such funds, the district will not be providing support to an 
additional number of schools.[Footnote 29] The Richmond County School 
System plans to use its $7.3 million allocation to fund 23 additional 
elementary, middle, and high schools. School officials stated these 
funds will allow them to expand ESEA Title I, Part A services to all 
schools in the district except the one that is not eligible. 

Individuals with Disabilities Education Act (Part B): 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B includes programs that ensure preschool and school-
aged children with disabilities have access to a free and appropriate 
public education, and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities or at risk 
of developing a disability and their families. IDEA funds are 
authorized to states through three grants--Part B preschool-age, Part B 
school-age, and Part C grants for infants and families. States were not 
required to submit an application to the U.S. Department of Education 
in order to receive the initial Recovery Act funding for IDEA Parts B 
and C (50 percent of the total IDEA funding provided in the Recovery 
Act). States will receive the remaining 50 percent by September 30, 
2009, after submitting information to the U.S. Department of Education 
addressing how they will meet Recovery Act accountability and reporting 
requirements. All IDEA Recovery Act funds must be used in accordance 
with IDEA statutory and regulatory requirements. 

The U.S. Department of Education allocated the first half of states' 
IDEA allocations on April 1, 2009, with Georgia receiving a total of 
about $169 million for all IDEA programs.[Footnote 30] The largest 
share of IDEA funding is for the Part B school-aged program for 
children and youth.[Footnote 31] The state's initial allocation was: 

* $5 million in Part B preschool grants, 

* $157 million in Part B grants to states for school-aged children and 
youth, and: 

* $7 million in Part C grants for infants and families. 

On April 28, 2009, the Georgia State Board of Education approved the 
allocations of Recovery Act IDEA, Part B funds to LEAs in Georgia. 
[Footnote 32] Prior to receiving their Recovery Act IDEA funds, LEAs 
must submit a seven-point addendum to their comprehensive local 
improvement plan via the state's consolidated application. As 
previously discussed, this addendum serves as a joint application for 
Recovery Act IDEA and ESEA Title I, Part A funds. The department has 
not set a specific application deadline. One question on the 
application regarding plans to expand services in the preschool program 
is unique to IDEA. Upon approval of their applications, LEAs will be 
asked to submit their budgets for fiscal year 2010 and cannot draw down 
their allocated funds until their budgets have been approved. As of 
June 17, 2009, 78 of the state's 186 LEAs had submitted their 
applications, and 52 had been approved. As of the same date, no funds 
had been drawn down. 

The Georgia Department of Education has provided specific 
recommendations to LEAs regarding the use of Recovery Act IDEA funds. 
Some of the recommendations made to individual LEAs suggested using 
these funds to: 

* provide for additional special education coaches; 

* allocate an assistive technology specialist to train teachers and 
paraprofessionals in assistive technology tools; 

* identify a full-time dedicated lead teacher for special education at 
every school to facilitate compliance and support, consistent 
professional development, appropriate instruction, and teacher 
monitoring and feedback; and: 

* ensure that all middle-and high-school graduation coaches are working 
with students with disabilities. 

The two school districts we visited have applied for their IDEA funds, 
and their applications have been approved by the Georgia Department of 
Education. Atlanta Public Schools plans to use its $5 million 
allocation to build capacity through training for paraprofessional 
staff and professional development seminars.[Footnote 33] IDEA Recovery 
Act funds will also allow the district to retain 49 special education 
paraprofessional positions. Finally, Atlanta Public Schools plans to 
create a position for an assistive technology specialist to train 
teachers and paraprofessionals in assistive technology tools. The 
Richmond County School System plans to use its approximately $3 million 
allocation to add more professional development opportunities in areas 
such as co-teaching and progress monitoring of a students' performance 
plan.[Footnote 34] It also plans to conduct additional training and 
purchase equipment to assist preschoolers and those students that need 
additional assistance in math and reading. 

Workforce Investment Act Summer Youth Programs Will Serve a Significant 
Number of Youth in Georgia: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth program to 
facilitate the employment and training of youth. The WIA Youth program 
is designed to provide low income in-school and out-of-school youth age 
14 to 21, who have additional barriers to success, with services that 
lead to educational achievement and successful employment, among other 
goals. The Recovery Act extended eligibility through age 24 for youth 
receiving services funded by the Recovery Act. In addition, the 
Recovery Act provided that, of the WIA Youth performance measures, only 
the work readiness measure is required to assess the effectiveness of 
summer-only employment for youth served with Recovery Act funds. Within 
the parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains. The 
program is administered by the Department of Labor, and funds are 
distributed to states based upon a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
up to 15 percent for statewide activities. The local areas, through 
their local workforce investment boards, have flexibility to decide how 
they will use these funds to provide required services. In the 
conference report accompanying the bill that became the Recovery Act, 
the conferees stated they were particularly interested in states using 
these funds to create summer employment opportunities for youth. 
[Footnote 35] Summer employment may include any set of allowable WIA 
Youth activities--such as tutoring and study skills training, 
occupational skills training, and supportive services--as long as it 
also includes a work experience component. Work experience may be 
provided at public sector, private sector, or nonprofit work sites. The 
work sites must meet safety guidelines and federal and state wage laws. 
[Footnote 36] 

The Georgia Department of Labor administers the state's WIA Youth 
program, but program implementation is delegated to local areas, as 
required by the Workforce Investment Act. Georgia's 159 counties are 
divided into 20 workforce investment areas (local areas), ranging in 
size from 1 county to 17 counties.[Footnote 37] Each of the 20 areas 
has a local workforce investment board, appointed by local elected 
officials. While the Georgia Department of Labor recommends employment 
priorities, the local areas make determinations on how they will use 
their funding. The Georgia Department of Labor plans to monitor the use 
of Recovery Act funds on a weekly basis by tracking progress on a 
variety of factors, such as youth enrollment, job types, and number of 
active participants. 

Georgia received approximately $31.3 million in Recovery Act funds for 
the WIA Youth program. In 2008, the state reserved $919,000 of its own 
funds for summer youth programs that served 968 young people. With the 
Recovery Act WIA Youth program funds, the state expects to serve more 
than 10,000 youth in summer programs. The 15 percent (or $4.7 million) 
reserved for the state's use will be spent on activities such as 
program administration and oversight. The Georgia Department of Labor 
has allocated the remaining $26.7 million directly to local areas for 
youth programs. According to department officials, recruiting 
additional providers and processing numerous applications in such a 
short period of time will be the greatest challenges facing the local 
areas in the state. The local areas must ensure that applicants meet 
the WIA eligibility criteria by documenting information such as family 
income. As of June 19, 2009, about 8,700 youth had been enrolled in 
summer youth programs statewide. 

The WIA Youth program is being implemented in a variety of ways across 
the state. We visited two local areas, the Atlanta Regional Workforce 
Board and the Richmond/Burke Job Training Authority.[Footnote 38] The 
Atlanta Regional Workforce Board received an allocation of more than $3 
million in Recovery Act WIA Youth funds (an increase from the $66,000 
in state funds it received for summer youth employment activities in 
2008). The Atlanta Regional Workforce Board anticipates serving 1,200 
to 1,300 youth this summer with Recovery Act funds, a significant 
increase over the 105 youth it served in 2008 with the state-provided 
funds for summer youth employment activities. To meet the anticipated 
demand, the Atlanta Regional Workforce Board submitted a request to the 
Georgia Department of Labor to use the 10 providers with which it 
already had contracts and issued a request for proposals to obtain 
additional providers. In addition, it contracted with a company to 
manage its payroll and workers compensation. The Atlanta Regional 
Workforce Board has identified a variety of summer work opportunities 
for youth at private businesses and organizations such as county school 
systems and the Georgia Department of Family and Children Services. 
Additionally, work sites have been identified that provide green job 
opportunities and training in green technology. For example, Gwinnett 
Technical College is offering a summer work experience in water quality 
and environmental management.[Footnote 39] As of June 19, 2009, the 
Atlanta Regional Workforce Board had enrolled 1,103 youth. 

The Richmond/Burke Job Training Authority received an allocation of 
approximately $1 million in Recovery Act WIA Youth funds (an increase 
from the approximately $38,000 in state funds it received for summer 
youth employment activities in 2008). It expects to serve 375 youth 
this summer with Recovery Act funds, a significant increase over the 28 
youth it served in 2008 with the state-provided funds for summer youth 
employment activities. The Richmond/Burke Job Training Authority plans 
to expand its existing contracts to meet the increased demand. It has 
identified a variety of summer work opportunities for youth at 
organizations such as city and county governments and local libraries. 
According to the officials we interviewed, recruiting businesses and 
identifying green jobs and training in green technology have been 
challenges. Identifying green jobs has been difficult in part because 
its definition was not clear. As of June 19, 2009, the Richmond/Burke 
Job Training Authority had enrolled 350 youth. 

Edward Byrne Memorial Justice Assistance Grants (JAG) Are in Planning 
Stages at the State and Local Level: 

The JAG program within the Department of Justice's Bureau of Justice 
Assistance (BJA) provides federal grants to state and local governments 
for law enforcement and other criminal justice activities, such as 
crime prevention and domestic violence programs, courts, corrections, 
treatment, justice information sharing initiatives, and victims' 
services. Under the Recovery Act, an additional $2 billion in grants 
are available to state and local governments for such activities, using 
the rules and structure of the existing JAG program. The level of 
funding is formula-based and is determined by a combination of crime 
and population statistics. Using this formula, 60 percent of a state's 
JAG allocation is awarded by BJA directly to the state, which must in 
turn allocate a formula-based share of those funds to local governments 
within the state. The remaining 40 percent of funds is awarded directly 
by BJA to eligible units of local government within the state.[Footnote 
40] The total JAG allocation for Georgia state and local governments 
under the Recovery Act is nearly $59 million, a significant increase 
from the fiscal year 2008 allocation of $4.3 million. 

As of June 30, 2009, Georgia had received its full state award of $36 
million.[Footnote 41] The Georgia Criminal Justice Coordinating Council 
(CJCC) plans to use $3.6 million for administrative purposes, such as 
the development of a Web-based grants information system, statewide 
planning efforts, and research and evaluation projects. The council 
intends to award 40 percent of the remaining funds to state agencies. 
Proposed state initiatives include funding for state troopers, crime 
lab specialists, public safety training instructors, and juvenile 
probation and parole specialists. The plans for the state-level funds 
will be finalized during a July 2009 board meeting. 

To award the remaining 60 percent of funds to local agencies, the 
council has adopted a multifaceted approach. First, it has worked with 
numerous partners, such as representatives of chiefs of police, county 
commissioners, district attorneys, judges, and sheriffs, to alert them 
to the availability of JAG funds and solicit their input into the 
decision-making process for the allocation of the local funds. Second, 
the council has set aside $1.5 million for governmental organizations 
that serve victims of crime, including violence against women and child 
and elder abuse. Third, the council seeks to award funds to planning 
groups from each of Georgia's 49 judicial circuits. The council 
requested that each judicial circuit form a planning group and submit a 
joint letter of intent to apply for predetermined grant allocations, 
followed by a joint proposal and spending plan. Letters of intent to 
apply for the funds were due from the judicial circuits by June 1, and 
the council had received 35 letters as of June 16, 2009. The council 
has provided applications to those circuits with one planning group and 
plans to issue awards on a rolling basis as applications are received 
and approved. A solicitation seeking competitive applications from 
circuits with multiple letters of intent will be released on August 1, 
2009. All applications are due on September 1, 2009. 

Georgia Planning for the Use of Weatherization Assistance Program Funds 
Is Still Under Way: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia. This funding 
is a significant addition to the annual appropriations for the 
weatherization program that have been about $225 million per year in 
recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its State Plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department's progress reviews examining each 
state's performance in spending its first 50 percent of the funds and 
the state's compliance with the Recovery Act's reporting and other 
requirements. 

The U.S. Department of Energy allocated to Georgia about $125 million 
for the Recovery Act Weatherization Assistance Program for a 3-year 
period, an increase from its fiscal year 2009 allocation of $8 million. 
The Georgia Environmental Facilities Authority (GEFA)--the state agency 
responsible for administering the program--received a Funding 
Opportunity Announcement from DOE on March 12, 2009, identifying and 
explaining the initial application process and submitted its 
application for funding on March 23, 2009. GEFA subsequently received 
additional guidance via phone, e-mail, and regional conference calls on 
developing its weatherization plan, which it then developed and 
submitted to DOE on May 12, 2009. 

On April 20, 2009, DOE provided the initial 10 percent allocation 
(approximately $12.5 million) to Georgia. However, the state has not 
yet authorized GEFA to spend the initial allocation because the action 
plan required by the Governor is still under review.[Footnote 42] In 
the meantime, the state has approved additional staff to help oversee 
the program. GEFA has issued two requests for proposals to provide 
assistance with the monitoring of local service providers and 
weatherization training, and it is in the process of awarding the 
contract. On June 26, 2009, DOE approved Georgia's weatherization plan 
and provided an additional 40 percent of its allocation (approximately 
$50 million). 

As stated in the plan submitted to DOE, the state will use about $103 
million for weatherization production and about $22 million for 
training and technical assistance, oversight, and reporting. GEFA plans 
to disseminate funds through 22 organizations, which include community 
action agencies, local governments, and a nonprofit. It expects to 
enter into contracts with these local service providers and get work 
under way by August 2009. GEFA's goal is to weatherize approximately 
13,600 homes and reduce energy usage. According to state officials, 
11,000 to 14,000 homes have been eligible for weatherization assistance 
each year, but the agency has only been able to serve approximately 
2,500 homes. The state plans to use the Recovery Act funds to provide 
services to the approximately 9,000 homes that have been on the waiting 
list. 

Public Housing Capital Grants Are Beginning to Be Expended in Georgia: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 43] The Recovery Act requires the U.S. Department of Housing 
and Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies, expend at least 60 percent of funds within 2 years of that 
date, and expend 100 percent of the funds within 3 years of that date. 
Public housing agencies are expected to give priority to projects that 
can award contracts based on bids within 120 days from the date the 
funds are made available, as well as projects that rehabilitate vacant 
units, or those already under way or included in the required 5-year 
Capital Fund plans. HUD is also required to award $1 billion to housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding or financing for 
renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability (NOFA) that 
describes the competitive process, criteria for applications, and time 
frames for submitting applications.[Footnote 44] 

In Georgia, 184 public housing agencies received a total of $113 
million in Recovery Act formula grant awards. As of June 20, 2009, 47 
of the state's public housing agencies had obligated about $8 million 
and expended about $627,000 (see figure 4). We visited two public 
housing agencies in Georgia: the Housing Authority of the City of 
Atlanta (Atlanta Housing Authority) and the Housing Authority of the 
City of Athens (Athens Housing Authority).[Footnote 45] 

Figure 4: Percentage of Public Housing Capital Funds Allocated by HUD 
That Have Been Obligated and Drawn Down in Georgia: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $112,675,806; 100%; 
Funds obligated by public housing agencies: $8,418,143; 7.5%; 
Funds drawn down by public housing agencies: $626,884; 0.6%. 

Number of public housing agencies: 
Entering into agreements for funds: 184; 
Obligating funds: 47; 
Drawing down funds: 19. 

Source: GAO analysis of HUD data. 

[End of figure] 

The Atlanta Housing Authority received about $27 million in Recovery 
Act formula grant awards. As of June 20, 2009, the agency had not 
obligated or drawn down any funds. According to agency officials, they 
expect to begin drawing down funds in July 2009 after contracts have 
been awarded. The agency does not expect to have problems obligating 
100 percent of the funds within the year after the funds become 
available (Mar. 18, 2009) because they will be considered obligated 
once the agency has amended the contracts it has with the private 
companies it uses to manage its properties. It expects to amend these 
contracts within 120 days of the funds' release for use. 

The Atlanta Housing Authority plans to use about $19 million of its 
Recovery Act funds to rehabilitate 13 properties containing a total of 
1,953 units. For example, it will use about $2.4 million to renovate a 
162-unit property for seniors by, among other things, replacing the 
windows, repairing the roof, and renovating the lobby and common area. 
At another 150-unit property for seniors, the agency will use about 
$2.2 million to complete renovations such as apartment upgrades 
(including paint, cabinets, and carpet), window replacement, and the 
expansion of common sitting areas. Figure 5 shows one of the common 
sitting areas that will be expanded. The agency will use the remaining 
$8 million to demolish four properties. 

Figure 5: Common Sitting Area That Atlanta Housing Authority Plans to 
Expand with Recovery Act Funds: 

[Refer to PDF for image: two photographs] 

Common sitting area that will be expanded to include the area that is 
currently the balcony. 

Source: GAO. 

[End of figure] 

The Athens Housing Authority received about $2.6 million in Recovery 
Act formula grant awards. As of June 20, 2009, the agency had not 
obligated or drawn down any funds because HUD had just approved its 
plan for spending the funds on June 2, 2009. The agency does not expect 
to have problems obligating 100 percent of the funds within 1 year of 
the date that the funds became available (March 18, 2009). 

The Athens Housing Authority plans to use the majority of its funds (75 
percent) on three projects. First, it plans to use about $1.6 million 
to gut and rebuild the interiors of 23 scattered sites. This work will 
include reframing the walls, replacing the plumbing and water heater, 
replacing kitchen cabinets, and installing new fixtures and floor tile 
in the bathrooms (see figure 6). Second, the authority plans to use 
$330,000 to replace the elevators in a senior high-rise. Third, it 
intends to use $55,000 to replace the roofs on 40 units. The remaining 
funds will be spent on renovations such as site work (e.g., sidewalk 
repairs and landscaping), new kitchen countertops, and new windows at 
other properties. 

Figure 6: Unit the Athens Housing Authority Plans to Renovate with 
Recovery Act Funds: 

[Refer to PDF for image: two photographs] 

Single space heater to be replaced with central heat. 
Kitchen. 

Source: GAO. 

[End of figure] 

According to the officials we interviewed, both public housing agencies 
gave priority to projects that could award contracts based on bids 
within 120 days of the date the funds were released for use. According 
to Atlanta Housing Authority officials, the agency's planned work falls 
into two categories: (1) work that is straightforward and does not 
require services by a design professional and (2) work that requires 
design work and other preparation. It hopes to complete the 
straightforward work within 60 to 120 days of amending the contracts 
with its private management companies. For the work that requires 
design, it expects to award contracts and get the work under way in 
early 2010. Similarly, the Athens Housing Authority has work that can 
begin quickly. According to Athens Housing Authority officials, the 
largest project to be undertaken by the agency with Recovery Act funds 
is the last phase of a multiphase renovation effort. Therefore, the 
design work has been completed, and work can begin quickly. According 
to officials from the agency, the contract was awarded on June 17, 
2009, and work will begin in late July or early August. 

The officials we interviewed also stated that they had given priority 
to projects in their Capital Fund plans. We reviewed the Atlanta 
Housing Authority's fiscal year 2010 annual plan and found that the 
projects targeted to receive Recovery Act funds were in the plan. 
[Footnote 46] Similarly, we reviewed the Athens Housing Authority's 5-
year Capital Fund plan, which was approved in May 2009, and found that 
all of its Recovery Act projects were in the plan. Regarding giving 
priority to projects that rehabilitate vacant units, neither public 
housing agency has a substantial number of vacant units that need to be 
renovated. Only 4 of the 1,953 units that the Atlanta Housing Authority 
plans to renovate are vacant. According to Athens Housing Authority 
officials, their units are typically at least 98 percent occupied, with 
the few vacancies being attributable to turnover. 

Both public housing agencies have internal controls in place for the 
Recovery Act funds. The Atlanta Housing Authority has established a 
separate account for its Recovery Act Capital Funds, which will enable 
it to track them separately from other funds. The agency monitors 
projects undertaken by its private management companies by visiting 
project sites on a monthly basis and reviewing payment applications for 
accuracy and completeness. It plans to require its private management 
companies to submit information on jobs created and retained with each 
payment application. Similarly, the Athens Housing Authority has 
established a separate fund in its general ledger to track Recovery Act 
funds separately from other funds. The agency has established internal 
controls for cash disbursements and procurement and plans to monitor 
its Recovery Act projects by having a construction inspector on site 
daily. Although it is waiting for additional reporting guidance from 
HUD, the agency expects to rely on its contractors to certify jobs 
created and retained. 

Georgia Is Implementing Safeguards and Internal Controls at the State 
and Agency Level: 

Georgia has taken a number of steps to implement statewide internal 
controls for Recovery Act funds. For instance, it has started tracking 
Recovery Act funds separately from the other funds it receives and 
issued a risk management handbook that requires each agency that is a 
direct recipient of Recovery Act funding to prepare a risk mitigation 
plan. According to state officials, the individual state agencies that 
administer Recovery Act funds also have implemented internal controls, 
such as risk assessments and monitoring plans. 

Georgia Has Started Tracking Recovery Act Funds Separately: 

On March 12, 2009, the State Accounting Office issued an accounting 
directive that contained guidance on accounting for Recovery Act funds 
separately from other funds. The directive requires state agencies to 
segregate funds through a set of unique Recovery Act fund sources in 
the state's financial accounting system. The guidance states that state 
agencies such as the Georgia Department of Labor that do not use the 
state's financial accounting system must ensure that the data are 
maintained in accordance with all Recovery Act financial reporting 
requirements, which include tracking Recovery Act funds separately. As 
of June 15, 2009, the State Accounting Office had issued 52 unique 
Recovery Act funding codes to 16 agencies. 

Georgia Is Implementing Internal Controls at the State and Program 
Level: 

Recognizing the importance of accounting for and monitoring Recovery 
Act funds, Georgia is taking steps to safeguard them at the state and 
program level. At the state level, Georgia has established a Recovery 
Act Accountability and Transparency Support Team comprising of 
representatives from the Office of Planning and Budget, State 
Accounting Office, and Department of Administrative Services (the 
department responsible for procurement). Since our last report, members 
of this team have implemented the following additional safeguards: 

* In May 2009, the Georgia Office of Planning and Budget issued a risk 
management handbook to all state agencies. Its purpose is to provide a 
process that allows agencies to identify potential Recovery Act risk 
areas and develop risk mitigation strategies for each individual 
funding source. The handbook requires each agency that is a direct 
recipient of Recovery Act funding to complete the following steps: (1) 
identify problem areas by reviewing each of the 12 compliance 
categories contained in Office of Management and Budget (OMB) Circular 
No. A-133, Audits of States, Local Governments, and Non-Profit 
Organizations and the requirements in the Recovery Act;[Footnote 47] 
(2) develop risk mitigation categories by completing an internal 
control worksheet for each risk area identified; and (3) assign a risk 
level of red, yellow, or green (with green being the lowest level of 
risk) for each risk area identified. All affected agencies were to 
submit their risk mitigation plans to the Office of Planning and Budget 
by June 19, 2009. The Georgia Department of Transportation has already 
drafted its risk mitigation plan. It used these techniques to identify 
risks associated with subrecipient monitoring and plans to mitigate 
these risks by, among other things, conducting monthly field audits and 
reviewing subrecipients' Single Audit reports. 

* The State Accounting Office developed an agency self-assessment 
questionnaire that accompanied the risk management handbook. This 
survey included questions about compiling Recovery Act data for 
reporting purposes, the specific contracting requirements in the 
Recovery Act that are not current agency practices, and agency internal 
controls. It plans to use the results to target its audit efforts. 

* The Georgia Department of Administrative Services issued two Recovery 
Act purchasing directives. The first directive, issued in May 2009, 
states that each state agency receiving Recovery Act funds has an 
obligation to ensure they are used in a way that helps meet the stated 
purposes of the Recovery Act. The directive also provides guidance on 
specific procurement considerations included in the Recovery Act. The 
second directive, issued in June 2009, provides information from the 
U.S. Small Business Administration on small business participation in 
Recovery Act programs. 

Oversight at the state level is the responsibility of the State Auditor 
and Inspector General. Since our last report, the State Auditor has 
taken the following steps: 

* In late April 2009, the State Auditor provided two 1-day internal 
control training seminars for state agency personnel. The training 
discussed basic internal controls, the designing and implementing of 
internal controls for Recovery Act programs, best practices in contract 
monitoring, and reporting on Recovery Act funds. As part of the 
training, the class participated in an exercise to identify risks 
associated with the Recovery Act requirement that agencies determine 
and report on the number of jobs created with the funding. The class 
identified 13 risks and established 13 respective control procedures to 
mitigate those risks. 

* The State Auditor continues to await additional audit guidance from 
OMB on targeting its risk assessments to include programs receiving 
Recovery Act funding. The State Auditor conducts routine statewide risk 
assessments as a means of identifying high-risk programs and 
determining where best to focus audit resources.[Footnote 48] According 
to the State Auditor, the OMB Circular No. A-133 Compliance Supplement, 
issued in late May 2009, did not provide all of the guidance needed. 
[Footnote 49] For example, it did not include a list of programs to be 
"clustered." OMB requires that auditors group, or "cluster," closely 
related programs that share common compliance requirements and consider 
them as one program when selecting programs for testing. 

While actions have been taken at the state level to establish internal 
controls for Recovery Act funds, each agency in Georgia is responsible 
for its operations, management, accounting, and reporting. Accordingly, 
each agency is responsible for implementing and monitoring effective 
internal controls over compliance with applicable laws, regulations, 
contracts, and grants, as well as those controls over financial 
reporting. Table 2 describes some of the steps state agencies have 
taken or plan to take to assess risk and monitor the use of Recovery 
Act funds. 

Table 2: State Agencies' Internal Controls over Recovery Act Funds: 

Program: Federal-Aid Highway Surface Transportation Program; 
Risk Assessment: The Georgia Department of Transportation completed a 
risk assessment form that identifies risks associated with Recovery Act 
funds and controls to mitigate these risks; 
Monitoring: The Georgia Department of Transportation's Internal Audit 
Department has developed a Recovery Act audit program that includes 
requiring subrecipients to complete an internal control questionnaire 
and performing compliance testing on selected contracts. Contract 
engineers will perform monthly construction audits on all Recovery Act 
projects. On-site inspectors will review project progress daily. 

Program: State Fiscal Stabilization Fund; 
Risk Assessment: The Georgia Department of Education assesses the risk 
posed by each local education agency (LEA) annually using 20 risk 
factors (including the number of financial statement findings, whether 
the district has a deficit, and the tenure of the superintendent). The 
Georgia Board of Regents will require each institution to complete the 
self-assessment questionnaire developed by the State Accounting Office; 
Monitoring: Because the program is new, the Georgia Department of 
Education is still developing a monitoring protocol. In fiscal year 
2010, the Georgia Board of Regents will complete financial and 
operational audits, conduct systemwide project improvement audits, and 
provide Recovery Act support to institutions. 

Program: Title I, Part A of the Elementary and Secondary Education Act 
of 1965; 
Risk Assessment: The same risk-assessment procedures used by the 
Georgia Department of Education for the State Fiscal Stabilization Fund 
apply; 
Monitoring: Each LEA is reviewed once every 3 years. Those not reviewed 
in a given year are required to complete a self-assessment checklist. 

Program: Individuals With Disabilities Education Act, Part B; 
Risk Assessment: The same risk-assessment procedures used by the 
Georgia Department of Education for the State Fiscal Stabilization Fund 
apply; 
Monitoring: The Georgia Department of Education plans to use the 
state's current monitoring process to ensure LEAs are meeting IDEA 
performance indicators through annual reviews. In addition, LEAs 
complete self-assessments to determine each system's strengths and 
weaknesses. Using these findings, the school system can develop or 
revise its improvement activities. 

Program: Workforce Investment Act Summer Youth Programs; 
Risk Assessment: The Georgia Department of Labor visited all 20 local 
areas in May 2009 to assess their readiness and provide technical 
assistance. The department started with the local areas that have new 
directors; 
Monitoring: The Georgia Department of Labor plans to revisit all 20 
local areas in the state by September 30, 2009, to review program and 
financial records, provide technical assistance, and monitor fund 
expenditures. 

Program: Weatherization Assistance Program; 
Risk Assessment: The Georgia Environmental Facilities Authority 
assesses the level of performance at each of the 22 agencies through 
which it disseminates funds and rates their performance as high, 
standard, or at risk. At-risk agencies include those that have specific 
audit findings or are not in compliance with policies and procedures; 
Monitoring: Due to the significant increase in funds for the 
weatherization program, the Georgia Environmental Facilities Authority 
plans to contract out its monitoring activities. The selected 
contractor will be responsible for all monitoring activities, including 
on-site visits and reports. Each of the 22 agencies implementing the 
weatherization program will be monitored at least once a month, with 10 
percent of the completed weatherized units inspected for overall 
effectiveness, workmanship, and compliance with installation standards. 
Prior to the Recovery Act, the Georgia Environmental Facilities 
Authority only monitored the agencies once a year. 

Program: Edward Byrne Memorial Justice Assistance Grant Program; 
Risk Assessment: The Georgia Criminal Justice Coordinating Council is 
developing a risk assessment tool to identify subrecipients that may 
require increased monitoring; 
Monitoring: The Georgia Criminal Justice Coordinating Council plans to 
conduct biannual on-site visits to assess compliance with grant 
guidelines and to verify that funds are being used for their intended 
purpose. 

Source: GAO. 

[End of table] 

Georgia Is Following Up on Single Audit Findings: 

As discussed in our April 2009 report, Georgia's most recent Single 
Audit findings indicate that the state may have difficulty accounting 
for some Recovery Act funds. Its fiscal year 2008 Single Audit report 
identified 28 financial material weaknesses and 7 compliance 
weaknesses. To help ensure that the affected state agencies address 
these material weaknesses, the State Accounting Office has started 
monitoring corrective action plans developed in response to the Single 
Audit report. The office has drafted an accounting directive that it 
plans to send to all state agencies outlining rules for addressing 
Single Audit findings. The draft directive requires affected agencies 
to submit to the State Accounting Office and State Auditor a corrective 
action plan within 15 working days of the date of the auditor's report. 
The corrective action plan must contain a statement of concurrence or 
nonconcurrence, specific deliverables, and an anticipated completion 
date. The State Accounting Office will require the affected agencies to 
report on the status of the corrective action plan on a quarterly basis 
until the finding is resolved. 

The Georgia Department of Transportation, Georgia Department of 
Education, and Georgia Board of Regents use Single Audit results as 
part of their risk assessment and monitoring.[Footnote 50] The state 
Department of Transportation's internal auditor reviews each 
subrecipient's Single Audit report and prepares a schedule summarizing 
all findings. The internal auditor plans to use this schedule of 
findings to assess risks and determine which subrecipients to audit in 
the future. The state's Department of Education annually assesses the 
risk level for each LEA in the state using 20 identified risk factors, 
including Single Audit findings. The department assigns points to each 
identified risk and determines if the LEA is low, medium, or high risk. 
The Board of Regents rates the state's universities and colleges from 1 
(the best) to 5 (the worst) based on their audit findings. 

Georgia Is Moving Forward with Plans to Assess the Effects of Recovery 
Act Spending: 

While waiting for additional federal reporting guidance, since issued 
by OMB on June 22, 2009, Georgia moved forward with plans for Recovery 
Act reporting.[Footnote 51] The State Auditor has adapted 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 include: 

* federal program data--program name, award amount, award date, and 
Recovery Act fund source; 

* project or activity data--project description, allocation amount, and 
overall status (complete or active); and: 

* expenditure data--expensed amount, obligated amount, jobs created, 
jobs retained, and project status (percentage completed). 

The system will be administered by the State Accounting Office. 
[Footnote 52] To help ensure the validity of the data, the office plans 
to contract with accounting firms to conduct on-site audits of the data 
submitted. All state agencies that have received Recovery Act funds 
were required to enter data into the system for the first time by May 
15, 2009. As of June 17, 2009, 78 entities had entered data into the 
system. However, State Accounting Office officials stressed that the 
data are preliminary because they are in the process of developing a 
validation mechanism for the data reported. 

Because data must be entered manually into the current Web-based 
system, Georgia is looking for a long-term reporting solution that 
involves electronic data transfer. Accordingly, the state has formed 
two interagency reporting working groups--a technology group and a 
policy and procedures group. The purpose of these groups is to 
establish a structured and consistent approach to federal compliance 
reporting under the Recovery Act. Among the items these teams are to 
address are documentation of reporting requirements and overall process 
flows, data definitions, and governance matters. The teams' goals 
include automating data entry and ensuring that information is reported 
consistently. These groups started meeting in early June 2009. 

The state agencies and localities we visited plan to use a variety of 
methods to collect information on jobs created and retained. For 
example, the Georgia Department of Transportation plans to rely on its 
contractors to report monthly employment. The contractors will be 
required to submit a monthly report containing, for their firm and each 
subcontractor used, the number of employees, total hours worked, and 
wages paid for the work on the project each month. The Georgia 
Department of Labor has developed a form that it will use to collect 
weekly data from the 20 workforce areas in Georgia on jobs created and 
retained. Some of the state agencies and localities we met with 
provided estimates of jobs saved and retained. The Georgia Board of 
Regents estimated that fiscal year 2010 Recovery Act funds would fund 
822 faculty members who will reach almost 113,000 students. The 
University of Georgia estimated that State Fiscal Stabilization Funds 
would help to retain 160 full-time faculty. The Georgia Environmental 
Facilities Authority estimated that the Weatherization Assistance 
Program would create at least 180 jobs. 

Georgia's Comments on this Summary: 

We provided the Governor of Georgia with a draft of this appendix on 
June 19, 2009, and a representative from the Governor's office 
responded on June 23, 2009. In general, the official agreed with our 
draft, stating that it accurately reflects the current status of the 
Recovery Act program in Georgia. The official also provided technical 
suggestions that were incorporated, as appropriate. 

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; Steve Carter; Emily 
Chalmers; Chase Cook; Stephanie Gaines; Erica Harrison; Marc Molino; 
Daniel Newman; Robyn Trotter; and David Shoemaker made major 
contributions to this report. 

[End of section] 

Footnotes for Appendix V: 

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

[2] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's (BJA) solicitation for local governments closed 
on June 17; therefore, not all of these funds have been awarded. 

[4] The Recovery Act created a State Fiscal Stabilization Fund to be 
administered by the U.S. Department of Education. States must allocate 
81.8 percent of their State Fiscal Stabilization Funds to support 
education (education stabilization funds) and must use the remaining 
18.2 percent for public safety and other government services, which may 
include education (government services funds). 

[5] The fiscal year 2009 amount is an estimate based on fiscal year 
2009 revenue collections that have not been finalized or audited and 
does not reflect agency surplus funds. 

[6] See Recovery Act, div. B, title V, §5001. 

[7] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[8] Georgia received increased FMAP grant awards of more than $541 
million for the first three quarters of federal fiscal year 2009. 

[9] 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 plans 
or waivers on July 1, 2008. See Recovery Act, div. B, title V, 
§5001(f)(1)(A). 

[10] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers within 30 days of receipt and 99 percent of these claims 
within 90 days of receipt. See 42 U.S.C. §1396a(a)(37)(A). 

[11] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[12] FHWA Georgia division officials explained the reason for the 
difference in funds obligated and reimbursed is largely due to the time 
needed for the contracting process, which includes bidding, awarding, 
and billing, and can take 9 weeks or more. 

[13] This amount represents just those contracts awarded by the Georgia 
Department of Transportation. Some localities within Georgia also may 
have awarded contracts with Recovery Act funds. 

[14] We selected these two counties because of the amount of funds the 
counties were awarded and because they will be administering some of 
the Recovery Act projects themselves. (The majority of the state's 
Recovery Act projects will be administered by the Georgia Department of 
Transportation.) In addition, we factored in the proposed timing of the 
contract award and the location--that is, whether a project was located 
in an economically distressed area. 

[15] FHWA has published a map on its Web site showing the areas in each 
state that meet the statutory criteria. 

[16] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of each state to have their apportioned funds obligated by the 
end of the federal fiscal year (Sept. 30) and adjusts the limitation on 
obligations for federal-aid highway and highway safety construction 
programs by reducing for some states the available authority to 
obligate funds and increasing the authority of other states. 

[17] Georgia qualified its maintenance-of-effort certification by 
noting that the Georgia General Assembly still was considering the 
Georgia Department of Transportation's fiscal year 2010 budget, which 
could impact the state's highway spending plans for that year. 

[18] The Georgia Department of Transportation calculated its 
maintenance of effort by taking 10 weeks of actual expenditures and 
extrapolating them to the 84-week period covered by the certification. 

[19] Essentially, this funding formula multiplies enrollment by the 
cost of educating a student to calculate the total funding needed to 
educate public school students in the state. 

[20] The Georgia Department of Education's consolidated application 
allows LEAs to submit one comprehensive application for funding for 
several federal and state programs. 

[21] We selected Atlanta Public Schools and the Richmond County School 
System because both districts had a number of schools categorized as 
Needs Improvement and because Atlanta Public Schools is considered a 
high-risk district by the Georgia Department of Education. In school 
year 2008-2009, Atlanta Public Schools had a student population of 
49,142. The Richmond County School System had a student population of 
33,030 in school year 2008-2009. 

[22] In addition, the Technical College System of Georgia received 
about $15 million in education stabilization funds for the state's 27 
technical colleges. 

[23] We selected the University of Georgia because it received the 
largest allocation of education stabilization funds among 4-year 
institutions and Georgia Perimeter College because it received the 
largest allocation of any 2-year institution. 

[24] Estimates of jobs saved for the University of Georgia and Georgia 
Perimeter College were based on each individual school's accounting 
system. However, there is no statewide baseline on how to appropriately 
measure jobs created or saved to date. 

[25] LEAs must obligate at least 85 percent of their Recovery Act ESEA 
Title I, Part A funds by September 30, 2010, unless granted a waiver, 
and all of their funds by September 30, 2011. This will be referred to 
as a carryover limitation. 

[26] ESEA Title I funds are allocated to LEAs based on the number of 
children from low-income families. Included in this number are children 
from families below the poverty level based upon the most recent Census 
Bureau data; from families above the poverty level receiving assistance 
under the Temporary Assistance for Needy Families program; living in 
foster homes; and residing in local institutions for neglected 
children. 

[27] The final point relates to IDEA funds, which we discuss later in 
this appendix. 

[28] Instructional mentors provide individualized mentoring and 
coaching support designed to increase teacher effectiveness. 

[29] Due to limited funding, some school systems cannot provide support 
to all of the schools in the district that qualify for ESEA Title I, 
Part A funds. 

[30] Georgia's total allocation of Recovery Act IDEA funds is about 
$339 million. 

[31] Because the vast majority of IDEA funds are for Part B, that is 
the focus of this appendix. 

[32] The allocation of IDEA funds is based on a statutory formula 
utilized by the U.S. Department of Education's Office of Special 
Education Programs. For fiscal year 2009, the allocation was divided 
between regular fiscal year 2009 IDEA funds and Recovery Act IDEA 
funds. 

[33] Atlanta Public Schools' students with disabilities population is 
4,383, or 2.44 percent of the state's total number of students with 
disabilities. 

[34] The Richmond County School System's students with disabilities 
population is 3,166, which accounts for 1.76 percent of the state's 
total number of students with disabilities. 

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

[36] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where federal 
and state law have different minimum wage rates, the higher standard 
applies. 

[37] The Macon-Bibb Office of Workforce Development provides services 
to one county. The Heart of Georgia Altamaha Regional Development 
Center provides services to 17 counties. 

[38] These local areas were selected based on the amount of WIA Youth 
funds they received and geographic distribution. 

[39] Gwinnett Technical College is a partner in the Innovation Crescent 
Initiative, a coalition of counties and life science and economic 
development entities located in metropolitan Atlanta and Athens, 
Georgia. 

[40] We did not review these funds awarded directly to local 
governments in this report because the Bureau of Justice Assistance's 
solicitation for local governments closed on June 17. 

[41] Due to rounding, this number may not exactly equal 60 percent of 
the total JAG award. 

[42] The Governor requires state agencies to submit action plans and 
risk assessments prior to the state's release of Recovery Act funds. 

[43] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to public housing agencies do not pass 
through the state budget. 

[44] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and time frames for application and to funding limits. 

[45] We selected the public housing agencies we visited based on their 
size. The Atlanta Housing Authority is the largest in the state, and 
the Athens Housing Authority is a medium-size public housing agency. 

[46] As a Moving to Work agency, the Atlanta Housing Authority is 
required to submit a Moving to Work annual plan to HUD in lieu of the 5-
year plan and annual plan traditionally required by Section 5A of the 
U. S. Housing Act of 1937, as amended. Moving to Work is a 
demonstration program established by Congress and administered by HUD, 
giving participating public housing agencies the flexibility to design 
and test various approaches to facilitating and providing quality 
affordable housing opportunities in their localities. 

[47] The 12 compliance categories include cash management, eligibility, 
reporting, and subrecipient monitoring, among other things. 

[48] The risk assessments evaluate a program's previous audit findings, 
internal controls, and material weaknesses based on pre-established 
criteria. 

[49] OMB 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 A-133 Compliance Supplement is issued annually 
to guide auditors on the program requirements that should be tested for 
programs audited as part of the Single Audit. 

[50] Other state agencies may use Single Audit results as part of their 
risk assessment and monitoring, but we focused on the Departments of 
Education and Transportation and the Board of Regents because of the 
number of subrecipients they monitor. 

[51] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See OMB Memorandum, M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[52] The director of the State Accounting Office is Georgia's 
designated Recovery Act reporting officer. 

[End of Appendix V] 

Appendix VI: Illinois: 

Overview: 

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

Use of funds: Our work in Illinois focused on nine selected federal 
programs, selected primarily because they have begun disbursing funds 
to states and include existing programs receiving significant amounts 
of Recovery Act funds or significant increases in funding. Program 
funds are being directed to help Illinois stabilize its budget and to 
support local governments, particularly school districts, and are also 
supporting existing programs. Funds from some of these programs are 
intended for disbursement through states or directly to localities. The 
funds include the following: 

* Funds Made Available as a Result of the Increased Medicaid Federal 
Medical Assistance Percentage (FMAP).[Footnote 2] As of June 29, 2009, 
Illinois had received just over $1.0 billion in increased FMAP grant 
awards, of which it has drawn down almost $868 million, or over 83 
percent. Illinois officials reported that they are using the funds made 
available as a result of the increased FMAP to ensure that Recovery Act 
prompt payment requirements are met. These officials further reported 
that, if approved by the state, the plan for the funds made available 
as a result of the increased FMAP is to cover the cost of the state's 
increased Medicaid caseload, maintain current populations and benefits, 
and to use the freed up state funds to offset the state budget deficit. 

* Highway Infrastructure Investment funds. Approximately $936 million 
in Recovery Act funds was apportioned to Illinois. As of June 25, 2009, 
$671 million had been obligated, and Illinois had contracted for 
projects worth $460 million. Illinois is using its funding for shovel- 
ready projects that largely involve road paving. For example, $3.1 
million has been obligated for resurfacing of 11 miles of IL Route 47 
in Grundy County--a 2.5-month project that has not yet started. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
The U.S. Department of Education (Education) has awarded Illinois about 
$1.4 billion, or about 67 percent of the state's total SFSF allocation 
of $2.1 billion. Illinois had obligated approximately $1.0 billion in 
SFSF as of June 30, 2009. Illinois is using these funds to restore 
general state aid to local educational agencies, which would retain 
staff and services that might otherwise have been cut in the absence of 
state funding. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). Education has awarded Illinois about $210 million in 
Recovery Act ESEA Title I, Part A, funds or 50 percent of its total 
allocation of $420 million. Of these funds, Illinois has obligated 
$120,476 to local education agencies, based on information available as 
of June 30, 2009. Illinois has made the funds it received available to 
local educational agencies and schools with high concentrations of 
students from families that live in poverty to help improve student 
achievement and reduce the achievement gap. For example, Waukegan 
Public School District 60 plans to focus its funds on improving 
mathematics instruction in its ESEA Title I schools. 

* Individuals with Disabilities Education Act (IDEA), Parts B and C. 
Education has awarded Illinois about $271 million in Recovery Act IDEA 
Part B and C funds, or 50 percent of its total allocation of just over 
$542 million. Of these funds, Illinois had obligated approximately $1.4 
million in IDEA Part B funds to local educational agencies, and the 
state had expended its entire initial IDEA Part C award of nearly $8.8 
million as of June 30, 2009. Illinois has made the IDEA Part B funds, 
which will expand existing programs, available to local educational 
agencies to enhance educational programs for students with 
disabilities. Chicago Public Schools, for instance, plans to use its 
funds to collect assessment data for individual schools and subgroups 
to determine which practices produce the best outcomes for special 
education students. The state used its initial IDEA Part C award to 
provide early intervention and related services for infants and 
toddlers with disabilities and their families, which officials report 
has helped the state avert caseload cuts of 7 to 8 percent. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $243 million in Recovery Act Weatherization 
Program funding to Illinois for a 3-year period. Based on information 
available as of June 30, 2009, DOE had provided approximately $121.3 
million to Illinois and the state had not obligated any of these funds. 
Illinois plans to begin expending its funds, which will expand an 
existing program significantly, later in fiscal year 2010 to weatherize 
over 27,000 low-income residents' homes. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
(DOL) allotted about $62 million to Illinois in Workforce Investment 
Act Youth Recovery Act funds. Based on information available as of June 
30, 2009, 85 percent of the state's Recovery Act youth funds had been 
allocated to local workforce investment areas. Illinois plans to use 
$50 million in Recovery Act funds under this program to create about 
15,000 summer jobs in 2009 for its youth. Employment activities will 
include positions at park districts, community colleges, and other 
local institutions. 

* Edward Byrne Memorial Justice Assistance Grant Program. The 
Department of Justice's (DOJ) Bureau of Justice Assistance has awarded 
$50.2 million directly to Illinois in Recovery Act funding. As of June 
30, 2009, $12.4 million (about 25 percent) of these funds have been 
obligated by the Illinois Criminal Justice Information Authority, which 
administers these grants for the state.[Footnote 3] Illinois plans to 
use funds under this program to support several priorities across the 
state, such as programs that pursue violent and predatory criminals, 
combat and disrupt criminal drug networks, and provide substance abuse 
treatment. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development (HUD) has allocated about $221 million in Recovery Act 
funding to 99 public housing agencies in Illinois. Based on information 
available as of June 20, 2009, about $60 million (or 27 percent) had 
been obligated by these agencies. These funds flow directly from the 
federal government to local public housing authorities. At the two 
housing authorities we visited, the Chicago Housing Authority and the 
Housing Authority for LaSalle County, these funds were being used for 
various capital improvements, including the rehabilitation of vacant 
units, modernization of kitchens and bathrooms, improvements to common 
areas, and enhanced security features. 

Safeguarding and transparency: Illinois is continuing to track Recovery 
Act funds separately from other sources of funding by assigning them 
unique codes. Further, in addition to having formed an Executive 
Committee to broadly oversee implementation of the Recovery Act, 
Illinois has formed subcommittees for specific areas related to 
implementation and oversight of the act, including budget and fiscal 
issues, the auditing of Recovery Act funds, and matters related to 
assessing performance and outcomes through the use of Recovery Act 
funds. As of June 22, 2009, the Illinois Office of Internal Audit had 
completed preliminary risk assessments on 19 of 22 state agencies 
administering Recovery Act funds and identified 9 of the agencies 
assessed as high risk, largely due to the amount of funds the agencies 
were receiving or the potential for inadequate monitoring of 
subrecipients. Office of Internal Audit officials noted that the volume 
of information on the Recovery Act that requires tracking from a 
variety of sources, and the speed by which funding is flowing to the 
state, is presenting challenges to agency and administration staff. The 
office is conducting more detailed analysis on the 9 high-risk 
agencies, including further evaluating agency internal control 
mechanisms as well as their capacity to monitor subrecipients, as part 
of conducting more detailed analysis on the 22 state agencies. The 
office is also prioritizing the more detailed analysis based on the 
anticipated expenditure dates of the federal funding by state agencies. 

Assessing the effects of spending: Illinois recently issued initial 
guidance to state agencies on collecting data related to the effects of 
the Recovery Act, including instructions on how to capture jobs created 
or retained through the use of Recovery Act funds. Some state and local 
agencies told us that they are creating or modifying their systems to 
track this type of information. However, other state and local 
officials expressed concerns with the lack of clear federal guidance in 
several areas, and indicated that challenges remain in assessing the 
effects of Recovery Act spending. For example, two challenges that 
officials mentioned were the time frames for reporting information and 
the lack of clear guidance on measuring jobs.[Footnote 4] 

Recovery Act Funds Help Offset Illinois's Projected Revenue Shortfall, 
but Additional Measures Are Necessary to Close the Gap: 

Budget officials indicated that Recovery Act funding will help offset 
Illinois's projected revenue shortfall for fiscal years 2009 and 2010, 
though additional measures are needed to balance the budget. Due to 
worsening economic conditions, state budget officials estimated that 
state sales tax, income tax, and corporate tax revenues in fiscal year 
2009 would decline by about $2.5 billion from those in the previous 
year to $27.2 billion. According to the Governor's March 2009 budget 
report, growing costs related to Medicaid, social services, and 
employee benefits were largely responsible for the state's projected 
increase in expenditures from $31.5 billion in fiscal year 2009 to 
$34.3 billion in fiscal year 2010, as reflected in the state's base 
budget. As a result of anticipated declines in revenue and increases in 
expenditures, the Governor at that time projected operating budget 
deficits totaling $11.6 billion for fiscal years 2009 and 2010--$4.3 
billion and $7.3 billion, respectively--unless substantial actions were 
taken to balance the budget. The state legislature is required by 
Article VIII, Section 2 of the Illinois Constitution to pass a balanced 
budget. Budget officials stated that reserve funds would not be used to 
balance the fiscal year 2010 budget. The state issued a total of $1 
billion in bond obligations in May 2009 to help address the anticipated 
shortfall as the Governor and General Assembly deliberate additional 
measures to fill the remaining gap. State officials stated that as of 
June 30, 2009, the Governor and General Assembly continued to 
deliberate measures to close the existing budget gap in fiscal year 
2010. 

The Governor's proposed fiscal year 2010 budget differed from the 
budget that the Illinois General Assembly recently passed.[Footnote 5] 
The Governor's budget projected revenues of about $33 billion and 
expenditures of about $30 billion. This budget combined an income tax 
increase with spending cuts, pension reform, and other budget-balancing 
mechanisms to arrive at the $33 billion in revenues. State officials 
said that revenues exceeding expenses in fiscal year 2010 would be used 
to pay for short-term borrowing costs and to reduce the deficit carried 
over from fiscal year 2009. The General Assembly's recently passed 
budget would result in operating expenditures greater than operating 
revenues. Specifically, the budget, which state officials said did not 
include a tax increase, projected $27.3 billion in revenues and $28.5 
billion in expenditures. 

As negotiations continue regarding the fiscal year 2010 budget, the 
extent to which Recovery Act funds will be used to fill budget gaps is 
uncertain. Illinois budget officials suggested that the Recovery Act 
would likely provide the state with more than the $9 billion described 
in our April 2009 report,[Footnote 6] potentially as much as $14 
billion. Of this, the Office of the Governor has identified 
approximately $4.0 billion that the state expects to use to address the 
operating budget shortfall for fiscal years 2009 and 2010. Most of the 
state's Recovery Act funds will be used to sustain education and 
Medicaid programs. For example, Illinois expects to apply approximately 
$1.0 billion in State Fiscal Stabilization Funds in both fiscal year 
2009 and 2010 to fill a gap in state education spending for school 
districts. In addition, the state is using increases of $1.4 billion in 
fiscal year 2009 and $631 million in fiscal year 2010 in Illinois's 
FMAP funds to fill a Medicaid budget gap. This will permit 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. 
Additionally, state officials reported that the use of Recovery Act 
funding could help mitigate the severity of proposed tax increases, and 
would allow the state to avoid cuts in child care and services to 
people with developmental disabilities, in addition to the previously 
mentioned aid to education and Medicaid programs. 

Plans for Funding Programs after Recovery Act Allocations Have Been 
Spent Are on Hold: 

Budget officials said that plans for phasing out Recovery Act funding 
have been deferred due to ongoing budget negotiations. While the state 
recognizes the need to prepare for the expiration of Recovery Act 
funds, budget officials reported that working with the General Assembly 
to pass a balanced budget for fiscal year 2010 is a higher priority. 
Once the budget is passed, the state plans to convene a working group 
to assess state agencies' level of preparedness for planning for the 
end of Recovery Act funding. In addition, the state will develop a 
series of communications tools to facilitate discussions with agency 
officials. Budget officials stated that they have provided guidance to 
state agencies regarding the use of the funds and have encouraged 
agencies to submit hiring plans containing provisions that mitigate the 
risk of layoffs, such as hiring temporary employees and contractors. 

Increased FMAP Funds Have Allowed Illinois to Make More Timely Payments 
to Providers: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state’s per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
FMAP, which may range from 50 percent to no more than 83 percent. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months from October 1, 2008 through December 31, 2010.[Footnote 7] 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 8] 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 increase d 
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 would otherwise have to use for their 
Medicaid programs, and states have reported using these available funds 
for a variety of purposes. 

From October 2007 to May 2009, the state’s Medicaid enrollment grew 
from 2,155,353 to 2,283,131, an increase of 6 percent.[Footnote 9] The 
enrollment increase was generally gradual during this period, although 
enrollment decreased between March and May 2009. (figure 1). Most of 
the increase in enrollment was attributable to the population group of 
children and families and nondisabled, nonelderly adults. 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for 
Illinois, October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: 0.33. 

Nov.–Dec. 2007: 
Percentage change: 0.3. 

Dec.–Jan. 2007-08: 
Percentage change: 0.75. 

Jan.–Feb. 2008: 
Percentage change: 0.42. 

Feb.–Mar. 2008: 
Percentage change: 0.55. 

Mar.–Apr. 2008: 
Percentage change: 0.55. 

Apr.–May 2008: 
Percentage change: 0.31. 

May–June 2008: 
Percentage change: 0.47. 

Jun.–Jul. 2008: 
Percentage change: 0.48. 

Jul.–Aug. 2008: 
Percentage change: 0.57. 

Aug.–Sep. 2008: 
Percentage change: 0.44. 

Sep.–Oct. 2008: 
Percentage change: 0.41. 

Oct.–Nov. 2008: 
Percentage change: 0.17. 

Nov.–Dec. 2008: 
Percentage change: 0.3. 

Dec.–Jan. 2008-09: 
Percentage change: 0.42. 

Jan.–Feb. 2009: 
Percentage change: 1.13. 

Feb.–Mar. 2009: 
Percentage change: 1.2. 

Mar.–Apr. 2009: 
Percentage change: -0.5. 

Apr.–May 2009: 
Percentage change: -1.49. 

Oct. 2007 enrollment: 2,155,353; 
May 2009 enrollment: 2,283,131. 

Source: GAO analysis of state reported data. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

As of June 29, 2009, Illinois had drawn down almost $868 million in 
increased FMAP grant awards, which is over 83 percent of its awards to 
date.[Footnote 10] Illinois officials reported that the state is using 
the funds made available as a result of the increased FMAP to ensure 
that Recovery Act prompt payment requirements are met.[Footnote 11] 
These officials further reported that the state is planning to use 
these funds to offset the state budget deficit, cover the state's 
increased Medicaid caseload, and to maintain current populations and 
benefits, if approved by the state. 

The Illinois Medicaid official we interviewed noted that, since 
enactment of the Recovery Act, the state has used 100 percent of the 
funds made available as a result of the increased FMAP to meet the 
financial obligations of the state's Medicaid program and to reduce the 
payment cycle to Medicaid providers in order to meet the prompt payment 
requirement. The officials added that to support the state's initiative 
to improve the payment cycle to Medicaid providers, the Illinois 
legislature passed a state fiscal year 2009 supplemental appropriation 
to pay nursing homes and hospitals in 30 days and also initiated short 
term borrowing to meet the requirement. The official also noted that 
without the increased FMAP funds, the state Medicaid program would have 
been subject to cuts in eligibility and services. In using the 
increased FMAP, the Illinois officials reported that the Medicaid 
program has incurred additional costs related to: 

* personnel needed to ensure programmatic compliance with requirements 
associated with the increased FMAP; 

* the development of new systems or the adjustment of existing 
reporting systems associated with these funds; and: 

* personnel needed to ensure compliance with reporting requirements 
related to the increased FMAP. 

Despite the difficult economic times, the Illinois Medicaid official we 
interviewed indicated that the state is not considering any reductions 
in Medicaid eligibility at the time of the Governor's budget 
introduction and does not currently have concerns regarding its ability 
to maintain eligibility for the increased FMAP. Regarding the state's 
efforts to track increased FMAP it receives, the state official said 
that the state modified its existing accounting systems and applies 
special codes to all Medicaid revenues and expenditures related to the 
Recovery Act. In addition, the state will use an existing process to 
track dollars received from the increased FMAP. Specifically, through 
an established reconciliation process, which is a labor-intensive 
manual process, the state links amounts drawn into funds with dollars 
paid to providers. The state official also said that the state will use 
existing processes to report on a quarterly basis to CMS all Medicaid 
expenditures related to the Recovery Act. 

The 2007 Single Audit[Footnote 12] for Illinois identified material 
weaknesses related to the Medicaid program, including weaknesses 
related to the timeliness of eligibility redeterminations and the 
maintenance of case files. Although the state developed a corrective 
action plan to address the maintenance of case files, it disagreed with 
the audit recommendation to review its process for performing annual 
eligibility redeterminations. Specifically, the state contended that 
its redetermination rate, which was 96 percent for fiscal year 2007, 
complied with federal regulations. 

Illinois Recovery Act Highway Infrastructure Projects Are Under Way: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms and states must 
follow the requirements of the existing program including planning, 
environmental review, contracting, and other requirements. However, the 
federal fund share of highway infrastructure investment projects under 
the Recovery Act is up to 100 percent, while the federal share under 
the existing Federal-aid Highway Program is usually 80 percent. 

As we previously reported, $936 million was apportioned to Illinois for 
highway infrastructure and other eligible projects. As of June 25, $671 
million of those funds had been obligated. The U.S. Department of 
Transportation (DOT) has interpreted the term "obligation of funds" to 
mean the federal government's contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government signs a project agreement. As of June 25, $47.6 
million had been reimbursed by FHWA. States request reimbursement from 
FHWA as they make payments to contractors working on approved projects. 

Illinois Is Using Highway Infrastructure Funds Largely for Pavement 
Improvements: 

Illinois is mainly using the state's share of the apportioned funds to 
conduct pavement improvements, because pavement projects can be 
completed quickly and can create jobs immediately, according to an 
Illinois Department of Transportation official. For example, $3.1 
million has been obligated for resurfacing of 11 miles of IL Route 47 
in Grundy County--a 2.5-month project that has not yet started. A state 
official also told us that the state will continue to emphasize these 
types of shovel-ready projects as funds become available. FWHA 
officials we spoke with told us that Illinois has consistently chosen 
projects that could be completed quickly--mainly pavement resurfacing 
and bridge deck repairs. According to FHWA data, more than 70 percent 
of Illinois's funds that had been obligated as of June 25, 2009, were 
for pavement improvement projects (see table 1). 

Table 1: Highway Obligations for Illinois by Project Type as of June 
25, 2009: 

Pavement projects: New construction: $19 million; 
Pavement projects: Pavement improvement: $495 million; 
Pavement projects: Pavement widening: $5 million; 
Bridge projects: New construction: $6 million; 
Bridge projects: Replacement: $16 million; 
Bridge projects: Improvement: $49 million; 
Other[A]: $80 million; 
Total: $671 million. 

Percent of total obligations[B]: 
Pavement projects: New construction: 2.9; 
Pavement projects: Pavement improvement: 73.8; 
Pavement projects: Pavement widening: 0.8; 
Bridge projects: New construction: 0.9; 
Bridge projects: Replacement: 2.4; 
Bridge projects: 
Improvement: 7.3; 
Other[A]: 12.0; 
Total: 100.0. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[B] Totals may not add due to rounding. 

[End of table] 

As of June 25, 2009, Illinois had awarded 204 contracts representing 
$460 million dollars. Initially, contracts for Illinois Recovery Act 
projects were being awarded for less than the estimated and obligated 
amounts. According to FHWA officials, the first round of bids for 
Illinois projects was about 13 percent below state price estimates. An 
Illinois Department of Transportation official told us that bids were 
coming in under the estimated costs due to a climate in which 
contractors were willing to accept less money for projects. This 
official also stated that the current bidding climate was not expected 
to continue, so Illinois was not planning to change its estimating 
practices. The state expects that excess funds from projects whose 
costs were below estimates will be used for other projects. FHWA 
officials stated that, as of May 2009, they had de-obligated $42 
million which they expected to obligate for subsequent contracts. 

Illinois Met Highway Spending Requirements, and Expects to Meet 
Maintenance of Effort Requirements, but Used Its Own Criteria for 
Economically Distressed Areas: 

The Recovery Act includes a number of specific requirements for highway 
infrastructure spending. First, the states are required to ensure that 
50 percent of apportioned Recovery Act funds are obligated within 120 
days of apportionment (before June 30, 2009) and that the remaining 
apportioned funds are obligated within 1 year. The 50 percent rule 
applies only to the 70 percent of funds apportioned to the state and 
not to the 30 percent of funds required by the Recovery Act to be 
allocated, primarily based on population, for metropolitan, regional 
and local areas. The Secretary of Transportation is to withdraw and 
redistribute to other states any amount that is not obligated within 
these time frames. As of June 25, 2009, 91 percent of the $655 million 
that is subject to the 50 percent rule for the 120-day redistribution 
had been obligated in Illinois. An Illinois transportation official 
told us that Illinois expects to expend most of its apportioned funds 
by the end of federal fiscal year 2010. 

Second, the Recovery Act required the governor of each state to certify 
that the state will maintain the level of spending for the types of 
transportation projects funded by the Recovery Act that it planned to 
spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state must identify the amount of 
funds the state planned to expend from its sources as of February 17, 
2009, for the period beginning on that date and extending through 
September 30, 2010.[Footnote 13] Illinois expects to fully comply with 
the Recovery Act's highway-related maintenance of effort provisions, 
and the state, at DOT's request, amended its initial certification. 
[Footnote 14] According to DOT officials, the department has reviewed 
Illinois's amended certification letter and concluded that the form of 
the certification was consistent with DOT guidance. DOT is currently 
evaluating whether the state's method of calculating the amounts 
Illinois planned to expand for covered programs is in compliance with 
DOT guidance.[Footnote 15] 

Third, the Recovery Act requires states to give priority to projects 
that can be completed within 3 years, and to projects located in 
economically distressed areas (EDA). Economically distressed areas are 
defined by the Public Works and Economic Development Act of 1965, as 
amended.[Footnote 16] Illinois applied its own criteria in designating 
economically distressed areas. The state based its EDA classification 
on the basis of (1) whether the 2008 year-end unemployment rate was at 
or above the statewide average, (2) whether the change in the 
unemployment rate between 2007 and 2008 was at or above the statewide 
average, or (3) whether the number of unemployed persons for 2008 had 
grown by 500 or more. Illinois designated 85 of the state's 102 
counties as economically distressed. According to data provided by 
FHWA, 72 of Illinois's counties were EDAs as defined by the Public 
Works and Economic Development Act of 1965, as amended. The FHWA 
approved Illinois's action, asserting that it represents a good faith 
effort on the part of the Illinois Department of Transportation, uses 
current data, is defensible, and forms a reliable basis for determining 
which counties have exhibited economic distress. Illinois's use of 
alternate criteria resulted in a net increase of 13 counties being 
identified as EDAs that would not have been so classified following the 
act's guidance.[Footnote 17] Among the EDA counties added under 
Illinois's criteria were some of the most populous ones in the state, 
for example, Cook County and five surrounding suburban Chicago counties 
in northeastern Illinois. To demonstrate that the state was giving 
priority to projects in economically distressed areas, Illinois 
reported that over 90 percent of its scheduled highway projects would 
be placed in EDAs. As of June 25, 2009, funds had not been obligated 
for projects in 35 of the 85 Illinois counties designated as EDAs. See 
figure 2 below. 

Figure 2: Recovery Act Funded Highway Projects in Illinois, by County 
and by Economically Distressed Area as Designated by Illinois, as of 
June 25, 2009: 

[Refer to PDF for image: map of Illinois] 

Depicted on the map are the number of funded highway projects for: 
* Economically distressed area; 
* Non an economically distressed area. 

Source: GAO analysis of Illinois Department of Transportation data. 

[End of figure] 

Illinois Is Using State Fiscal Stabilization Funds to Maintain Funding 
for Elementary and Secondary Education: 

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 provides 
several assurances. These include assurances that the state will meet 
maintenance of effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Further, the state applications must contain 
baseline data that demonstrate the state's current status in each of 
the assurances. States must allocate 81.8 percent of their SFSF funds 
to support education (education stabilization funds), and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). After 
maintaining state support for education at fiscal year 2006 levels, 
states must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
school districts or public institutions of higher education (IHE). When 
distributing these funds to school districts, states must use their 
primary education funding formula but they do maintain discretion in 
how funds are allocated to public IHEs. In general, school districts 
maintain broad discretion in how they can use stabilization funds, but 
states have some ability to direct IHEs in how to use these funds. 

The Illinois Office of the Governor's application for SFSF funds was 
approved by Education on April 20, and as of June 30, 2009 Illinois had 
received $1.4 billion of its total allocation of about $2.1 billion for 
SFSF. Of the total allocation, 81.8 percent or approximately $1.7 
billion must be for education stabilization funds and the remaining 
18.2 percent or about $374 million must be for government services 
funds. Illinois has determined it will use all SFSF funds for education 
services, with most initially going to local educational agencies 
(school districts). Based on Illinois's SFSF application, the state 
will allocate 97.6 percent of the education stabilization funds to 
local educational agencies and 2.4 percent to institutions of higher 
education[Footnote 18]. As of June 30, 2009, Illinois had disbursed 
approximately $1.0 billion to local educational agencies and none to 
IHEs. 

Local Educational Agencies Have Received and Are Spending SFSF Funding 
as Though It Were General State Aid: 

The local educational agencies we visited reported that they were using 
SFSF monies they had received for general educational purposes. We 
visited two local educational agencies--Chicago Public Schools and 
Waukegan Public School District 60--based on the amount of their 
Recovery Act funding allocations and their different statuses as urban 
and suburban school districts. Officials from these school districts 
reported projected budget deficits for fiscal years 2009 and 2010 due 
to a decreasing tax base, increasing pension and health care costs, and 
increasing inflation. Although their school districts had received SFSF 
funds, officials indicated the funds had not affected their fiscal year 
2009 budgets or planned fiscal year 2010 budgets because the funds 
represented a direct replacement of general state aid (the state's 
formula-based support for general educational purposes). Local 
officials reported that they were using these funds as they would have 
used the general state aid, that is, for general educational purposes. 
Officials from the Illinois State Board of Education reported that they 
have a draft version of a matrix to track reporting metrics under each 
of the SFSF assurances. 

Institutions of Higher Education Expect to Receive SFSF Funds in Fiscal 
Year 2010: 

According to state officials and the state's SFSF application, Illinois 
will begin directing SFSF funds to IHEs in fiscal year 2010. Illinois 
will use the SFSF funds to partially restore state support for public 
universities and community colleges. According to the application, each 
public university will receive a proportion of the education 
stabilization funds equal to its relative share of fiscal year 2006 
state support levels, while the Illinois Community College Board will 
distribute these funds to community colleges in accordance with 
established state formulas. 

The Illinois Board of Higher Education, which, among other 
responsibilities, conducts planning, administers state and federal 
higher education grant programs, approves and reviews programs, and 
maintains data for IHEs in the state, reported that IHEs must use their 
SFSF funds for personal services (i.e., employee salaries). Illinois 
Board of Higher Education officials expect this use of the SFSF to help 
schools retain jobs and mitigate tuition increases. Officials at the 
University of Illinois, which we interviewed because it has the largest 
student population of all public universities in the state, reported 
that in addition to contributing to job retention, SFSF funds may help 
to mitigate a potentially large tuition increase. In comparison to 9 or 
9.5 percent tuition increases in recent years, the university expects 
to raise tuition by 4 to 5 percent in fiscal year 2010. University 
officials attributed this mitigation in part to receipt of the SFSF 
funds. 

Although the numbers were not yet final, as of June 2009, the Illinois 
Community College Board, the coordinating board for the state's 48 
community colleges and one multi-community college center, expected to 
receive a total allocation of approximately $15.6 million in SFSF funds 
in fiscal year 2010. These funds will primarily come from the 
government services fund. The Illinois Community College Board will 
pass through 100 percent of these funds to the community colleges, with 
the goal of mitigating tuition increases and retaining jobs that 
otherwise would have been lost. The board officials stated that some 
tuition increases and job losses will still occur, but to a lesser 
extent than they would have without the SFSF funds. 

Most ESEA Title, I Part A Funds Will Begin Flowing to Local Educational 
Agencies in Fiscal Year 2010: 

The Recovery Act provides new funds to help local school districts 
educate disadvantaged youth by making additional funds available beyond 
those regularly allocated through Title I, Part A of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be distributed through states to school districts 
using existing federal funding formulae, which target funds based on 
such factors as high concentrations of students from families living in 
poverty. Local educational agencies must obligate 85 percent of these 
funds by September 30, 2010. Education is urging local districts to use 
the funds in ways that will build their long-term capacity to serve 
disadvantaged youth, such as through providing professional development 
to teachers. 

Education allocated the first half of states' ESEA Title I, Part A 
Recovery Act funding on April 1, 2009, with Illinois receiving about 
$210 million of its total $420 million allocation. Local educational 
agencies can apply to the Illinois State Board of Education to receive 
ESEA Title I, Part A Recovery Act funds in fiscal years 2009 and 2010, 
although most of the state's 870 local educational agencies have opted 
to begin receiving funds in fiscal year 2010. Illinois State Board of 
Education officials reported that they received seven applications for 
fiscal year 2009 ESEA Title I, Part A Recovery Act funding; as of June 
30, 2009, they had approved two applications. Officials from Chicago 
Public Schools mentioned the state's use of a lengthy paper application 
as contributing to their decision not to apply for ESEA Title I, Part A 
Recovery Act funds in fiscal year 2009. Waukegan Public School District 
60[Footnote 19] officials also noted that the full amount of their 
allocated Recovery Act funds would still be available to them in fiscal 
year 2010. As of June 30, 2009, $120,476 of the ESEA Title I, Part A 
Recovery Act funds had been obligated and expended by the Illinois 
State Board of Education. 

In late May, the Illinois State Board of Education issued guidance to 
local educational agencies on allowable uses for the ESEA Title I, Part 
A funding under the Recovery Act. Officials stated that they had 
encouraged districts to develop staff with a focus on providing better 
services with effects that can be observed in the short term, and to 
avoid using the funds for purposes that will require long-term staffing 
commitments. They reported that they will conduct careful reviews of 
local educational agencies' ESEA Title I applications to ensure that 
planned uses of the funds comply with Recovery Act requirements. 

Officials at Chicago Public Schools and Waukegan Public School District 
60 told us they plan to use their ESEA Title I, Part A Recovery Act 
funds to provide expanded and enhanced services. At Waukegan Public 
School District 60, officials reported that they plan to use the 
Recovery Act funds to improve mathematics instruction at ESEA Title I 
schools. The district, recognizing that Recovery Act funds are limited 
to a certain time period, plans to hire new teachers for this work but 
will specify 1-or 2-year terms of employment. They plan to phase in 
positions under regular ESEA Title I funds later, if the budget allows. 
Chicago Public Schools tentatively plans to use the funds for summer 
school, after-school, bilingual education, and pre-kindergarten 
programs, and professional development in fiscal year 2010. They will 
avoid hiring new staff and, instead, will temporarily increase existing 
employees' salaries to build on current programs. 

Most IDEA, Part B Funds Are Not Yet Flowing to Local Educational 
Agencies, but Illinois Has Spent Part C Funds: 

The Recovery Act provided supplemental funding for programs authorized 
by the Individuals with Disabilities Education Act (IDEA), the major 
federal statute that supports special education and related services 
for infants, toddlers, children, and youth with disabilities. IDEA 
programs receiving this funding include those that ensure preschool and 
school-aged children with disabilities have access to a free and 
appropriate public education (Part B) and that provide early 
intervention and related services for infants and toddlers with 
disabilities or at risk of developing a disability, and their families 
(Part C). States were not required to submit an application to 
Education in order to receive the initial Recovery Act funding for IDEA 
Parts B and C (50 percent of the total IDEA funding provided in the 
Recovery Act).[Footnote 20] 

Education allocated the first half of states' IDEA Part B and Part C 
funding on April 1, 2009, with Illinois receiving $253.2 million in 
IDEA Part B grants to states, $9.2 million in IDEA Part B preschool 
grants, and $8.8 million in IDEA Part C grants to infants and families. 
As with the ESEA Title I funds under the Recovery Act, the Recovery Act 
IDEA Part B grants represent funding above and beyond local educational 
agencies' normal allocations, with most agencies opting to begin 
receiving funds in fiscal year 2010. According to Illinois State Board 
of Education officials, few local educational agencies in Illinois 
applied for Recovery Act IDEA Part B funds for May and June 2009. The 
Illinois State Board of Education received and approved 12 applications 
for fiscal year 2009. As of June 30, 2009, approximately $1.4 million 
of the Recovery Act IDEA Part B grants to states had been obligated and 
expended by the Illinois State Board of Education. 

According to the Illinois State Board of Education, the flexibility 
surrounding the reduction of maintenance of effort has been a source of 
concern for the state and for local educational agencies in planning 
for the use of the IDEA Part B Recovery Act funds. The Illinois State 
Board of Education reported that 159 local educational agencies--nearly 
20 percent of the state total--had not qualified for flexibility to 
reduce their local spending, based on the state's determination of 
their performance toward meeting targets in the state's performance 
plan.[Footnote 21] The number of local educational agencies that did 
not meet requirements was originally 321, but the state revised its 
determinations based on new guidance from Education's Office of Special 
Education Programs. 

The two local educational agencies we visited plan various uses of 
their IDEA Part B Recovery Act funds in fiscal year 2010, including 
covering increased special education costs, if allowed. Waukegan Public 
School District 60 tentatively plans to use the funds for the following 
activities: 

* expanding outreach and enrollment for special education students in 
its preschool program; 

* collecting data on student learning; 

* expanding professional development for special education teachers; 

* expanding student exposure to jobs and the job application process; 
and: 

* enhancing its use of computerized learning intervention tools for 
special education students. 

Waukegan officials noted that, to the extent possible, new hires under 
the Recovery Act IDEA Part B funds will be hired on a limited term 
basis. Also subject to approval, Chicago Public Schools officials told 
us that they would like to use their Recovery Act funds to cover the 
increases in the agency's special education costs, which had recently 
increased by $45 to $50 million per year on an $800 million annual 
budget. However, they told us they were seeking guidance on whether 
this is an allowable use of the funds. They would target the funds for 
the following purposes: 

* enhancing their ability to collect assessment data on individual 
subgroups and schools to focus on achieving better results for special 
education students; and: 

* increasing collaboration between special education and general 
education programs when possible to leverage resources and produce 
better academic outcomes. 

Officials from the Illinois Department of Human Services, which 
administers the IDEA Part C program, told us that IDEA Part C funds 
under the Recovery Act had been used to avert caseload cuts for 
services to infants and toddlers with disabilities and their families. 
As of June 2009, the agency had already received and expended its 
initial grant of $8.8 million. Because IDEA Part C operates on a 
reimbursement basis, the Recovery Act funds were used to cover expenses 
incurred in March and April 2009. The department did not have to submit 
an application for the first round of funding, although officials 
reported that they may be required to do so to receive future funds (an 
additional $8.8 million) under the Recovery Act. Officials at the 
Department of Human Services reported that they used the IDEA Part C 
Recovery Act funds entirely for services to infants and toddlers and 
their families. According to officials, with the funds, they were able 
to avert a 7 to 8 percent cut in their caseload. 

Illinois Is Receiving a Large Influx of Recovery Act Weatherization 
Funds: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 22] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of its Recovery Act allocation. DOE 
will provide the next 40 percent of funds to a state once the 
department has approved its state plan, which outlines, among other 
things, its plans for using the weatherization funds and for monitoring 
and measuring performance. DOE plans to release the final 50 percent of 
the funding to each state based on the department's progress reviews 
examining each state's performance in spending its first 50 percent of 
the funds and the state's compliance with the Recovery Act's reporting 
and other requirements. 

DOE allocated to Illinois a total of approximately $242.5 million in 
Recovery Act funding for the Weatherization Assistance Program for a 3- 
year period. This represents approximately 10 times the amount of the 
state's annual DOE funding. The Illinois Department of Commerce and 
Economic Opportunity, Office of Energy Assistance, which is responsible 
for administering the program, will disburse most of these funds 
through 35 local administering agencies, which implement its current 
weatherization activities. According to a state weatherization 
official, Illinois submitted its initial application for funding on 
March 24, 2009, in response to a DOE Funding Opportunity Announcement. 
On April 1, 2009, DOE provided the initial 10 percent allocation 
(approximately $24.3 million) to Illinois. The Department of Commerce 
and Economic Opportunity subsequently used DOE's March 12 guidance on 
administering Recovery Act funding, in conjunction with other program 
guidance, to develop its comprehensive application for the use of its 
Recovery Act allocation.[Footnote 23] The agency initially submitted 
its plan on May 1, 2009, then, in response to feedback from DOE, made 
minor corrections and resubmitted it on May 12. On June 26, 2009, DOE 
approved Illinois's plan and awarded the state an additional $97.0 
million, or 40 percent of its total allocation. 

Department of Commerce and Economic Opportunity officials reported that 
they are waiting to spend Recovery Act funds until they have more 
guidance on wage issues. They stated that the agency chose to wait 
until July 1, 2009, to begin spending its Recovery Act funds because it 
received guidance prohibiting funds from being used for weatherization 
production activities before that time.[Footnote 24] As of June 11, 
state officials were still awaiting additional guidance from DOE and 
the Department of Labor regarding paying prevailing wages to 
weatherization workers. While the normal weatherization program is not 
subject to Davis-Bacon Act requirements, the Recovery Act requires 
states to pay prevailing wages to certain employees performing 
weatherization activities.[Footnote 25] State officials reported that 
they require clarification on issues such as paying different wages for 
the same types of weatherization work based on the funding source, and 
paying the same employees or contractors different wages based on the 
prevailing wages in the counties in which their work is conducted. 
Officials explained that the local agencies already bid all of their 
contracts for fiscal year 2010 and will have to re-bid them to comply 
with prevailing wage requirements. Although the state had planned to 
spend its weatherization Recovery Act funds before spending its 
regularly appropriated funds, officials now plan to spend the state's 
regular appropriation first, allowing local agencies to re-bid 
contracts for Recovery Act-funded work without causing an interruption 
in scheduled weatherization activities. 

Because the Recovery Act funds will represent a substantial increase in 
the state's annual weatherization appropriation, the agency and 
executive directors from the local agencies decided to ramp up the 
program gradually by spending approximately 40 percent of the Recovery 
Act funds in fiscal year 2010 and the remaining 60 percent in fiscal 
year 2011. The Department of Commerce and Economic Opportunity's fiscal 
year 2010 budget includes requests for 21 additional, permanent 
employees at the state level to conduct fiscal and program monitoring; 
approximately 300 additional local agency staff, comprised of 127 
employees to perform assessments of homes' energy saving needs, 34 
employees to conduct final inspections of homes that have been 
weatherized, and 135 local administrative staff. The budget also 
requests an additional 354 contractors to conduct weatherization 
activities. State weatherization officials explained that their program 
has been understaffed for a long time, and the influx of Recovery Act 
funds will allow the Department of Commerce and Economic Opportunity to 
achieve the necessary staffing levels for carrying out the program. 

As stated in the plan submitted to DOE, the Recovery Act funds will 
permit the weatherization of at least 27,181 houses over 2 years, 
saving a total of at least 538,184 MBTUs.[Footnote 26] The agency plans 
to use the Recovery Act funds in combination with its regular and 
supplemental DOE allocations to conduct basic weatherization 
activities.[Footnote 27] Department of Commerce and Economic 
Opportunity officials also told us that they are working closely with 
Workforce Investment Act Program staff within the agency to establish a 
training certification program for the state's 35 local agencies and 
the contractors that conduct weatherization activities. They expect 
this collaboration to result in a standard baseline of knowledge and 
quality control for weatherization work and a growth track for green 
jobs. 

Illinois WIA Youth Summer Employment Activities Are Expected to Create 
Opportunities for About 15,000 Youth in 2009: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth program to 
facilitate the employment and training of youth. The WIA Youth program 
is designed to provide low income in-school and out-of-school youth age 
14 to 21, who have additional barriers to success, with services that 
lead to educational achievement and successful employment, among other 
goals. The Recovery Act extended eligibility through age 24 for youth 
receiving services funded by the Recovery Act. In addition, the 
Recovery Act provided that, of the WIA Youth performance measures, only 
the work readiness measure is required to assess the effectiveness of 
summer only employment for youth served with Recovery Act funds. Within 
the parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains.[Footnote 
28] The program is administered by the Department of Labor and funds 
are distributed to states based upon a statutory formula; states, in 
turn, distribute at least 85 percent of the funds to local areas, 
reserving up to 15 percent for statewide activities. The local areas, 
through their local workforce investment boards, have flexibility to 
decide how they will use these funds to provide required services. In 
the conference report accompanying the bill that became the Recovery 
Act, the conferees stated that they were particularly interested in 
states using these funds to create summer employment opportunities for 
youth.[Footnote 29] Summer employment may include any set of allowable 
WIA Youth activities--such as tutoring and study skills training, 
occupational skills training, and supportive services--as long as it 
also includes a work experience component. Work experience may be 
provided at public sector, private sector, or nonprofit work sites. The 
worksites must meet safety guidelines and federal/state wage laws. 
[Footnote 30] 

The Illinois Department of Commerce and Economic Opportunity 
administers Illinois's workforce development system, including the WIA 
Youth Program. There are a total of 26 local workforce investment areas 
in Illinois, most of which administer funds in multiple counties. In 
the greater Chicago metropolitan region, most local workforce 
investment areas administer funds in only one county. 

Illinois Has Allocated WIA Youth Funds, and Workforce Investment Areas 
Have Started Enrolling Youth: 

Illinois received about $62 million in Recovery Act funds for the WIA 
Youth program. The Department of Commerce and Economic Opportunity set 
aside 15 percent of this amount for statewide activities and allocated 
the remaining funds to the local workforce investment areas. Overall, 
the department and the local workforce investment areas have targeted 
approximately $50 million to be spent on youth employment activities 
this summer. Prior to implementation of the Recovery Act WIA Youth 
program, state officials reported that 276 youth participated in WIA 
summer employment opportunities statewide in 2008 as part of the WIA 
year-round program. The total number of youth planned to participate in 
Recovery Act funded WIA youth summer employment opportunities during 
the summer of 2009 is about 15,000. The department issued guidance on 
May 29, 2009, advising local workforce investment areas to balance the 
need to expend the Recovery Act funds quickly in order to stimulate the 
economy with ensuring that quality programs are in place for youth 
served with Recovery Act funds. The guidance specifically instructed 
local workforce investment areas to expend significant Recovery Act 
funds in the summer of 2009, so long as the necessary infrastructure is 
in place to quickly implement programming for youth served with the 
Recovery Act funds. 

We visited two local workforce investment areas and both had plans in 
place for summer employment activities. The Chicago local workforce 
investment area is targeting more than 7,000 youth to participate in 
these employment activities.[Footnote 31] The WIA Youth Program for 
Chicago is implemented by the Chicago Department of Family and Support 
Services in coordination with the Chicago Workforce Investment Board, 
which serves as an oversight committee for all WIA funds allocated to 
Chicago. According to the department officials we spoke with, the 
summer youth activities will include employment at institutions such as 
the Chicago Park District, the Chicago Housing Authority, and the City 
Colleges of Chicago. The program will also target green jobs, such as 
positions in recycling, and employment at local farmers markets. As of 
June 19, the Department of Family and Support Services had received 
over 74,000 applications for youth employment and had started enrolling 
youth. 

We also visited the Grundy-Livingston-Kankakee local workforce 
investment area, which was allocated about $900,000 in Recovery Act 
funds for the WIA Youth Program, and is targeting 300 youth for 
employment this summer by utilizing approximately two-thirds of its 
allocation.[Footnote 32] According to one program official, job 
experiences for this summer will include employment at hospitals, the 
local park district, and the local chamber of commerce. Green jobs, 
including recycling positions, will also be included. As of June 22, a 
total of 285 youth had been enrolled in summer work experience in the 
Grundy-Livingston-Kankakee local workforce investment area. Both the 
Chicago and Grundy-Livingston-Kankakee local workforce investment areas 
plan to conduct a work readiness evaluation at the end of the summer 
and will also conduct an evaluation of the participating worksites. 

Officials at Local Workforce Investment Areas We Visited Stated That 
Challenges Exist in Implementing the Program: 

Officials from both the Chicago and the Grundy-Livingston-Kankakee 
local workforce investment areas stated that challenges exist in 
providing youth summer employment activities. They stated that 
expending the Recovery Act funds quickly requires additional staff to 
be hired in a very short time. For example, Chicago Department of 
Family and Support Services officials stated that, despite having had 
experience in implementing a stand alone summer program, they found 
implementing WIA summer youth employment activities challenging since 
they have had to utilize other employees within the department in order 
to adequately staff the implementation of these activities. An official 
from the Grundy-Livingston-Kankakee local workforce investment area 
stated that additional staff will need to be hired to implement the 
program--particularly to ensure that all youth applications are 
reviewed and the funds targeted for this summer are expended. 
Additionally, officials from both local workforce investment areas 
stated that challenges exist in the youth recruitment process since 
documentation must be obtained through an application process that 
requires youth to submit evidence, allowing officials to determine that 
they meet the statutory eligibility requirements of the WIA Youth 
program. 

Illinois Has Identified Priority Areas for Edward Byrne Memorial 
Justice Assistance Grant Program Funding: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) Program within 
the Department of Justice's (DOJ) Bureau of Justice Assistance provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information 
sharing initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants are available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula-based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state's JAG allocation is awarded by the 
Bureau of Justice Assistance directly to the state, which must in turn 
allocate a formula-based share of those funds to local governments 
within the state. The remaining 40 percent of funds is awarded directly 
by the Bureau of Justice Assistance to eligible units of local 
government within the state.[Footnote 33] The Illinois Criminal Justice 
Information Authority administers JAG funds for the state. The total 
JAG allocation for Illinois state and local governments under the 
Recovery Act is about $83.7 million, a significant increase from its 
previous fiscal year 2008 allocation of about $6.3 million. 

As of June 30, 2009, Illinois had received its full state award of 
$50.2 million.[Footnote 34] Illinois Criminal Justice Information 
Authority officials stated that Recovery Act funds will assist in 
supporting several priorities across the state. The agency has 
identified 11 priority areas for the $50.2 million in Recovery Act JAG 
funds designated to the state. Among others, these include: programs 
which pursue violent and predatory criminals; efforts which focus on 
prosecuting violent and predatory criminals and drug offenders; 
juvenile and adult re-entry programs and programs that enhance jail or 
correctional facility security and safety; and programs that combat and 
disrupt criminal drug networks and provide substance abuse treatment. 
The agency plans to begin soliciting applications for funding from 
local law enforcement agencies starting in the first part of July and 
has plans to notify applicants of funding recommendations by early 
August. 

In order to adequately monitor grants to subgrantees, the Illinois 
Criminal Justice Information Authority will require information to be 
submitted by subgrantees on a monthly basis and is planning to hire 
additional staff. Specifically, the agency plans to require that 
subgrantees submit monthly fiscal and progress reports within 5 days of 
the end of each month to allow the agency time to aggregate the data 
and report it to the Bureau of Justice Assistance before the end of 
each quarter. Further, agency officials stated they plan to hire an 
additional 15 staff--a total of 8 grant monitors, 3 administrative 
staff, 2 lawyers, and 2 researchers--to assist with implementing 
Recovery Act funded JAG grants. They stated that a total of 18 staff 
currently oversee implementation of the JAG grants. 

Illinois Public Housing Agencies Have Obligated Recovery Act Funds for 
a Variety of Projects: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 35] The Recovery Act requires the U.S. Department of Housing 
and Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies, expend at least 60 percent of funds within two years of that 
date, and expend 100 percent of the funds within three years of that 
date. Public housing agencies are expected to give priority to projects 
that can award contracts based on bids within 120 days from the date 
the funds are made available, as well as projects that rehabilitate 
vacant units, or those already underway or included in the required 5-
year capital fund plans. HUD is also required to award $1 billion to 
housing agencies based on competition for priority investments, 
including investments that leverage private sector funding/financing 
for renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability (NOFA) that 
describes the competitive process, criteria for applications, and 
timeframes for submitting applications.[Footnote 36] 

Illinois has 99 public housing agencies that have received Recovery Act 
formula grant awards. In total, these public housing agencies received 
about $221 million from the Public Housing Capital Fund formula grant 
awards. As of June 20, 2009, the state's 99 Public housing agencies 
have obligated about $60 million and expended approximately $1.1 
million. We visited two public housing agencies in Illinois: the 
Chicago Housing Authority and the Housing Authority for LaSalle County. 
[Footnote 37] 

Figure 3: Percentage of Public Housing Capital Funds Allocated by HUD 
That Have Been Obligated and Drawn Down in Illinois: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $221,498,521; 100%; 
Funds obligated by public housing agencies: $59,674,061; 26.9%; 
Funds drawn down by public housing agencies: $1,148,543; 0.5%. 

Number of public housing agencies: 
Entering into agreements for funds: 99; 
Obligating funds: 52; 
Drawing down funds: 28. 

Source: GAO analysis of HUD data. 

[End of figure] 

Public Housing Agencies We Visited Have Selected and Started to 
Obligate Funds for Recovery Act Projects: 

The two public housing agencies we visited in Illinois received Capital 
Fund formula grants totaling $146 million. As of June 20, these public 
housing agencies had obligated about $47 million, or roughly 32 percent 
of the total award. They had drawn down about $76,000, or .05 percent 
of the total award. Specifically, the Chicago Housing Authority had 
obligated about $46.8 million and the Housing Authority for LaSalle 
County had obligated a little less than $400,000. The Chicago Housing 
Authority had not drawn down any Recovery Act funds, and the Housing 
Authority for LaSalle County had drawn down about $76,000. 

The Chicago Housing Authority and the Housing Authority for LaSalle 
County have both identified the projects that the agencies will fund 
through the Recovery Act Capital Fund formula grant awards. The Chicago 
Housing Authority has identified a total of 12 projects to be funded, 
half of which will include the rehabilitation of units. The remaining 6 
projects will consist of 3 demolition projects, 1 project for the 
installation of security camera systems scattered throughout the 
authority's portfolio, 1 project for a facade restoration, and 1 
project that consists of upgrades to units to meet requirements in the 
Americans with Disabilities Act. All 12 projects are estimated to be 
completed by the end of 2010. The Housing Authority for LaSalle County 
has identified a total of 11 projects that it will fund through 
Recovery Act formula funding. The projects include improving common 
areas such as entrances and public hallways, upgrading boiler valves, 
and performing elevator code updates at several buildings. One project 
will also include the rehabilitation of units, including modernization 
of kitchens and bathrooms, and another will include the replacement of 
a retaining wall. Officials estimated that all projects will be 
completed in 4 to 6 months from when they begin, but some may not begin 
until August or September of this year, and will be completed in early 
2010. 

Officials at both the Chicago Housing Authority and the Housing 
Authority for LaSalle County explained that they prioritized projects 
based on requirements in the Recovery Act. For example, Chicago Housing 
Authority officials explained that they specifically selected projects 
that consisted of rehabilitating units, especially vacant units. A 
total of 668 units are planned for rehabilitation, 484 of which are 
vacant, through six projects. Two of the rehabilitation projects are 
projected to account for almost $60 million of the $143 million in 
Recovery Act formula funds that the authority received, and are 
expected to rehabilitate about 250 units. Furthermore, 5 of the 12 
projects that the authority selected were ready to begin prior to HUD 
allocating Recovery Act funds to the authority, and all 12 were 
included in the agency's 5-year plan. Officials stated that the agency 
is in the process of hiring additional procurement staff to help 
expedite the contracting process. Housing Authority for LaSalle County 
officials explained that they prioritized projects that could award 
contracts within 120 days of when funds were made available to the 
agency, and all projects to be funded with Recovery Act funds were on 
the agency's 5-year plan. 

Another major component of HUD Recovery Act funding for federal public 
housing is the competitive grants program with $1 billion available 
nationally for projects characterized by priority public housing 
investments intended to leverage private sector funds for renovations 
and energy conservation, and for projects addressing the needs of the 
elderly or persons with disabilities. Chicago Housing Authority 
officials told us they plan to apply for this funding and have 
identified proposed projects that include rehabilitation and 
revitalization of public housing developments, including one senior 
housing development. Housing Authority for LaSalle County officials 
told us that they may apply for competitive funds in order to fund one 
project that will involve replacing windows for energy improvement 
purposes, but would likely not have other projects that would be 
eligible based on the competitive criteria and the needs of the housing 
authority. 

Both the Chicago Housing Authority and Housing Authority for LaSalle 
County have created unique accounting codes to track and monitor 
Recovery Act Capital Fund formula grants separately from regular 
Capital Fund grants. In addition, the Chicago Housing Authority has 
created a Recovery Act Working Group that will include an audit and 
compliance position to be externally hired by the agency. This 
individual will be responsible for tracking the use of Recovery Act 
funds and will also monitor the progress of projects funded with 
Recovery Act dollars. Officials at the LaSalle County Housing Authority 
told us that they will track Recovery Act funded projects in the same 
manner as they track their current Capital Fund projects, and will be 
obtaining weekly observation reports on projects. 

Illinois Is Taking Action to Track Recovery Act Funds Separately, 
Implement Internal Controls, and Has Conducted Preliminary Risk 
Assessments of 19 State Agencies: 

Illinois continues to take steps to account for Recovery Act funds by 
tracking the funds separately from other funds received and spent by 
the state. The Illinois Office of the Comptroller and state agencies we 
met with are using unique codes to track funds. The state also 
continues to develop oversight mechanisms related to various areas of 
Recovery Act implementation, and is implementing internal control 
measures including conducting risk assessments and an assessment of 
staffing needs to implement the Recovery Act. 

Illinois is tracking Recovery Act funds separately from other sources 
of funding to account for, and report specifically on, the use of these 
funds. State and local agencies we met with are using unique codes in 
order to track funds separately. For example, 

* The Illinois Office of the Comptroller is using unique codes to 
identify both Recovery Act expenditures and receipts statewide. It is 
also requiring state agencies to provide specific Catalog of Federal 
Domestic Assistance numbers on cash receipts and cash refunds, as well 
as for expenditures. 

* The Illinois Department of Commerce and Economic Opportunity tracks 
Recovery Act funds separately through the agency's general ledger 
system, which reports obligations, costs, and fund balances for 
programs receiving Recovery Act funds. The agency is using specific 
codes to account for the receipt and use of WIA Recovery Act funds. 

* Illinois State Board of Education officials reported that they 
updated the accounting requirements for local educational agencies to 
help ensure compliance with Recovery Act requirements. The revised 
requirements state that records of expenditures shall identify the 
source of the Recovery Act funds by using specified account numbers, as 
well as the applicable funds, functions, and object classes. 

At the two local educational agencies we visited, officials told us 
they will comply with Recovery Act requirements for tracking SFSF 
funds. However, these officials expressed concern over how they will be 
required to report on their use of the SFSF funds, since the funds are 
directly replacing general state aid and the state has not previously 
required them to report on their use of general state aid funds. 
Chicago Public Schools officials stated that they may attach the SFSF 
funds to a certain cost center, such as a group of teachers at a 
cluster of schools, to ease the separate tracking and reporting burden. 

Illinois Office of Internal Audit officials noted that, overall, the 
volume of information on the Recovery Act that requires tracking from a 
variety of sources, and the speed by which funding is flowing to the 
state, presents challenges to agency and administration staff. They 
reported that this was a recurring theme in discussions with state 
agencies about the Recovery Act, and in their efforts to prepare and 
implement processes to comply with the requirements. 

Illinois Is Implementing Recovery Act Oversight and Internal Control 
Measures, Including Assessing Risk across State Agencies: 

Illinois is implementing oversight measures it developed to safeguard 
Recovery Act Funds, including forming specific groups to oversee 
various parts of Recovery Act implementation, continuing to conduct 
Recovery Act Working Group meetings, and requiring agencies to submit 
weekly reports. Specifically: 

* In addition to having formed an Executive Committee to broadly 
oversee implementation of the act, the state has formed subcommittees 
for specific areas related to implementation and oversight.[Footnote 
38] These subcommittees address budget and fiscal issues, the auditing 
of Recovery Act funds, and matters related to assessing performance and 
outcomes of programs receiving Recovery Act funds. 

* The state has continued to conduct Recovery Act Working Group 
meetings once a week in an effort to receive updates from agencies that 
have spent Recovery Act funds, address fiscal reporting and tracking 
questions, and discuss grant deadlines, among other Recovery Act 
related matters.[Footnote 39] 

* The state is also requiring agencies to submit weekly reports 
detailing the status of funds--for example, whether they have been 
received or not, the amount received or expected to be received, and 
the award date if funds have been received--and any delays in spending 
plans along with possible solutions. State agencies are also required 
to submit time lines for spending Recovery Act funds in the weekly 
reports. 

The Illinois Office of Internal Audit is implementing internal control 
measures, specifically by focusing on assessing risk at state agencies 
administering Recovery Act funds. The office plans to conduct risk 
assessments for 22 key state agencies administering Recovery Act funds, 
and had completed 19 of those assessments as of June 22, 2009.[Footnote 
40] The risk assessments considered factors such as the amount of 
Recovery Act funding the agency is receiving or administering, the 
speed by which Recovery Act funding is disbursed to the agency (an 
example of a new risk), the number of subrecipients or contractors that 
will be receiving funds (an example of external risk), the extent to 
which guidance had been provided by federal oversight agencies, 
previous audit findings, and the staffing needs required to properly 
expend and oversee Recovery Act funds (an example of internal risk). 
Based on these and other similar factors, the Office of Internal Audit 
designated agencies as low, moderate, or high risk, or a combination of 
these categories, such as low-to-moderate risk. A total of nine 
agencies were classified as high risk, six as moderate risk, and four 
were classified as low or low-to-moderate risk. See table 2. 

Table 2: Illinois Office of Internal Audit Risk Designations for State 
Agencies Administering Recovery Act Funds, Based on Preliminary Risk 
Assessments Conducted as of June 22, 2009: 

Risk designation: Low; 
State agency or department: Children and Family Services; Arts Council. 

Risk designation: Low-to-moderate; 
State agency or department: Employment Security; Environmental 
Protection Agency. 

Risk designation: Moderate; 
State agency or department: Commerce and Economic Opportunity; 
Veteran's Affairs; Criminal Justice Information Authority; Public 
Health; Housing Development Authority; and Capital Development Board. 

Risk designation: High; 
State agency or department: Transportation; Human Services; Board of 
Education; Healthcare and Family Services; Aging; Corrections; Juvenile 
Justice; State Police; and Natural Resources. 

Source: Illinois Office of Internal Audit Recovery Act Risk Assessment 
Summary. 

[End of table] 

All nine high-risk agencies were classified as high risk largely due to 
one or more of the following factors: the agency is receiving a 
significant amount of Recovery Act funding, there are potential issues 
with monitoring subrecipients, or the agency lacks sufficient staff or 
adequate plans to oversee Recovery Act funds and implementation. For 
example, the Illinois Department of Transportation and Illinois State 
Board of Education, two agencies that are administering a significant 
amount of Recovery Act funding, were on the high risk list due to the 
amount of funds the agencies are receiving and concerns over 
subrecipient monitoring. Illinois Office of Internal Audit officials 
told us that for the agencies classified as high-risk, they are in the 
process of beginning detailed reviews to further identify and evaluate 
internal control mechanisms, as well as procedures for monitoring 
subrecipients, as part of conducting more detailed analysis on the 22 
state agencies. The office is also prioritizing this additional 
analysis based on the anticipated expenditure dates of Recovery Act 
funding by state agencies. 

The Illinois Office of Internal Audit's risk assessment also identified 
recurring themes for oversight of Recovery Act funds. These included 
concerns about the extent of subrecipient monitoring required by 
federal auditors, the number of new subrecipients who may participate 
in Recovery-Act funded programs, and questions about agencies' ability 
to hire adequate numbers of sufficiently qualified staff, in the time 
frames necessary, to implement and monitor programs. The state has 
conducted a staffing inquiry to assess the needs of agencies in 
implementing the Recovery Act and to gather information on how many 
positions will be required statewide. As of June 1, the Governor's 
Office of Management and Budget had approved a total of 717 staff to be 
hired across state agencies for implementation of the Recovery Act. 
Although the majority of these positions are expected to be temporary 
positions to assist with workload associated with implementing the 
Recovery Act, the purpose of some of these positions will be to conduct 
subrecipient monitoring for agencies. As of June 1, Illinois was in the 
process of hiring 211 of the 717 approved positions. 

The Office of Internal Audit also reviewed the results of the state's 
fiscal year 2007 Single Audit in developing additional internal control 
measures.[Footnote 41] The office evaluated the Single Audit's findings 
as part of its risk assessments, summarized the findings, and 
incorporated them into the designation of agencies into risk 
categories. Officials stated that they continue to follow up on 
findings from the audit and plan to continue monitoring agencies' 
corrective action plans. Officials with the Illinois Auditor General's 
Office told us that they are waiting for additional Office of 
Management and Budget (OMB) guidance in planning future Recovery Act 
audit work as part of their statewide Single Audit process. They 
indicated that after receiving the guidance, they will work with their 
contractor for the statewide Single Audit to determine what changes, if 
any, need to be made to their audit approach. 

In our meetings with state and local agencies, we found other examples 
of internal control mechanisms being developed or implemented. These 
were: 

* The Illinois Department of Transportation hired contractors to 
conduct a risk assessment on the department's internal control 
procedures related to Recovery Act funding and to assist in developing 
a plan to mitigate any risks identified. The risk assessment, while not 
yet final, identified preliminary general risks, including monitoring 
subrecipients during a short-term increase in the number of 
subrecipients to monitor. Agency officials stated that they are 
currently addressing risks by evaluating both their short-term and long-
term staffing needs, hiring a contractor to support subrecipient 
monitoring, and assigning a project team to oversee Recovery Act 
reporting and implementation. For subrecipient monitoring specifically, 
the agency has plans for a three-tiered monitoring system that samples 
25 percent of state-administered projects, 40 percent of jointly 
administered (state and local) projects, and 100 percent of locally let 
projects for compliance with procedures and protocols. 

* The Chicago Housing Authority has created a Recovery Act Working 
Group that will include an audit-compliance position to be externally 
hired by the agency. This individual will be responsible for tracking 
the use of Recovery Act funds and will also monitor the progress of 
projects funded with Recovery Act dollars. 

In addition, the state hosted a conference focused on fraud prevention 
and detection for all state agencies receiving Recovery Act funds. The 
conference focused on lessons learned from past experiences, as well as 
examples of controls related to the prevention and detection of fraud. 

Illinois Has Issued Guidance on Measuring the Effects of Recovery Act 
Funds, but Challenges Remain: 

In late April, the Illinois Office of the Governor disseminated 
guidance to state agencies on collecting data related to job creation 
and job retention. Further, some state and local agencies told us that 
they are creating or modifying systems to track this type of 
information. However, challenges remain in assessing the effects of 
Recovery Act spending, and state officials indicated that additional 
federal guidance is needed. 

Illinois has taken steps to assist state agencies in assessing and 
measuring the impact of the Recovery Act. Based on an interpretation of 
existing guidance (including federal guidance), Illinois has 
disseminated preliminary guidance to state agencies concerning the 
definitions and tracking of job creation and job retention for 
reporting purposes. The guidance defined "jobs created" as new 
positions created and filled, or previously existing unfilled positions 
that are filled, as a result of Recovery Act funding. The guidance 
defined "jobs retained" as existing jobs that would have been 
terminated without Recovery Act funds. The guidance also requires, for 
reporting purposes, that all state bid and grant recipients define the 
number of jobs created and retained as a result of the Recovery Act. 
Finally, the guidance stated that these state guidelines should only be 
followed to the extent that they do not conflict with federal 
requirements. 

In some cases, agencies we spoke with were modifying or creating 
systems to track the impact of Recovery Act spending. For example, 

* Illinois State Board of Education officials told us that they are 
creating their own database to track the type and number of jobs 
created and retained through use of Recovery Act funds. They stated 
that they created this database based on their review of state and 
federal guidance on tracking jobs created and retained. 

* Officials at the two institutions for higher education that we 
visited told us that they could likely estimate the number of jobs 
created with the State Fiscal Stabilization Funds. Officials from the 
University of Illinois noted that the Illinois Board of Higher 
Education is creating a statewide methodology to estimate jobs retained 
and created. The university will follow this methodology once it is 
finalized. College of DuPage officials reported that they are currently 
tracking graduates and surveying them about their job prospects, wages, 
and other indicators, so officials suggested they could potentially 
attribute future differences in graduates' status to Recovery Act 
funds. 

* Officials with Chicago's Department of Family and Support Services 
(the agency that is implementing the WIA Youth program in Chicago) told 
us that they are also currently making adjustments to the systems they 
use to track jobs created. 

However, some state and local agencies also indicated that challenges 
remain in assessing the impact of Recovery Act expenditures. For 
example, 

* Illinois State Board of Education officials we spoke with told us 
that in order to meet reporting requirements for use of Recovery Act 
funds, they will need to obtain data from the local educational 
agencies within 5 to 7 days after the end of each quarter, which may 
not be a sufficient amount of time to ensure complete, accurate data. 

* Officials we spoke with at two local educational agencies in the 
state told us that SFSF funds that they receive will not create new 
jobs, as these funds are simply filling a gap in the budget that would 
otherwise have been covered by general state aid funds. As such, 
measuring the impact of these funds will likely be limited to measuring 
jobs retained.[Footnote 42] 

* Officials at both the Chicago Housing Authority and the Housing 
Authority for LaSalle County stated that they have not seen any 
additional guidance from HUD on measuring jobs, but expect that 
measuring the number of jobs directly created by hiring a contractor 
for a project can be achieved. However, they stated that capturing 
indirect jobs--those created through services or products that a 
contractor procures in support of work on a project--will be difficult. 
Chicago Housing Authority officials also stated that they are examining 
ways to track the impact on residents affected by projects funded with 
Recovery Act funds, including measuring, for example, the effect on 
family self-sufficiency. 

The Illinois Office of Internal Audit's summary of its Recovery Act 
risk assessments of state agencies stated that a general lack of 
finalized federal guidance on Recovery Act reporting hampers efforts, 
particularly in determining how to modify systems to collect data. An 
official in the Office of the Governor also told us that additional 
guidance from federal agencies is needed with respect to collecting 
information on jobs created or retained.[Footnote 43] 

State Comments on This Summary: 

We provided the Office of the Governor of Illinois with a draft of this 
appendix on June 22, 2009. The Deputy Chief Of Staff responded for the 
Governor on June 24, 2009. In general, the state concurred with our 
statements and observations. The official also provided technical 
suggestions that were incorporated, as appropriate. 

GAO Contacts: 

Katherine Iritani, (206) 287-4820 or iritanik@gao.gov: 

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

Staff Acknowledgments: 

In addition to the contacts named above, Paul Schmidt, Assistant 
Director; Tarek Mahmassani, analyst-in-charge; Cynthia Bascetta; Rick 
Calhoon; Dean Campbell; David Lehrer; Lisa Reynolds; and Rosemary 
Torres Lerma made major contributions to this report. 

[End of section] 

Footnotes for Appendix VI: 

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

[2] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's solicitation for local governments closed on 
June 17; therefore, not all of these funds have been awarded. 

[4] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See, OMB Memorandum, M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[5] According to state officials, on June 1, 2009, the General Assembly 
passed a budget that relied primarily on reductions in spending without 
tax increases in an attempt to balance the fiscal year 2010 budget. 
Officials noted that the Governor did not sign the budget because of 
ongoing negotiations regarding tax increases, and that a significant 
portion of the budget was held for reconsideration by the Illinois 
Senate. 

[6] GAO, Recovery Act: As Initial Implementation Unfolds in States and 
Localities, Continued Attention to Accountability Issues Is Essential, 
GAO-09-580 (Washington, D.C.: April 23, 2009). 

[7] See Recovery Act, div. B, title V, §5001. 

[8] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[9] The state provided projected Medicaid enrollment data for May 2009. 

[10] Illinois received increased FMAP grant awards of just over $1.0 
billion for the first three quarters of federal fiscal year 2009. 

[11] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers within 30 days of receipt and 99 percent of these claims 
within 90 days of receipt. See 42 U.S.C. §1396a(a)(37)(A). 

[12] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or non-profit organization 
that expends $500,000 or more a year in federal awards must have a 
Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[13] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, the FHWA assesses the 
ability of each state to have its apportioned funds obligated by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[14] As we reported in April, Illinois submitted its maintenance of 
effort certification on March 18, 2009, indicating that the 
certification was based on the "best available information." On April 
22, the DOT Secretary informed some states, including Illinois, that 
"conditional and explanatory" certifications were not permitted. U.S. 
DOT indicated that the explanatory language that Illinois had used was 
not authorized and that Illinois's maintenance of effort method also 
required revision, and that Illinois must resubmit any revisions to its 
certification by May 22, 2009. Illinois resubmitted its certification 
on May 20, 2009. The new Illinois certification took out the 
explanatory language that had been in the earlier certification and 
adjusted the maintenance of effort method in response to the DOT 
guidance. Specifically, Illinois adjusted the highway expenditure 
amount to include $4 million for bond-financed projects, as per DOT's 
April 22 guidance. 

[15] An Illinois Department of Transportation official said he foresees 
no changes that would prevent the state from meeting its level of 
effort certification, as the state plans to fully comply with its 
maintenance-of-effort commitment. However, this may depend on passage 
of the state's capital plan and budget, neither of which had been 
enacted as of June 30, 2009. 

[16] FHWA has published a map on its Web site showing the areas in each 
state that meet the statutory criteria. 

[17] Illinois's criteria resulted in 21 counties being classified as 
EDAs by the state that were not classified as EDAs by FHWA, and 8 
counties that FHWA classified as EDAs that were not EDAs using 
Illinois's criteria. 

[18] In addition, the state will allocate 79 percent of the government 
services funds to local educational agencies and 21percent to IHEs. 

[19] Among other factors, we selected Chicago Public Schools and 
Waukegan Public School District 60 based on their different statuses as 
urban and suburban school districts; Title I, Part A Recovery Act 
allocations; and the number of Title I schools in improvement status. 

[20] All IDEA Recovery Act funds must be used in accordance with IDEA 
statutory and regulatory requirements. 

[21] Education guidance for IDEA Part B Recovery Act funds states that, 
under certain circumstances, in accordance with IDEA section 
613(a)(2)(C), in any fiscal year that a local educational agency's 
total subgrant allocation exceeds the amount that the agency received 
in the previous fiscal year, that agency may reduce the level of local, 
or state and local, expenditures otherwise required by the local 
educational agency maintenance of effort requirements (in IDEA, section 
613(a)(2) by up to 50 percent of the increase in the local educational 
agency's subgrant allocation. The guidance further states that the 
local agency must spend the freed-up local, or state and local, funds 
on activities that are authorized under the ESEA. For local educational 
agencies to qualify for this reduction in local effort, the state 
educational agency (in Illinois's case, the Illinois State Board of 
Education) must annually determine that the local agency is meeting the 
requirements of Part B, including meeting targets in the state's 
performance plan. Although this 50 percent reduction provision has 
always been a component of IDEA Part B, the large influx of program 
funds through the Recovery Act has increased the number of local 
educational agencies that could potentially be eligible to benefit. 

[22] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Indian tribe, and the Northern Arapahoe 
Indian tribe. 

[23] See Department of Energy Weatherization Program Notice 09-1B, 
effective March 12, 2009. See also Weatherization Program Notices 09-1A 
and 09-1, dated October 27, 2008 and November 17, 2008, respectively. 

[24] However, on June 9, 2009, DOE issued revised guidance lifting this 
limitation to allow states to provide funds for production activities 
to local agencies that previously provided services and are included in 
state Recovery Act plans. 

[25] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. §§ 3141-3148. 

[26] MBTU stands for one million British thermal units. The BTU is a 
unit of energy used for power, steam generation, heating, and air 
conditioning measurement. It represents the quantity of heat required 
to raise the temperature of 1 pound of liquid water by 1 degree 
Fahrenheit at the temperature at which water has its greatest density 
(approximately 39 degrees Fahrenheit). Officials from the Department of 
Commerce and Economic Opportunity could not say what this would equate 
to in terms of cost savings for low-income families, but they plan to 
rehire a former employee who can compute these types of impact 
measurements. 

[27] According to DOE, in fall 2008, the President signed into law the 
Consolidated Security, Disaster Assistance, and Continuing 
Appropriations Act, 2009, which provided a supplemental appropriation 
of $250 million for weatherization assistance for fiscal year 2009, 
with funds to remain available until expended. Illinois's total 
supplemental allocation was approximately $14.7 million. Pub. L. No. 
110-329, 122 Stat. 3574, 3579 (Sept. 30, 2008). 

[28] In Illinois, state workforce agency officials explained that local 
areas will be using a specific tool--the Illinois workNet portal--to 
provide comprehensive assessment and activities to meet the work 
readiness measure. 

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

[30] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where Federal 
and state law have different minimum wage rates, the higher standard 
applies. 

[31] We visited the Chicago local workforce investment area because it 
is receiving the most funds of any area in the state, accounting for 
about one-third of the funds that have been allocated to all Illinois 
local workforce investment areas. 

[32] We visited the Grundy-Livingston-Kankakee local workforce 
investment area because it received an allocation amount that was 
approximately in the middle of what local workforce investment areas in 
Illinois received and allowed us to capture additional geographic 
diversity in our sample of localities we visited in the state across 
the various programs we are reporting on. 

[33] We did not review these funds awarded directly to local 
governments in this report because the Bureau of Justice Assistance's 
solicitation for local governments closed on June 17. 

[34] Due to rounding, this number may not exactly equal 60 percent of 
the total JAG award. 

[35] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[36] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and timeframes for application, and to funding limits. 

[37] We visited the Chicago Housing Authority because it received the 
largest allocation of any public housing authority in the state, and 
the third largest allocation among all public housing authorities 
receiving Recovery Act Capital Fund Formula dollars. We visited the 
Housing Authority for LaSalle County primarily because, at the time of 
our selection, it had drawn down Recovery Act funds. 

[38] We reported on the establishment of Illinois's Executive Committee 
in our last report (GAO-09-580). 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. 

[39] The Recovery Act Working Group consists of a contact point for 
each state agency for Recovery Act related matters, and officials from 
the Office of the Governor, including the Deputy Chief of Staff for 
Economic Recovery. 

[40] At the time of our review, the Illinois Office of Internal Audit 
was working on the risk assessments for the remaining three agencies: 
the Illinois Department of Central Management Services, the Illinois 
Board of Higher Education, and the Illinois Community College Board. 

[41] As of June 30, the Illinois fiscal year 2008 statewide Single 
Audit had not been released. 

[42] An Illinois State Board of Education official noted that the state 
was facing a backlog of approximately $1.0 billion in payments to local 
educational agencies. The SFSF funds made it possible for the state to 
continue making general state aid payments and for jobs to be retained 
in the school districts. The official indicated that not all school 
districts may have been aware of the extent to which the state's cash 
flow issues potentially impacted general state aid and other payments 
they would typically receive. 

[43] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See, OMB Memorandum, M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[End of Appendix VI] 

Appendix VII: Iowa: 

Overview: 

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

Use of funds: Our work in Iowa focused on eight federal programs, 
selected primarily because they have begun disbursing funds to the 
state. These include existing programs receiving significant amounts of 
Recovery Act funds or significant increases in funding. Program funds 
are being used to help Iowa stabilize its budget and support local 
governments, particularly school districts, and several are being used 
to expand existing programs. Funds from some of these programs are 
intended for disbursement through the state or directly to localities. 
The funds include the following: 

* Funds made available as a result of increased Medicaid Federal 
Medical Assistance Percentage (FMAP).[Footnote 2] As of June 29, 2009, 
Iowa has received about $136 million in increased FMAP grant awards, of 
which it has drawn down almost $127 million, or over 93 percent. As a 
result, Iowa is using funds to offset the state budget deficit, cover 
the state's increased Medicaid caseload, and maintain current 
populations and benefits, and it is planning to use these funds to 
expand Medicaid eligibility. 

* Highway Infrastructure Investment funds. On March 2, 2009, the U.S. 
Department of Transportation's Federal Highway Administration (FHWA) 
apportioned almost $358 million in Recovery Act funds to Iowa. As of 
June 25, 2009, $319 million has been obligated for 165 highway 
projects. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
Iowa was allocated about $472 million in SFSF funds, of which $386 
million is for education stabilization. As of June 30, 2009, the Iowa 
Department of Education had disbursed $40 million of these funds to 
school districts. The Iowa Department of Education plans to use these 
funds to maintain spending for higher education at fiscal year 2009 
levels for fiscal year 2010 and for previously approved increases for 
grades K-12 for fiscal year 2010, with remaining funds to be used in 
fiscal year 2011. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). As of June 30, 2009, Iowa received about $26 million in 
Recovery Act ESEA Title I, Part A, funds, or one-half of its estimated 
$51 million total allocation and had disbursed about $8 million of 
these funds to school districts. The Iowa Department of Education has 
provided guidance to school districts regarding uses and reporting of 
these funds to develop a capacity to serve disadvantaged youth by, for 
example, providing professional development to teachers. 

* Individuals with Disabilities Education Act (IDEA), Part B. As of 
June 30, 2009, Iowa was allocated about $63 million in Recovery Act 
IDEA, Part B funds, or one-half of its estimated $126 million total 
allocation and the Iowa Department of Education had disbursed about $25 
million of these funds to school districts and area education agencies. 
These funds will be used to support special education and related 
services for children and youth with disabilities. For example, one 
Iowa area education agency plans to use IDEA, Part B funds to hire 
speech pathologists and purchase hearing evaluation equipment. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated almost $81 million in Recovery Act weatherization 
funding to Iowa for 3 years. In March 2009, DOE provided about $8.1 
million to Iowa, and as of June 30, 2009, Iowa's Department of Human 
Rights, Division of Community Action Agencies obligated at least $5 
million for "ramp up" activities. Iowa plans to weatherize about 7,200 
homes by, for example, installing insulation, sealing leaks around 
doors and windows, and modernizing heating and air equipment. 

* Edward Byrne Memorial Justice Assistance Grants (JAG). The Department 
of Justice's Bureau of Justice Assistance (BJA) has awarded about $12 
million directly to Iowa in Recovery Act funding. Based on information 
available as of June 30, 2009, none of these funds have been obligated 
by the Office of Drug Control Policy, which administers these grants 
for the state.[Footnote 3] Iowa's Office of Drug Control Policy plans 
to provide grant funds, on a competitive basis, to local and state 
units of government and nonprofit organizations to address priorities 
set forth in Iowa's Drug Control Strategy. The focus will be on 
creating and preserving jobs in such areas as law enforcement, 
correctional and substance abuse treatment, and prevention services. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development (HUD) has allocated almost $8 million in Recovery Act 
funding to 48 public housing agencies in Iowa. Based on information 
available as of June 20, 2009, approximately $1.6 million (or 22 
percent) has been obligated by those agencies. Projects undertaken by 
local public housing authorities and funded by the Recovery Act involve 
a variety of tasks, such as reroofing buildings; replacing plumbing and 
air-conditioning systems; installing new carpet, countertops, and 
appliances in individual units; and repairing concrete on sidewalks and 
in parking lots. 

Safeguarding and transparency: Iowa will use existing, as well as 
enhanced, safeguards and controls for Recovery Act programs and is 
considering ways to show Recovery Act spending by localities. For 
example, state accounting officials have developed unique accounting 
codes to track Recovery Act funds and have entered into cooperative 
agreements with other state agencies to document each agency's 
responsibility to review expenditures for compliance with laws and 
regulations and ensure that expenditures are supported by appropriate 
documentation. However, a few agencies do not report transactions 
through the state system. For example, Recovery Act funds that the Iowa 
Department of Transportation and Board of Regents receive are not 
itemized at the same level of detail as other state agencies. 
Furthermore, the centralized accounting system does not include some 
Recovery Act funds that the Iowa Finance Authority and the Department 
of Natural Resources receive directly. The Iowa state accounting system 
does not account for Recovery Act funds that cities, counties, and 
local governments receive directly. State accounting officials told us 
they are working with all of these entities to establish procedures for 
financial oversight. 

Other mechanisms in the state to monitor the expenditure of Recovery 
Act funds include the Office of the State Auditor, which audits state 
and local entities, and the Governor's newly created Iowa 
Accountability and Transparency Board (Iowa Board), which will assess 
existing practices to prevent fraud, waste, and abuse, as well as 
oversee real-time audits and reporting and make recommendations to 
ensure that best practices are implemented. The Iowa Board plans to 
assess and report on existing state practices to prevent waste, fraud, 
and abuse of Recovery Act funds by (1) reviewing Single Audit reports 
for all state agencies, (2) implementing and reviewing risk profile 
surveys for all agencies, and (3) determining risk levels for 
individual agencies. 

Assessing the effects of spending: While Iowa state agencies await 
federal guidance on how to assess the results of Recovery Act spending, 
most agencies continue to consider various approaches to measure 
outcomes. Some state agencies collect data that may be used to identify 
the number of jobs created and saved from the use of Recovery Act 
funds, such as tracking worker hours for construction contracts. Other 
agencies have developed their own methodologies to measure results, 
such as tracking lease rates for vacant units following renovations 
that use Recovery Act funds. Some agencies said they have the 
accounting systems in place to measure outcomes. Although they are not 
required to report through the state, some local agencies also have 
plans to track results of Recovery Act spending. However, in the 
absence of specific guidance, most state agency officials continue to 
question how to accurately calculate and report results based on 
Recovery Act funds, including how to track outcomes separately from 
other recovery initiatives. For example, Iowa's Infrastructure 
Investment Initiative, or I-JOBS, will provide funding for a variety of 
infrastructure programs, in addition to funding provided by the 
Recovery Act. 

Recovery Act Funds Helped Iowa Respond to Declining Revenues and 
Balance Its Budget for Fiscal Years 2009 and 2010: 

Iowa is using approximately $710.3 million in Recovery Act funding to 
help balance its budget for fiscal years 2009 and 2010.[Footnote 4] 
Iowa's governor and General Assembly have statutory responsibility to 
use the expenditure limitation in the preparation and approval of the 
state budget.[Footnote 5] The expenditure limitation is based on the 
revenue estimates agreed to by Iowa's Revenue Estimating Conference--a 
conference of the governor or a designee, the director of the 
Legislative Services Agency or a designee, and a third member agreed to 
by the other two--that convenes quarterly to prepare the state's 
estimates of tax-receipt revenues for use in preparing the annual 
budget. In December 2008, based on declining revenue estimates, the 
Governor directed an across-the-board 1.5 percent reduction in the 
state's General Fund appropriations. In March 2009, Iowa's Revenue 
Estimating Conference reduced its projection of available General Fund 
revenues by $81.7 million in fiscal year 2009 and by $269.9 million in 
fiscal year 2010--resulting in a projected shortfall of $66.6 million 
for fiscal year 2009. In response to this projection, the Governor 
proposed 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. The General Assembly finalized a state budget on April 
26, 2009, and the Governor signed the last fiscal year 2010 
appropriations bills into law on May 26, 2009. 

Another $166.2 million in Recovery Act funding allowed state agencies 
to avoid program cuts as well as mandatory layoffs and furloughs in 
2009. For instance, according to senior state budget officials, Iowa 
will use its increased FMAP funding to maintain Medicaid services. 
Before receiving the additional Medicaid funding the Recovery Act 
provided, the state was considering reducing services, decreasing 
eligibility requirements, reducing waiver services, or funding the 
shortfall with state appropriations. Nevertheless, some state agencies 
are taking additional measures to diminish the severity of budget 
shortfalls, such as considering furloughs, not filling vacant 
positions, and limiting out-of-state travel. 

Currently, the fiscal year 2010 General Fund budget is balanced, and 
there is no projected budget shortfall. Iowa plans to use approximately 
$544.1 million in Recovery Act funding primarily to maintain funding 
levels for existing education and health care programs. According to a 
state budget official, the fiscal year 2010 budget includes SFSF funds 
that will be used to avoid laying off teachers, among other purposes. 
In addition, state officials plan to transfer $145.3 million from the 
state's Cash Reserve Fund to the General Fund.[Footnote 6] State 
officials will consider any necessary actions to balance the fiscal 
year 2010 budget in October 2009, when the Revenue Estimating 
Conference again assesses state revenue projections. If necessary, the 
Governor would adjust his fiscal year 2010 budget proposal and impose 
mandatory cuts for fiscal year 2010 similar to those instituted for 
fiscal year 2009. According to budget officials, some agencies may need 
to take actions such as imposing furloughs and reducing hours and 
services to avoid potential shortfalls for fiscal year 2010. 

In anticipation of fiscal year 2011, when Recovery Act funding phases 
out, Iowa's Department of Management plans to begin developing a budget 
strategy when the Revenue Estimating Conference meets in October to 
revise revenue estimates and make projections for fiscal year 2011. 
Until then, state budget officials reported that they have limited 
ability to plan for the phasing out of Recovery funds because the state 
only has revenue projections for fiscal year 2010, and state law does 
not provide a mechanism for estimating revenue for fiscal year 2011 
until the end of fiscal year 2009. Nevertheless, state agencies have 
been encouraged to develop individual budget contingency plans. 

To supplement Recovery Act funds, on May 26, 2009, Iowa's Governor 
signed the final appropriations bills for I-JOBS. The program provides 
$295 million for disaster recovery and rebuilding programs, $300 
million for infrastructure projects, $115 million for transportation 
projects, and $120 million for a variety of other infrastructure 
programs. The Governor appointed an I-JOBS Board to oversee the 
distribution of grants for a portion of the $830 million program in the 
summer of 2009. Iowa will also sell $591 million of special obligation 
revenue bonds in July 2009. The fiscal year 2010 budget includes direct 
appropriations from Iowa's "Rebuild Iowa Infrastructure Fund"--the 
state's primary funding source for public infrastructure-related 
expenditures. 

Stimulus Funds Are Key to Addressing Growth in Medicaid Enrollment in 
Iowa: 

U.S. Department of Health and Human Services—Medicaid FMAP: 

* From October 2007 to May 2009, the state’s Medicaid enrollment Key to 
Addressing grew from 356,760 to 410,857, an increase of 15 percent. 

* Iowa received increased FMAP grant awards of $136 million for the 
first 3 quarters of federal fiscal year 2009. 

* As of June 29, 2009, Iowa had drawn down almost $127 million in 
increased FMAP grant awards, which is over 93 percent of its awards to 
date. 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as 
FMAP, which may range from 50 percent to no more than 83 percent. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months from October 1, 2008, through December 31, 2010.[Footnote 7] 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 8] 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 would otherwise have to use for their 
Medicaid programs, and states have reported using these available funds 
for a variety of purposes. 

Increased FMAP Funds Are Allowing Iowa's Planned Program Expansions in 
Medicaid to Move Forward Despite Enrollment Growth: 

From October 2007 to May 2009, Iowa's Medicaid enrollment grew from 
356,760 to 410,857, an increase of 15 percent.[Footnote 9] The 
enrollment increase was generally gradual during this period (figure 
1). Most of the increase in enrollment was attributable to the 
population groups of (1) children and families and (2) non-disabled non-
elderly adults. 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for Iowa, 
October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: -0.05. 

Nov.–Dec. 2007: 
Percentage change: 0.96. 

Dec.–Jan. 2007-08: 
Percentage change: -0.52. 

Jan.–Feb. 2008: 
Percentage change: 0.86. 

Feb.–Mar. 2008: 
Percentage change: 1.27. 

Mar.–Apr. 2008: 
Percentage change: 0.26. 

Apr.–May 2008: 
Percentage change: 0.29. 

May–June 2008: 
Percentage change: 0.58. 

Jun.–Jul. 2008: 
Percentage change: 0.23. 

Jul.–Aug. 2008: 
Percentage change: 2.2. 

Aug.–Sep. 2008: 
Percentage change: 2.29. 

Sep.–Oct. 2008: 
Percentage change: 0.04. 

Oct.–Nov. 2008: 
Percentage change: 0.42. 

Nov.–Dec. 2008: 
Percentage change: 0.95. 

Dec.–Jan. 2008-09: 
Percentage change: -0.08. 

Jan.–Feb. 2009: 
Percentage change: 1.16. 

Feb.–Mar. 2009: 
Percentage change: 1.67. 

Mar.–Apr. 2009: 
Percentage change: 0.56. 

Apr.–May 2009: 
Percentage change: 1.12. 

October 2007 enrollment: 356,760; 
May 2009 enrollment: 410,857. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

As of June 29, 2009, Iowa had drawn down almost $127 million in 
increased FMAP grant awards, which is over 93 percent of its awards to 
date.[Footnote 10] Iowa officials reported that they are using funds 
made available as a result of the increased FMAP to offset the state 
budget deficit, to cover an increased Medicaid caseload, and to 
maintain current Medicaid benefits and populations. These officials 
further reported that they are planning to use these funds to expand 
eligibility pending CMS approval to do so. Specifically, Medicaid 
officials indicated that the funds made available as a result of the 
increased FMAP will allow the state to implement a Medicaid and State 
Children’s Health Insurance Program expansion for children in families 
with incomes up to 300 percent of the federal poverty level, an 
initiative that was previously enacted and scheduled as part of the 
state’s broader health reform objective.[Footnote 11] 

In using the increased FMAP, Iowa officials reported that the Medicaid 
program has incurred additional costs related to: 

* personnel needed to ensure compliance with reporting requirements for 
the increased FMAP; 

* the development of new or adjustments to existing reporting systems 
or other information technology systems; and: 

* personnel associated with routine administration of the state's 
Medicaid program.[Footnote 12] 

Iowa Medicaid officials indicated that they did not have any concerns 
regarding the state's ability to maintain eligibility for the increased 
FMAP. In addition, as we previously reported, Iowa Medicaid officials 
indicated that the state tracks the increased FMAP using existing 
systems. According to Iowa officials, the Accountability and 
Transparency Board will have oversight of all Recovery Act funds 
provided to state agencies--including the Medicaid agency. The 2007 and 
2008 Single Audits for Iowa identified no material weaknesses related 
to the data systems or other aspects of the Medicaid program. [Footnote 
13] 

Iowa Department of Transportation Has Awarded Contracts for and Begun 
Work on Highway Projects: 

U.S. Department of Transportation—Highway Infrastructure Investment: 

* On March 2, 2009, the U.S. Department of Transportation apportioned 
about $358 million to Iowa for highway infrastructure investment. 

* As of June 25, 2009, funds have been obligated for 165 projects 
valued at about $319 million, or 89 percent of Recovery Act funds 
apportioned. 

* Contracts have been awarded for projects that could be initiated and 
completed quickly and are located in economically distressed areas. 

The Recovery Act provides funding to the states to restore, repair, and 
construct highways and other activities allowed under the Federal-Aid 
Highway Surface Transportation Program, and for other eligible surface 
transportation projects. The act requires that 30 percent of these 
funds be suballocated for projects in metropolitan and other areas of 
the state. Highway funds are apportioned to the states through existing 
federal-aid highway program mechanisms, and states must follow the 
requirements of the existing program, such as planning, environmental 
review, and contracting. However, the federal fund share of highway 
infrastructure investment projects under the Recovery Act is up to 100 
percent, while the federal share under the existing federal-aid highway 
program is generally 80 percent. 

As we reported in April 2009, Iowa was apportioned $357.7 million for 
highway infrastructure and other eligible projects. As of June 25, 
2009, $319 million has been obligated for 165 highway projects. The 
U.S. Department of Transportation has interpreted the term "obligation 
of funds" to mean the federal government's contractual commitment to 
pay for the federal share of the project. This commitment occurs at the 
time the federal government signs a project agreement. As of June 25, 
2009, $26.2 million has been reimbursed by the FHWA. States request 
reimbursement as they make payments to contractors working on approved 
projects. 

For the most part, Iowa is initiating pavement improvement projects 
that were already in its state transportation improvement plans prior 
to the passage of the Recovery Act because, according to state 
transportation officials, these projects can be done quickly and create 
jobs immediately. Table 1 shows these obligations by project type for 
the state's Recovery Act transportation projects. According to FHWA 
officials, most contractors will have started work by July 2009. 
According to FHWA data, more than 85 percent of Recovery Act funds that 
had been obligated as of June 25, 2009, were for pavement improvement 
projects. 

Table 1: Highway Obligations for Iowa by Project Type as of June 25, 
2009: 

Pavement projects: 
New construction: $14 million; 
Pavement improvement: $281 million; 
Pavement widening: $0 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $20 million; 
Bridge projects: Improvement: $1 million; 
Other[A]: $3 million; 
Total: $319 million. 

Percent of total obligations: 
Pavement projects: New construction: 4.5; 
Pavement projects: Pavement improvement: 88.1; 
Pavement projects: Pavement widening: 0.0; 
Bridge projects: New construction: 0.0; 
Bridge projects: Replacement: 6.3; 
Bridge projects: Improvement: 0.2; 
Other[A]: 0.9; 
Total: 100.0. 

Source: GAO analysis of FHWA data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[End of table] 

As of June 22, 2009, for those projects where funds have been 
obligated, Iowa Department of Transportation officials told us that 45 
projects representing $178 million had begun and that 127 projects, 
valued at $216 million, are expected to be completed by the end of 
December 2009. According to Iowa transportation officials, state- 
administered highway projects initiated under the Recovery Act are 
funded by Recovery Act funds, while locally administered highway 
projects are funded using both Recovery Act and local government funds. 

In May 2009, Iowa transportation officials told us that contracts for 
Recovery Act projects are being awarded for less than estimated-- 
primary projects were being awarded for about 5 percent to 7 percent 
under the state's estimate. Iowa transportation officials said they 
believe that initial bids were lower than estimated costs because of 
the overall slowdown in construction work and because it was the 
beginning of the construction season. For example, March bids were 
lower than those offered in April because contractors were eager for 
work. However, FHWA officials said they expect bid prices to increase 
closer to estimated costs as summer approaches and there is more work. 
State transportation officials said they expect to use Iowa 
contractors, except for some projects, such as bridge painting, that 
they cannot fill with prequalified Iowa contractors. In addition, they 
said that construction companies located in other states bid on the 
Iowa highway projects, particularly in locations near the state's 
borders. 

Iowa Is Meeting Recovery Act Requirements for Highway Infrastructure 
Spending: 

Funds apportioned for highway infrastructure spending must be used as 
required by the Recovery Act. The Recovery Act includes a number of 
specific requirements for highway infrastructure spending. First, the 
states are required to ensure that 50 percent of apportioned Recovery 
Act funds are obligated within 120 days of apportionment (before June 
30, 2009) and that the remaining apportioned funds are obligated within 
1 year (by February 17, 2010). The 50 percent rule applies only to 
funds apportioned to the state and not to the 30 percent of funds 
required by the Recovery Act to be suballocated, primarily based on 
population, for metropolitan, regional, and local use. The Secretary of 
Transportation is to withdraw and redistribute to other states any 
amount that is not obligated within these time frames. In complying 
with the requirement to obligate 50 percent of apportioned Recovery Act 
funds before June 30, Iowa selected "shovel-ready" projects, such as 
bridge replacements and highway resurfacing, which could be initiated 
and completed quickly. As of June 25, 2009, 89.3 percent of the $251 
million that the FHWA has determined is subject to the 50 percent rule 
for the 120-day redistribution has been obligated. Some projects, such 
as the resurfacing of Route B30 outside Mason City, took precedence 
over other planned transportation projects because state and local 
transportation officials looked to find projects to meet the Recovery 
Act requirements.[Footnote 14] Iowa officials estimate that all of its 
projects will be completed within 3 years. 

Second, the Recovery Act requires states to give priority to projects 
that can be completed within 3 years and to projects located in 
economically distressed areas. Economically distressed areas are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. Iowa Department of Transportation officials stated that they 
gave priority to awarding contracts for projects located in 
economically distressed areas. As of June 22, 2009, the state reported 
to the FHWA that 64 percent of Recovery Act funds had been obligated 
for projects located in economically distressed areas.[Footnote 15] 
Specifically, $174 million had been obligated for 57 projects in 31 of 
the 44 economically distressed counties and $99 million had been 
obligated for 79 projects in other counties. 

Third, the Recovery Act required the governor of each state to certify 
that the state will maintain the level of spending for the types of 
transportation projects funded by the Recovery Act that it planned to 
spend the day the Recovery Act was enacted. As part of this 
certification, the governor must identify the amount of funds the state 
planned to expend from state sources as of February 17, 2009, for the 
period beginning on that date and extending through September 30, 
2010.[Footnote 16] In Iowa, the Governor certified that the state would 
"maintain its efforts" for 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. On April 22, 
2009, the U.S. Department of Transportation Secretary informed the 
states that conditional certifications were not permitted, provided 
additional guidance, and gave the states the option of amending their 
certifications by May 22, 2009. States were told how to calculate their 
level of effort on an expenditure basis (not an obligation basis) for 
the covered transportation programs. Iowa resubmitted its certification 
on May 22, stating that Iowa will maintain its efforts for state 
funding for the types of projects funded under the Recovery Act. To 
calculate its maintenance of effort, Iowa projected cash flows based on 
historical data of transportation expenditures. According to U.S. 
Department of Transportation officials, the department is reviewing 
Iowa's resubmitted certification letter and has concluded that the form 
of the certification is consistent with the additional guidance. The 
department is currently evaluating whether the state's method of 
calculating the amounts they planned to expend for the covered programs 
is in compliance with U.S. Department of Transportation guidance. 

To monitor the appropriate use of Recovery Act funds to construct 
highway projects as planned, an Iowa transportation official said that 
the department specifies detailed procedures for the administration and 
inspection of work performed. According to officials, the department 
has contract documents, specifications, special provisions, materials 
certifications of various kinds, and several hundred construction 
inspectors, materials inspectors, technicians, engineers, and project 
auditors in place to review, measure, and accept contract work. Each 
item of work includes a method of measurement and basis of payment, as 
well as various associated construction and materials specifications. 

Iowa Has Disbursed the First Round of Education Funds, and School 
Districts and Area Education Agencies Are Developing Spending Plans: 

U.S. Department of Education—SFSF Education Stabilization Funds and 
Formula Grants: 

* The U.S. Department of Education allocated to Iowa about $472 million 
in SFSF funds, of which about $386 million is for education 
stabilization. As of June 30, 2009, the Iowa Department of Education 
had disbursed $40 million in SFSF education stabilization funds to 
school districts. 

* The Iowa Department of Education was allocated about $51 million for 
ESEA Title I, and as of June 30, 2009, it had disbursed about $8 
million in Title I, Part A Recovery Act funds to school districts. 

* The Iowa Department of Education was allocated about $126 million for 
IDEA, Part B. As of June 30, 2009, it had disbursed about $15 million 
in IDEA, Part B Recovery Act funds to school districts, and about $11 
million to area education agencies (AEA). 

The Recovery Act provides approximately $564.1 million in education 
funds to Iowa through three Department of Education programs: (1) SFSF 
education stabilization funds; (2) ESEA Title I, Part A; and (3) IDEA, 
Part B. The Iowa Department of Education disbursed the first of these 
funds in June 2009 and plans to disburse the majority of the remaining 
funds in fiscal year 2010. Specifically, in fiscal years 2009 and 2010, 
the Iowa Department of Education plans to disburse most of the SFSF 
education stabilization funds to school districts, more than 80 percent 
of ESEA Title I, Part A funds to school districts, and 60 percent of 
IDEA, Part B funds to school districts and AEAs.[Footnote 17] Each of 
these programs has its unique characteristics and objectives: 

* SFSF: The Recovery Act created the SFSF to be administered by the 
U.S. Department of Education (Education). SFSF provides funds to states 
to help avoid reductions in education and other essential public 
services. The state must allocate 81.8 percent of its SFSF funds to 
support education (education stabilization funds) and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). To receive its 
initial award of SFSF funding, each state must submit an application to 
Education that assures that the state will (1) meet maintenance-of- 
effort requirements (or it will be able to comply with waiver 
provisions) and (2) 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. 
Furthermore, the state's application must contain baseline data that 
demonstrate the state's current status in each of the assurances. After 
maintaining support for education at fiscal year 2006 levels, the state 
must use education stabilization funds to restore state funding to the 
greater of fiscal year 2008 or 2009 levels for state support to school 
districts or public institutions of higher education. When distributing 
these funds to school districts, the state must use its primary 
education funding formula but can maintain discretion in how funds are 
allocated to public institutions of higher education. In general, 
school districts maintain broad discretion in how they can use 
stabilization funds, but states have some ability to direct 
institutions of higher education in how to use these funds. The Iowa 
Department of Education was allocated about $386.4 million in SFSF 
funds for education stabilization. As of June 30, 2009, Iowa had 
received $316.5 million of its total $472.3 million SFSF allocation-- 
$258.9 million for education stabilization and $57.6 million for 
government services. On June 15, 2009, Iowa disbursed $40 million in 
SFSF education stabilization funds to school districts. 

Iowa's Department of Education plans to disburse SFSF education 
stabilization funds in regular state aid payments to districts. The 
first $40 million disbursement is intended to make up for a $40 million 
reduction in fiscal year 2009 state education aid passed by the Iowa 
General Assembly in April 2009 because of a reduction in state 
revenues. (In December 2008, the Iowa state budget was reduced by 1.5 
percent, resulting in a $31.9 million reduction in funds to school 
districts for the remainder of fiscal year 2009.) The Iowa Department 
of Education estimates disbursements to school districts in fiscal year 
2010 will total about $217.7 million. 

* ESEA Title I, Part A: The Recovery Act provided $10 billion in 
additional funds to help school districts educate disadvantaged youth 
under ESEA Title I, Part A. The Recovery Act requires these additional 
funds to be distributed through states to school districts using 
existing federal funding formulas. These formulas are based on factors 
such as the concentration of students from families living in poverty. 
In using the funds, school districts must comply with current statutory 
and regulatory requirements and must obligate 85 percent of its 2009 
funds by September 30, 2010, unless granted a waiver, and all of these 
funds by September 30, 2011. Iowa's Department of Education is advising 
school districts to use the funds in ways that will build their long- 
term capacity to serve disadvantaged youth by, for example, providing 
professional development to teachers. Education allocated the first 
half of the states' ESEA Title I, Part A funds on April 1, 2009. Iowa 
was allocated about $25.7 million, or one-half of its estimated $51.5 
million total allocation. 

Iowa's Department of Education plans to disburse ESEA Title I, Part A 
Recovery Act funds to school districts in six equal payments--one in 
fiscal year 2009, four in fiscal year 2010, and one in fiscal year 
2011. It made its first disbursement of about $8 million in Title I 
funds to school districts on June 2, 2009. 

* IDEA, Part B: The Recovery Act provided supplemental funding for 
programs authorized by IDEA, the major federal statute that supports 
special education and related services for infants, toddlers, children, 
and youth with disabilities. IDEA, Part B provides funding to ensure 
preschool and school-aged children with disabilities have access to 
free and appropriate public education. IDEA, Part B funds are 
authorized to states through two grants--Part B preschool age and Part 
B school age. States were not required to submit an application to 
Education to receive initial Recovery Act funding for IDEA, Part B 
funds (50 percent of the total IDEA funding provided in the Recovery 
Act) but are required to use funds in accordance with IDEA statutory 
and regulatory requirements. States will receive the remaining 50 
percent by September 30, 2009, after submitting information to 
Education addressing how they will meet Recovery Act accountability and 
reporting requirements. Education allocated the first half of states' 
IDEA allocations on April 1, 2009, with Iowa receiving about $63.1 
million of its total allocation of about $126.2 million for IDEA, Part 
B programs. The largest share of IDEA funding is for the Part B school- 
aged program for children and youth. The state's initial allocation was 
about $2.1 million in Part B preschool grants and $61 million in Part B 
grants for school-aged children and youth. 

Iowa's Department of Education plans to disburse IDEA, Part B Recovery 
Act funds to school districts and AEAs in five equal payments--one in 
fiscal year 2009, two in fiscal year 2010, and two in fiscal year 2011. 
The funds will be disbursed to the state's 10 AEAs. AEAs will retain 40 
percent of IDEA, Part B funding for school-aged children and pass 
through 60 percent of the funds to school districts. AEAs will retain 
the entire portion of IDEA, Part B funding for preschool children. The 
department estimated the total allocations going to school districts 
and AEAs and made its first disbursement of about $10.7 million to AEAs 
and about $14.5 million to school districts on June 5, 2009. 

School Districts and AEAs Have Guidance on Recovery Act Spending and 
Are Developing Plans for Recovery Act Education Funds: 

As part of our work, we met with officials of three school districts 
and the AEAs that support them: the Des Moines Independent Community 
School District (representing a midsize city), and AEA 11; the Waterloo 
Community School District (representing a small city) and AEA 7; and 
the Ottumwa Community School District (representing a remote town in a 
rural area) and AEA 15. We chose these school districts on the basis of 
their locale and on the number of schools in each district designated 
for improvement under ESEA Title I.[Footnote 18] A school that does not 
meet performance targets defined by the state for two consecutive years 
must be identified for school improvement. 

Table 2 shows Recovery Act funds allocated and disbursed to each of the 
three school districts and three AEAs we visited by program, according 
to the Iowa Department of Education. 

Table 2: Recovery Act Allocations and Disbursements to Three Iowa 
School Districts and AEAs, as of June 30, 2009: 

School district: Des Moines Independent Community School District; 
Allocations and disbursements: Allocated; 
SFSF education stabilization funds[A]: $16.9; 
ESEA Title I, Part A: $6.4; 
IDEA, Part B: $5.1. 

School district: Des Moines Independent Community School District; 
Allocations and disbursements: Disbursed; SFSF education stabilization 
funds[A]: $2.8; ESEA Title I, Part A: $1.1; 
IDEA, Part B: $1.0. 

School district: Ottumwa Community School District; Allocations and 
disbursements: Allocated; 
SFSF education stabilization funds[A]: $2.3; 
ESEA Title I, Part A: $1.0; 
IDEA, Part B: $0.7. 

School district: Ottumwa Community School District; Allocations and 
disbursements: Disbursed; SFSF education stabilization funds[A]: $0.4; 
ESEA Title I, Part A: $0.2; 
IDEA, Part B: $0.1. 

School district: Waterloo Community School District; Allocations and 
disbursements: Allocated; 
SFSF education stabilization funds[A]: $5.9; 
ESEA Title I, Part A: $2.3; 
IDEA, Part B: $1.8. 

School district: Waterloo Community School District; Allocations and 
disbursements: Disbursed; 
SFSF education stabilization funds[A]: $1.0; 
ESEA Title I, Part A: $0.4; 
IDEA, Part B: $0.4. 

School district: AEA 11; 
Allocations and disbursements: Allocated; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $13.6. 

School district: AEA 11; 
Allocations and disbursements: Disbursed; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $2.7. 

School district: AEA 15; 
Allocations and disbursements: Allocated; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $4.2. 

School district: AEA 15; 
Allocations and disbursements: Disbursed; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $0.8. 

School district: AEA 7; 
Allocations and disbursements: Allocated; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $7.1. 

School district: AEA 7; 
Allocations and disbursements: Disbursed; 
SFSF education stabilization funds[A]: [B]; 
ESEA Title I, Part A: [B]; 
IDEA, Part B: $1.4. 

Source: GAO analysis of Iowa Department of Education data. 

[A] Allocated funds for SFSF education stabilization are estimated and 
cover fiscal years 2009 through 2010 only, whereas allocated funds for 
ESEA Title I, Part A and IDEA, Part B are actual amounts for fiscal 
years 2009 through 2011. 

[B] AEAs do not receive SFSF education stabilization or ESEA Title I, 
Part A funds. 

[End of table] 

School district and AEA officials told us they were generally satisfied 
with the guidance they received on using Recovery Act funds. They cited 
written guidance on each program on the Iowa Department of Education's 
Web site as a primary source for information. This guidance describes 
the principles of the Recovery Act, acceptable uses of funds, and 
reporting on the use of funds. School district officials also cited Web-
based seminars and access to Iowa Department of Education staff for 
providing helpful guidance on the use of funds. The Iowa Department of 
Education also told us it is encouraging school districts to use 
Recovery Act funds for summer school and for building teacher capacity 
in order to avoid committing to unsustainable efforts after Recovery 
Act funding expires (known as the funding cliff). The districts and 
AEAs had not received guidance from the Iowa Department of Education on 
some issues at the time of our visits in late May, such as whether ESEA 
Title I, Part A funds can be used for purchasing books and how to 
allocate funds made available as a result of receiving IDEA, Part B 
Recovery Act funds for general education teachers. 

While the school districts and AEAs had not yet received any Recovery 
Act funding at the time of our visits, officials were generally 
developing plans for how to spend the majority of their ESEA Title I 
and IDEA funds in accordance with program requirements and Recovery Act 
objectives. At the same time, district officials told us that such 
planning is not necessary to spend SFSF funds because they plan to use 
these funds to replace regular state aid. 

* Officials from the Des Moines Independent Community School District 
had not identified specific uses for Recovery Act grant funds at the 
time of our visit. They said they do not expect to use the district's 
first distribution of ESEA Title I funds until fiscal year 2010. 

* Waterloo Community School District officials said they are evaluating 
opportunities to use Recovery Act funds to implement their strategic 
plan and, along with AEA 7, cited professional development as a 
potential use of funds. Waterloo also said it is considering using part 
of its first distribution of ESEA Title I funds to reimburse it for 
expenses for professional development and instructional materials, as 
well as for technical licenses for instructional programs. 

* The Ottumwa Community School District and AEA 15 have draft plans to 
use Recovery Act grant funds for programs, including teacher 
development and extended day and summer school activities. Ottumwa 
officials said the summer school activities would address the funding 
cliff because these programs would not require hiring additional staff. 
The district had also spent about $40,000 on ESEA Title I materials and 
computers and planned to use at least part their first distribution of 
Title I funds to reimburse it for these expenditures. 

Districts May Find It Difficult to Track Interest Earned on Recovery 
Act Funds: 

School districts must return to the federal government on a timely 
basis any interest earned on cash advances, including Recovery Act 
funds used for education. Iowa school districts may face challenges in 
tracking interest earned because they typically do not earn interest on 
other federal education funds. Districts typically do not earn interest 
on ESEA Title I and IDEA funds because they are reimbursed for 
expenditures rather than getting funding first. Furthermore, districts 
do not have experience with earning interest on SFSF funds because 
these are a new funding source. The state's Single Audit will be a 
check on districts to ensure that any interest earned is returned, 
according to the Iowa Department of Education. The Iowa Association of 
School Boards is working with school districts to address this concern. 

Iowa Department of Education Will Monitor the Use of Recovery Act 
Funds: 

The Iowa Department of Education is responsible for ensuring that the 
funds received under the Recovery Act are spent on education programs 
that are directed at improving results for students, from early 
learning through college. In carrying out this responsibility, the 
department plans to monitor how the school districts and AEAs are 
spending Recovery Act funds. Specifically, the department will require 
school districts and AEAs to track and report, quarterly and annually, 
how they are using the funds. In turn, the department will monitor and 
review these reports and aggregate the statewide data for reporting to 
Education. Ultimately, the department will have a role in determining 
whether the Recovery Act funds were spent on programs and activities 
authorized by applicable federal statutes and regulations and on the 
effectiveness of the programs and activities supported by the Recovery 
Act education funds. 

The date for the first quarterly report as well as the specific 
reporting requirements that the districts and AEAs must meet are still 
being developed. A common reporting form will be followed after the 
specific requirements are known. However, according to Department of 
Education officials, the districts and AEA's should already know that, 
at a minimum, they should be prepared to report by program the total 
amount of funds received and expended, the specific activities the 
funds were expended on, and the number of jobs saved or created. For 
example, those school districts receiving ESEA Title I, Part A funds 
will, at a minimum, be required to report quarterly and annually the 
total amount of funds received and expended on programs the districts 
implemented to educate disadvantaged youth. Similarly, those school 
districts and AEAs receiving IDEA, Part B funding will be required to 
report the amount of Recovery Act funding that was used to support 
special education services for children with disabilities. 

Iowa Is Preparing to Spend Funds for Home Weatherization: 

DOE—Weatherization Assistance Program: 

* Iowa was provided about $8.1 million in an initial release of funds—
or about 10 percent of the state’s total award of $81 million—on March 
27, 2009, by DOE’s Office of Energy Efficiency and Renewable Energy. 

* To receive the first 10 percent of funds, states were required to 
submit an application. To receive the next 40 percent of funds, states 
were required to submit a plan by May 12, 2009. 

* Iowa submitted its application on March 18, 2009, and its plan on May 
11, 2009. 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by DOE through each of the states and 
the District of Columbia. This funding is a significant addition to the 
annual appropriations for the weatherization program that have been 
about $225 million per year in recent years. The program is designed to 
reduce the utility bills of low-income households by making long-term 
energy efficiency improvements to homes by, for example, installing 
insulation, sealing leaks around doors and windows, or modernizing 
heating equipment and air circulating fans. During the past 32 years, 
the Weatherization Assistance Program has assisted more than 6.2 
million low-income families. According to DOE, by reducing the utility 
bills of low-income households instead of offering aid, the 
Weatherization Assistance Program reduces their dependency by allowing 
these funds to be spent on more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department's progress reviews examining each 
state's performance in spending its first 50 percent of the funds and 
the state's compliance with the Recovery Act's reporting and other 
requirements. 

DOE allocated $80.8 million to Iowa for the Recovery Act Weatherization 
Assistance Program for 3 years. Iowa's Department of Human Rights, 
Division of Community Action Agencies, is responsible for administering 
the program. The division submitted its application for funding on 
March 18, 2009, and its weatherization state plan and application on 
May 11, 2009. 

On March 27, 2009, DOE provided the initial 10 percent allocation 
(about $8.1 million) to Iowa for the Weatherization Assistance Program. 
Officials from Iowa's Division of Community Action Agencies said that 
they received guidance from DOE prohibiting the use of the initial 10 
percent of funds for weatherizing homes. On June 9, 2009, DOE issued 
revised guidance that allowed states to use all Recovery Act funds 
provided under this program to pay for weatherization projects. Iowa 
officials said they were aware of the new guidance but decided to not 
to make any changes in funding because DOE had not provided guidance on 
how to spend Recovery Act funds in compliance with the Davis-Bacon Act. 
Iowa obligated at least $5 million by June 30, 2009, for 18 contracts 
to community action groups for "ramp up" activities--training crews, 
evaluators and contractors, and purchasing vehicles. 

As of June 30, 2009, DOE has not approved the state's plan. DOE has 
provided guidance and fiscal information to the state, and Iowa's 
Division of Community Action Agencies has obtained information on grant 
terms and conditions from a separate federal Web site. Division 
officials said they had not received any guidance on the Davis-Bacon 
Act, however, and expressed concern about how to spend the next 
allocation of Recovery Act funds in accordance with those 
requirements.[Footnote 19] 

As outlined in the Division of Community Action Agencies' Recovery Act 
weatherization plan submitted to DOE for review and approval, the 
division's goals include using Recovery Act funds to weatherize an 
additional 7,196 homes; employ 140 additional energy auditors, crew 
workers, and office staff; and spend about $1.3 million on equipment 
and $2.1 million on vehicles. Of the total $80.8 million that the state 
is expected to receive, the planned allocation is $62.6 million for 
weatherization; $11.2 million for training new contractors, crew 
workers, inspectors, evaluators, and other critical personnel; and $7 
million for anticipated future administrative and other expenses, such 
as additional staff or equipment. 

The Division of Community Action Agencies plans to monitor the expanded 
weatherization program by supplementing its current work force with 
additional auditors and inspectors while relying on current inspection 
and evaluation procedures. These procedures include determining if 
households are income eligible, assessing each eligible home to see 
what can be done to make it more energy efficient, and inspecting the 
home after work is completed to verify that the work was done 
completely and professionally. 

Iowa Prepares to Disburse Law Enforcement Funds, but Some Law 
Enforcement Agencies May Not Apply for Funds Due to Reporting 
Requirements: 

U.S. Department of Justice—JAG: 

* As of June 30, 2009, Iowa had received its full state award of about 
$12 million from the Justice Department, BJA. The BJA will also award 
an additional $7 million to local governments in Iowa. 

* Iowa’s Office of Drug Control Policy will provide grant funds, on a 
competitive basis, to local and state units of government and nonprofit 
organizations to address priorities in such areas as law enforcement, 
correctional and substance abuse treatment, and prevention services. 

Under the JAG program, the Department of Justice's BJA provides federal 
grants to state and local governments for law enforcement and other 
criminal justice activities, such as crime prevention and domestic 
violence programs, corrections, treatment, justice information sharing 
initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants are available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula-based and 
determined by a combination of crime and population statistics. Using 
this formula, BJA awards 60 percent of a state's JAG allocation 
directly to the state, which must, in turn, allocate a formula-based 
share of those funds to local governments. BJA awards the remaining 40 
percent of JAG funds directly to eligible units of local government 
within the state.[Footnote 20] The total JAG allocation for Iowa state 
and local governments under the Recovery Act is about $18.7 million, a 
significant increase from the previous fiscal year 2008 allocation of 
about $1.4 million. 

As of June 30, 2009, Iowa had received its full state award of about 
$11.8 million and is generally moving from planning to implementation. 
[Footnote 21] Iowa's Office of Drug Control Policy expects to begin 
awarding grants competitively in July in accordance with federal 
guidance to address priorities set forth in Iowa's Drug Control 
Strategy, with special emphasis on job creation and preservation. 
Specifically, the office intends to use these funds to support a broad 
range of activities to prevent and control crime--in particular, 
focusing on violent crime, drug offenses, and serious offenders--and 
improve the criminal justice system. The office will provide most of 
these funds to law enforcement and other eligible recipients, such as 
local governments and nonprofit organizations, through a competitive 
award process and will provide monthly reimbursements to recipients 
selected by the office. The state also plans to retain 10 percent of 
these funds to administer the program.[Footnote 22] The Recovery Act 
requires recipients to submit a detailed list of all projects or 
activities for which such funds were expended or obligated within 10 
days of the end of each quarter. As it does with other grant programs, 
the Office of Drug Control Policy plans to review recipients' financial 
reporting to validate the amount of expenses claimed and verify that 
expenses are appropriate. 

The Office of Drug Control Policy is implementing a new grant 
management system that is to notify the office when recipients do not 
comply with Recovery Act reporting. Once notified, the Office of Drug 
Control Policy plans to contact recipients via an automated e-mail, 
followed by a telephone call or visit. Officials said the office may 
withhold reimbursements to force compliance but that such withholding 
is not a concern because officials could not recall an instance in 
which a recipient did not report as required. However, the Director of 
the office said that some potential recipients--small law enforcement 
agencies with five or fewer officers or staff--may not apply for 
Recovery Act funds if they believe the reporting requirements are 
burdensome relative to the amount of JAG funds they might receive. 
Alternatively, the Director also noted that some recipients may choose 
to apply for funds and then spend them quickly because the reporting 
requirement ends after the funds have been expended. Officials also 
said that the Office of Drug Control Policy may help recipients 
complete their financial reporting documentation. 

Public Housing Agencies in Iowa Are Planning for and Funding Projects 
with Recovery Act Funds: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 23] The Recovery Act requires HUD to allocate $3 billion 
through the Public Housing Capital Fund to public housing agencies 
using the same formula for amounts made available in fiscal year 2008. 
Recovery Act requirements specify that public housing agencies must 
obligate funds within 1 year of the date they are made available to 
public housing agencies, expend at least 60 percent of funds within 2 
years, and expend 100 percent of the funds within 3 years. Public 
housing agencies are expected to give priority to projects that can 
award contracts based on bids within 120 days from the date the funds 
are made available, as well as projects that rehabilitate vacant units, 
or those already under way or included in the required 5-year Capital 
Fund plans. HUD is also required to award $1 billion to housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding/financing for 
renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability that describes the 
competitive process, criteria for applications, and time frames for 
submitting applications.[Footnote 24] 

Iowa has 48 local public housing agencies that have received Recovery 
Act formula grant awards. In total, these public housing agencies 
received approximately $7.6 million from the Public Housing Capital 
Fund formula grant awards. As of June 20, 2009, the state's 48 public 
housing agencies have obligated approximately $1.6 million and expended 
approximately $84,000 (see figure 2). 

Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD 
That Have Been Obligated and Drawn Down in Iowa: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $7,615,337; 100%; 
Funds obligated by public housing agencies: $1,648,660; 21.6%; 
Funds drawn down by public housing agencies: $83,586; 1.1%. 

Number of public housing agencies: 
Entering into agreements for funds: 48; 
Obligating funds: 20; 
Drawing down funds: 5. 

Source: GAO analysis of HUD data. 

[End of figure] 

Selected Public Housing Agency Projects Are Starting Rehabilitation 
Work: 

According to officials of the four local public housing agencies we 
visited, they would be able to meet the Recovery Act's accelerated time 
frames for obligating and expending funds. 

We selected the four local public housing agencies in Iowa to 
illustrate a diverse set of characteristics, such as different numbers 
of units, varying Recovery Act formula grant allocation and 
disbursement levels, and different HUD designations or nondesignations 
as "troubled" public housing agencies.[Footnote 25] The public housing 
agencies we visited are the Des Moines Municipal Housing Agency, 
Evansdale Municipal Housing Authority, North Iowa Regional Housing 
Authority, and Ottumwa Housing Authority. The four agencies received 
Capital Fund formula grants totaling approximately $2.3 million. As of 
June 20, 2009, three of the four public housing agencies had obligated 
approximately $116,000, or about 4.9 percent of the total award, and 
two of the four had drawn down approximately $37,000, or about 1.6 
percent of the total award. 

The four public housing agencies have a total of 26 repair or 
rehabilitation projects involving at least 244 public housing units 
that have or will use formula grant funds under the Recovery Act 
formula grant. Some projects involve relatively simple tasks, such as 
reroofing buildings, while other projects involve more comprehensive 
work, such as wholesale renovations of buildings and individual units. 
Public housing agency officials stated that they will begin work on 
many of the Recovery Act projects by June 2009. Indeed, the Ottumwa 
Housing Authority had already completed several projects by the end of 
April 2009, and the other three public housing agencies are scheduled 
to complete many of their projects by July 2010. Table 3 describes the 
four public housing agencies' plans for using Recovery Act formula 
grant funds. 

Table 3: Use of Recovery Act Formula Grant Funds by Iowa Public Housing 
Agencies: 

Public housing agency: Des Moines Municipal Housing Agency; 
Number of projects: 1; 
Number of units to be repaired or rehabilitated: 50; 
Specific work to be done: Replacing carpet, doors, countertops, and 
windows in individual units and common areas; reroofing segments of a 
public housing building; renovating air-conditioning and ventilation 
systems; abating asbestos; and repaving parking lots; 
Public housing agencies' basis for project selection and 
prioritization: Inclusion of projects in the public housing agency's 5- 
year plan, presence of vacant units, and public housing agency 
designation of need, and prioritization of awarding contracts within 
120 days of the receipt of funds; 
Methods to review contracted work: The project architect and public 
housing agency staff are to conduct on-site inspections of work 
performed and approve payment applications from contractors before 
funds are expended. 

Public housing agency: Evansdale Municipal Housing Authority; 
Number of projects: 13; 
Number of units to be repaired or rehabilitated: 22; 
Specific work to be done: Installing new ceiling lights, carpeting and 
vinyl floors in individual units, re-roofing duplexes and storage 
sheds, and installing new water heaters; 
Public housing agencies' basis for project selection and 
prioritization: Inclusion of projects in the public housing agency's 5-
year plan, previously determined need by the public housing agency, and 
prioritization of awarding contracts within 120 days of the receipt of 
funds; 
Methods to review contracted work: The public housing agency's 
Executive Director and City Inspector are to conduct on-site visits to 
verify that work meets specifications before paying the contractor. 

Public housing agency: North Iowa Regional Housing Authority; 
Number of projects: 5; 
Number of units to be repaired or rehabilitated: 30; 
Specific work to be done: Reroofing duplexes and repairing and 
replacing parking lots and sidewalks; 
Public housing agencies' basis for project selection and 
prioritization: Inclusion of projects in the public housing agency's 5-
year plan, public housing agency's determined need to repair units that 
may fail HUD inspections, and prioritization of awarding contracts 
within 120 days of the receipt of funds; 
Methods to review contracted work: The public housing agency Executive 
Director and maintenance staff are to conduct on-site visits to verify 
work progress. A representative of the architect responsible for the 
project also is to conduct weekly site visits. Public housing agency 
officials are to conduct final inspections of contracted work and not 
make final payments until a final list of work is verified as complete. 

Public housing agency: Ottumwa Housing Authority; 
Number of projects: 7; 
Number of units to be repaired or rehabilitated: 142; 
Specific work to be done: Reroofing buildings, repairing sidewalks and 
curbs, replacing water plumbing systems, and repairing and replacing 
segments of sewer systems; 
Public housing agencies' basis for project selection and 
prioritization: Inclusion of projects in the public housing agency's 5-
year plan, projects to be completely quickly, creation of new jobs from 
the projects, and prioritization of awarding contracts within 120 days 
of the receipt of funds; 
Methods to review contracted work: The architect or engineer 
responsible for project oversight and public housing agency officials 
are to conduct periodic site visits. Public housing agency officials 
also are to perform a final check of the contracted work before 
payments to contractors are completed. 

Source: GAO analysis of selected Iowa public housing agencies' data. 

[End of table] 

As table 3 shows, the four public housing agencies selected projects on 
the basis of various factors, such as the projects' inclusion in the 
public housing agency's 5-year plans, which identified immediate needs. 
For example, officials from the North Iowa Regional Housing Authority 
said their agency's immediate need was to repair units that could fail 
HUD inspections. Another factor for selecting projects was whether 
contracts could be awarded within 120 days of the date funds were made 
available. For example, an official from the Evansdale Municipal 
Housing Authority said that his agency awarded contracts for reroofing 
projects shortly after receiving Recovery Act funds. The Des Moines 
Municipal Housing Agency chose to renovate one project--Southview 
Manor, a 50-unit facility for the elderly built in 1977. The Des Moines 
Public Housing Board approved the project's contract on May 20, 2009, 
and housing officials said that they expected the project to start 
around June 15, 2009, and be completed by March 15, 2010. Officials 
were also concerned about the high number of vacant units at the 
facility in relationship to the total number of units available for 
rent. The total cost of the project is approximately $1.9 million; 
Recovery Act funds will pay for about $1.5 million of the project 
costs, while the Des Moines Municipal Housing Agency will cover the 
remaining costs. Officials also noted that the main contractor and 
subcontractors for the project are based in the Des Moines area. 

Selected Public Housing Agencies Report They Can Respond to Special 
Provisions of Recovery Act Funds: 

The four Iowa public housing agencies we visited report they can 
respond to special provisions of the Recovery Act, such as adhering to 
Davis-Bacon requirements regarding pay and benefits and procuring 
American materials: 

* Three of the four public housing agencies did not have concerns about 
adhering to Recovery Act requirements regarding the Davis-Bacon Act. 
However, officials from the North Iowa Regional Housing Authority said 
it was burdensome to adhere to such requirements because agency staff 
had to interview the workers under contract about their pay and 
benefits. Officials also said that small contractors in their 
jurisdiction could have difficulty understanding the paperwork required 
for the Davis-Bacon Act. 

* Officials at all four public housing agencies said they had no 
difficulty complying with the procurement requirements and the Buy 
American provision of the Recovery Act.[Footnote 26] Although not a 
requirement of the Recovery Act, officials said they will be using 
local contractors and subcontractors for capital projects funded by the 
act. Officials from the Ottumwa Housing Authority said they needed to 
solicit bidders from outside the Ottumwa area, such as Des Moines, to 
complete plumbing and roof replacement projects because Ottumwa is 
relatively rural and does not have a pool of contractors from which to 
solicit three competitive bids. 

Officials from three of the four public housing agencies said that 
although they had not received updated HUD guidance on the content of 
required quarterly reports, program implementation has continued. They 
did express some other concerns. Two public housing agencies mentioned 
that justifying administrative expenses as part of the Recovery Act 
reporting requirements was burdensome. Officials from the Ottumwa 
Housing Authority, for example, said they will not use any Recovery Act 
funds to cover administrative expenses because the use of these funds 
would have required the authority to modify its payroll accounting 
system. In addition, two public housing agencies reported difficulty 
using HUD's Electronic Line of Credit and Control System to draw down 
funds but were ultimately successful. For example, officials from the 
North Iowa Regional Housing Authority said they had difficulty 
obtaining the necessary certifications before being allowed to draw 
down funds from the system. 

Selected Public Housing Agencies Are Tracking and Safeguarding Funds 
within Existing Systems: 

The four Iowa public housing agencies are using existing processes to 
track and safeguard funds and modifying them where appropriate. For 
instance, officials from the Des Moines Municipal Housing Agency said 
they are establishing a separate accounting code for Recovery Act funds 
in their current accounting system, and officials from the North Iowa 
Regional Housing Authority said they are separating funds for various 
projects in their accounting system to properly track Recovery Act 
funds. 

Further, all of the public housing authorities have established various 
methods to review contracted work funded by the Recovery Act. For 
instance, officials at the Des Moines Municipal Housing Agency said it 
requires both a project architect and agency staff to conduct on-site 
inspections of work performed and jointly approve payment applications 
from contractors before the agency expends funds for projects. 
Similarly, officials at the North Iowa Regional Housing Authority said 
they are to conduct final inspections of contracted work for projects, 
and the authority will not make final payments to contractors for a 
project until it verifies that contractors completed a final list of 
tasks for the project. 

In addition, all of the public housing agencies undergo independent 
audits, and only the Des Moines Municipal Housing Agency reported one 
material weakness from a recent audit. This finding concerned financial 
reporting that was incorrect because of problems in converting data 
into a new accounting system. Public housing agencies officials said, 
however, that the issue has already been addressed and would not affect 
the separation of Recovery Act funds from other HUD funds received. 

Finally, one of the four public housing agencies identified an 
additional challenge in segregating specific duties, as good internal 
controls require. Officials from the North Iowa Regional Housing 
Authority said it has a small number of the staff working for the 
authority, which makes segregation of duties difficult. However, 
officials noted that internal controls are preserved because invoices 
for payment are prepared by the financial Director and subsequently 
reviewed by the Executive Director and board members for approval. 

Iowa Will Use Existing Safeguards and Controls with Enhancements for 
Recovery Act Programs, and It Is Considering Ways to Show Recovery Act 
Spending by Localities: 

Several Iowa state entities are responsible for monitoring, tracking, 
and overseeing financial expenditures, including many state agencies 
with internal audit groups that focus on programmatic and financial 
issues. In addition, Iowa has taken specific actions to identify 
Recovery Act funds in its accounting systems and is considering ways to 
show Recovery Act funds received directly by localities. 

Iowa's State Accounting Office, State Agencies, and the Iowa State 
Auditor Are to Monitor State's Financial Activities and Recovery Act 
Funds: 

Three state entities monitor, track, and oversee financial entities: 
the Iowa State Accounting Enterprise, which collects and reports state 
financial information and processes financial transactions; the state 
program agencies, which establish controls and monitor transactions in 
their agencies; and the State Auditor, which audits state and local 
entities, such as counties, cities, and school districts and provides 
guidelines to public accounting firms that perform such audits. 

The State Accounting Enterprise enters into interagency cooperative 
agreements with agency officials to document each agency's 
responsibility to perform expenditure preaudits and comply with the 
State Accounting Enterprise accounting manual. The cooperative 
agreement requires that each agency establish procedures to ensure that 
all transactions are reviewed for compliance with laws and regulations 
and supported by appropriate documentation. To provide additional 
oversight over Recovery Act funds, state accounting officials informed 
us that they plan to reconcile Recovery Act funds received to 
expenditures for each program on a monthly basis and initiate audits of 
departments if they notice a pattern of errors. State accounting 
officials said they assess risk by collaborating with state audit and 
department officials about transaction and program problems and risks 
as they are identified. 

State program agencies, such as the Department of Transportation, are 
responsible for establishing internal controls and procedures to ensure 
that their agencies spend funds as intended by law. These agencies are 
charged with establishing processes for the preaudit of expenditures, 
ensuring appropriate documentation, and reviewing transactions for 
compliance with laws and regulations. 

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 HUD uses to monitor and 
report on funding spent to recover from natural disasters. This 
department plans to put in place procedures for working with the State 
Auditor to leverage oversight of Recovery Act funds. Similar procedures 
have been established to oversee funding the state expects to receive 
to recover from disastrous floods in 2008. The department expects a 
twentyfold increase in Community Development Block Grants in 2009 to 
help the recovery effort from these floods. 

The Office of the State Auditor is in the final stages of updating its 
2009 audit plan for risk assessment to reflect the increased risk 
associated with Recovery Act funding. State audit officials told us 
that although their appropriation was recently reduced by 27 percent, 
this reduction will not affect their ability to oversee Recovery Act 
funds. 

As an added measure to help ensure that Iowa does not misuse funds 
provided through the Recovery Act, the Governor created the Iowa 
Accountability and Transparency Board (Iowa Board). The Iowa Board has 
several purposes: ensure that Iowa meets or exceeds the accountability 
and transparency requirements of the Recovery Act; monitor Iowa's use 
of Recovery Act funds to prevent fraud, waste, and abuse; and make 
recommendations to the Governor, as needed, to ensure that best 
practices are implemented. The Iowa Board plans to assess and report on 
existing state practices to prevent waste, fraud, and abuse of Recovery 
Act funds by (1) reviewing Single Audit reports for all state agencies, 
(2) implementing and reviewing risk profile surveys for all agencies, 
and (3) determining risk levels for individual agencies. For example, 
the Iowa Board plans to conduct an internal control evaluation and risk 
survey to assess potential risks in implementing Recovery Act programs, 
such as those involving the capacities of staff to perform necessary 
work and the systems and processes used to monitor Recovery Act 
expenditures. The board has established a set of principles to ensure 
the fairness, effectiveness, ethicality, and transparency of its 
decisions and use of Recovery Act funds. For example, to ensure 
fairness, the board must disclose the selection criteria to award 
Recovery Act funds. To ensure effectiveness, it must use Recovery Act 
funds to maximize the public benefit by providing funds to individuals 
and communities most likely to reinvest in the economy and programs and 
projects that are expected to create or retain jobs. 

Iowa Has Modified Its Accounting Systems to Track Recovery Act Funds 
and Will Rely on Reports from Those Entities That Are Not Tracked by 
Its Systems: 

Iowa has modified its accounting system to track and reconcile Recovery 
Act funds for all state agencies. Specifically, state accounting 
officials have developed unique accounting codes to track Recovery Act 
funds and have trained state agencies' accounting officials in the use 
of the new codes. However, the state does not have the mechanisms to 
track Recovery Act funds received by its Department of Transportation 
and Board of Regents at the same level of detail as other state 
agencies. Furthermore, the centralized accounting system does not 
include some Recovery Act funds received directly by the Iowa Finance 
Authority and the Department of Natural Resources. State officials said 
they have plans to track Recovery Act funding to these agencies using 
the "dashboard" feature located on the state's Web site--a user- 
friendly search capability that will provide detailed information on 
how and where Recovery Act funds are spent. 

The Department of Transportation and Board of Regents plan to provide 
the state with summary information on Recovery Act funding while 
tracking detailed information on these funds in their agency systems. 
Iowa transportation officials said the agency is establishing separate 
accounting codes to track Recovery Act funds by project. State 
accounting officials told us they are coordinating with the Board of 
Regents, so that the board will be able to report summary Recovery Act 
funding information provided to the state's universities and special 
schools into the state's centralized accounting system or, in some 
cases, directly into the Recovery Act dashboard. 

Iowa also does not track Recovery Act funds received directly by 
cities, counties, and local governments. At the local level, some 
agencies can track these funds, while others are developing guidance to 
require such tracking, according to state officials. Although 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 dashboard located on the state's 
Web site. Accounting officials told us they are concerned about not 
being able to satisfy requirements that they report Recovery Act funds 
received directly by cities, counties, local governments, and other 
entities. State accounting officials told us they are working with all 
of these entities to establish procedures for financial oversight. 

Iowa Single Audit Reports Play an Important Role in Identifying and 
Correcting Financial Problems: 

Iowa's annual Single Audit is one of the key tools used to identify and 
correct weaknesses in Iowa's financial management system. Recent annual 
audits have reported few weaknesses. Iowa's fiscal year 2008 audit 
report did not identify any material weaknesses, and its fiscal year 
2007 audit report found one material weakness that has been corrected. 
According to Iowa Department of Education officials, the Single Audit 
report has proven to be an effective system for identifying and 
correcting problems; however, state accounting officials and the Iowa 
Departments of Education and Transportation do not use the report to 
assess internal control risks. Iowa accounting officials stated they do 
not use the report because it is released several months after auditors 
review transactions and procedures. 

Because of the 27 percent reduction to the Office of the State 
Auditor's appropriation,[Footnote 27] and the resulting reduction in 
resources available to audit certain state agencies, state audit 
officials expect that the state will likely receive a qualified opinion 
on the State of Iowa Comprehensive Annual Financial Report and are 
continuing to consider the impact on the opinion on the state's Single 
Audit. 

Some State Agencies and Localities Are Relying on Existing Performance 
Measures but Await Federal Guidance to Clarify How to Assess Recovery 
Act Results: 

While awaiting federal guidance on a consistent approach to determining 
the number of jobs created and retained through Recovery Act funds, 
Iowa state agencies continue to consider how to measure results. 
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. According to a Legislative 
Services Agency official, the agency has offered to work 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. 

Some state agencies told us they were collecting data that could be 
used to measure results of the Recovery Act. 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 the state reports this information to the 
U.S. Department of Transportation, which may use it to calculate the 
number of jobs created. Furthermore, officials from the Des Moines and 
Ottumwa public housing agencies said they planned to use information 
reported to them by contractors under the Davis-Bacon Act to calculate 
the number of jobs created from the use of Recovery Act funds. In 
general, as discussed earlier, Recovery Act funds allowed state 
agencies to avoid program cuts, mandatory layoffs, and furloughs, in 
addition to balancing the fiscal year 2009 budget. For example, 
according to a senior budget official, Iowa's fiscal year 2010 budget 
includes SFSF funds that will be used to avoid laying off teachers, 
among other purposes. 

Some local agencies also have plans for how to track and measure 
results other than jobs created and saved. For example, officials from 
the Des Moines Municipal Housing Agency said they will measure the 
effects of Recovery Act spending by tracking lease rates for vacant 
units after renovations are completed, and officials from the North 
Iowa Regional Housing Authority said they will measure results by 
confirming the completion of renovations in public housing facilities. 
As of the end of April 2009, the Ottumwa Housing Authority had 
completed several projects using Recovery Act funds totaling $28,798. 
Iowa Department of Transportation officials told us they selected 
"shovel-ready" projects, such as bridge replacements and highway 
resurfacing, that could be completed quickly, in order to comply with 
the requirement to obligate 50 percent of Recovery Act funds for 
highway infrastructure before June 30, 2009, and to give priority to 
work that can be completed within 3 years. The Ottumwa Community School 
District spent about $40,000 on Title I materials and computers and 
planned to use at least part of their first allocation of Title I funds 
to reimburse the district for these expenditures. 

Some local agencies have expressed specific concerns about how to 
calculate and report results. For example, the school districts and 
AEAs we visited said they are waiting for guidance on how to measure 
jobs created or retained, although they believe the Recovery Act 
education funds have saved jobs.[Footnote 28] In April 2009, the Iowa 
Legislature had to reduce the state budget by $40 million, and it took 
this reduction from the education account and replaced it with SFSF 
funds. Because the $40 million reduction came late in the state fiscal 
year, school districts would have faced a larger reduction in staff 
than if the cut had come earlier. In the Waterloo Community School 
District, officials are unsure about how to count the number of jobs 
saved. Officials in the Iowa Department of Education also expressed 
concern about the impact of declining enrollment in many school 
districts on job measurement. They noted that declining enrollments 
naturally lead to declines in staff, making it difficult to achieve job 
retention or creation goals. However, two of the three school districts 
we spoke with expected relatively flat or increasing enrollment, while 
the Des Moines Independent Community School District expects flat or 
decreasing enrollment over the next 2 years. The director of Iowa's 
Office of Drug Control Policy said that some potential recipients of 
JAG grant funds, such as small sheriffs' departments, might not apply 
for Recovery Act funds if they believe the reporting requirements are 
burdensome in relation to the amount of JAG funds they may receive. 
Many Iowa law enforcement offices are small and do not have the 
resources to prepare detailed financial documents. 

Officials noted the potential difficulty of measuring Recovery Act 
outcomes separately from other recovery initiatives, such as Iowa's I- 
JOBS program--which provides $830 million in state infrastructure 
funding. 

State Comments on This Summary: 

We provided the Governor of Iowa with a draft of this appendix on June 
19, 2009. The Director, Iowa Office of State-Federal Relations, and the 
Director for Performance Results, Department of Management responded 
for the Governor on June 23, 2009. In general, officials agreed with 
our findings and conclusions. The officials also offered technical 
suggestions, which we have incorporated, as appropriate. 

GAO Contacts: 

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

Belva Martin, (202) 512-6806 or martinb@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Thomas Cook, Assistant 
Director; Christine Frye, Analyst-in-Charge; James Cooksey; Daniel 
Egan; Ronald Maxon; Marietta Mayfield; Mark Ryan; and Carol Herrnstadt 
Shulman made key contributions to this report. 

[End of section] 

Footnotes For Appendix VII: 

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

[2] The increased FMAP available under the Recovery Act is for state 
expenditures for Medicaid services. The receipt of this increased FMAP 
may reduce the funds that states would otherwise have to use for their 
Medicaid programs, and states have reported using these available funds 
for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance grants 
awarded directly to local governments in this report because BJA's 
solicitation for local governments closed on June 17, 2009; therefore, 
not all of these funds have been awarded. 

[4] Iowa's fiscal year begins July 1 and ends June 30. 

[5] Iowa Code § 8.54(4). 

[6] Iowa has two budget reserve funds, the Cash Reserve Fund and the 
Economic Emergency Fund. The balance in the General Fund at year-end 
must be used to replenish both of these funds. The Cash Reserve Fund is 
limited to 7.5 percent of state General Fund revenues and the Economic 
Emergency Fund is limited to 2.5 percent. The Cash Reserve Fund limit 
must be reached prior to depositing funds in the Economic Emergency 
Fund. Once these funds are full, any remaining funds are available for 
authorization in the next fiscal year. 

[7] See Recovery Act, div. B, title V, §5001. 

[8] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[9] Iowa provided projected Medicaid enrollment data for May 2009. 

[10] Iowa received increased FMAP grant awards of $136 million for the 
first three quarters of federal fiscal year 2009. 

[11] The state also reported a number of efforts to expand eligibility. 
For example, beginning July 1, 2009, it will extend Medicaid coverage 
to legal permanent resident alien children under the age of 19 (who are 
currently subject to a 5-year waiting period for enrollment) and will 
adopt presumptive eligibility. 3120201 pg. 1C, pg. 8 D, pg. 9E The 
Balanced Budget Act of 1997 gives states the option of allowing 
"qualified entities" to "presumptively" enroll children in Medicaid who 
appear to be eligible based on their age and family income. Presumptive 
eligibility is a process that provides immediate access to health care 
services for a limited period of time for children who appear to 
qualify for Medicaid while eligibility is being determined. 

[12] In their technical comments to us, state officials said that the 
state dedicated staff time to these functions but had not outlaid 
additional dollars to perform these functions. The state absorbed the 
additional work within existing staff. The state did not provide 
additional personnel or funds for system changes to accommodate the 
increased FMAP. 

[13] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[14] As a part of our work, we selected two projects for review--(1) a 
$1 million project, funded with $850,000 of Recovery Act funds, near 
Mason City to resurface 4.5 miles of Route B30, and (2) a $15 million 
project in Clarke County to restructure 9.5 miles of Interstate 35--one 
locally administered and one state-administered project each located in 
an economically distressed area. 

[15] Of the 99 counties in Iowa, 44 are characterized as economically 
distressed. 

[16] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, the FHWA assesses the 
ability of states to have their apportioned funds obligated by the end 
of the federal fiscal year (September 30) and adjusts the limitation on 
obligations for federal-aid highway and highway safety construction 
programs by reducing for some states the available authority to 
obligate funds and increasing the authority of other states. 

[17] Iowa's 10 regional AEAs, which were established by the Iowa 
Legislature in 1974 to provide equitable and economical educational 
opportunities for Iowa's children, partner with public and some private 
schools to provide education and instructional support services. 

[18] The Des Moines Independent Community School District, the largest 
school district in Iowa, has approximately 32,000 students and 6 high 
schools (which includes 1 ESEA Title I school), 10 middle schools (4 
ESEA Title I), and 40 elementary schools (24 ESEA Title I). The Ottumwa 
Community School District, with approximately 4,500 students, has 2 
high schools, 1 middle school, and 8 elementary schools (5 ESEA Title 
I). The Waterloo Community School District, with approximately 10,400 
students, has 3 high schools, 4 middle schools (1 ESEA Title I), and 12 
elementary schools (10 ESEA Title I). 

[19] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis-Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. § 3141-3148. 

[20] We did not review these funds awarded directly to local 
governments in this report because BJA's solicitation for local 
governments closed on June 17, 2009. 

[21] Because of rounding, this number does not equal 60 percent of the 
total JAG award. 

[22] A state administering agency may use up to 10 percent of the state 
award, including up to 10 percent of any accrued interest, for costs 
associated with administering JAG funds. 

[23] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[24] HUD released a revised Notice of Funding Availability for 
competitive awards on June 3, 2009. The revision included changes and 
clarifications to the criteria and time frames for application and to 
funding limits. 

[25] HUD developed the Public Housing Assessment System to evaluate the 
overall condition of housing agencies and measure performance in major 
operational areas of the public housing program. These include 
financial condition, management operations, and physical condition of 
the housing agencies' public housing programs. Housing agencies that 
are deficient in one or more of these areas are designated as troubled 
performers by HUD and are statutorily subject to increased monitoring. 

[26] The Buy American provision of the Recovery Act prohibits, with 
certain exceptions, the use Recovery Act funds for the construction, 
alteration, maintenance, or repair of a public building or work unless 
all of the iron, steel, and manufactured goods used in the project are 
produced in the United States. Recovery Act, div. A, title XVI, § 1605. 

[27] The net effect of this reduction is unknown because of potential 
reimbursement from some audited entities. 

[28] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See OMB Memorandum M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[End of Appendix VII] 

Appendix VII: Massachusetts: 

Overview: 

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

Use of funds: GAO's work in Massachusetts focused on nine federal 
programs, selected primarily because they have begun disbursing funds 
to states, include new programs, or include existing programs receiving 
significant amounts of Recovery Act funds. Program funds are being 
directed to help Massachusetts stabilize its budget and support local 
governments, particularly school districts, and several are being used 
to expand existing programs. Funds from some of these programs are 
intended for disbursement through states or directly to localities. The 
funds include the following: 

* Funds Made Available as a Result of Increased Medicaid Federal 
Medical Assistance Percentage (FMAP).[Footnote 2] As of June 29, 2009, 
Massachusetts had received over $1.2 billion in increased FMAP grant 
awards, of which it had drawn down over $833 million, or almost 68 
percent. The commonwealth is using these funds to cover the state's 
increased Medicaid caseload, maintain current populations and benefits, 
increase provider payment rates, and make additional state funds 
available to offset the state budget deficit. 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $438 
million in Recovery Act funds to Massachusetts, of which 30 percent was 
suballocated to metropolitan and other areas. As of June 25, 2009, the 
federal government's obligation was $174 million, and Massachusetts had 
contracted for 20 projects and advertised for an additional 10 
projects. All were quick-start projects largely involving road paving 
except for one complex project that includes construction of a new 
highway interchange. For example, one project in Adams entails 1.5 
miles of road resurfacing and sidewalk reconstruction on Route 116. All 
paving except the topcoat is planned to be completed before winter. 
Another project in Swansea involves resurfacing Route 6 from the 
Somerset town line to the Rehoboth town line and that paving is 
expected to be completed before winter. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
The U.S. Department of Education (Education) has awarded Massachusetts 
about $666 million, or about 67 percent of its total SFSF allocation of 
$994 million. The commonwealth has obligated $412 million as of June 
26, 2009. Massachusetts is using these funds to restore state aid to 
school districts, helping to stabilize their budgets and, among other 
uses, retain staff. For example, a Lawrence Public Schools official 
said these funds would prevent the layoff of 123 staff members, 
including 90 teachers. 

* Title I, Part A, of the Elementary and Secondary Education Act (ESEA) 
of 1965. Education has awarded Massachusetts about $82 million in 
Recovery Act ESEA Title I, Part A, funds or 50 percent of its total 
allocation of $163 million. Of these funds, the commonwealth has 
allocated $78 million to local education agencies, based on information 
available as of June 30, 2009. These funds are to be used to help 
educate disadvantaged youth. For example, the Boston Public Schools 
plan to use these funds for benchmark assessments, a student 
information system, and targeted upgrades of computer facilities for 
teacher and student use. 

* Individuals with Disabilities Education Act (IDEA), Parts B and C. 
Education has awarded about $149 million in Recovery Act IDEA, Part B 
and C, funds, or 50 percent of its total allocation of $298 million. 
Massachusetts has allocated all of its available Part B funds to local 
education agencies, based on information available on June 30, 2009. 
These funds are planned to be used to support special education and 
related services for infants, toddlers, children, and youth with 
disabilities. For example, Boston Public Schools plan to use these 
funds to hire staff; invest in prereferral to special education 
intervention, autism-related technology, and training; and expand 
inclusion activities. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $122 million in Recovery Act weatherization 
funding to Massachusetts for a 3-year period. DOE has provided $12.2 
million to the commonwealth, and Massachusetts has obligated none of 
these funds as of June 30, 2009, as it is awaiting approval of its 
state plan. In July 2009, Massachusetts plans to begin disbursing its 
funds for weatherizing low-income families' homes and state and federal 
public housing, and for developing an energy-related training center. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
allotted about $24.8 million to Massachusetts in Workforce Investment 
Act Youth Recovery Act funds. The commonwealth has allocated $21.1 
million to local workforce boards, based on information available on 
June 30, 2009. Massachusetts plans to use 60 percent of Recovery Act 
funds under this program by September 30, 2009, to create about 6,500 
summer jobs for youth. 

* Edward Byrne Memorial Justice Assistance Grants. The Department of 
Justice's Bureau of Justice Assistance has awarded $25 million directly 
to Massachusetts in Recovery Act funding. Based on information 
available as of June 26, 2009, about $13 million (51 percent) of these 
funds have been obligated by the Executive Office of Public Safety and 
Security, which administers these grants for the commonwealth.[Footnote 
3] 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated about $82 million in Recovery Act funding to 
68 public housing agencies in Massachusetts. Based on information 
available as of June 20, 2009, about $3.1 million (4 percent) had been 
obligated by 20 of those agencies. At the two public housing agencies 
we visited (in Boston and Revere), this money, which flows directly to 
public housing agencies, is being used for various capital 
improvements, including modifying bathrooms, replacing roofs and 
windows, and adding security features. 

Safeguarding and transparency: Massachusetts has begun planning its 
oversight efforts. Officials from the State Auditor's Office have 
drafted an audit plan and are currently planning the risk assessments 
they will perform of programs receiving funding under the Recovery Act. 
The state Inspector General intends to focus on gaps in coverage. The 
oversight agencies have expressed concern regarding their 2010 budgets 
and potential staffing cuts due to the commonwealth's fiscal situation. 
The extent of these cuts will not be known until the budget is passed 
for the fiscal year, which begins July 1, 2009. The commonwealth is in 
the process of putting into place a plan to obtain additional resources 
for these oversight agencies. Massachusetts has enhanced its accounting 
system to track Recovery Act funds that flow through the state 
accounting system. The Comptroller's Office has included questions on 
compliance with Recovery Act provisions in its internal control 
questionnaire, and the Governor's Office is continuing to assess 
whether agencies need new procedures for managing these funds. 

Assessing the effects of spending: Massachusetts agencies are beginning 
to develop strategies for collecting and reporting employment outcomes, 
focusing on incorporating federal guidance and adapting existing 
systems for collecting and reporting on jobs created and retained. 
State program officials report using a variety of methods to measure 
employment outcomes, which could lead to reporting inconsistencies. For 
example, highway construction projects are submitting monthly 
information on employees paid, while weatherization program officials 
have estimated the number of jobs that will be created using a model 
for the construction trades. Existing programs receiving Recovery Act 
funds are beginning to develop plans for measuring program performance. 

Massachusetts Has Accelerated the Use of Recovery Act and Rainy-Day 
Funds to Close a Growing Budget Gap: 

As we noted in our April 2009 report,[Footnote 4] the commonwealth of 
Massachusetts was, at that time, addressing a budget gap of 
approximately $3 billion out of a total state operating budget of about 
$28 billion. [Footnote 5] Since our last bimonthly report, this 
projected gap has grown to nearly $4 billion. The major cause of the 
widening budget gap is reduced revenue collections, which continue to 
be significantly lower than officials had anticipated. For example, tax 
collections in April alone were nearly one-half billion dollars lower 
than expected.[Footnote 6] To close this widening budget gap, the state 
plans to use an additional $561 million in state "rainy-day" funds and 
make available other state funds by using $412 million from the 
Recovery Act's State Fiscal Stabilization Fund (SFSF) for fiscal year 
2009, which ended on June 30.[Footnote 7] In addition, the state has 
already reduced expenditures by more than $1 billion (including 
eliminating state positions and implementing management furloughs) and 
used additional revenue from other sources to make up for some of the 
state's revenue decline. These included voluntary cuts and 
contributions from entities outside the governor's budget-cutting 
authority, such as the legislature, the judiciary, and quasi-public 
agencies. State officials noted that the occurrence of a significant 
revenue shortfall late in the fiscal year made it nearly impossible for 
the state to rely on any additional spending cuts or tax increases to 
balance its budget. Therefore, state officials noted that accelerating 
their use of Recovery Act and state rainy-day funds was the most viable 
solution to balance the budget. 

Both the Governor and legislature have also proposed using a 
combination of federal Recovery Act funds, such as state funds made 
available as a result of increased FMAP and rainy-day funds, to avoid 
substantial budget spending cuts to stabilize its budget for fiscal 
year 2010. The state had hoped to leave a sizable amount of the SFSF 
and rainy-day funds available for 2011 but changed its approach because 
of its deteriorating fiscal condition. Using more of these funds in the 
current fiscal year will likely make it more difficult for the state to 
balance its budget after Recovery Act funds are no longer available, 
unless economic conditions improve substantially. 

The growth in services to disadvantaged populations and maintenance-of- 
effort requirements pose added risks to the state's longer-term budget 
stability. Although state officials report that safety net caseloads 
are growing slowly in Massachusetts, they are concerned that future 
caseload growth could further strain the state's budget at a time when 
Recovery Act funding is no longer available.[Footnote 8] Massachusetts 
officials also expressed concerns over maintenance-of-effort 
requirements attached to many federal programs, including those funded 
through the Recovery Act, as future across-the-board spending 
reductions could pose challenges for maintaining spending levels in 
these programs. State officials said that maintenance-of-effort 
requirements that require maintaining spending levels that are based 
upon prior-year, fixed-dollar amounts will pose more of a challenge 
than upholding spending levels based upon a percentage of program 
spending provided for the same purpose in a previous fiscal year. The 
SFSF program provides an example of the former.[Footnote 9] However, a 
state may obtain a maintenance-of-effort waiver for the SFSF program by 
demonstrating that the percentage of its total state revenues that will 
be used to support elementary, secondary, and public higher education 
for the relevant fiscal year will be equal to or greater than the 
percentage of its total state revenues that were used to support 
elementary, secondary, and public higher education for the preceding 
fiscal year.[Footnote 10] 

Increased FMAP Funds Have Allowed Massachusetts to Maintain Health Care 
Reform Initiatives: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
to no more than 83 percent. The Recovery Act provides eligible states 
with an increased FMAP for 27 months from October 1, 2008, through 
December 31, 2010.[Footnote 11] 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 12] 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 would otherwise 
have to use for their Medicaid programs, and states have reported using 
these available funds for a variety of purposes. 

From October 2007 to May 2009, the state's Medicaid enrollment grew 
from 1,113,278 to 1,168,317, an increase of 5 percent.[Footnote 13] 
Enrollment varied during this period, and there were periods in which 
enrollment decreased (see figure 1). The increase in enrollment was 
mostly attributable to the population groups of (1) children and 
families and (2) nondisabled, nonelderly adults. 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for 
Massachusetts, October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: 0.45. 

Nov.–Dec. 2007: 
Percentage change: 0.65. 

Dec.–Jan. 2007-08: 
Percentage change: -0.33. 

Jan.–Feb. 2008: 
Percentage change: 0.81. 

Feb.–Mar. 2008: 
Percentage change: 1.26. 

Mar.–Apr. 2008: 
Percentage change: 0.2. 

Apr.–May 2008: 
Percentage change: 0.5. 

May–June 2008: 
Percentage change: 0.17. 

Jun.–Jul. 2008: 
Percentage change: -0.12. 

Jul.–Aug. 2008: 
Percentage change: -0.22. 

Aug.–Sep. 2008: 
Percentage change: -0.22. 

Sep.–Oct. 2008: 
Percentage change: -0.06. 

Oct.–Nov. 2008: 
Percentage change: 0.56. 

Nov.–Dec. 2008: 
Percentage change: -0.88. 

Dec.–Jan. 2008-09: 
Percentage change: 0.74. 

Jan.–Feb. 2009: 
Percentage change: 0.54. 

Feb.–Mar. 2009: 
Percentage change: 1.02. 

Mar.–Apr. 2009: 
Percentage change: -0.08. 

Apr.–May 2009: 
Percentage change: -0.14. 

October 2007 enrollment: 1,113,278; 
May 2009 enrollment: 1,168,317. 

Source: GAO analysis of state reported data. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

As of June 29, 2009, Massachusetts had drawn down over $833 million in 
increased FMAP grant awards, which is almost 68 percent of its awards 
to date.[Footnote 14] Massachusetts officials reported that they plan 
to use funds made available as a result of the increased FMAP to offset 
the state budget deficit, to cover the state’s increased Medicaid 
caseload, to maintain current populations and benefits and to increase 
provider payment rates, pending state legislative approval to do so. 

Massachusetts officials noted that the state is 3 years into 
implementing major health care reforms. The officials indicated that 
the increased FMAP has allowed the state to maintain this reform 
initiative in a very difficult economic climate. Additionally, they 
further noted that in the absence of the funds, the state would have 
been faced with more difficult decisions about how to cut spending. 
According to these officials, even with the increased FMAP, 
Massachusetts faces the need to make significant cuts to programs for 
the elderly and for people with developmental disabilities, as well as 
public health and mental health programs. In using the increased FMAP, 
Massachusetts officials reported that the Medicaid program has incurred 
additional costs related to: 

* personnel needed to ensure programmatic compliance with requirements 
associated with the increased FMAP; 

* personnel needed to ensure compliance with reporting requirements 
related to the increased FMAP; and; 

* personnel needed for routine administration of the state’s Medicaid 
program. 

The 2007 and 2008 Single Audits for Massachusetts did not identify any 
material weaknesses specifically related to the Medicaid program. 
[Footnote 15] Further, Medicaid officials indicated that they did not 
have any concerns regarding the state’s ability to maintain eligibility 
for the increased FMAP. However, they noted that the state is 
implementing a new system—-NewMMIS—-which would include online claims 
processing, among other things, and that it would be 6 months before 
the state could request certification of the system from CMS. Because 
Massachusetts Medicaid pays providers on a weekly rather than daily 
basis, state officials continue to discuss issues related to the state’
s compliance with the Recovery Act’s prompt payment reporting 
requirements.16 Specifically, state officials reported that they would 
like guidance from CMS on the availability of waivers for this 
requirement for states that have just implemented a NewMMIS system. 

As we previously reported, the state is using existing accounting 
systems to track these funds but has developed distinct revenue source 
codes that distinguish increased FMAP from general FMAP funds. However, 
officials reported that although the state can identify increased FMAP 
revenues that are deposited into its General Fund, the process for 
tracking the subsequent appropriation and expenditure of these funds is 
not yet implemented. 

First Round of Massachusetts Recovery Act Highway Fund Projects Under 
Way: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms, and states 
must follow the requirements of the existing program including 
planning, environmental review, contracting, and other requirements. 
However, the federal fund share of highway infrastructure investment 
projects under the Recovery Act is up to 100 percent, while the federal 
share under the existing Federal-Aid Highway Program is generally 80 
percent.[Footnote 17] 

Massachusetts was apportioned $438 million in March 2009 for highway 
infrastructure and other eligible projects. As of June 25, 2009, $174 
million has been obligated. The U.S. Department of Transportation has 
interpreted the term "obligation of funds" to mean the federal 
government's contractual commitment to pay for the federal share of the 
project. This commitment occurs at the time the federal government 
approves a project and a project agreement is executed. As of June 25, 
2009, $147,874 has been reimbursed by FHWA. States request 
reimbursement from FHWA as the state makes payments to contractors 
working on approved projects. 

Massachusetts Selected Quick-Start Projects, Used Accelerated Bidding 
Procedures, and Received Bids Below Cost Estimates: 

As we reported in our April 2009 report, Massachusetts began planning 
for federal highway infrastructure investment under potential stimulus 
legislation before the Recovery Act was passed. The commonwealth 
convened a task force to identify a priority list of transportation 
infrastructure investments. This task force identified projects that 
could be started quickly, focusing on projects that could be 
implemented in under 180 days, as well as projects that could be 
completed within a 2-year time frame. As a result, the initial Recovery 
Act funded projects advertised for bid were all small, short-term 
projects that require little lead time for planning and design, 
enabling contractors to begin work quickly. (See table 1.) Many initial 
round projects were also chosen to coincide with the construction 
season, which excludes the winter months. The two Massachusetts 
projects we visited--in Adams and Swansea--were in the early stages of 
construction; contractors had erected signage and were installing 
erosion control barriers before commencing construction. The Adams 
project, estimated to cost $1,714,860, entails 1.5 miles of road 
resurfacing and sidewalk reconstruction on Route 116 and is expected to 
be complete in July 2010. The Swansea project, estimated to cost 
$4,440,310, will resurface Route 6 from the Somerset town line to the 
Rehoboth town line and is expected to be complete in August 2010. 
According to state transportation officials, the bulk of the work will 
likely be completed before the winter shut-down; they expect that the 
only remaining work will be minor and low-cost. 

Table 1: Highway Obligations for Massachusetts by Project Type as of 
June 25, 2009: 

Pavement projects: New construction: $0 million; 
Pavement projects: Pavement improvement: $164 million; 
Pavement projects: Pavement widening: $0 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $0 million; 
Bridge projects: Improvement: $2 million; 
Other[A]: $7 million; 
Total[B]: $174 million. 

Percent of total obligations: 
Pavement projects: New construction: 0.0; 
Pavement projects: Pavement improvement: 94.3; 
Pavement projects: Pavement widening: 0.0; 
Bridge projects: New construction: 0.0; 
Bridge projects: Replacement: 0.0; 
Bridge projects: Improvement: 1.4; 
Other[A]: 4.2; 
Total[B]: 100.0. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[B] Total may not add because of rounding. 

[End of table] 

As of June 25, 2009, Massachusetts had awarded contracts for 20 
projects, and notice to proceed orders had been issued on all of these 
projects signaling that construction could begin. According to state 
transportation officials, because these projects are mainly small 
repaving projects, they should all be completed within 2 years. To 
ensure that projects get started quickly, Massachusetts has accelerated 
the bid evaluation and award cycle by shortening the time that 
contractors have to prepare their bids and the time between bid opening 
and issuing a notice to proceed for construction. According to 
Massachusetts transportation officials, the normal bidding cycle takes 
90 to 120 days from bid opening to award and notice to proceed, but for 
Recovery Act funded projects, transportation officials have been able 
to cut that time to less than 60 days. For example, the project we 
visited in Swansea was advertised on March 14, 2009; bids were opened 
30 days later on April 14, 2009; and the contract was awarded on April 
23, 2009--roughly 1 week after bid opening and 6 weeks after the 
project was advertised. 

The recessionary economy in Massachusetts has led to an environment in 
which bids are coming in below estimates. Massachusetts transportation 
officials are reporting that contracts for Recovery Act projects are 
being awarded for about 87 percent of estimated costs. Officials 
believe this is a short-term trend caused by excess capacity in the 
construction market because of the state's economic downturn. According 
to one official, in the past they could expect 4 to 5 contractors to 
bid on a state construction contract, but lately they are seeing 10 to 
15 contractors bidding for a single contract. State officials believe 
that as more Recovery Act funded construction projects get under way, 
bids will be more in line with cost estimates. Because officials 
believe this is a temporary situation, the state has no plans to change 
its estimating practices. Officials reported that if additional money 
is available as a result of this trend, they have identified several 
small projects that could be funded. 

Massachusetts Expects to Meet All Recovery Act Requirements, but 
Maintenance of Effort Requirement Poses Challenges: 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. The states are required to: 

* ensure that 50 percent of the apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. The Secretary of Transportation is to withdraw 
and redistribute to other states any amount that is not obligated by 
any state within these time frames. 

* give priority to projects that can be completed within 3 years, and 
to projects located in economically distressed areas (EDA). EDAs are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. 

* certify that the state will maintain the level of spending for the 
types of transportation projects funded by the Recovery Act that it 
planned to spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state is required to identify the 
amount of funds the state planned to expend from state sources as of 
February 17, 2009, for the period beginning on that date and extending 
through September 30, 2010.[Footnote 18] 

Massachusetts has met the Recovery Act requirement that 50 percent of 
their apportioned funds are obligated within 120 days. Of the 
$293,705,678 that is subject to this provision, 59.1 percent was 
obligated as of June 25, 2009. In order to ensure that 50 percent of 
the apportioned Recovery Act funds were obligated within 120 days, the 
commonwealth selected projects worth over $170 million, in case some 
plans did not materialize. Given the state's focus on selecting small 
projects that can be moved quickly to construction, the state had to 
pull together many projects in order to meet the 50 percent obligation 
requirement. For example, with the exception of one large interchange 
project in Fall River that was estimated to cost $66.8 million, 
projects planned for the initial funding cycle had costs estimated to 
range from $624,440 to just over $9 million. Massachusetts also 
transferred $12.8 million of Recovery Act highway funding that was 
subject to the 50 percent rule for the 120-day redistribution from FHWA 
to the Federal Transit Administration. According to FHWA guidance, once 
transferred, these funds are no longer subject to the 50 percent 
obligation requirement.[Footnote 19] 

Massachusetts will be able to expend most of its apportioned funds in 3 
years because it has made it a priority to select projects that could 
begin in 180 days and be completed within 2 years. The Recovery Act 
Coordinator for the Massachusetts Executive Office of Transportation 
reported that, given that the first projects are predominantly 
resurfacing, most are likely to be completed within 2 years of award. 
The only project that will probably not be completed within 2 years is 
the Fall River-Freetown Route 24 Interchange project which, because of 
its complexity, will likely take longer. 

As of June 25, 2009, Massachusetts obligated funds to three projects 
worth an estimated total of $80,619,327 located in the state's only 
EDA. These projects include the Swansea project, a resurfacing project 
in Westport estimated to cost $6 million, and the $73.4 million Fall 
River development park project, of which $70.1 million is federal 
funds. This project supports an economic development project and 
includes construction of a new highway interchange on Route 24 and new 
access roadways to the proposed Fall River Executive Park The state has 
given priority to selecting Recovery Act projects in EDAs but has also 
added its own criteria by selecting projects through its economic 
growth district initiative. Massachusetts has only one county--Bristol 
County--that is defined by section 301of the Public Works and Economic 
Development Act of 1965 as an EDA. Under its growth districts 
initiative, the state has identified additional areas as being 
appropriate locations for significant new commercial, residential or 
mixed-use growth, as shown in figure 2. As they plan for the future, 
officials report that they will look to select projects that will 
leverage infrastructure development with new housing and building 
development, which in turn will create additional jobs. 

Figure 2: Federally-Designated EDA and State-Designated Growth 
Districts Targeted for Highway Infrastructure Projects: 

[Refer to PDF for image: map of Massachusetts] 

The map depicts: 
* Federally-designated economically distressed area: Bristol; 
* State-designated growth communities: 
- Attleboro; 
- Burlington; 
- Chicopee; 
- Devens; 
- Foxborough; 
- Haverhill; 
- Lawrence; 
- Lynn; 
- New Bedford; 
- Pittsfield; 
- Plymouth; 
- Revere; 
- Summerville; 
- Springfield; 
- Weymouth; 
- Worcester. 

Sources: GAO analysis of Bureau of Economic Analysis and Executive 
Office of Housing and Economic Development (EOHC) information; Census 
(map). 

[End of figure] 

As we reported in April 2009, Massachusetts submitted a "conditional" 
maintenance-of-effort certification, meaning that the certification was 
subject to conditions or assumptions, future legislative action, future 
revenues, or other conditions. Specifically, Massachusetts stated that 
it might have to make downward adjustments to the size of its capital 
investment plan if revenues did not meet current projections. On April 
22, the U.S. Department of Transportation Secretary informed the states 
that conditional and explanatory certifications were not permitted, 
provided additional guidance, and gave the states the option of 
amending their certifications by May 22, 2009. Massachusetts 
resubmitted its certification on May 26, 2009. According to U.S. 
Department of Transportation officials, the department is reviewing 
Massachusetts's resubmitted certification letter and has concluded that 
the form of the certification is consistent with the additional 
guidance. The department is currently evaluating whether the states' 
method of calculating the amounts they planned to expend for the 
covered programs is in compliance with Department of Transportation 
guidance. 

Massachusetts transportation officials, however, expressed concern 
about the state's ability to maintain its level of state expenditures 
in light of its deteriorating fiscal situation. The commonwealth's 
certification was based upon its $14.3 billion capital spending plan, 
which includes roughly $8.1 billion in transportation spending. Because 
the 5-year plan was developed before the full extent of the state's 
worsening fiscal condition was known, the state felt compelled to add a 
disclaimer to their initial certification to explain why it may be 
unable to maintain planned levels of state spending over the course of 
the Recovery Act grant. The commonwealth floats bonds to pay for 
capital projects. The state is concerned that as revenues continue to 
shrink, it may be unable to afford the full amount of the capital 
projects called for in its 5-year plan. 

Massachusetts Already Using State Fiscal Stabilization Funds: 

The Recovery Act created a State Fiscal Stabilization Fund (SFSF) to be 
administered by the U.S. Department of Education (Education). 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 provides 
several assurances. These include assurances that the state will (1) 
meet maintenance-of-effort requirements (or it will be able to comply 
with waiver provisions) and (2) 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. 
Furthermore, the state applications must contain baseline data that 
demonstrate the state's current status in each of the assurances. 
States must allocate 81.8 percent of their SFSF funds to support 
education (education stabilization funds) and must use the remaining 
18.2 percent for public safety and other government services, which may 
include education (government services funds). After maintaining state 
support for education at fiscal year 2006 levels, the state must use 
education stabilization funds to restore state funding to the greater 
of fiscal year 2008 or 2009 levels for state support to school 
districts or public Institutions of Higher Education (IHE). When 
distributing these funds to school districts, states must use their 
primary education funding formula but maintain discretion in how funds 
are allocated to public IHEs. In general, school districts maintain 
broad discretion in how they can use stabilization funds, but states 
have some ability to direct IHEs in how to use these funds. 

In 2009, Massachusetts was allocated just over $994 million in SFSF. Of 
this amount, about $813 million, or about 82 percent, are for education 
stabilization funds, and $181 million, or about 18 percent, are for 
government services funds. The state will use about $466 million of the 
SFSF funds to restore elementary and secondary, and pubic higher 
education funding for fiscal year 2009 (which ended on June 30, 2009); 
has made plans for about $347 million for fiscal year 2010 (which began 
on July 1, 2009); and will have about $181.5 million remaining, of 
which about $70.5 million is for government services funds.[Footnote 
20] State officials explained that originally they did not intend to 
commit over three-fourths of the state's SFSF allocation so soon and 
that they are keenly aware of the limited Recovery Act resources they 
will have available for the remainder of 2010 and 2011. 

As shown in figure 3, in March 2009, the Governor, as part of his 
fiscal year 2010 recovery plan, committed $168 million to 166 school 
districts to help reduce teacher layoffs and program cuts in fiscal 
year 2010, and $162 million to public university and college campus 
budgets to help reduce layoffs, program cuts, and student fee hikes in 
fiscal year 2010. Later, the amount committed to public colleges and 
universities was decreased to $159 million. The Governor also announced 
plans to use approximately $20 million from the government services 
fund for public safety in fiscal year 2010, bringing proposed total 
SFSF spending for fiscal year 2010 to $347 million. 

Figure 3: Changes in Planned Uses of SFSF Funds for K-12 and Higher 
Education from March 2009 to May 2009: 

[Refer to PDF for image: vertical bar graph] 

March 2009: 
K-12 for 2009: 0; 
K-12 for 2010: $168 million; 
Higher Education for 2009: $54 million; 
Higher Education for 2010: $162 million; 
Remaining funds: $590 million. 

May 2009: 
K-12 for 2009: $412 million; 
K-12 for 2010: $168 million; 
Higher Education for 2009: $54 million; 
Higher Education for 2010: $159 million; 
Remaining funds: $181 million. 

Source: GAO analysis of Massachusetts Executive Office of Education 
data. 

Note: The Governor plans to use approximately $20 million from the 
government services fund for public safety in fiscal year 2010. 

[End of figure] 

In March 2009, Massachusetts had not planned on using any of its SFSF 
funds for fiscal year 2009 for kindergarten to 12th grade (K-12) 
education and had anticipated having $590 million remaining for use 
after fiscal year 2010. However, since March, the state has altered its 
planned uses of SFSF funds for later years to include $412 million in 
spending for K-12 education for fiscal year 2009. This additional 
spending was prompted by further declines in state revenues that forced 
the already cash-strapped state in May to reduce its own fiscal year 
2009 contributions to K-12 education by the same amount. The state used 
$322 million in education stabilization funds and $90 million, or about 
half, of its government services funds to backfill these cuts. These 
funds were available to school districts in late June 2009. Officials 
from one school district said they would use these funds to meet 
payroll for the last quarter of fiscal year 2009. 

SFSF spending in 2010 is estimated to represent about 3 percent of the 
state's spending on K-12 education. The state's total fiscal year 2010 
budget for K-12 education is projected to be $5.3 billion, of which 
about $896 million comes from non-Recovery Act federal spending. State 
officials told us that, given the state's level of spending on K-12 
education, they were not at risk of failing to meet the SFSF 
maintenance-of-effort requirement to maintain support for K-12 at least 
at the level of such support in fiscal year 2006. State officials told 
us that projected state K-12 education spending far exceeds 2006 
levels. However, this is not the case for higher education. Similar to 
K-12 education, states must maintain their higher education spending at 
least at fiscal year 2006 levels to meet the SFSF maintenance-of-effort 
requirement. Officials explained that current spending for higher 
education in Massachusetts is not far from the fiscal year 2006 levels. 

To ensure that the state would be eligible to receive SFSF funding, 
state officials indicated in their application that they would apply 
for a maintenance-of-effort waiver for higher education for fiscal year 
2010. State officials want to use state education spending as a percent 
of total state revenue when compared with the preceding year to meet 
their maintenance-of-effort requirement for higher education, rather 
than as aggregate spending on a per full-time equivalent student basis. 
State officials showed in their SFSF application that proposed 
education spending--for both K-12 and higher education--for fiscal year 
2010 as a percent of revenue, is slightly greater than in fiscal year 
2009, even though actual spending will be less.[Footnote 21] The state 
SFSF application was approved on May 27, 2009. 

In mid-May, education officials from the Boston Public Schools and the 
Lawrence Public Schools discussed with us their planned use of SFSF 
funding for the last quarter of fiscal year 2009 and for fiscal year 
2010. [Footnote 22] Officials from Lawrence Public Schools, with an 
enrollment of approximately 12,000 students, said that if they get SFSF 
funds in lieu of the state dollars they were expecting for fiscal year 
2009, they also receive the SFSF fiscal year 2010 dollars that the 
Governor announced in March, and there are no additional cuts to state 
education funding, they will use the funds to help them maintain their 
current level of instruction, including avoiding some layoffs. Lawrence 
Public Schools officials said that the SFSF funds they hope to receive, 
$14.3 million for fiscal year 2009 and $6.7 million for fiscal year 
2010, would help them avoid a layoff of 123 of the 2,000 staff members, 
including 90 teachers. According to Lawrence Public Schools officials, 
almost 100 percent of their budget comes from the state. These 
officials noted that some of the funds greater than those needed to 
meet contractual obligations will be used for capital improvements on 
several buildings over 100 years old. Officials from the Boston Public 
Schools, with an enrollment of nearly 56,000 students, said they were 
not expecting to receive any SFSF funding for fiscal year 2010 because 
their education spending was already at the level set by the state's 
primary funding formula. They said that the $23 million in SFSF they 
receive for fiscal year 2009 will just replace the state's shortfall, 
not allowing them to do anything differently than planned. 

ESEA Title I, Part A Education Funds Flowing to School Districts 
through Existing Mechanism: 

The Recovery Act provides $10 billion in additional funds to help local 
education agencies (LEAs) educate disadvantaged youth by making 
additional funds available under Title I, Part A of the Elementary and 
Secondary Education Act (ESEA) of 1965. The Recovery Act requires these 
additional funds to be distributed through states to LEAs using 
existing federal funding formulas. These formulas are based on factors 
such as the concentration of students from families living in poverty. 
A total of 258 of the state's 391 school districts, regional technical 
vocational schools, and charter schools are eligible to receive these 
funds. In using the funds, local education agencies (LEA) are required 
to comply with current statutory and regulatory requirements. One of 
these requirements is that an LEA may only receive funds for a fiscal 
year if per-student funding or the aggregate expenditures of the LEA 
and the state, with respect to the provision of free public education 
by the LEA for the preceding fiscal year, were not less than 90 percent 
of such funding for the second preceding fiscal year. LEAs must 
obligate 85 percent of its fiscal year 2009 funds (including Recovery 
Act funds) by September 30, 2010, unless granted a waiver, and all of 
their funds by September 30, 2011. The U.S. Department of Education 
(Education) is advising LEAs to use the funds in ways that will build 
their long-term capacity to serve disadvantaged youth, such as through 
providing professional development to teachers. Education also is 
encouraging LEAs to give particular consideration to early childhood 
education programs. 

Education allocated the first half of states' ESEA Title I, Part A 
allocations on April 1, 2009, with Massachusetts receiving $81.8 
million of its total $163 million allocation. In fiscal year 2009, 
Massachusetts's regular ESEA Title I allocation was approximately $234 
million. The state is expecting its regular allocation to be slightly 
more in fiscal year 2010, about $244 million. According to state 
education officials, they view Recovery Act ESEA Title I funds as an 
addition to their regular allocation. 

LEAs began receiving ESEA Title I Recovery Act funds on July 1, 2009, 
and will continue to draw down funds as they incur allowable expenses. 
State officials required LEAs to submit an application prior to receipt 
of these funds. The state is using its usual administrative processes 
to make these funds available to LEAs. 

Both state and local officials talked about the Recovery Act's goal of 
job preservation and creation. They explained that ESEA Title I funds 
are unlikely to generate new positions but may help with job retention 
for teachers and staff. State and Boston Public Schools officials 
suggested that there is tension between the Recovery Act's goal of job 
creation and Education's guidance to invest these one-time funds 
thoughtfully to minimize the "funding cliff" that would occur once 
those funds are no longer available. Education officials said that ESEA 
Title I requirements are stringent, and funding can only be used for 
limited purposes. Massachusetts provided guidance to its LEAs, 
encouraging them to make strategic investments that will have an impact 
beyond fiscal year 2010 and fiscal year 2011, when Recovery Act funding 
is gone. State officials provided LEAs with a list of some of the ways 
a district could use its Recovery Act funds to make strategic 
investments. The list included, among other things, investing in 
licensure and career development, dropout prevention, professional 
development, and purchase of equipment. 

Officials from the Boston Public Schools, which is receiving $20.9 
million from the first allocation of ESEA Title I Recovery Act funds, 
said that they will seek a waiver from Education to the ESEA Title I 
supplemental educational services requirement. Under ESEA Title I, 
supplemental educational services must be available to students in 
schools that have not met state targets for increasing student 
achievement (adequate yearly progress) for 3 or more years. Boston 
education officials explained that they intend to use their regular 
ESEA Title I allocation for supplemental educational services,[Footnote 
23] but said they would like to use their Recovery Act funds for 
benchmarking assessment, a student information system, and targeted 
upgrades of computer facilities for teacher and student use. According 
to Boston education officials, these investments can positively impact 
the learning of students districtwide, unlike supplemental educational 
services that tend to benefit individual students. 

State Officials Required Submission of Application for Receipt of 
Recovery Act IDEA Parts B and C Funds: 

The Recovery Act provides supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B provides funding to ensure preschool and school- 
aged children with disabilities have access to a free and appropriate 
public education, and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities or at risk 
of developing a disability and their families. IDEA funds are allocated 
to states through three grants--Part B preschool age, Part B school 
age, and Part C grants for infants and families. States were not 
required to submit an application to Education in order to receive the 
initial Recovery Act funding for IDEA, Parts B and C (50 percent of the 
total IDEA funding provided in the Recovery Act). States will receive 
the remaining 50 percent by September 30, 2009, after submitting 
information to Education addressing how they will meet Recovery Act 
accountability and reporting requirements. All IDEA Recovery Act funds 
must be used in accordance with IDEA statutory and regulatory 
requirements. Included in these are the following: 

* a maintenance-of-effort requirement that state and local expenditures 
for special education not fall below those of the previous fiscal year; 
and: 

* a requirement that Part B funds supplement, rather than supplant, 
state and local funding. 

Education allocated the first half of the states' IDEA allocations on 
April 1, 2009, with Massachusetts receiving a total allocation of about 
$149 million for all IDEA programs. The largest share of IDEA funding 
is for the Part B school-aged program for children and youth. The 
state's initial allocation was: 

* $5.1 million for Part B preschool grants, 

* $140.3 million for Part B grants to states for school-aged children 
and youth, and: 

* $3.7 million for Part C grants for infants and families for early 
intervention services. 

Seven LEAs received IDEA Part B funds in early June to make up for 
funding cuts at the local level. As of July 2009, the remaining LEAs 
with approved applications can begin receiving funds and can continue 
to do so as needed. 

The state required its LEAs to submit applications to the state for 
IDEA Part B funds. As part of the application for grants for school- 
aged children and youth, LEAs had to specify how they planned to use at 
least 50 percent of their total fiscal year 2010 Recovery Act Part B 
allocation to assist students with disabilities and advance education 
reform in four areas: (1) educator quality and effectiveness, (2) 
enhanced systems and programs for students with disabilities and their 
families, (3) assessment and data systems, and (4) college and career 
readiness. The state suggested that no more than 50 percent of the 
remaining total allocation be used for recovery purposes to sustain and 
support existing special education programs and to advance short-term 
economic goals by spending quickly to save jobs and improve student 
achievement. 

State officials said they provided guidance related to IDEA Part B 
maintenance-of-effort requirements, consistent with their 
understanding, to LEAs through presentations around the state and 
postings on their Web site. However, Boston Public Schools officials 
still had questions. Officials from the Boston Public Schools, which 
received an initial allocation of $10 million in IDEA Recovery Act 
funds, want additional guidance from Education. Specifically, Boston 
school officials want guidance on the impact reserving funds for 
prereferral to special education interventions will have on the 
requirement that Part B funds supplement, rather than supplant state 
and local funding. 

Boston Public Schools officials said they plan to use their initial 
Recovery Act IDEA funds to invest in some positions, prereferral to 
special education interventions, autism technology and training, and 
expansion of inclusion activities. According to Boston officials, they 
want to decrease the number of students who are referred to special 
education. Currently, the Boston Public Schools has a 20 percent 
referral rate to special education. Also, officials said they want to 
provide more and better services to those students who need special 
education services. For example, Boston officials said that they cannot 
provide the full range of services that autistic children might need. 
Through purchasing technology and training staff, they might be able to 
provide services to more autistic children. 

Officials from the Lawrence Public Schools, which received an initial 
allocation of $2.4 million in IDEA Recovery Act funds, said they are 
comfortable with the guidance they received from state officials and 
Education. Lawrence officials said they are considering several ways to 
use their initial allocation, including professional development and 
the purchase of alternative instructional models. According to Lawrence 
officials, by building the capacity of all teachers, they anticipate 
that they may reduce the need for special education services. 

Massachusetts Using WIA Youth Funds to Create Summer Employment 
Opportunities within Targeted Municipalities: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth program to 
facilitate the employment and training of youth. The WIA Youth program 
is designed to provide low income in-school and out-of-school youth age 
14 to 21, who have additional barriers to success, with services that 
lead to educational achievement and successful employment, among other 
goals. The Recovery Act extended eligibility through age 24 for youth 
receiving services funded by the act. In addition, the Recovery Act 
provided that, of the WIA Youth performance measures, only the work- 
readiness measure is required to assess the effectiveness of summer 
only employment for youth served with Recovery Act funds. Within the 
parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains. The 
program is administered by the U.S. Department of Labor and funds are 
distributed to states based upon a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
up to 15 percent for statewide activities. The local areas, through 
their local workforce investment boards, have flexibility to decide how 
they will use these funds to provide required services. In the 
conference report accompanying the bill which became the Recovery Act, 
[Footnote 24] the conferees stated that they were particularly 
interested in states using these funds to create summer employment 
opportunities for youth. Summer employment may include any set of 
allowable WIA Youth activities--such as tutoring and study skills 
training, occupational skills training, and supportive services--as 
long as it also includes a work experience component. Work experience 
may be provided at public sector, private sector, or nonprofit work 
sites. The worksites must meet safety guidelines and federal and state 
wage laws.[Footnote 25] 

The Executive Office of Labor and Workforce Development (EOLWD) 
oversees the WIA Youth program in Massachusetts, along with other 
workforce-related programs such as the unemployment insurance, 
workforce development, and employment service programs. The state is 
divided into 16 local workforce investment areas, each with its own 
workforce investment board, which oversees the WIA Youth program, as 
well as other employment and training programs. At the state level, 
EOLWD contracts the oversight, technical assistance and monitoring of 
WIA services to the Commonwealth Corporation-a quasi public agency 
created by the State Legislature. Financial contracts for WIA Youth 
funding are issued through a state contracting process that includes 
all United States Department of Labor Employment and Training 
Administration resources that is managed by EOLWD's Department of 
Workforce Development and Division of Career Services. The state 
develops guidance that is disseminated through the Commonwealth 
Corporation to the local boards. Each board then manages its WIA 
programs directly or procures a third party to manage the programs. 

Massachusetts Is Leveraging Recovery Act Dollars to Expand Summer Youth 
Services: 

EOLWD allocated $21,112,332 of the $24,838,038 WIA Youth Recovery Act 
funds to the 16 workforce investment areas within the state. EOLWD 
officials stated that they have instructed the local boards to spend 
the majority of their Recovery Act funds, at least 60 percent, by 
September 30, 2009, and the remainder of the funds by September 2010, 
with the goal of rapidly stimulating the economy. As of June 23, 2009, 
about $728,000 (3 percent) of the $24.8 million in WIA Youth Recovery 
Act money has been expended in total. The two local boards we visited, 
the Central Massachusetts Workforce Investment Board in Worcester and 
the Lower Merrimack Workforce Investment Board in Lawrence, were 
allocated about $2.0 million and $1.5 million in WIA Youth Recovery Act 
money, respectively. The Central Massachusetts Board has spent about 
$346,000--about 18 percent of their total WIA Youth Recovery Act Funds 
as of June 23, 2009, while the Lower Merrimack Valley Board has spent 
about $54,000--about 4 percent as of June 23, 2009. Officials from both 
boards stated that these expenditures were for planning and 
administration activities to get their summer programs operational. 

EOLWD has proposed recommendations on how to use the 15 percent WIA 
Youth state set-aside funds. Officials stated that a portion of the 
funds will go to the Commonwealth Corporation for monitoring local 
board activities. The Commonwealth Corporation plans to use these funds 
to hire additional staff to assist with its monitoring. The state has 
used some of these funds to develop an eligibility guidance tool for 
state agencies and local boards and to provide a series of eligibility 
and workplace safety trainings. 

According to State officials, WIA Youth Recovery Act dollars will be 
used to fund summer programs in all cities and towns[Footnote 26] in 
all 16 workforce investment areas. The programs will serve about 6,500 
eligible youth this summer, with each youth working an estimated 30 
hours per week for 8 weeks at the rate of $8 per hour. In total, the 
Governor's Office plans to create about 10,000 summer jobs for youth in 
60 communities across the state by leveraging and coordinating $21.1 
million in Recovery Act WIA Youth funds, $3.1 million in Recovery Act 
Edward Byrne Memorial Justice Assistance Grant (JAG) funds provided to 
the state Executive Office of Public Safety and Security, and $6.7 
million in state funded Youthworks program.[Footnote 27] The Governor 
stated that this approach will maximize state and federal resources, 
increase the number of jobs for young people, and expand services for 
youth up to age 24.[Footnote 28] It is proposed that the JAG funding 
will create new summer jobs programs in 35 cities and towns that 
previously did not have summer programs. The state funded Youthworks 
program will target 25 cities and towns in the state and only serves 
young people from these communities. 

The Central Massachusetts Board plans to use their WIA Youth Recovery 
Act money to serve 500 youth[Footnote 29] in three local regions by 
offering youth work experience combined with training. The board has 
put out a request for proposal for these opportunities. Local officials 
will match the youth with the different opportunities proposed by 
providers. It has contracted out the administration of its WIA Youth 
funds to the Worcester Community Action Council, Inc., which will 
conduct youth outreach, compile youth applications, and provide 
completed applications to the board for enrollment. 

The Lower Merrimack Board plans to use their WIA Youth Recovery Act 
money to serve 700 youth by offering them either work experience or 
work experience combined with training, and has put out a request for 
proposal for these opportunities.[Footnote 30] Local officials stated 
that an example of work experience combined with training would be a 
program that employs the youth for part of the day (such as a 
basketball coach at a Boys and Girls Club), and then provides the youth 
a learning opportunity (such as academic tutoring) for the other part 
of the day. The board works with the ValleyWorks One-Stop career center 
to operate the youth summer program and with the Division of Grants 
Administration, a division of the city of Lawrence, to administer the 
youth summer program and intends to target some older youth.[Footnote 
31] As of June 26, 2009, the board has 315 completed applications for 
the WIA Youth summer program and should meet its goal of 700 youth with 
the applications it has in progress.[Footnote 32] Youth will actually 
be enrolled on the first day of the program, July 6, 2009. 

WIA Youth Program Operation Presents Challenges: 

State officials expressed concern regarding the documentation 
requirements for youth to qualify for the WIA Youth program, 
particularly as compared to the requirements of their state funded 
Summer Youthworks program for state fiscal year 2010. The WIA Youth 
program's documentation requirements are more restrictive than the 
state-administered program, impacting the ease with which youth can 
document their eligibility. For example, youth entering the state 
program can demonstrate their financial eligibility if they receive 
benefits from the federal free lunch program. In contrast, to obtain 
WIA Youth services, youth must produce documentation such as a gross 
wages and salary statement. 

State and local officials also stated that the accelerated time frames 
to enroll youth in the program while still meeting all of the Recovery 
Act provisions is challenging. State officials also expressed a concern 
that the two workforce investment boards that do not run summer 
programs through the state funded Youthworks program may face 
challenges in starting new programs.[Footnote 33] State officials told 
us that they plan to conduct more oversight of these two Boards. 
Finally, officials from one board we visited stated that it will be 
logistically challenging for them to deliver and collect weekly 
timesheets from the numerous youth in the program. 

Officials from both local boards we visited stated that they had very 
little time between when they were allocated the grant and when the 
first youth are expected to begin the program. Moreover, the Lower 
Merrimack Board had to quickly ramp up to hire and train staff to 
administer the WIA Youth summer program, and it faced logistical issues 
with securing the physical space for staff to work. Officials from this 
board also stated that they were surprised that some providers they had 
worked with in the past did not submit proposals for work experiences 
combined with a training component this year. For example, the Learning 
for Life program within the Haverhill Public Schools has submitted 
proposals in prior years but did not submit a proposal this year. 
[Footnote 34] 

Since the youth participating in WIA summer youth employment activities 
will be subsidized by Recovery Act funds, the state has instructed 
local areas to take precautions regarding worksite placements to ensure 
that WIA Youth-funded work experiences do not unfavorably impact 
current employees or replace the work of employees who have experienced 
a layoff. State guidance specifies that WIA Youth-funded work 
experiences are to increase the work-readiness skills of youth and are 
not designed to enhance the profit margin of a company. For example, 
officials at the Lower Merrimack Board told us that they are working 
with one municipality and a local union to ensure that the WIA Youth 
funded summer positions are not supplanting municipal jobs. 

Massachusetts Has Proposed Priority Areas for Edward Byrne Memorial 
Justice Assistance Grant Funding: 

The Edward Byrne Memorial Justice Assistance Grant (JAG) Program within 
the Department of Justice's Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information 
sharing initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants are available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula-based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state's JAG allocation is awarded by BJA 
directly to the state, which must in turn allocate a formula-based 
share of those funds to local governments. The remaining 40 percent of 
funds is awarded directly by BJA to eligible units of local government 
within the state.[Footnote 35] The total JAG allocation for 
Massachusetts state and local governments under the Recovery Act is 
about $40.8 million, a significant increase from its previous fiscal 
year 2008 allocation of about $3.1 million. JAG funds going directly to 
the state government are expected to total approximately $25 million, 
consistent with the Recovery Act's allocation formula, while 
Massachusetts cities and towns will receive about $15.7 million 
directly in funds. Of JAG funds going to the Massachusetts state 
government, most (about $13.6 million) is planned to be used to 
supplement current state public safety programs and retain jobs and 
support core services.[Footnote 36] These state-run programs have been 
generating deficits from their state-supported funds. In addition, 
state government officials plan to use about $5.9 million to support 
local law enforcement agencies across the state whose operations have 
been adversely affected by state and local budget conditions, while a 
portion, about $3.1 million, will be used to supplement an annual 
summer jobs program targeted to at-risk youth administered by workforce 
investment boards throughout the state. For the $5.9 million planned to 
support local law enforcement agencies, the state is establishing grant 
criteria and awaiting project proposals from cities and towns. The 
remainder of funds (approximately $2.4 million) are planned for state 
JAG administration. 

Even though BJA approved the state's application, Massachusetts was not 
to obligate, expend, or draw down JAG funds until the state resolved 
special conditions specified in BJA's grant approval letter, such as 
addressing outstanding audit report findings. According to state 
officials, one audit found that federal grant funds had been allocated 
to the wrong state agency; however, these officials noted that this 
finding was addressed by reallocating these funds to the correct state 
agency. State officials told us that they subsequently submitted 
documentation to BJA to address these conditions. According to state 
officials, as of June 2, 2009, these special conditions were met, and 
the state subsequently received notice that BJA approved the state's 
grant and lifted all conditions. State officials say that funds will be 
available for use for the WIA Youth program after officials from the 
Executive Offices of Public Safety and Security and Labor and Workforce 
Development sign an interagency agreement and the Office of the State 
Comptroller processes the necessary paperwork. 

Massachusetts Receiving Large Influx of Recovery Act Weatherization 
Funds with Plans to Begin Weatherizing Housing Units July 2009: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 37] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term, energy-efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating equipment and 
air circulating fans. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department's progress reviews examining each 
state's performance in spending its first 50 percent of the funds and 
the state's compliance with the Recovery Act's reporting and other 
requirements. 

In Massachusetts, a network of 12 community-based organizations 
operates the Weatherization Assistance Program under contract within 
the state's Department of Housing and Community Development (DHCD). The 
Community Services Unit within DHCD has administrative, programmatic, 
and fiscal oversight of the program. Massachusetts expects to receive 
about $122 million in Recovery Act funds over a 3-year period. This 
represents a significant funding increase over prior weatherization 
program funding. For example, Massachusetts received $6.5 million and 
$11.7 million in fiscal years 2008 and 2009, respectively. After 
applying for funding on March 23, 2009, Massachusetts received 
approximately 10 percent, or over $12 million, of their Recovery Act 
funds for weatherization on April 3, 2009. In an April 2, 2009, e-mail 
from a DOE program manager, Massachusetts was advised that these funds 
could be spent on development of the state Recovery Act plan for 
weatherization required by DOE, application package, and other 
activities such as training.[Footnote 38] Massachusetts, however, has 
not used this initial allocation, but rather used DOE fiscal year 2009 
weatherization funds to fund expenses related to the development of the 
state plan, application package, and other activities (as well as 
weatherization activities). According to state officials, they plan to 
begin dispersing the Recovery Act funds at the beginning of the state's 
fiscal year 2010, which is on July 1, 2009. According to a DHCD 
official, the 10 percent already received and the 40 percent that the 
state will receive upon plan approval will be used for the same 
purpose--completion of weatherization work and related expenses in 
accordance with the approved state plan. Massachusetts submitted its 
Recovery Act weatherization plan to DOE for review and approval on May 
11, 2009. Because DOE has yet to approve its state plan, Massachusetts 
is not yet authorized to obligate any of the Recovery Act funds 
provided by DOE.[Footnote 39] 

Once the state plan is approved by DOE, DHCD will issue contracts to 
its local subgrantees and have the contracts go through the state's 
accounting system. After contracts are in place, DHCD expects that 
obligations and expenditures at the local agencies will move quickly. 
Expected uses of these funds are described below. 

Table 2: Massachusetts Planned Use of Recovery Act Weatherization 
Funds: 

Weatherization funds[A]: $86,139,495; Estimated units: 12,157; [Empty]; 
Activity: Weatherization services using existing weatherization network 
(Community Action Agencies and Housing Assistance Corporation). 

Weatherization funds[A]: 25,000,000; 
Estimated units: 3,846; [Empty]; 
Activity: Weatherization of state-owned public housing. 

Weatherization funds[A]: 6,000,000; 
Estimated units: 923; [Empty]; 
Activity: Weatherization of expiring use/preservation properties[B]. 

Weatherization funds[A]: 1,000,000; 
Estimated units: N/A; [Empty]; 
Activity: Development of Massachusetts Clean Energy Center[C]. 

Source: State Plan: 2009 American Recovery and Reinvestment Act 
Weatherization Assistance Program for Low Income Persons, Commonwealth 
of Massachusetts, Department of Housing and Community Development. 

[A] The remainder of the $122,077,457 allocation will be used for the 
administrative budget of the Massachusetts weatherization program 
($2,690,056) and for other training and technical assistance activities 
($1,247,906) other than the development of the Clean Energy Center. 

[B] This is property where owners can convert to market-rate properties 
after a specific passage of time or when contractual obligations 
expire. The effort to keep these expiring use properties affordable is 
called affordable housing preservation. 

[C] The Massachusetts Executive Office of Energy and Environmental 
Affairs plans to develop a training center to develop and maintain 
workforce and career training for energy efficiency and building 
science in Massachusetts. 

[End of table] 

DHCD officials began preparing for the large influx of weatherization 
funds by holding meetings in November 2008 with local agencies and 
utility program providers, asking them, for example, to hire additional 
administrative staff and energy auditors, as well as to recruit and 
train additional weatherization contractors.[Footnote 40] To reach the 
state's weatherization goals under the Recovery Act, the state 
originally planned an increase in the number of energy auditors from 42 
to approximately 72 and the number of contractors from 60 to about 125 
(subsequently revised to 100).[Footnote 41] The state is currently 
using 2009 existing weatherization program funds to strengthen its 
ability to train new-hires to the weatherization workforce. For 
example, in March 2009, the training process began for over 25 new 
energy auditors with a statewide workshop,[Footnote 42] and the 
department expects an ongoing focus on training and technical 
assistance activities not only for energy auditors, but also for 
private sector contractors.[Footnote 43] According to DHCD officials, 
they received comprehensive verbal guidance from DOE on such issues as 
development of and timelines for the Recovery Act state weatherization 
plan, grant application procedures, reporting requirements, and 
training plans for the weatherization workforce. 

DHCD officials said that their biggest concern about Recovery Act funds 
for weatherization relates to the need for direction from DOE on 
applying Davis-Bacon wage rates. They noted that their ability to 
weatherize housing units with Recovery Act funds is contingent on 
receiving direction regarding requirements for wages as well as 
instructions for implementation. Officials said they have requested 
training related to requirements in the Davis-Bacon Act. Another 
concern is spending Recovery Act money quickly and effectively, while 
maintaining the quality of work. They also expressed concern about 
turnover among crew members for private sector contractors. They said 
this might be relatively high due to such factors as outside work in 
extreme temperatures or inside work in restricted areas such as attics 
and crawlspaces. 

Local Housing Agencies Receive Capital Formula Grants: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties for the development, financing, and modernization 
of public housing developments, and for management improvements. 
[Footnote 44] The Recovery Act requires the U.S. Department of Housing 
and Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds 
within 1 year of the date they are made available to public housing 
agencies, expend at least 60 percent of funds within 2 years of that 
date, and expend 100 percent of the funds within 3 years of that date. 
Public housing agencies are expected to give priority to projects that 
can award contracts based on bids within 120 days from the date the 
funds are made available, as well as projects that rehabilitate vacant 
units, or those already under way or included in the required 5-year 
Capital Fund plans. HUD is also required to award $1 billion to housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding or financing for 
renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability (NOFA) that 
describes the competitive process, criteria for applications, and time 
frames for submitting applications.[Footnote 45] 

Figure 4: Percent of Public Housing Capital Funds Allocated by HUD That 
Have Been Obligated and Drawn Down in Massachusetts: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $81,886,976; 100%; 
Funds obligated by public housing agencies: $3,091,247; 3.8%; 
Funds drawn down by public housing agencies: $309,327; 0.4%. 

Number of public housing agencies: 
Entering into agreements for funds: 68; 
Obligating funds: 20; 
Drawing down funds: 6. 

Source: GAO analysis of HUD data. 

[End of figure] 

As described in figure 4, in Massachusetts, all 68 public housing 
agencies eligible for Recovery Act formula grant awards received a 
total of $81,886,976 from the Public Housing Capital Fund formula grant 
awards.[Footnote 46] As of June 20, 2009, $3,091,247 (3.8 percent) of 
the total amount had been obligated by 20 Massachusetts public housing 
agencies and $309,327.23 (.4 percent) had been drawn down or expended 
by 6 Massachusetts public housing agencies. 

We visited the Boston Housing Authority and the Revere Housing 
Authority in Massachusetts for site visits related to their use of 
Capital Fund formula grants totaling $33,653,805. We selected the 
Boston Housing Authority because it received the largest capital fund 
grant allocation in Massachusetts and selected the Revere Housing 
Authority because it was designated as "troubled" by HUD several years 
ago.[Footnote 47] Their grants were awarded on the basis of the Capital 
Fund formula used for awards made in fiscal year 2008 and computed 
based on data on buildings and units reported to HUD as of September 30 
of the prior fiscal year.[Footnote 48] 

Officials at the Boston Housing Authority, which was allocated 
$33,329,733, met weekly for several months to select projects in light 
of Recovery Act priorities. Of the 15 projects finally selected, 11 of 
those were part of the 5-year capital plan and the remaining four 
selected on the basis of needs identified outside 5-year capital plans. 
The 15 projects did not address the Recovery Act requirement that 
housing agencies give priority to projects that can award contracts 
based on bids within 120 days from the date the funds are made 
available. Boston Housing Authority officials had determined that 
awarding construction contracts of any size or complexity based on a 
fair public bidding process within 120 days with no prior notice would 
be highly unlikely. For example, state building code requirements, they 
said, require that a registered architect or engineer complete the 
design phase of a project before notice can be given to potential 
bidders.[Footnote 49] According to Boston Housing Authority officials, 
while there were other projects with a completed design phase and which 
were ready to bid, these had reached that stage because funding other 
than Recovery Act monies had already been allocated and budgeted for 
those projects. Officials believed that to change the funding for these 
projects to Recovery Act funding would violate the Recovery Act 
prohibition on supplanting funds. In addition, since Boston Housing 
Authority officials stated that they do not have vacant units beyond 
vacancies from normal turnover, the Recovery Act priority for 
rehabilitation of vacant units was inapplicable. 

For the 15 projects selected, the Boston Housing Authority plans to use 
all $33 million of its grant allocation for these projects which will 
serve 5,090 units with completion of all projects expected by the end 
of 2011. These projects range from redevelopment to bathroom and 
plumbing system replacements, boiler replacements, roof replacements, 
and adding security features to elevators and lobbies at multiple 
locations. As of June 30, 2009, Recovery Act funds had not been drawn 
down to pay for any of the 15 projects. 

One example of a current, already-planned, project that the Boston 
Housing Authority determined as benefiting from additional funding from 
the Recovery Act is bathroom modernization of 152 units at Mary Ellen 
McCormack, a public housing development in South Boston. This project 
began in February 2009 with an estimated completion date of June 2011. 
Using $3,976,000 in Recovery Act funding, this project will involve the 
complete replacement of all bathroom plumbing and waste lines, paint, 
tile, lighting, and electrical fixtures, and the installation of new 
venting. 

The Revere Housing Authority decided Recovery Act funds would be used 
for one project--installing energy-efficient windows in a 100-unit 
housing project. Revere officials identified this project on the basis 
of needs which emerged after their initial capital planning process, 
and then included this project upon resubmission of their capital plan 
after the passage of the Recovery Act. To date, officials in Revere 
have contracted with an architectural firm to perform the following 
functions: analysis of current window conditions, design of new 
windows, administering the bidding process, reviewing bid submissions, 
contract administration, and closeout of the contract. While $22,500 
was obligated by the Revere Housing Authority as of June 2, 2009, they 
have not drawn down any funds as of June 30, 2009, but will do so once 
invoices are received. The project is estimated to be completed in 
March 2010. 

Another major component of HUD Recovery Act funding for federal public 
housing is the competitive grants program, with $1 billion available 
nationally for projects characterized by priority public housing 
investments intended to leverage private sector funds for renovations 
and energy conservation. The Boston Housing authority has begun to 
compile a list of proposed projects and officials told us they planned 
to apply for this funding. A Revere official noted that they will apply 
in the future. 

Neither the Boston Housing Authority nor the Revere Housing Authority 
described challenges in accessing funds. In terms of meeting 
accelerated time frames, Boston Housing Authority officials described 
the tension between spending Recovery Act funds as effectively as they 
can while getting the funding out in an expeditious fashion. When asked 
about the Recovery Act requirement related to the application of 
prevailing wage rates, officials in Revere indicated that they are used 
to meeting Davis-Bacon requirements and view meeting these wage levels 
as a seamless part of their contractual agreements with workers. 
[Footnote 50] Boston officials also mentioned that they are accustomed 
to working with Davis-Bacon requirements. 

Massachusetts Takes Steps to Oversee and Safeguard Recovery Act Funds: 

Central Government Entities and State Agencies Have Taken Steps to 
Provide Oversight of Recovery Act Funds: 

Three state organizations--the State Comptroller's Office, the Office 
of Infrastructure Investment, and the Governor's Office--have all led 
focused efforts to ensure that agency internal control activities are 
sufficient for managing and overseeing Recovery Act funds. The 
Comptroller's Office is working with state agencies to determine 
whether they need to establish new processes or procedures for internal 
controls by instructing state agencies to update their internal control 
plans. This update requires state agencies to complete a self- 
assessment questionnaire containing specific questions on compliance 
with Recovery Act provisions. The Office of Infrastructure Investment 
has contracted with consultants on project management issues to 
evaluate Recovery Act-related internal control gaps across the state 
and is in the process of hiring a compliance manager to assist with 
Recovery Act oversight. Furthermore, the Governor's Office required 
that each state executive agency conduct a risk assessment and had the 
assessments reviewed by the state oversight entities. The State 
Auditor's Office plans to use these assessments to target its Recovery 
Act oversight work. 

In addition to the efforts taken by central state entities to prepare 
for oversight activities, executive agencies we visited plan to conduct 
oversight of their respective Recovery Act funds. Examples of oversight 
activities include conducting site visits and inspections, performing 
desk audits, and ensuring daily oversight of contractors. Specifically, 
transportation officials stated that oversight of projects includes 
daily oversight of both contractors and subcontractors. In addition, 
resident engineers for each work site keep daily records of employee 
hours worked and the number of items (e.g., catch basin covers) 
installed. Weatherization projects under DHCD must be inspected by 
weatherization certified auditors before a contractor is paid, and 
department officials participate in about 15 percent of these 
inspections. Officials from the Executive Office of Public Safety and 
Security stated that they are developing specific subgrant conditions 
related to Recovery Act funds, including compliance with the Office of 
Inspector General's rules on waste, fraud, and abuse. They will also 
conduct site visits and desk reviews of JAG recipients. The EOWLD 
stated that they will continue their existing oversight activities, 
such as annually reconciling the Workforce Investment Boards' planned 
versus actual expenses and periodically performing site visits to 
boards to review such items as eligibility documentation, standard 
operating procedures, and subrecipient monitoring. 

Single Audit Results Used by State Officials for Oversight Activities: 

Officials at the State Auditor's Office said they use the results of 
the Single Audit to target their oversight and require corrective 
action plans, when necessary. Officials from the Executive Office of 
Education and the Executive Office of Transportation said they review 
the Single Audit management decision letters to determine if any one of 
their programs had a finding. If there is a finding, the agency will 
notify the respective programmatic area and schedule meetings to 
address the issue. Education officials we met with stated that 
education findings are infrequent and typically minor in scope. 
However, in both 2007 and 2008, the same material weakness occurred 
within the Massachusetts Department of Education's Department of Early 
Education and Care[Footnote 51] regarding the use of expired 
procurements. The State Auditor instructed the department to correct 
this practice, but during its 2008 Single Audit, the State Auditor 
reported the same finding. According to state officials, the correction 
to this material weakness is a multiyear process. The Massachusetts 
Department of Education is scheduled to complete the largest 
procurement rebid by July 2009, and will then follow the same process 
for the other rebids. For the 2009 Single Audit (year ending June 30, 
2009), the State Auditor is reviewing four major programs, including 
the Department of Early Education and Care, based on this ongoing 
material weakness. In addition, the state is negotiating with the firm 
that works on the single audit to perform more real time audits along 
with their typical single audits in order for the state to obtain 
information on internal control issues on a real time basis. 

Similarly, state transportation officials stated that if any findings 
are uncovered during the Single Audit, they will work with the State 
Auditor to develop corrective action plans. Transportation officials 
further stated that there have not been any significant transportation 
findings within the past 5 years. 

The 2008 Single Audit for Massachusetts contained one material weakness 
in the education area regarding procurement, noted above, and other 
findings mostly related to program monitoring and supervisory review. 

State Inspector General and Auditor Have Not Finalized Oversight Plans, 
State Attorney General Continues Oversight Efforts with STOP Fraud Task 
Force: 

Neither the State Auditor nor the State Inspector General have yet 
finalized their plans to conduct oversight of the state Recovery Act 
funds. The State Auditor's Office recently drafted an audit plan, 
outlining specific areas to target, and has begun some preliminary work 
to confirm their plans. The State Inspector General said he anticipates 
targeting areas where there is no other oversight by reviewing the 
oversight planned by the federal Inspectors General, the State Auditor, 
and the state Attorney General and will then fill in any gaps, with a 
focus on procurement. The organizations did not receive additional 
funding to provide Recovery Act oversight and are still uncertain about 
their resource levels for fiscal year 2010 (beginning July 1, 2009). 
The Governor's Office, however, is hoping to provide these oversight 
agencies with additional resources using Recovery Act administrative 
funds. State officials expect Massachusetts to continue experiencing 
larger than expected revenue shortages and therefore significant budget 
cuts. In addition, the STOP Fraud Task Force created by the state 
Attorney General continued to meet and coordinate on oversight issues. 
[Footnote 52] 

Given that significant amounts of Recovery Act funds are now beginning 
to flow to the state, it is important that oversight agencies quickly 
finalize their plans and shift their limited resources appropriately to 
safeguard these funds. 

The State Has Taken Steps to Track Recovery Act Funds: 

Massachusetts state and local agencies have taken steps to track the 
flow of Recovery Act funds coming into the state. The state 
Comptroller's Office is providing and updating guidance to state 
agencies on its Web site, working with agency financial personnel to 
separately code Recovery Act funds in its state accounting system, and 
holding weekly conference calls with these agency finance 
representatives to provide a question and answer forum on Recovery Act 
requirements. The Comptroller's Office is also generating statewide 
reports on Recovery Act-related revenue and spending. During meetings 
with the state Executive Offices of Workforce and Labor Development, 
Education, and Public Safety and Security, officials confirmed they are 
using the state's accounting system to track their respective Recovery 
Act funds. In addition, the Massachusetts Office of Infrastructure 
Investment recently contracted with a project management consultant to 
work with state officials on presentation and coordination of Recovery 
Act reporting. 

While preparations have been under way, challenges with tracking 
Recovery Act funds remain. Some funding streams, such as unemployment 
insurance, were not included in the state reporting system as of the 
end of May 2009. According to the state Comptroller's Office, there is 
the risk that some expenditures will be coded as state money, rather 
than Recovery Act money, because some agencies do not have a past 
history of receiving federal funds and may therefore occasionally 
miscode these funds. However, he does not expect this error to occur in 
any material way. A more prominent challenge for the state is that 
those Recovery Act funds going directly to recipients other than 
Massachusetts state agencies--such as independent state authorities, 
local governments, or other entities--continues to be problematic for 
state-tracking purposes because these funds will not flow, and 
therefore not be tracked, through the state accounting system. Pending 
legislation, if passed, would require all entities receiving Recovery 
Act funds in Massachusetts to report funds received to the state. 

In addition to statewide tracking activities, some agencies plan to 
track Recovery Act funds with their own in-house systems. For example, 
officials from the Executive Office of Transportation stated they have 
an online database that allows transportation officials to segregate, 
itemize, and track Recovery Act funds. Similarly, the EOLWD has issued 
a budget template that requires local Workforce Investment Boards to 
list their planned expenditures of Recovery Act money by functional 
categories. The template also includes auto-fill metrics that highlight 
whether the Board's budget expenditures will meet state guidelines 
deadlines. At the local level, both of the Workforce Investment Boards 
we met with are issuing separate contracts for serving youth this 
summer and establishing separate accounting codes for tracking Recovery 
Act funds. The two local housing agencies we visited will use HUD's 
Electronic Line of Credit Control System to separately code and track 
Recovery Act grants. Moreover, some agencies are issuing Recovery Act 
monies as separate grants to ensure the separate tracking of these 
funds. 

Central Capacity to Track and Oversee Recovery Act Funds: 

Centralized tracking and oversight activities related to the Recovery 
Act require additional resources and the state plans to use Recovery 
Act funds to cover the cost of certain central administrative 
activities. Following May 2009 guidance from the federal Office of 
Management and Budget (OMB),[Footnote 53] state officials plan to use 
the option of a percentage chargeback of certain Recovery Act funds to 
provide additional staffing resources to entities responsible for 
oversight, monitoring, and tracking Recovery Act funds. The chargeback 
would be used for staff additions to the recently created Office of 
Infrastructure Investment, the state Comptroller's Office, the state 
Budget Office, the State Auditor's Office, Attorney General's Office, 
and the state Inspector General's Office. The Governor filed 
legislation to put a mechanism in place for this chargeback, and the 
state Budget Office sent a proposal to HHS to obtain authorization to 
use a chargeback mechanism. In May, the Secretary of the Executive 
Office for Administration and Finance asked the State Auditor, the 
state Attorney General, and the state Inspector General to provide a 
detailed description of the work each office would need to perform 
regarding Recovery Act work, and a description of the resources each 
would need to perform this work. As of June 25, 2009, the State Auditor 
and the state Inspector General had submitted this information, and the 
state Attorney General planed to do so. 

Approaches for Assessing the Effects of Recovery Act Spending Continue 
to Develop: 

Under the Recovery Act, state and local recipients are expected to 
report on a number of data elements, including the use of funds, the 
amount expended or obligated, and the estimated number of jobs created 
and retained. Provisions under the act also require federal agencies to 
adapt current performance evaluation and review processes to include 
information on the completion status of projects funded under the 
Recovery Act, as well as program and economic outcomes that are 
consistent with Recovery Act requirements. In addition to reporting on 
jobs created and retained, OMB guidance directs federal agencies to 
collect performance information from entities who receive funding to 
the extent possible. The guidance also requires agencies to instruct 
recipients to collect and report performance information as part of 
their quarterly submissions that is consistent with the agency's 
program performance measure.[Footnote 54] The reporting requirements 
will allow an assessment of what OMB describes as the marginal 
performance impact of Recovery Act requirements. 

While there are still some lingering questions related to measuring 
employment and the applicability of this requirement to programs funded 
under the act, state agencies are beginning to develop strategies for 
collecting and reporting employment outcomes. To date, the focus has 
been on incorporating federal guidance and adapting existing systems 
for collecting and reporting on jobs created and sustained. While there 
are still some lingering questions related to measuring employment and 
the applicability of this requirement to programs funded under the act, 
state agencies are beginning to develop strategies for collecting and 
reporting employment outcomes. In addition, existing programs that are 
receiving supplemental funds through the Recovery Act are beginning to 
address performance outcomes using existing approaches but are waiting 
for federal guidance before putting plans in place. 

Various Approaches Are Being Used to Measure Jobs, but Questions about 
Measuring Job Creation Remain: 

Massachusetts officials expressed some concern about how to assess the 
effects of Recovery Act spending in terms of jobs created and retained. 
The Governor's Deputy Chief Counsel told us that the state is 
continuing to face challenges associated with quantifying the impact of 
Recovery Act funds. The state Comptroller has sent guidance to chief 
information officers at state agencies to plan for how they will 
benchmark and report on the impact of Recovery Act funds. However, 
questions remain on how state agencies will define a job created, as 
well as other impacts. State agency officials are trying to be 
proactive by developing plans for reporting on jobs created prior to 
funds being spent. 

The state Comptroller also reported that he does not have clear 
guidance on reporting requirements for each of the Recovery Act funding 
streams, particularly as they relate to recipient reporting and jobs 
reporting. The Comptroller believes his office has an obligation to 
provide state agencies with guidance as to which program agencies need 
to report and which do not. However, in the absence of clear federal 
guidance, he is unsure if the guidance his office has provided is 
accurate. 

Program agency officials also expressed lingering concern about the 
lack of guidance specific to their individual programs. While the 
federal OMB has provided general guidance on the requirements that 
states assess and report on the effects of Recovery Act spending on 
jobs created and retained, OMB guidance gives federal agencies 
discretion in the data they choose to collect from state and local 
entities for their programs. For example, Massachusetts Department of 
Education officials stated that they are wary of the potential for a 
funding cliff, or the depletion of the Recovery Act funding, in 2 
years, and therefore have serious concerns about using ESEA Title I 
funds to generate new jobs. Officials believe that local education 
agencies are more likely to use Recovery Act funds to retain, rather 
than to create, new jobs. 

State program officials report using a variety of methods to measure 
employment outcomes which could lead to reporting inconsistencies. For 
example, Massachusetts transportation officials require contractors and 
subcontractors to submit monthly employment information, including the 
number of employees, hours worked, and payroll amounts, but it is 
unclear how this information will be used to identify new and existing 
employees. Moreover, transportation officials report that it is not 
unusual for a single worker to be employed at two projects, and in this 
situation, that would be considered two jobs created. Similarly, local 
housing agency officials told us that they will identify the number of 
jobs created through Occupational Safety and Health Administration 
cards that are required of every individual who works on the project. 
In addition, the housing agency will have access to daily information 
on the employees working for contractors by project. However, they will 
not be able to track how long individuals have worked on the project. 
Finally, state officials overseeing Recovery Act-funded weatherization 
projects have developed estimates on the number of jobs that will be 
created--anywhere from 250 to 300 jobs--using estimates based on a 
model developed for DOE's Weatherization Assistance Program from the 
U.S. Bureau of Economic Analysis model for the construction trades. 
State officials also expect several spin-off jobs will be created and 
characterize these jobs as being an indirect result of dollars spent. 

Massachusetts Agencies Are Beginning to Address Performance Reporting 
Requirements Using Existing Approaches: 

OMB guidance also encourages recipients to collect and report 
performance information that is consistent with the agency's program 
performance measures and broader goals of the act. When asked about 
measurement of performance outcomes, some state officials reported that 
they are largely using existing approaches to meet these requirements. 
For example, public safety program officials said there are preliminary 
plans in place for reporting on program activities and expenditures of 
law enforcement programs funded through the JAG program, but the final 
plan would depend, in part, on what performance measures the U.S. 
Department of Justice ultimately requires states to use. These 
performance indicators are likely to include measures to improve 
program quality such as the amount of the award spent on improving 
criminal justice information systems. These officials also reported 
that they had plans for collaborating with the EOLWD to develop plans 
to report on that portion of the JAG funding that Massachusetts is 
using to support summer youth employment programs. 

State Comments on This Summary: 

We provided the Governor of Massachusetts with a draft of this appendix 
on June 17, 2009, and representatives from the Governor's Office and 
the oversight agencies responded on June 19, 2009. 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; Nancy J. Donovan; 
Kathleen M. Drennan; Salvatore F. Sorbello Jr.; and Robert D. Yetvin 
made major contributions to this report. 

[End of section] 

Footnotes for Appendix VIII] 

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

[2] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's solicitation for local governments closed on 
June 17. 

[4] GAO-09-580. 

[5] Massachusetts law requires the governor to recommend, the state 
legislature to enact, and the governor to approve a general 
appropriations bill that constitutes a balanced budget for 
Massachusetts. No supplemental appropriation bill is to be approved 
which would cause the state budget for any fiscal year not to be 
balanced. Mass. Gen. Laws ch. 29, § 6E. 

[6] Massachusetts Department of Revenue, April 2009 Tax Collection 
Summary. 

[7] Massachusetts officials refer to their rainy-day funds as 
stabilization funds. However, to avoid confusion with the Recovery 
Act's SFSF funds, we use rainy-day funds in this appendix to refer to 
these reserve funds. 

[8] Massachusetts officials stated that caseloads for programs such as 
Temporary Assistance for Needy Families (TANF) and Commonwealth Care 
have grown, but not much beyond anticipated levels. 

[9] Under SFSF, for fiscal years 2009, 2010, and 2011, the Recovery Act 
requires states to maintain funding at least at their 2006 levels. 

[10] Massachusetts officials indicated they would apply for a waiver. 

[11] See Recovery Act, div. B, title V, §5001. 

[12] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[13] The state provided projected Medicaid enrollment data for May 
2009. 

[14] Massachusetts received increased FMAP grant awards of over $1.2 
billion for the first three quarters of federal fiscal year 2009. In 
their technical comments to us, Massachusetts officials indicated that 
the state is working with CMS to categorize a significant amount of the 
state's supplemental increased FMAP grant award as regular FMAP. 

[15] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or nonprofit organization 
that expends $500,000 or more a year in federal awards must have a 
Single Audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[16] Under the Recovery Act, states are not eligible to receive the 
increased FMAP for certain claims for days during any period in which 
that state has failed to meet the prompt payment requirement under the 
Medicaid statute as applied to those claims. See Recovery Act, div. B, 
title V, §5001(f)(2). Prompt payment requires states to pay 90 percent 
of clean claims from health care practitioners and certain other 
providers within 30 days of receipt and 99 percent of these claims 
within 90 days of receipt. See 42 U.S.C. §1396a(a)(37)(A). 

[17] With a few exceptions, the federal government does not pay for the 
entire cost of construction or improvement of federal-aid highways. To 
account for the necessary dollars to complete the project, federal 
funds must be "matched" with funds from other sources. Unless otherwise 
specified in the authorizing legislation, most projects will have an 80 
percent federal share. 

[18] States that are unable to maintain their planned level of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal-aid highway program, FHWA assesses the 
ability of each state to have their apportioned funds obligated by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal-aid highway and highway safety 
construction programs by reducing for some states the available 
authority to obligate funds and increasing the authority of other 
states. 

[19] Generally, FHWA has authority pursuant to 23 U.S.C. § 104(k)(1) to 
transfer funds made available for transit projects to the Federal 
Transit Administration. 

[20] The SFSF funds to restore public higher education funding for 
fiscal year 2009, about $54 million, will be allocated to institutions 
of higher education in fiscal year 2010 for expenses incurred during 
that fiscal year. 

[21] The maintenance-of-effort waiver criterion for fiscal year 2010 is 
that the percentage of the total state revenues used to support public 
education for the fiscal year is at least as great as the percentage of 
the total state revenues used to support public education for fiscal 
year 2009. 

[22] We conducted site visits to the Boston Public Schools and the 
Lawrence Public Schools. We chose these districts based on estimated 
ESEA Title I allocations and the number of schools in improvement under 
ESEA requirements. In Massachusetts, schools and districts are 
identified for improvement when, for 2 or more consecutive years, they 
do not make adequate yearly progress toward meeting performance targets 
for English and/or math. Boston Public Schools is a large city school 
district with 102 schools in need of improvement. Lawrence Public 
Schools is a large suburban school district with 20 schools in need of 
improvement. 

[23] The term "supplemental educational services" means tutoring and 
other supplemental academic enrichment services that are in addition to 
instruction provided during the school day, which are specifically 
designed to increase the academic achievement of eligible students as 
measured by the state's assessment system and enable these children to 
attain proficiency in meeting state academic achievement standards. 

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

[25] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where federal 
and state law have different minimum wage rates, the higher standard 
applies. The Massachusetts minimum wage rate is $8.00 per hour. Mass. 
Gen. Laws ch. 151, § 1 

[26] In state fiscal year 2008, 14 of the 16 local workforce boards 
operated Youthworks summer programs in 25 cities. 

[27] For state fiscal year 2008, the state served 3,827 youth (130 
percent of their target goal for youth served) through the state Summer 
Youthworks program with $5,660,334 in funding and 433 youth (152 
percent of their target goal for youth served) through the state 
Youthworks Year-Round program with $689,665 in funding. 

[28] The Recovery Act extended eligibility through age 24 for youth 
receiving services funded by the Recovery Act. For state fiscal year 
2010, the state funded Youthworks program will provide employment 
opportunities to youth ages 14 to 21 that are from families that are 
below 200 percent of the federal poverty level and placed at risk by 
one or more risk factors. 

[29] In state fiscal year 2008, the Central Massachusetts Board served 
387 youth (139 percent of their target goal for youth served) through 
the state Summer Youthworks program with $533,081 in funding. For state 
fiscal year 2009, the board plans to serve an additional 300 youth 
through the state-funded Youthworks program in the City of Worcester. 

[30] In state fiscal year 2008, the Lower Merrimack Board served 197 
youth (113 percent of their target goal for youth served) through the 
state Summer Youthworks program with $336,655 in funding. For state 
fiscal year 2009, the board plans to serve an additional 205 youth 
through the state-funded Youthworks program. 

[31] The board is targeting youth who may also be currently classified 
as a dislocated worker and receiving unemployment insurance. For these 
youth to join the summer program, they would have to forgo their 
unemployment insurance benefits. 

[32] There are 292 applications awaiting only a work permit, and 
another 308 applications require the youth to participate in 
orientation and submit documents requesting a work request. 

[33] Fourteen of the 16 local boards ran a stand-alone summer youth 
employment program in 2008. Although WIA Youth requires a summer 
component in its year-round program, it does not provide for a stand- 
alone summer program. Smaller WIA boards do not typically run stand- 
alone programs. 

[34] Previous Learning for Life proposals were to serve in-school youth 
with both an education component for a portion of the day--such as 
classroom learning, as well as a work activity--such as working in the 
Haverhill City Hall Café. 

[35] We did not review these funds awarded directly to local 
governments in this report because the Bureau of Justice Assistance's 
solicitation for local governments closed on June 17. 

[36] As of June 18, 2009, $12.7 million has been allocated for the 
Massachusetts Department of Correction (MADOC) for medical, dental, and 
mental health services for those incarcerated by MADOC. 

[37] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Indian tribe, and the Northern Arapahoe 
Indian tribe. 

[38] These were in accordance with Weatherization Program Notice 09-1B, 
Grant Guidance to Administer the American Recovery and Reinvestment Act 
of 2009 Funding, and applicable regulations. In addition, this e-mail 
advised that no Recovery Act funds could be used for production until 
DOE approval of state Recovery Act plans. However, on June 9, 2009, DOE 
issued revised guidance lifting this limitation to allow states to 
provide funds for production activities to local agencies that 
previously provided services and are included in state Recovery Act 
plans. 

[39] According to officials, they are awaiting guidance from the U.S. 
Department of Energy on Davis-Bacon wage rates. 

[40] Energy auditors perform inspections of energy, health, and safety 
concerns of homes after households are determined eligible for 
weatherization services. 

[41] As of June 25, 2009, the hiring goal for energy auditors had been 
reached with the need for weatherization contractors amended to a total 
of 100. With 18 new weatherization contractors, the state notes that an 
additional 22 need to be brought under contract to meet their revised 
total. 

[42] The training was focused on such issues as how the weatherization 
program works in Massachusetts; the expectation for energy auditors who 
are essentially job-site coordinators working with the weatherization 
program contractor; quality assurance requirements; the importance of 
accurate measurements; health and safety concerns, requirements, and 
testing; the use of special instrumentation; identifying thermal and 
air barriers; attic and sidewall insulation; and heating system 
identification, combustion, and safety testing. Most of these auditors 
were expected to be certified through DHCD's Energy Auditor 
Certification process by June 2009. 

[43] This is in response to increased funding from both the Recovery 
Act as well as the 2009 weatherization program grant in addition to 
increased low-income rate payer utility efficiency program funding. 

[44] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[45] HUD released a revised NOFA for competitive awards on June 3, 
2009. The revision included changes and clarifications to the criteria 
and timeframes for application, and to funding limits. 

[46] Individual awards ranged from $13,311 for the Hanson Housing 
Authority to over $33 million for the Boston Housing Authority. 

[47] On January 31, 2007, the housing authority's progress in 
addressing issues leading to this designation led HUD to remove the 
authority from a "troubled" status. 

[48] Each public housing authority's amount from the Capital Fund 
formula is the average of the public housing authority's share of 
existing modernization need and its share of accrual need (by which 
method each share is weighted 50 percent). 24 C.F.R. § 905.10. 

[49] 780 CMR 116.0 of the Massachusetts State Building Code. 

[50] The Recovery Act requires all laborers and mechanics employed by 
contractors and subcontractors on Recovery Act projects to be paid at 
least the prevailing wages as determined under the Davis-Bacon Act. 
Recovery Act, div. A, title XVI, § 1606. Under the Davis Bacon Act, the 
Department of Labor determines the prevailing wage for projects of a 
similar character in the locality. 40 U.S.C. §§ 3141-3148. 

[51] The 2007 Massachusetts Single Audit contained three material 
weaknesses and other findings. The 2008 Single Audit repeated one of 
these material weaknesses where the Department of Early Education and 
Care was using four procurements created by its predecessor, the Office 
of Child Care Services, for services provided by federally funded child 
care programs that were developed between 1998 and 2001. The department 
had received multiple extensions from the state procurement oversight 
agency and was required to perform new procurements for the period 
beginning July 1, 2005. 

[52] As stated in our prior report, the state Attorney General has 
convened a task force to coordinate on oversight issues with the 
federal and state oversight community. 

[53] OMB M-09-18, Memorandum for the Heads of Departments and Agencies. 

[54] Peter R. Orszag, Memorandum for the Heads of Departments and 
Agencies, Updated Implementing Guidance for the American Recovery and 
Reinvestment Act of 2009 (April 3, 2009). This guidance supplements, 
amends, and clarifies the initial guidance issued by OMB on February 
18, 2009. 

[End of Appendix VIII] 

Appendix IX: Michigan: 

Overview: 

The following details GAO's work on the second of its bimonthly reviews 
of American Recovery and Reinvestment Act (Recovery Act)[Footnote 1] 
spending in Michigan. The full report covering all our work at states 
is available at [hyperlink, www.gao.gov/recovery]. 

Use of funds: GAO's work focused on nine selected federal programs, 
including some targeted for further disbursement to localities. Funds 
from some of these programs are being targeted to help Michigan 
stabilize its budget and support local governments, particularly school 
districts, and the state plans to use some of the funds to expand 
existing programs, as follows: 

* Funds Made Available as a Result of Increased Medicaid Federal 
Medical Assistance Percentage (FMAP).[Footnote 2] As of June 29, 2009, 
Michigan had received about $728 million in increased FMAP grant 
awards, of which it had drawn down almost $716 million, or 98 percent. 
Michigan is using funds made available as a result of the increased 
FMAP to cover the state's increased Medicaid caseload, maintain the 
program's current populations and avoid cuts to eligibility, and 
maintain the program's current benefits. Michigan officials reported 
they are also planning to use the state's general fund dollars freed up 
by the increased FMAP to help offset the state budget deficits, pending 
state approval to do so. 

* U.S. Department of Education State Fiscal Stabilization Fund (SFSF). 
As of June 3, 2009, Michigan had received almost $1.1 billion (67 
percent) of its total SFSF allocation of $1.6 billion. According to 
state officials, the state legislature passed a supplemental 
appropriations bill for SFSF funds on June 25, 2009, that if signed by 
the Governor will provide authority for obligation of SFSF funds to 
local education agencies (LEA); as of June 30, 2009, the Governor had 
not signed the legislation and no funds had been obligated. Michigan 
plans to use these funds to help fill its budget shortfalls. State 
education officials said LEAs plan to use SFSF monies to help reduce 
teacher layoffs and address cuts in state education programs resulting 
from budget shortfalls. For example, Detroit Public Schools officials 
said they planned to use their funds to retain teachers and staff and 
avoid layoffs. 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $847 
million in Recovery Act funds to Michigan, of which 30 percent was 
suballocated to metropolitan and other areas. As of June 25, 2009, $421 
million had been obligated for projects that could be started quickly 
involving pavement and bridge improvement. For example, on June 1, 
2009, Michigan began a $22 million project on Interstate 196 in Allegan 
County that involves resurfacing about 7 miles of road. As of June 30, 
2009, Michigan has awarded 35 contracts representing about $118.1 
million. Two of these contracts have been completed, 28 are to be 
completed by November 2009, 2 by June 2010, 1 by May 2011, and 2 by 
June 2012. 

* Title I, Part A, of the Elementary and Secondary Education Act (ESEA) 
of 1965. The U.S. Department of Education (Education) awarded Michigan 
$195 million in Recovery Act ESEA Title I, Part A, funds on April 1, 
2009--50 percent of its total allocation of $390 million. According to 
state education officials, they plan to allocate funds to the state's 
local education agencies (LEA) on July 1, 2009. Officials in the five 
LEAs we visited--the public school districts in Detroit, Flint, Grand 
Rapids, Lansing, and Saginaw--told us they planned to use ESEA Title I 
Recovery Act funds for activities such as professional development, 
instructional technology, and tutoring in reading and math. 

* Individuals with Disabilities Education Act (IDEA), Parts B and C. 
Education allocated the first half of the states' IDEA allocations on 
April 1, 2009, with Michigan receiving $213 million for all IDEA 
programs. The largest share of IDEA funding was for the Part B school- 
aged program for children and youth. The state's initial allocation was 
$7 million for Part B preschool grants, $200 million for Part B grants 
to states for school-aged children and youth, and $6 million for Part C 
grants for infants and families for early intervention services. As of 
June 30, 2009, none of Michigan's LEAs had begun drawing down Recovery 
Act IDEA funds. These funds will be used to support special education 
and related services for infants, toddlers, children, and youth with 
disabilities. For example, the Lansing School District plans to use 
these funds to enhance teacher's professional development and purchase 
equipment, among other purposes. 

* Weatherization Assistance Program. The U.S. Department of Energy 
(DOE) allocated about $243.4 million in Recovery Act Weatherization 
funding to Michigan for a 3-year period. Based on information available 
on June 30, 2009, DOE provided $24 million to Michigan, and Michigan 
obligated $12.3 million to subgrantees. Michigan plans to begin 
disbursing funds in July 2009 for weatherizing low-income families' 
homes and state and federal public housing, and developing an energy- 
related training center. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
allotted $74 million to Michigan in Workforce Investment Act (WIA) 
Youth Program Recovery Act funds. As of June 30, 2009, the state had 
allocated $62.9 million of these funds to local workforce boards. 
Michigan plans to spend the majority of its allotment during summer 
2009. 

* Edward Byrne Memorial Justice Assistance Grants. The Department of 
Justice's Bureau of Justice Assistance awarded $41.2 million directly 
to Michigan in Recovery Act funding. Based on information available as 
of June 30, 2009, the Office of Drug Control Policy (ODCP), which 
administers these grants for the state, had obligated all of the funds 
of which it retained $1.2 million (3 percent) for administrative 
costs.[Footnote 3] Michigan plans to use the grant funds it receives to 
continue with planned technology enhancements, add several courts that 
focus on particular areas of crime (such as domestic violence courts), 
and provide prescription drug abuse awareness programs. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development (HUD) allocated $53.5 million in Recovery Act funding to 
the 122 public housing agencies in Michigan. As of June 20, 2009, the 
public housing agencies had obligated $7.6 million of the funds and had 
expended $1.1 million. The four housing authorities we visited are 
using or planning to use this money, which flows directly to public 
housing authorities, for various capital improvements, including 
modifying bathrooms, replacing roofs and windows, and adding security 
features. 

Michigan Will Use Existing and Planned Safeguards and Internal Controls 
for Recovery Act Programs: Michigan's State Budget Office (SBO) is 
responsible for the overall operation of the state's central accounting 
system and establishing and maintaining the state's internal control 
structure.[Footnote 4] In order to prepare for using Recovery Act 
funds, Michigan enhanced its accounting system to track these funds, 
although challenges remain, such as capturing the number of jobs 
created and determining the formats needed for reporting information. 
In addition, the Governor established the Michigan Economic Recovery 
Oversight Board to help ensure proper use of Recovery Act funds and 
timely reporting. Michigan officials are still uncertain what the 
federal government expects from the state regarding tracking and 
reporting on funds to local entities when federal funds flow directly 
to these entities, rather than through the state. Within the SBO, the 
Office of Internal Audit Services (OIAS) conducts internal audit 
services by performing periodic financial, performance, and compliance 
audits of state departments and agency programs. As part of the 
Recovery Act planning process, the OIAS staff performed risk-based 
analyses of programs that will receive Recovery Act funds. Each state 
department is also required to biennially report to the Governor on the 
adequacy of its internal accounting and administrative control systems, 
and, if any material weaknesses exist, to provide corrective action 
plans and time schedules for addressing them. Further, 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. 

Assessing the Effects of Recovery Act Spending: Michigan departments 
continue to express concern about the lack of clear federal guidance on 
assessing and reporting on the results of Recovery Act spending. The 
state has several different initiatives to develop criteria to measure 
jobs created and retained as a result of Recovery Act spending. As part 
of preparing for Recovery Act reporting requirements, officials from 
Michigan's Department of Information Technology are developing a 
Recovery Act database. State officials said they intend to use the 
database to track projects and reflect the impact of Recovery Act 
spending in the state. State officials indicated that additional 
federal guidance on assessing jobs created and saved as a result of 
Recovery Act spending would be helpful. 

Michigan Is Using Recovery Act Funds to Address Current and Projected 
Budget Shortfalls: 

Recovery Act funding has helped Michigan balance its fiscal year 2009 
budget, but the state also had to cut its budget to address projected 
shortfalls. According to the state budget director, the SFSF and 
enhanced FMAP have been key to helping Michigan meet its constitutional 
requirement to balance its budget. For example, the state is planning 
to use general fund dollars freed up by the increased FMAP to help 
offset budget deficits. In addition, the Governor issued an executive 
order on May 5, 2009, to cut the state's budget by $349 million in 
order to reduce budget shortfalls for the remainder of fiscal year 
2009. Michigan has cut programs and services, including reducing 
Medicaid payment rates by 4 percent and reducing revenue sharing to 
cities, villages, and townships by 10 percent in the last quarter of 
fiscal year 2009. In addition, 38,000 of the state's 52,000 state 
employees must take 6 unpaid days off before the end of Michigan's 
fiscal year (September 30, 2009); the state is expecting to lay off 400 
employees (including 100 state troopers); and most state agencies have 
taken a 4 percent across-the-board cut. State officials said that 
without the Recovery Act funds, the state would have been forced to 
make even deeper cuts in its budget, which would have been devastating 
to Michigan. 

Michigan's revenues from all sources have declined. State officials 
project that fiscal year 2010 revenues will decline by over 20 percent 
from actual fiscal year 2008 revenue levels.[Footnote 5] The state's 
dependence on the auto industry and the bankruptcy of two automobile 
manufacturers has adversely impacted state revenues. The manufacturers 
have announced long-term financial strategies that will result in 
additional factory closures in Michigan and negative impacts on related 
businesses such as parts suppliers. Even with fiscal year 2009 and 
planned 2010 budget cuts, Michigan state officials have projected a 
$1.5 billion budget shortfall for fiscal year 2010. Therefore, to help 
balance the budget, Michigan expects to spend about $1.5 billion in 
Recovery Act funds in fiscal year 2010. 

State officials also expressed significant concerns about Michigan's 
fiscal year 2011 budget and the period after the Recovery Act funds run 
out. The officials said the state will need to make cuts now in order 
to cushion the impact of not having Recovery Act funds in the next 
budget. State officials also told us that there has been a continuing 
focus on diversifying the state's economy and its industries. With the 
auto industry suffering from unprecedented shortfalls in auto sales and 
production, the state is looking at other areas where it can stimulate 
its economy. For example, the Director of Michigan's Economic Recovery 
Office said that the state has been working to help its manufacturers 
move into growing sectors including renewable energy and life sciences. 

Michigan Plans to Use Funds Available from Increased FMAP to Address 
Emerging Priorities: 

Medicaid is a joint federal-state program that finances health care for 
certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. The 
federal government matches state spending for Medicaid services 
according to a formula based on each state's per capita income in 
relation to the national average per capita income. The rate at which 
states are reimbursed for Medicaid service expenditures is known as the 
Federal Medical Assistance Percentage (FMAP), which may range from 50 
to no more than 83 percent. The Recovery Act provides eligible states 
with an increased FMAP for 27 months from October 1, 2008, through 
December 31, 2010.[Footnote 6] 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 7] 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 would otherwise 
have to use for their Medicaid programs, and states have reported using 
these available funds for a variety of purposes. 

From October 2007 to May 2009, the state's Medicaid enrollment 
increased from 1,548,181 to 1,683,179, an increase of 8.7 percent. 
[Footnote 8] Following enrollment decreases in October and November 
2007, enrollment increased gradually from December 2007 to May 2009 
(figure 1). Most of the increase in enrollment was attributable to 
increases in the population group of children and families. 

Figure 1: Monthly Percentage Change in Medicaid Enrollment for 
Michigan, October 2007 to May 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: -0.19. 

Nov.–Dec. 2007: 
Percentage change: -0.13. 

Dec.–Jan. 2007-08: 
Percentage change: 0.27. 

Jan.–Feb. 2008: 
Percentage change: 0.49. 

Feb.–Mar. 2008: 
Percentage change: 0.36. 

Mar.–Apr. 2008: 
Percentage change: 0.22. 

Apr.–May 2008: 
Percentage change: 0.58. 

May–June 2008: 
Percentage change: 0.18. 

Jun.–Jul. 2008: 
Percentage change: 0.4. 

Jul.–Aug. 2008: 
Percentage change: 0.43. 

Aug.–Sep. 2008: 
Percentage change: 0.04. 

Sep.–Oct. 2008: 
Percentage change: 0.69. 

Oct.–Nov. 2008: 
Percentage change: 0.82. 

Nov.–Dec. 2008: 
Percentage change: 0.6. 

Dec.–Jan. 2008-09: 
Percentage change: 0.06. 

Jan.–Feb. 2009: 
Percentage change: 1.01. 

Feb.–Mar. 2009: 
Percentage change: 0.99. 

Mar.–Apr. 2009: 
Percentage change: 0.66. 

Apr.–May 2009: 
Percentage change: 0.92. 

October 2007 enrollment: 1,548,181; 
May 2009 enrollment: 1,683,179. 

Source: GAO analysis of state reported data. 

Note: The state provided projected Medicaid enrollment data for May 
2009. 

[End of figure] 

As of June 29, 2009, Michigan had drawn down almost $716 million in 
increased FMAP grant awards, which is about 98 percent of its awards to 
date.[Footnote 9] Michigan officials reported that they are using funds 
made available as a result of the increased FMAP to cover the state’s 
increased Medicaid caseload, maintain the program’s current populations 
and avoid cuts to eligibility, and maintain the program’s current 
benefits. These officials further reported that they are planning to 
use these funds to help offset the state budget deficit pending state 
approval to do so. 

Michigan officials highlighted the need to use the funds made available 
as a result of the increased FMAP to cover the costs associated with a 
Medicaid caseload that has been increasing notably since the beginning 
of 2009. State officials also noted that the funds have allowed the 
state to maintain its current Medicaid program and without them, 
Michigan would have had to make a dramatic change to the program. In 
using the increased FMAP, Michigan officials reported that the Medicaid 
program has incurred additional costs related to the personnel needed 
to ensure compliance with reporting requirements related to the 
increased FMAP. In addition, the officials noted the possibility that 
issues associated with implementing a new Medicaid Management 
Information System, for which phased-in implementation began prior to 
the enactment of the Recovery Act, could affect the state’s ability to 
maintain eligibility for increased FMAP. 

Regarding tracking the increased FMAP, state officials said they rely 
on the state’s existing accounting system and unique fund source codes 
to separately track expenditure data for increased FMAP dollars. State 
officials said that the increased FMAP data undergo a standard 
reconciliation process to ensure its completeness and accuracy. In 
addition, the state’s Office of the Auditor General conducts a biennial 
Single Audit, which always encompasses the Medicaid program.[Footnote 
10] The 2006-2007 Single Audit for Michigan identified several 
deficiencies related to the state’s Medicaid program, including 
inadequate subrecipient monitoring and insufficient internal controls 
with respect to Medicaid payments made for Medicare premiums for 
persons dually eligible for both programs. When asked about the state’s 
response to the Single Audit’s findings, a state Medicaid program 
official told us that the state had developed a corrective action plan, 
some elements of which were related to its new Medicaid Management 
Information System. The official reported that there was a delay in the 
implementation of this new system, which is expected to be implemented 
September 2009. 

Michigan Plans to Use State Fiscal Stabilization Funds to Maintain 
State Education Programs: 

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 provides 
several assurances. These include assurances that the state will meet 
maintenance-of-effort requirements (or it will be able to comply with 
waiver provisions) and that it will implement strategies to meet 
certain educational requirements, including increasing teacher 
effectiveness, addressing inequities in the distribution of highly 
qualified teachers, and improving the quality of state academic 
standards and assessments. Further, the state applications must contain 
baseline data that demonstrate the state's current status in each of 
the assurances. States must allocate 81.8 percent of their SFSF funds 
to support education (education stabilization funds), and must use the 
remaining 18.2 percent for public safety and other government services, 
which may include education (government services funds). After 
maintaining state support for education at fiscal year 2006 levels, 
states must use education stabilization funds to restore state funding 
to the greater of fiscal year 2008 or 2009 levels for state support to 
school districts or public Institutions of Higher Education (IHE). When 
distributing these funds to school districts, states must use their 
primary education funding formula but maintain discretion in how funds 
are allocated to public IHEs. In general, school districts maintain 
broad discretion in how they can use stabilization funds, but states 
have some ability to direct IHEs in how to use these funds. 

As of June 3, 2009, Michigan had received almost $1.1 billion of its 
total $1.6 billion allocation for SFSF--$873 million for education 
stabilization and $194 million for government services. According to 
state officials, the state legislature passed a supplemental 
appropriations bill for SFSF funds on June 25, 2009 that if signed by 
the Governor will provide authority for obligation of SFSF funds to 
LEAs; as of June 30, 2009 the Governor had not signed the legislation 
and no funds had been obligated. Based on the state's approved 
application and our discussions with state officials, Michigan plans to 
allocate 95 percent of the funds to LEAs and 5 percent to IHEs. As of 
June 30, 2009, the state had not made any of the funds available to 
LEAs and IHEs. In its application to Education, Michigan provided 
assurance that the state will meet the maintenance-of-effort 
requirements. According to the Director of Michigan's Economic Recovery 
Office, Michigan plans to use the government services portion of the 
SFSF to offset budget shortfalls in the general fund section of the 
budget. 

Michigan Department of Education (MDE) officials said the LEAs planned 
to use SFSF funds to help reduce teacher layoffs and address cuts in 
state education programs resulting from budget shortfalls. For example, 
Detroit Public Schools officials said they planned to use their SFSF 
funds to retain teachers and staff and avoid layoffs. As of early June 
2009, officials from the five LEAs we visited said they were unsure of 
the exact amount of SFSF funds they would receive and, as a result, 
were having difficulty planning how to use these funds in the next 
school year. Officials in all of the LEAs also said they were concerned 
that the Governor would decrease the amount of state aid provided to 
LEAs, which would offset the amount provided to them through SFSF. 

MDE officials told us they planned to use $527 million of the total 
$873 million in education stabilization funds to supplement state 
education funding for fiscal year 2009, and anticipated using the 
remaining $346 million to supplement state education funding in fiscal 
year 2010. The officials said they also planned to use the $194 million 
in government services funds allocated to Michigan to fund education 
programs for these years. Officials in the five LEAs we visited echoed 
these statements and said they would use the funds to retain their 
daily operations and reduce the amount of any budget cuts. 

Michigan Has Begun Work on Several Highway Projects: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated to projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
by the Federal Highway Administration (FHWA) through existing federal 
aid highway program mechanisms, and states must follow the requirements 
of the existing program including planning, environmental review, 
contracting, and other requirements. However, the federal fund share of 
highway infrastructure investment projects under the Recovery Act is up 
to 100 percent, while the federal share under the existing federal aid 
highway program is generally 80 percent. 

Michigan Is Devoting the Majority of Funds to Road Pavement Improvement 
and Widening: 

As we previously reported, $847 million was apportioned to Michigan in 
March 2009 for highway infrastructure and other eligible projects. As 
of June 25, 2009, $421 million had been obligated. The U.S. Department 
of Transportation has interpreted the term "obligation of funds" to 
mean the federal government's contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government approves a project and a project agreement is 
executed. As of June 25, 2009, $3,192,995 had been reimbursed by FHWA. 
States request reimbursement from FHWA as the state makes payments to 
contractors working on approved projects. 

Michigan is using Recovery Act funds primarily for pavement improvement 
and widening projects (see table 1). For example, on June 1, 2009, 
Michigan began a $22 million project on Interstate 196 in Allegan 
County that involves resurfacing about 7 miles of road. Michigan 
Department of Transportation (MDOT) officials told us they focused 
primarily on pavement improvement for Recovery Act projects because 
they could be obligated quickly to meet the 120-day Recovery Act 
obligation requirement and could be under construction quickly, thereby 
employing people this calendar year. Furthermore, since many of the 
pavement improvement projects were identified in the state's 5-year 
transportation plan and environmental permits and approvals had been 
completed, Michigan could accelerate the construction of these projects 
when Recovery Act funds became available. MDOT officials also told us 
that they expect to continue funding primarily pavement improvement 
projects. 

Table 1: Highway Obligations for Michigan by Project Type as of June 
25, 2009: 

Pavement projects: New construction: $0 million; 
Pavement projects: Pavement improvement: $237 million; 
Pavement projects: Pavement widening: $93 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $1 million; 
Bridge projects: Improvement: $33 million; 
Other[A]: $58 million; 
Total[B]: $421 million. 

Percent of total obligations: 
Pavement projects: New construction: 0.0; 
Pavement projects: Pavement improvement: 56.1; 
Pavement projects: Pavement widening: 22.0; 
Bridge projects: New construction: 0.0; 
Bridge projects: Replacement: 0.1; 
Bridge projects: Improvement: 7.9; 
Other[A]: 13.8; 
Total[B]: 100.0. 

Source: GAO analysis of Federal Highway Administration data. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[B] Total may not add to 100 due to rounding. 

[End of table] 

As of June 30, 2009, Michigan had awarded 35 contracts representing 
about $118.1 million. Of these 35 contracts, 13 contracts (representing 
about $81 million) are underway. Of the 35 contracts, 2 have been 
completed, 28 are to be completed between July 2009 and November 2009, 
2 are to be completed by June 2010, 1 by May 2011, and 2 by June 2012. 
In addition, as of June 30, 2009, 39 contracts were pending award and 
the state plans to advertise 73 to be let by August 27, 2009. 

Michigan has found that contracts for Recovery Act projects are being 
awarded for less than the amount it had estimated when funding for the 
projects was obligated. For example, the award for a project to repave 
a major section of Interstate 196, which, according to transportation 
officials, is a critical east-west artery for commerce and tourists 
traveling to Lake Michigan, cost less than the state initially 
estimated. According to MDOT officials, the bids are coming in under 
estimated costs because there is little construction work available in 
Michigan so more contractors are competing for public sector 
construction projects. MDOT officials said that historically, on 
average, 4 to 5 contractors would bid for state transportation 
projects. For Recovery Act projects, the average has increased to 5 or 
6 contractors and, in some cases, as many as 20 contractors have bid on 
a single project. According to MDOT officials, larger construction 
companies, which usually do not bid for state projects, have also 
submitted bids because they have fixed costs and without any other form 
of employment, would prefer to work on a project at little or no profit 
to keep their employees working. Another factor leading to lower bids 
is a drop in the price of oil and construction materials. MDOT 
officials told us that contractors can afford a smaller profit margin 
with the lower cost of asphalt and other construction materials. MDOT 
officials said they believe the current bidding climate will continue. 
However, as MDOT adjusts its estimating practices in response to lower 
bids, MDOT's estimates should become more consistent with the bids and 
contract award amounts for transportation projects. 

Michigan Expects to Meet Special Requirements of Recovery Act on 
Highway Infrastructure Spending: 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. The states are required to do the 
following: 

* Ensure that 50 percent of apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. The Secretary of Transportation is to withdraw 
and redistribute to other states any amount that is not obligated by 
any state within these time frames. 

* Give priority to projects that can be completed within 3 years, and 
to projects located in economically distressed areas (EDA). EDAs are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. 

* Certify that the state will maintain the level of spending for the 
types of transportation projects funded by the Recovery Act that it 
planned to spend the day the Recovery Act was enacted. As part of this 
certification, the governor of each state is required to identify the 
amount of funds the state planned to expend from state sources as of 
February 17, 2009, for the period beginning on that date and extending 
through September 30, 2010.[Footnote 11] 

As of June 25, 2009, Michigan had met the 50 percent rule for the 120- 
day redistribution and obligated $369.8 million representing 62.3 
percent of $593 million subject to the rule. To meet this 50 percent 
obligation requirement, MDOT officials told us they selected pavement 
improvement projects that had completed designs and environmental 
permits and approvals, which allowed MDOT to start projects quickly. 

To give priority to projects that can be completed within 3 years, 
Michigan is selecting pavement improvement projects that were 
identified in the state's 5-year transportation plan and that already 
had environmental permits and approvals to accelerate the construction 
of these projects. Michigan expects to expend 91 percent of its 
Recovery Act transportation funds within the 3-year period. 

As of June 30, 2009, $298 million, or 70.7 percent of obligated funds, 
have been obligated for projects located in an EDA. One $1.5 million 
project in an EDA involves resurfacing about 1 mile of Pasadena Avenue 
in Flint. By improving road conditions, transportation officials told 
us that one of the goals of this project is to attract business and 
increase economic activity in the local community. The state has given 
priority to selecting Recovery Act projects in EDAs by using the FHWA's 
EDA Demographic Map[Footnote 12] to determine whether a project is 
located in an area considered economically distressed. MDOT officials 
told us they did not have any difficulty selecting transportation 
projects in EDAs because 76 of the 83 counties in Michigan are 
economically distressed. While selecting projects in EDAs was a high 
priority for Michigan, MDOT placed greater emphasis on the 120-day 
readiness criterion, geographic balance, and economic development 
potential since almost all projects were already located in EDAs. 

However, funds were obligated for several projects that were not in 
EDAs. For example, the most expensive Recovery Act transportation 
project in the state is not in an EDA. This $44 million project 
involves widening I-94 in Kalamazoo County, which, according to MDOT 
officials, is the busiest freeway in the state and a major corridor for 
commerce. This project was selected because it could meet the 120-day 
obligation criteria (the designs had been completed and environmental 
permits and approvals received). 

FHWA has directed its field offices to discuss the priority of 
selecting projects in EDAs with the states, determine what steps states 
have taken to fulfill this requirement, and document discussions with 
the state. FHWA's Michigan field office discussed this issue with 
Michigan and determined what steps Michigan had taken to fulfill this 
requirement. While FHWA Michigan field office officials emphasized the 
need to select projects in EDAs, the state officials told us their 
major concern was to get previously planned and needed projects started 
and provide jobs. 

Michigan has a statutory funding formula that governs how it 
distributes federal and state highways funds. Under this funding 
formula, Michigan distributes 75 percent of federal aid to MDOT and 25 
percent to local transportation agencies. According to MDOT officials, 
this funding formula did not have any impact on Michigan's ability to 
select projects in EDAs. 

On March 19, 2009, Michigan submitted a maintenance-of-effort 
certification that used the template provided in the letter from the 
U.S. Department of Transportation on February 27, 2009. Michigan 
received an April 20, 2009 letter from the department informing the 
state that it had to recalculate its maintenance-of-effort, based on 
expenditures rather than obligations and providing the option of 
amending the certification by May 22, 2009. On May 18, 2009, Michigan 
submitted an amended certification which it calculated based on 
expenditures rather than obligations. According to DOT officials, the 
department is reviewing Michigan's resubmitted certification letter and 
has concluded that the form of the certification is consistent with the 
additional guidance. DOT is currently validating the amount of state 
funds Michigan planned to expend for the covered programs in its 
resubmitted certification. 

In April 2009, the FHWA Michigan field office and MDOT identified the 
highest risks of fraud, waste, and abuse for Recovery Act-funded 
transportation projects and developed a risk-management plan, which 
they implemented on June 8, 2009. They developed mitigation strategies 
for each of the risk areas that include, among other things, conducting 
random sample reviews of consultant selection procedures, increasing 
project inspections, implementing a process to hold payments to local 
transportation agencies until all reporting requirements have been met, 
and verifying contractor reporting data before it is submitted to FHWA. 

School Districts in Michigan Will Not Receive Title I, ESEA Part A, 
Recovery Act Funds Until the State Has Approved Their Applications: 

The Recovery Act provides new funds to help local school districts 
educate disadvantaged youth by making additional funds available beyond 
those regularly allocated through Title I, Part A, of the Elementary 
and Secondary Education Act (ESEA) of 1965. The Recovery Act requires 
these additional funds to be distributed through states to school 
districts using existing federal funding formulas, which target funds 
based on such factors as high concentrations of students from families 
living in poverty. In using the funds, LEAs are required to comply with 
current statutory and regulatory requirements, and must obligate 85 
percent of these funds by September 30, 2010.[Footnote 13] Education is 
urging local districts to use the funds in ways that will build their 
long-term capacity to serve disadvantaged youth, such as through 
providing professional development to teachers. 

Education allocated the first half of states' ESEA Title I, Part A, 
allocations on April 1, 2009, with Michigan receiving $195 million of 
its $390 million. State education officials told us Recovery Act ESEA 
Title I funds will supplement their regular ESEA Title I funds. 
Michigan's 840 LEAs will begin receiving ESEA Title I Recovery Act 
funds on July 1, 2009, and will draw down funds as they incur allowable 
expenses. The state is using its regular ESEA Title I administrative 
processes, such as having LEAs apply to the Michigan Department of 
Education (MDE) showing how they will use the funds, before making the 
funds available. The LEAs were obtaining input from the schools in 
their districts regarding the use of the funds to include in the LEAs' 
applications to MDE, which were due on June 15, 2009. 

Officials in the five LEAs we visited--the public school districts in 
Detroit, Flint, Grand Rapids, Lansing, and Saginaw--told us they 
planned to use ESEA Title I Recovery Act funds for activities such as 
professional development, instructional technology, and tutoring in 
reading and math. In addition, officials in two districts said they 
plan to provide these funds to high schools that had not previously 
received them, and one district planned to use them to fund a new 
preschool program. All of them said they were concerned about not 
receiving the funds quickly enough from the state. For example, 
district officials in Detroit and Lansing said the time required to 
obtain required state approval for the use of funds and receive the 
funds from the state will make it difficult to meet the spending time 
frames under the Recovery Act. 

State and local officials were aware of the Recovery Act's goal of 
retaining and creating jobs. In guidance provided to LEAs, state 
officials stressed not funding new positions because of concerns about 
their sustainability after the Recovery Act funds expire, but they 
noted that some jobs would be created or saved through extended 
learning programs such as after-school programs and summer programs. 
MDE officials said they encouraged LEAs to make strategic investments 
that will have an impact beyond the life of the Recovery Act funds. 
Officials in all of the five LEAs we visited told us they were also 
concerned about choosing activities that could have lasting benefits 
for their districts. 

Officials in two of the five LEAs we visited said they plan to request 
waivers from either Education's ESEA Title I supplemental educational 
services requirement[Footnote 14] or the carryover limitation (the 
requirement to obligate 85 percent of their funds by September 30, 
2010). For example, officials with Detroit Public Schools told us they 
planned to request a waiver from the carryover limitation because they 
anticipate not being able to develop all of their plans for using the 
funds by that date. 

Michigan's LEAs Have Begun Using Recovery Act IDEA Parts B and C Funds 
to Provide Additional Services and Equipment to Special Needs Students: 

The Recovery Act provides supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports special education and 
related services for infants, toddlers, children, and youth with 
disabilities. Part B includes programs that ensure preschool and school-
aged children with disabilities have access to a free and appropriate 
public education and Part C programs provide early intervention and 
related services for infants and toddlers with disabilities or at risk 
of developing a disability and their families. IDEA funds are allocated 
to states through three grants--Part B preschool-age, Part B school-
age, and Part C grants for infants and families. States were not 
required to submit an application to Education in order to receive the 
initial Recovery Act funding for IDEA Parts B and C (50 percent of the 
total IDEA funding provided in the Recovery Act). States will receive 
the remaining 50 percent by September 30, 2009, after submitting 
information to Education addressing how they will meet Recovery Act 
accountability and reporting requirements. All IDEA Recovery Act funds 
must be used in accordance with IDEA statutory and regulatory 
requirements. Included in these are: 

1. a maintenance-of-effort requirement that state and local 
expenditures for special education not fall below those of the previous 
fiscal year; and: 

2. a requirement that Part B funds supplement, rather than supplant, 
state and local funding. 

Education allocated the first half of the states' IDEA allocations on 
April 1, 2009, with Michigan receiving $213 million for all IDEA 
programs. The largest share of IDEA funding was for the Part B school- 
aged program for children and youth. The state's initial allocation 
was: 

* $7 million for Part B preschool grants, 

* $200 million for Part B grants to states for school-aged children and 
youth, and: 

* $6 million for Part C grants for infants and families for early 
intervention services. 

As of June 30, 2009, 73 LEAs in Michigan had submitted their IDEA 
applications to MDE but none had begun drawing down Recovery Act IDEA 
funds. MDE officials said they will not require LEAs to follow any 
additional procedures to receive IDEA Recovery Act funds and that they 
will provide LEAs with checklists of requirements for their 
applications. The applications require LEAs to provide information on 
their organizational structure and additional programs to be provided 
to students with disabilities through Recovery Act funds. MDE officials 
also told us that they do not plan to request any waivers of the IDEA 
requirements for the Recovery Act funds, nor do any of the state's 
LEAs. 

MDE officials and officials in several of the districts we visited 
expressed a need for more guidance on IDEA Recovery Act funds. District 
officials noted they need more detailed guidance on Recovery Act 
accountability and reporting requirements, particularly how to 
calculate the number of jobs created and retained. Despite wanting 
additional guidance, state officials said they made presentations to 
the LEAs throughout the state and posted information on their Web site 
on the guidance provided to them by Education. 

MDE officials told us the LEAs are planning to use the IDEA Part B 
Recovery Act funds in ways that will benefit students beyond the 2-year 
time frame for which Recovery Act funds are provided. For example, the 
officials said they were encouraging LEAs to pursue sustainable options 
such as enhancing teachers' skills through professional development and 
purchasing equipment. In addition, district officials in Lansing and 
Grand Rapids told us they plan to use the funds to place more 
preschoolers with disabilities in regular classrooms. Officials in 
Lansing, Grand Rapids, and Detroit said they plan to purchase new 
equipment and technology with some of the funds. For the IDEA Part C 
funds, MDE officials told us they had not yet decided how they would 
use these funds. In addition, MDE officials told us that they do not 
plan to apply for IDEA Part C incentive grants because they lack 
sufficient resources to administer them. 

Michigan Is Preparing for a Large Increase in the Department of 
Energy's Weatherization Assistance Program: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the U.S. Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 15] 
This funding is a significant addition to the annual appropriations for 
the weatherization program that have been about $225 million per year 
in recent years. The program is designed to reduce the utility bills of 
low-income households by making long-term energy efficiency 
improvements to homes by, for example, installing insulation, sealing 
leaks around doors and windows, or modernizing heating and air 
conditioning equipment. During the past 32 years, the Weatherization 
Assistance Program has assisted more than 6.2 million low-income 
families. According to DOE, by reducing the utility bills of low-income 
households instead of offering aid, the Weatherization Assistance 
Program reduces their dependency by allowing these funds to be spent on 
more pressing family needs. 

DOE allocates weatherization funds among the states and the District of 
Columbia, using a formula based on low-income households, climate 
conditions, and residential energy expenditures by low-income 
households. DOE required each state to submit an application as a basis 
for providing the first 10 percent of Recovery Act allocation. DOE will 
provide the next 40 percent of funds to a state once the department has 
approved its state plan, which outlines, among other things, its plans 
for using the weatherization funds and for monitoring and measuring 
performance. DOE plans to release the final 50 percent of the funding 
to each state based on the department's progress reviews examining each 
state's performance in spending its first 50 percent of the funds and 
the state's compliance with the Recovery Act's reporting and other 
requirements. 

DOE allocated $243.4 million to Michigan in funding for the Recovery 
Act Weatherization Assistance Program for a 3-year period. This 
allocation is a significant increase from the past several years. For 
example, from 2003 to 2008, Michigan received approximately $15 million 
a year in federal funds for the weatherization program. Michigan's 
Department of Human Services (DHS) is responsible for administering the 
program. The Weatherization Assistance Program utilizes 30 Community 
Action Agencies and two Limited Purpose Agencies to operate the 
program. DHS received a notice from DOE on April 22, 2009, that 
Recovery Act funds were available and subsequently received guidance by 
phone, e-mail, and regional conference calls from DOE on applying for 
these funds. DHS submitted its application for funding its 2009 
Weatherization Program Plan on May 12, 2009. DHS officials told us they 
expect DOE to verify that the state's plan meets the requirements 
provided in its guidance, and for DOE to approve the plan within 60 
days of the submission date. However, as of June 22, 2009, DOE had not 
yet approved Michigan's plan. The major issues to be resolved concern 
guidance on payment of wages under the Davis-Bacon Act and barriers 
that might arise during the implementation of the program. 

On March 27, 2009, DOE provided the initial 10 percent allocation 
(approximately $24 million) to Michigan. As of June 22, 2009, DHS 
obligated $12.3 million; however, DHS had not spent any of the funds 
because DOE had not yet approved the state's plan. DHS officials said 
they expect to receive an additional 40 percent, or approximately $97 
million, shortly after its weatherization plan is approved. 

As stated in the plan submitted to DOE for review and approval, DHS's 
goals include reducing energy usage in each weatherized home by an 
average of 25 percent; weatherizing at least 32,000 houses; and 
employing an estimated 1,500 people. Of the total $243.4 million the 
state will receive for weatherization under the Recovery Act, the 
planned allocation is $200.8 million for weatherization production, 
$35.6 million for training and technical assistance, and about $7 
million for DHS to cover its costs for program management, oversight, 
reporting, and administration. Michigan plans to begin disbursing funds 
in July 2009 for weatherizing low income families' homes and state and 
federal public housing. In addition, the state plans to use the funds 
to provide training and technical assistance for the weatherization 
program. 

Michigan Is Using WIA Youth Program Funds to Create Many Summer 
Employment Opportunities: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth Program to 
facilitate the employment and training of youth. The WIA Youth Program 
is designed to provide low-income in-school and out-of-school youth age 
14 to 21, who have additional barriers to success, with services that 
lead to educational achievement and successful employment, among other 
goals. The Recovery Act extended eligibility through age 24 for youth 
receiving services funded by the act. In addition, the Recovery Act 
provides that, of the WIA Youth performance measures, only the work 
readiness measure is required to assess the effectiveness of summer 
only employment for youth served with Recovery Act funds. Within the 
parameters set forth in federal agency guidance, local areas may 
determine the methodology for measuring work readiness gains. The 
program is administered by the Department of Labor and funds are 
distributed to states based upon a statutory formula; states, in turn, 
distribute at least 85 percent of the funds to local areas, reserving 
up to 15 percent for statewide activities. The local areas, through 
their local workforce investment boards, have flexibility to decide how 
they will use these funds to provide required services. In the 
conference report accompanying the bill which became the Recovery Act, 
the conferees stated that they were particularly interested in states 
using these funds to create summer employment opportunities for youth. 
Summer employment may include any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work-experience component. Work experience may be provided at public 
sector, private sector, or nonprofit work sites. The work sites must 
meet safety guidelines and federal and state wage laws.[Footnote 16] 

Michigan received $74 million in Recovery Act funds for the WIA Youth 
Program, and after reserving 15 percent for statewide activities, 
allocated $62.9 million to the 25 Michigan Works! Agencies (MWA)--the 
local workforce development agencies that administer the programs--for 
day-to-day program administration. The Department of Energy, Labor and 
Economic Growth's (DELEG) goal is to spend the majority of its 
allocation during summer 2009. The department allows MWAs local 
flexibility when planning summer employment opportunities. For example, 
local discretion may be applied in determining: 

* which of the WIA Youth Program priorities will be addressed; 

* whether 12-month follow-ups are required for youth services provided 
with Recovery Act funds during the summer months only; 

* the type of work-readiness assessment and individual service strategy 
for youth served with Recovery Act funds during the summer months; and: 

* whether it is appropriate to link academic learning to summer 
employment opportunities. 

According to DELEG officials, all 25 MWAs had received their Recovery 
Act fund allocations for the WIA Youth Program and had started 
enrolling youth in their programs. Eligibility requirements for youth 
served with Recovery Act funds are the same as for the regular WIA 
Youth Program, with the exception that the maximum age of eligibility 
for the programs funded by the Recovery Act has been increased to 24 
years. The state's One-Stop Management Information System has been 
modified in order to more effectively account for the number of 
participants served using Recovery Act funds. 

The state of Michigan, through its 25 MWAs, anticipates serving about 
25,500 youth with 2009 Recovery Act funds, compared to about 4,000 
served with regular WIA funds during the summer of 2008. We visited the 
MWAs in Lansing and Detroit and officials provided us the following 
information on their WIA summer youth programs: 

* Lansing's MWA, Capital Area Michigan Works!, was allocated $3.3 
million in 2009 Recovery Act funds for its WIA Youth Program and 
planned to employ over 700 youths in the summer of 2009. In contrast, 
Lansing spent $43,255 of WIA funding in the summer of 2008 to employ 
140 youths. As of June 30, 2009, an estimated 712 youths were employed. 
All participants were to receive a week of leadership training prior to 
beginning work on June 22, 2009. 

* Detroit's MWA, the Detroit Workforce Development Department, was 
allocated $11.4 million in 2009 Recovery Act funds for its WIA Youth 
Program and planned to employ 7,000 youths in the summer of 2009. In 
its 2008 summer youth program the department spent $3 million to employ 
2,900 youths. In addition to WIA Youth Program funds, the Detroit's 
2008 summer youth program received $1.55 million from other sources. 
For the summer of 2009, the goal is to have all youths working by July 
6, 2009. As of June 30, 2009, 3,800 youths had completed the 
preemployment certification process and an estimated 22 were onboard 
and working. 

Officials in both Lansing and Detroit said they have had no difficulty 
recruiting sufficient numbers of youth for participation in their 
summer programs. For example, Detroit received 25,000 applications for 
its 7,000 jobs. 

While DELEG provides overall program guidance, the design, 
implementation, monitoring, and reporting on the use and accounting for 
WIA Recovery Act funds is the responsibility of the various MWAs. In 
both Lansing and Detroit, all summer youth employment activities are 
contracted out. In Lansing, the MWA is the management and oversight 
agency for 20 contractors, including one faith-based organization. The 
Detroit Workforce Development Department has contracted with City 
Connect, a private nonprofit organization, to recruit youth for 
employment in its 2009 summer youth program. To date, Detroit's City 
Connect has identified approximately 4,200 summer jobs at 145 work 
sites, including a retail pharmacy, the Henry Ford Hospital, the 
Detroit City Council, Detroit's police and fire departments, and Wayne 
County Community College District. Positions in Lansing include jobs 
with Michigan State University and the Lansing Department of Public 
Works. Officials at both MWAs were aware of the Recovery Act's emphasis 
on "green" jobs. Lansing officials explained that it is very difficult 
to identify significant numbers of green jobs suitable for youths, 
although they created some green jobs for youths in the Department of 
Public Works and the School of Agriculture at Michigan State 
University. In addition, MWA officials in Detroit told us they had 
developed a task force to address this issue and planned to place 600 
youths in green jobs. 

DELEG's overall guidance to MWA directors states that they must conduct 
regular oversight and monitoring of Recovery Act funds in order to 
ensure that expenditures are made against the appropriate cost 
categories and within cost limitations. The guidance further states 
that oversight and monitoring should determine compliance with 
programmatic, accountability, and transparency requirements of the 
Recovery Act. To this end, DELEG set up separate accounting codes to 
track Recovery Act funds. The agency also holds monthly meetings with 
all 25 MWA directors to encourage reporting of consistent information. 
Finally, state program officers said they plan to conduct on-site 
monitoring visits of work sites. Locally, Lansing MWA officials told us 
they plan to monitor compliance with administrative requirements and 
controls as well as safety, sexual harassment, adequacy of 
transportation, and supervision concerns. An official at the Lansing 
MWA, however, told us he has only four monitors to cover 200 work 
sites. Detroit MWA officials said they will be using their existing 
accounting system to account for the use of Recovery Act funds. They 
stated that a separate bank account has been opened for the receipt of 
all Recovery Act funds with separate cost centers for each program. The 
program finance manager and four accountants are assigned specifically 
to monitor compliance with Recovery Act requirements for the WIA Youth 
Program. In addition, the program will be monitored by the City Auditor 
General's Finance Department and DELEG, which plans to conduct three 
visits each year. 

Neither DELEG nor local MWA officials expressed any major challenges in 
planning for implementation of their Recovery Act funded WIA summer 
youth employment activities. From the state's perspective, its 
experience with running programs for displaced workers combined with 
the experience of local MWA directors and early planning has 
contributed to a smooth transition in planning activities using 
Recovery Act funds. Lansing officials explained that, for a new program 
manager, finding staff to monitor program activities could be a 
challenge because of the limited amount of time available to recruit 
and employ youths for the summer. Detroit officials said one of its 
challenges was obtaining City Council approval of its summer youth 
employment provider--City Connect--which can take several months. The 
other challenge they cited was having more applicants than available 
jobs, which has caused them to do much more screening than in previous 
years. In addition, Detroit's MWA is coordinating with other local 
service organizations such as United Way of Southeastern Michigan to 
evaluate the impact of Recovery Act funds on area employment and the 
benefit to youth. Finally, Detroit officials told us that they plan to 
hire up to 150 additional staff by June 30, 2009 to monitor their 
summer youth program work sites. 

Edward Byrne Memorial Justice Assistance Grants (JAG): 

The Edward Byrne Memorial Justice Assistance Grant (JAG) program within 
the Department of Justice's Bureau of Justice Assistance (BJA) provides 
federal grants to state and local governments for law enforcement and 
other criminal justice activities, such as crime prevention and 
domestic violence programs, corrections, treatment, justice information-
sharing initiatives, and victims' services. Under the Recovery Act, an 
additional $2 billion in grants are available to state and local 
governments for such activities, using the rules and structure of the 
existing JAG program. The level of funding is formula-based and is 
determined by a combination of crime and population statistics. Using 
this formula, 60 percent of a state's JAG allocation is awarded by BJA 
directly to the state, which must in turn allocate a formula-based 
share of those funds to local governments within the state. The 
remaining 40 percent of funds is awarded directly by BJA to eligible 
units of local government within the state.[Footnote 17] The total JAG 
allocation for Michigan state and local governments under the Recovery 
Act is about $67.0 million, a significant increase from the previous 
fiscal year 2008 allocation of about $5.0 million. 

As of June 30, 2009, the Office of Drug Control Policy (ODCP) had 
received the full state award of $41.2 million.[Footnote 18] Of this 
amount, ODCP obligated all of these funds, which included $14 million 
for state programs and $26 million for localities. ODCP retained $1.2 
million (3 percent) for administrative costs. In addition, localities 
within Michigan had been awarded about $18.2 million by the Department 
of Justice, approximately 71 percent of Michigan's total local award of 
about $25.8 million. 

ODCP officials said that Recovery Act funding has allowed them to 
continue with planned technology enhancements, add several courts that 
focus on particular areas of crime (such as drug abuse and domestic 
violence), and provide prescription drug abuse awareness programs. They 
also intend to fund projects without requiring matching funds, which 
had previously been required to receive funding for these programs. 
From April 13 through May 14, 2009, ODCP officials solicited 
applications for funding from local law enforcement agencies and 
received 137 applications. These projects support the program areas 
outlined by Michigan that support the seven JAG purpose areas.[Footnote 
19] 

The Michigan program areas are: 

* Technology Enhancement Projects, 

* Community Policing & Community Prosecution Strategies, 

* Local Correctional Resources, 

* Multi-jurisdictional Task Forces, 

* Prescription Drug Abuse Community Awareness, 

* Courts for Domestic Violence, and: 

* Courts for Family Drug Treatment. 

ODCP monitors recipient compliance with JAG requirements through risk- 
based activities. In addition to receiving program reports from 
subrecipients, ODCP conducts desk audits of low-risk programs and on- 
site monitoring. Desk monitoring activities include reviewing monthly 
financial status reports and contacting project directors regarding 
delinquent program reports. After on-site monitoring, ODCP prepares a 
report that includes critical findings and a timeline for a return to 
compliance. ODCP determines the level of risk by using factors such as 
the amount of funds awarded to a subrecipient, past performance 
problems (such as inaccurate progress reports), and previous 
inappropriate expenditures. ODCP has taken steps to hire an additional 
staff person to provide assistance with administering and reporting on 
JAG Recovery Act funds. 

Public Housing Capital Grants: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies to improve the physical condition 
of their properties; for the development, financing, and modernization 
of public housing developments; and for management improvements. 
[Footnote 20] The Recovery Act requires the U.S. Department of Housing 
and Urban Development (HUD) to allocate $3 billion through the Public 
Housing Capital Fund to public housing agencies using the same formula 
for amounts made available in fiscal year 2008. Recovery Act 
requirements specify that public housing agencies must obligate funds--
that is, make funds available--within 1 year of the date they are made 
available to public housing agencies, expend at least 60 percent of 
funds within 2 years of that date, and expend 100 percent of the funds 
within 3 years of that date. Public housing agencies are expected to 
give priority to projects that can award contracts based on bids within 
120 days from the date the funds are made available, as well as capital 
projects that rehabilitate vacant units, or those already underway or 
included in the required 5-year capital fund plans. HUD is also 
required to award $1 billion to public housing agencies based on 
competition for priority investments, including investments that 
leverage private-sector funding or financing for renovations and energy 
conservation retrofit investments. On May 7, 2009, HUD issued its 
Notice of Funding Availability that describes the competitive process, 
criteria for applications, and time frames for submitting applications. 
[Footnote 21] Michigan has 122 public housing agencies that have 
received Recovery Act formula grant awards. In total, these public 
housing agencies received $53.5 million from the Public Housing Capital 
Fund formula grant awards. As of June 20, 2009, 61 of the state's 122 
public housing agencies had obligated $7.6 million and had expended 
$1.1 million. We visited four public housing agencies in Michigan: the 
Detroit, Ecorse, Flint, and Lansing Housing Commissions.[Footnote 22] 

Figure 2: Percentage of Public Housing Capital Funds Allocated by HUD 
that Have Been Obligated and Drawn Down in Michigan: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $53,467,201; 100%; 
Funds obligated by public housing agencies: $7,572,912; 14.2%; 
Funds drawn down by public housing agencies: $1,082,532; 2.0%. 

Number of public housing agencies: 
Entering into agreements for funds: 122; 
Obligating funds: 61; 
Drawing down funds: 35. 

Source: GAO analysis of HUD data. 

[End of figure] 

The four public housing agencies we visited identified hundreds of 
units in projects that will receive Recovery Act funding. Most of these 
projects were selected because they had recurring maintenance issues, 
such as exterior walls and windows that needed repair. The public 
housing agency officials told us that they will rehabilitate housing 
units beginning in July at the earliest. For example, the Lansing 
Housing Commission plans to remove and replace roofs; add insulation in 
roofs and add wall insulation before installing new siding; repair or 
replace sliding windows; and install and repair gutters and downspouts. 
The Ecorse Housing Commission plans to purchase a new security system 
for its properties, which also includes a new server for its 
information technology system. Ecorse Housing Commission officials said 
that their Commission will also use the funds to perform energy audits, 
which are required by HUD every 5 years. 

The four public housing agencies we visited in Michigan had not drawn 
down any Recovery Act formula grant funds as of the time of our visits. 
For example, Detroit Housing Commission officials told us that their 
agency had been allocated about $17 million in Recovery Act funds and 
would draw down funds beginning in June 2009. The Detroit Housing 
Commission had to obtain approval from HUD before it draws down the 
funding, since it had been designated a "troubled" public housing 
agency by HUD.[Footnote 23] The Flint Housing Commission had not drawn 
down any funds because it was first required to complete environmental 
reviews of its proposed projects. The environmental reviews are 
expected to be completed by July 1, 2009. 

The public housing agencies used varying approaches to select and 
prioritize the projects to be funded with Recovery Act funds. For 
example, Detroit Housing Commission officials told us that they 
prioritized capital projects based on the Commission's Capital Fund 5- 
year plan. The commission will select projects from among 400 sites 
throughout Detroit. Based on its 5-year plan, the Detroit Housing 
Commission is targeting seven major projects. The Detroit Housing 
Commission also plans to use the funds to rehabilitate rental units and 
for projects that are underway. Lansing Housing Commission officials 
told us that their projects were prioritized before the Recovery Act. 
Flint Housing Commission officials prioritized projects based on the 
Commission's Capital Fund 5-year plan and input from its directors and 
managers. After the Flint Housing Commission completed its 
prioritization process, it submitted its proposals to HUD as part of 
its annual statement. According to Flint Housing Commission officials, 
a variety of projects were prioritized in this process, including 
repaving parking lots and sidewalks; replacing or repairing porches; 
installing new roofing; repainting the exterior of some buildings; and 
replacing or repairing kitchen floors. The officials said that their 
goal is that these projects will improve the aesthetics of public 
housing units and improve occupancy and reduce tenancy turnover. 

Officials at the public housing agencies we visited said they will have 
to meet accelerated time frames required under the funding, but plan to 
meet these requirements. For example, the Lansing Housing Commission 
officials told us they plan to solicit bids for three planned projects 
on July 8, 2009. When this step has been completed and they have 
awarded the contracts and complied with all HUD requirements, officials 
will begin to draw down Recovery Act funds. 

Each of the public housing agencies we visited in Michigan had 
established processes to track Recovery Act projects and to track 
Recovery Act funds. For example, Detroit Housing Commission officials 
said they meet with HUD officials on a weekly basis to discuss the 
tracking of Recovery Act funds, and other priorities. Each of the four 
agencies will use HUD's Electronic Line of Credit Control System 
(eLOCCS) to assist in tracking Recovery Act funds separately from other 
funding sources. According to Ecorse Housing Commission officials, 
Recovery Act funds will contain an identifier to distinguish them from 
other funds. The Flint Housing Commission also developed a spreadsheet 
with separate accounting codes for Recovery-funded projects. Flint 
Housing Commission officials said they use a general ledger to help 
organize the information. 

The public housing officials with whom we met reported a variety of 
strategies for how they plan to measure the impact of Recovery Act 
funds and the jobs created as a result of the funds. Ecorse Housing 
Commission officials told us that they were waiting for guidance from 
HUD on reporting requirements, particularly with respect to reporting 
on jobs retained. Flint Housing Commission officials told us that they 
are using its payroll system to track jobs created using Recovery Act 
funds. The Flint Housing Commission plans to hire an additional 30 to 
40 employees, including carpenters and plumbers, to renovate public 
housing units. 

Existing and Planned Safeguards and Internal Controls Will Be Used for 
Michigan's Recovery Act Programs: 

Michigan's State Budget Office (SBO) is responsible for the overall 
operation of the state's central accounting system and establishing and 
maintaining the state's internal control structure.[Footnote 24] Within 
the SBO, the Office of Financial Management is responsible for 
developing policies and procedures related to financial management, and 
preparing the annual Comprehensive Annual Financial Report and other 
financial, payroll, and special reports. The Michigan Economic Recovery 
Oversight Board, an advisory body consisting of six members appointed 
by the Governor, is, among other things, to review and monitor the 
allocation and investment of the federal funds received by the state to 
ensure that several objectives are achieved. These objectives include 
that (1) funds are used for authorized purposes and instances of fraud, 
waste, error, and abuse are mitigated, and (2) the recipients and uses 
of the funds are transparent to the public, and the public benefits of 
these funds are reported clearly, accurately, and in a timely manner. 
The Board is also to provide other information, recommendations, or 
advice related to Michigan's compliance with the transparency, 
accountability, and oversight requirements of the Recovery Act. The 
Board, which was created in June 2009, is to serve until December 2011. 

In order to prepare for using Recovery Act funds, Michigan enhanced its 
accounting system to track these funds, although challenges remain, 
such as capturing the number of jobs created and determining the 
formats needed for reporting information. Michigan officials were still 
uncertain what the federal government expects from the state regarding 
tracking and reporting on funds to local entities when federal funds 
flow directly to these entities, rather than through the state. 
[Footnote 25] 

Within the SBO, the Office of Internal Audit Services (OIAS) provides 
internal audit services by performing periodic financial, performance, 
and compliance audits of departments and agency programs and 
organizational units. In addition, SBO staff review department or 
agency management on internal control matters, and assist department 
and agency management with investigations of alleged fraud or other 
irregularities. The Michigan Management and Budget Act requires each 
principal department to maintain adequate internal control systems and 
to biennially report to the Governor on the adequacy of its internal 
accounting and administrative control systems. Additionally, if any 
material weaknesses exist, the act requires that the department provide 
corrective action plans and time schedules for addressing such 
weaknesses. The most recent self-assessments were due to the OIAS on 
May 1, 2009. These assessments are limited to state departments. As of 
mid-June, OIAS expected to receive 15 of the 19 self-assessments and 
the auditors were reviewing the assessments and considering the 
internal control vulnerabilities that they identified to assist in 
planning their audit strategy. OIAS expects to submit a consolidated 
report to the Governor covering the self-assessments for all state 
departments by September 30, 2009. In addition, OIAS will include an 
action plan for improvements to the self-assessment process. 

As part of the Recovery Act planning process, the OIAS staff performed 
risk-based analyses of the programs that will receive Recovery Acts 
funds. The Director of OIAS said that he intends to focus the office's 
reviews based on five criteria: (1) the total amount of Recovery Act 
funds received, (2) programs experiencing the largest percentage 
increase in program funds from the Recovery Act, (3) the distribution 
process (e.g., by formula or through competition), (4) compliance 
impact due to the nature of the program, and (5) characteristics of the 
recipients (e.g., whether they have worked with the state government 
before). As part of these reviews, OIAS intends to review the agencies' 
internal control evaluations to identify if material findings were 
cited for programs receiving Recovery Act funds and to review recent 
single audits from the State Auditor General. OIAS also plans to review 
the status of the departments' corrective action plans. 

SBO relies upon the controls in place at the state departments and 
agencies, although many of the control features are decentralized. 
State agencies have taken varying approaches to monitor Recovery Act 
funds. For example, based on the significant increase in funding, 
Michigan plans to increase the frequency of site visits to help ensure 
compliance with DOE's Weatherization Assistance Program. In contrast, 
MDE officials told us that limited administrative funds have prevented 
the department from hiring additional staff to monitor up to 4,500 
additional recipients of Recovery Act funds. MDOT officials told us 
that they have sufficient staff to monitor the use of Recovery Act 
funds. 

The State Auditor General's single audit approach is to audit and 
report on approximately one-half of Michigan's 19 departments each 
year, with the audits covering 2 fiscal years of departmental activity. 
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. 
For example, the most recent single audit for Michigan's Medicaid 
program identified several deficiencies including third-party liability 
oversight; Medicaid payments for Medicare premiums for persons dually 
eligible for both programs; and ensuring adequate reporting and 
subrecipient monitoring.[Footnote 26] State Medicaid officials 
responded to the single audit's findings with a corrective action plan. 
However, these officials told us that the only deviation from the 
proposed corrective action plan timeline was a delay in the 
implementation of the state's claims processing subsystem of their new 
Medicaid Management Information System, which is expected to be 
implemented in September 2009. 

The following are examples of single audit findings pertaining to MDE 
and MDOT: 

* MDE: In June 2008, the State Auditor General issued a single audit 
report on MDE for the 2-year period ending September 30, 2007. This 
report identified significant deficiencies related to internal control 
over major programs and instances of noncompliance with program 
requirements. For example, MDE's internal controls over special 
education did not ensure its compliance with federal laws and 
regulations regarding reporting and subrecipient monitoring. In April 
2009, MDE issued its plan for corrective action to the State Auditor 
General. 

* MDOT: In June 2007, the State Auditor General issued a single audit 
report on MDOT for the 2-year period ending September 30, 2006. This 
report identified that MDOT needed to strengthen its internal controls 
for the State Infrastructure Bank program to ensure compliance with 
federal and state laws and regulations, and with contract terms 
regarding allowable activities. In addition, in September 2008, the 
State Auditor General reported that the U.S. Department of the Treasury 
did not allocate expenditures to the Michigan Transportation Fund 
because MDOT did not produce the level of activity necessary to enforce 
the Motor Fuel Tax Act. 

Assessing the Effects of Recovery Act Spending: 

Absent timely guidance from the federal Office of Management and Budget 
(OMB), and from the state, Michigan departments have relied on other 
resources to develop criteria to measure jobs created and retained for 
the programs each administers. For example, after DELEG officials 
worked with a contractor to develop a method of estimating the number 
of jobs created and retained as a result of the Recovery Act, they 
received different guidance from DOE on how to provide these estimates. 
In addition, working with FHWA, on April 3, 2009, MDOT developed 
guidance and provided notice to all contractors bidding for Recovery 
Act transportation projects that they will be required to report on the 
number of jobs created. The company that is awarded the contract must 
provide the lead engineer a monthly report that includes: 

* the total number of employees, including prime contractors, 
subcontractors, and consultants, who performed work on the contract; 

* the total number of hours worked by employees who performed work on 
the contract; and: 

* the total wages of employees who performed work on the contract. 

MDOT was also developing an automated system, expected to be 
operational by July 1, 2009, that would allow contractors to input 
relevant job data directly into a database. At the time of our review, 
contractors must fill out a form and submit it to MDOT. In addition, 
MDOT planned to put in place a quality-assurance process for monitoring 
and assessing the accuracy and completeness of the data reported by 
contractors. As of June 2009, MDOT officials did not have a time frame 
for putting this process in place. 

Officials from the Michigan Economic Development Corporation told us 
that estimating jobs created and retained is difficult for several 
reasons. One of the difficulties in developing these estimates is the 
difficulty of defining full-time employment. For example, construction 
work is full-time in certain states, but seasonal in Michigan. Another 
difficulty is identifying the number of "indirect"[Footnote 27] jobs 
associated with the use of Recovery Act funds. 

Michigan's Department of Information Technology was developing a 
comprehensive project-tracking database system for Recovery Act 
reporting requirements, including the source and use of funds. The 
Michigan Economic Recovery Office issued guidance to state departments 
on the information they should provide to the office and officials said 
they intend to test the system in July 2009 in preparation for the 
first Recovery Act report due from the state to OMB in October 2009. 
Officials told us that the test is to include some information on jobs 
created. State agency officials told us that they intend to use this 
test to assess whether information they are collecting is accurate and 
meets all federal reporting requirements. 

State Comments on This Summary: 

We provided the Governor of Michigan with a draft of this appendix, and 
staff in the Michigan Governor's office and the Michigan Economic 
Recovery Office reviewed the draft appendix and responded on June 22, 
2009. In general, they agreed with its overview of the state's 
activities in the nine programs selected for analysis. The officials 
also provided technical suggestions that we incorporated, as 
appropriate. 

GAO Contacts: 

Susan Ragland, (202) 512-8486 or raglands@gao.gov: 

Revae Moran, (202) 512-3863 or moranr@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Robert Owens, Assistant 
Director; Jeffrey Isaacs, analyst-in-charge; Manuel Buentello; Leland 
Cogliani; Henry Malone; Anthony Patterson; and Mark Ward made major 
contributions to this report. 

[End of section] 

Footnotes for Appendix IX: 

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

[2] 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 would otherwise have to 
use for their Medicaid programs, and states have reported using these 
available funds for a variety of purposes. 

[3] We did not review Edward Byrne Memorial Justice Assistance Grants 
awarded directly to local governments in this report because the Bureau 
of Justice Assistance's solicitation for local governments closed on 
June 17; therefore, not all of these funds have been awarded. 

[4] In addition to its central financial management system, some state 
departments use other accounting systems, but all systems are required 
to reconcile with the central financial management system. 

[5] See Memorandum to the Members of the Michigan House of 
Representatives on the Consensus Revenue Agreement, Michigan House 
Fiscal Agency (May 19, 2009) that projected a decline in general fund/ 
general purpose revenues. 

[6] See Recovery Act, div. B, title V, §5001. 

[7] Although the effective date of the Recovery Act was February 17, 
2009, states generally may claim reimbursement for the increased FMAP 
for Medicaid service expenditures made on or after October 1, 2008. 

[8] Michigan projected enrollment for May 2009. 

[9] Michigan received increased FMAP grant awards of over $728 million 
for the first three quarters of federal fiscal year 2009. 

[10] The Single Audit Act of 1984, as amended (31 U.S.C. ch. 75), 
requires that each state, local government, or non-profit organization 
that expends $500,000 or more a year in federal awards must have a 
single audit conducted for that year subject to applicable 
requirements, which are generally set out in Office of Management and 
Budget (OMB) Circular No. A-133, Audits of States, Local Governments 
and Non-Profit Organizations (June 27, 2003). If an entity expends 
federal awards under only one federal program, the entity may elect to 
have an audit of that program. 

[11] States that are unable to maintain their planned levels of effort 
will be prohibited from benefiting from the redistribution of 
obligation authority that will occur after August 1 for fiscal year 
2011. As part of the federal aid highway program, FHWA assesses the 
ability of the each state to obligate their apportioned funds by the 
end of the federal fiscal year (September 30) and adjusts the 
limitation on obligations for federal aid highway and highway safety 
construction programs by reducing the authority of some states to 
obligate funds and increasing the authority of other states. 

[12] FHWA's EDA Demographic Map shows counties that are EDAs based on 
the 2007 per capita income from the Bureau of Economic Analysis and 24- 
month average unemployment rates from the Bureau of Labor Statistics. 
FHWA defines an EDA as an area where the unemployment is 1 percent or 
more above the national average or the per capita income is 80 percent 
or less than the national average. The map can be found online at 
[hyperlink, http://hepgis.fhwa.dot.gov/hepgis_v2/GeneralInfo/Map.aspx]. 

[13] LEAs must obligate at least 85 percent of their Recovery Act ESEA 
Title I, Part A, funds by September 30, 2010, unless granted a waiver, 
and all of their funds by September 30, 2011. This will be referred to 
as a carryover limitation. 

[14] Under ESEA Title I, supplemental educational services must be 
available to students in schools that have not met state targets for 
increasing student achievement (adequate yearly progress) for 3 or more 
years. Districts with schools in improvement are required to provide an 
amount no less than 20 percent of their ESEA Title I, Part A, 
allocations for supplemental educational services and public school 
transportation. The term supplemental educational services means 
tutoring and other supplemental academic enrichment services that are 
in addition to instruction provided during the school day, specifically 
designed to increase the academic achievement of eligible students as 
measured by the state's assessment system, and enable these children to 
attain proficiency in meeting state academic achievement standards. 

[15] DOE also allocates funds to American Samoa, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, 
the Virgin Islands, the Navajo Indian tribe, and the Northern Arapahoe 
Indian tribe. 

[16] Current federal wage law specifies a minimum wage of $6.55 per 
hour until July 24, 2009, when it becomes $7.25 per hour. Where federal 
and state law have different minimum wage rates, the higher standard 
applies. 

[17] We did not review these funds awarded directly to local 
governments in this report because the BJA's solicitation for local 
governments closed on June 17. 

[18] Due to rounding, this may not exactly equal 60 percent of the JAG 
award to Michigan. 

[19] The BJA allows JAG funding for state and local initiatives, 
technical assistance, training, personnel, equipment, supplies, 
contractual support, and information systems for criminal justice, as 
well as criminal justice-related research and evaluation activities 
that will enhance the following seven areas: prosecution and court 
programs; prevention and education programs; corrections and community 
corrections programs; drug treatment and enforcement programs; 
planning, evaluation, and technology improvement programs; crime victim 
programs; and witness programs. 

[20] Public housing agencies receive money directly from the federal 
government (HUD). Funds awarded to the public housing agencies do not 
pass through the state budget. 

[21] HUD released a revised Notice of Funding Availability for 
competitive awards on June 3, 2009. The revision included changes and 
clarifications to the criteria and time frames for application, and to 
funding limits. 

[22] As of June 20, 2009, the four public housing commissions we 
visited had received $22.2 million from the Public Housing Capital Fund 
formula grant awards. The four housing commissions had obligated $1.8 
million and had expended $346,500 of these grant funds. 

[23] HUD developed the Public Housing Assessment System to evaluate the 
overall condition of housing agencies and measure performance in major 
operational areas of the public housing program. These include 
financial condition, management operations, and physical condition of 
the housing agencies' public housing programs. Housing agencies that 
are deficient in one or more of these areas are designated as troubled 
performers by HUD and are statutorily subject to increased monitoring. 

[24] In addition to its central financial management system, some state 
departments use other accounting systems, but all systems are required 
to reconcile with the central financial management system. 

[25] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See OMB Memorandum M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[26] In accordance with the Single Audit Act of 1984, as amended, 31 
U.S.C. §§ 7501-7505, and the Office of Management and Budget (OMB) 
Circular A-133, Audits of States, Local Governments and Non-Profit 
Organizations (June 27, 2003), nonfederal entities, including states, 
that expend $500,000 or more a year in federal awards must have a 
single or program-specific audit conducted for that year subject to 
applicable requirements. 

[27] Indirect jobs created include the number of employees associated 
with increased businesses that provide products or services to 
employees hired directly through contracts funded through Recovery Act 
funds. 

[End of Appendix IX] 

Appendix X: Mississippi: 

Overview: 

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

Use of funds: GAO's work focused on nine federal programs, selected 
primarily because they have begun disbursing funds to states, include 
new programs, or include existing programs receiving significant 
amounts of Recovery Act funds. Program funds are being directed to help 
Mississippi stabilize its budget and support local governments, 
particularly school districts, and several are being used to expand 
existing programs. Funds from some of these programs are intended for 
disbursement through states or directly to localities. The funds 
include the following: 

* Funds Made Available as a Result of Increased Medicaid Federal 
Medical Assistance Percentage (FMAP). As of June 29, 2009, Mississippi 
had drawn down almost $207 million in increased FMAP grant awards, 
which is over 89 percent of its $232 million grant awards to date. 
Mississippi officials reported that they are planning to use funds made 
available as a result of the increased FMAP to cover Medicaid's 
increased caseload. The officials also noted that they are using freed 
up state funds to offset the state budget deficit.[Footnote 2] 

* Highway Infrastructure Investment funds. The U.S. Department of 
Transportation's Federal Highway Administration (FHWA) apportioned $355 
million in Recovery Act funds to Mississippi, of which 30 percent was 
suballocated to metropolitan and other areas. As of June 30, 2009, the 
federal government's obligation was $276 million, and Mississippi had 
awarded 44 contracts totaling $208.4 million for "shovel ready" 
projects, including highway resurfacing, bridge improvement, and new 
construction projects. For example, one project in Lauderdale County, 
near the Mississippi-Alabama border, involves construction of a new 
interchange. 

* U.S. Department of Education (Education) State Fiscal Stabilization 
Fund (SFSF). Education has awarded Mississippi $321.l million, or about 
67 percent of its total SFSF allocation of $479.3 million. The state 
has not obligated any of these funds as of June 30, 2009. Mississippi 
plans to use these funds to restore state support to education budgets 
for primary, secondary, and higher education. For example, a University 
of Mississippi official said these funds would be used to avoid tuition 
increases and layoffs. 

* Title I, Part A, of the Elementary and Secondary Education Act of 
1965 (ESEA). Education has awarded Mississippi $66.4 million in 
Recovery Act ESEA Title I, Part A, funds or 50 percent of its total 
allocation of $132.9 million. The Mississippi Department of Education 
has determined allocations for local education agencies and released 
this information on June 25, 2009. Local education agencies we visited 
plan to use these funds to, among other things, provide professional 
development for teachers and purchase new classroom equipment. 

* Individuals with Disabilities Education Act (IDEA), Part B & C. 
Education has awarded Mississippi $63.4 million in Recovery Act IDEA, 
Part B & C, funds, or 50 percent of its total allocation. The 
Mississippi Department of Education has determined allocations for 
local education agencies and planned to release this information by 
early July 2009. Local education agencies we visited plan to use these 
funds to purchase communication devices for students with disabilities 
and equipment for special education teachers. IDEA Part C is 
administered separately by the Mississippi Department of Health, which 
is planning to use the funds for personnel development and direct 
services for children. 

* Weatherization Assistance Program. The U.S. Department of Energy 
awarded $49.4 million in Recovery Act weatherization funding to 
Mississippi. Based on information available on June 30, 2009, DOE has 
allocated 50 percent ($24.7 million) to the state. The Mississippi 
Department of Human Services (MDHS) has obligated all of these funds. 
MDHS also has started to disburse these funds to help reduce the energy 
bills of more than 5,000 low-income families across the state. 

* Workforce Investment Act Youth Program. The U.S. Department of Labor 
allotted about $18.7 million to Mississippi in Workforce Investment Act 
Youth Recovery Act funds. Mississippi has allocated about $15.9 million 
to the state's four local workforce areas, based on information 
available on June 30, 2009. The local workforce areas' summer youth 
programs were set to begin operating in late May and early June. 
Mississippi plans to create summer employment opportunities for about 
6,000 youth using Recovery Act funds. 

* Edward Byrne Memorial Justice Assistance grants. The Department of 
Justice's Bureau of Justice Assistance has awarded $11.2 million in 
Recovery Act funding directly to Mississippi. Based on information 
available as of June 30, 2009, $57,072 of these funds have been 
obligated by the Mississippi Department of Public Safety, which 
administers these grants for the states.[Footnote 3] Grant funds coming 
to the state will provide funding for law enforcement, community 
corrections, as well as prevention and education programs. 

* Public Housing Capital Fund. The U.S. Department of Housing and Urban 
Development has allocated about $32.4 million in Recovery Act funding 
to 52 public housing agencies in Mississippi. Based on information 
available as of June 20, 2009, 18 of these agencies had obligated about 
$5.7 million, or 17.6 percent. At the 2 public housing agencies we 
visited (in Gulfport and Picayune), this money, which flows directly to 
public housing agencies, is being used for various capital 
improvements, such as modernizing kitchens and bathrooms; replacing 
plumbing, flooring, and entrance doors; and installing new roofs and 
siding. 

Safeguarding and transparency: Mississippi has enhanced its accounting 
system to track Recovery Act funds that flow through the state treasury 
and the state central accounting system and is making changes to most 
of its software programs so that the use of the funds will be more 
transparent. Once software changes are completed, detailed information 
on the use of Recovery Act funds, including the total amount of 
Recovery Act funds received, the amount of funds obligated or expended 
for grants, a detailed list of all grants and activities (including 
projects under those grants), and the number of jobs created or 
sustained, will be available on the State of Mississippi Web site. 

Assessing the effects of spending: Mississippi agencies continue to 
express concern about the lack of clear federal guidance on assessing 
the effects of Recovery Act spending. For example, officials at the two 
local education agencies and three institutions of higher education we 
visited told us that they plan to use Recovery Act funds to avoid 
layoffs and hire new staff. These officials noted that they would like 
more specific reporting guidance--including how to track jobs created 
and sustained--from their state oversight boards. In addition, 
officials from the state oversight boards told us that they were 
expecting to receive additional guidance on reporting requirements from 
Education and the Office of Management and Budget and would share this 
guidance with their local education agencies and institutions of higher 
education. Officials from the two public housing agencies we visited in 
Mississippi also told us that they have not received specific guidance 
from the U.S. Department of Housing and Urban Development regarding how 
to assess the effects of Recovery Act spending, such as the number of 
jobs created or retained. 

Introduction: 

As part of our second bimonthly review of Recovery Act spending in 
Mississippi, we visited several localities, including one Mississippi 
Department of Transportation (MDOT) district office, two MDOT project 
offices, two public housing agencies, two 4-year institutions of higher 
learning, one community college, and two local education agencies. 
[Footnote 4] Figure 1 shows the location of the offices visited. 

Figure 1: Localities GAO Visited during Second Bimonthly Recovery Act 
Review: 

[Refer to PDF for image: map of Mississippi] 

Depicted on the map are the following: 

* Education (local agencies: Holmes County School District, Lexington; 
City of Jackson Public School District; higher education agencies: 
Northwest Mississippi Community College, Senatobia; University of 
Mississippi, Oxford; Jackson State University, Jackson); 

* Transportation (Mississippi Department of Transportation District 
Office, Hattiesburg; Mississippi Department of Transportation Project 
Offices, Laurel and Newton); 

* Housing (Mississippi Regional Housing Authority No. VIII, Gulfport; 
Housing Authority of the City of Picayune). 

Sources: GAO; Art Explosion (map). 

[End of figure] 

Long-Term Impact of Recovery Act on Mississippi Budget Is Uncertain: 

The funding provided by the Recovery Act may help Mississippi reduce 
the impact of budget reductions made in fiscal year 2009, but the 
longer-term impact of the Recovery Act funding remains uncertain. 

The legislature normally conducts its regular session from January 
through the end of March, but recessed early in part because of 
uncertainty regarding how the state's portion of Recovery Act funds 
should be spent. The legislature reconvened in late May to reconsider 
the budget. However, the legislature, in early June, completed its 
regular session without reaching agreement with the Governor on a 
budget for fiscal year 2010. 

According to a state official, the legislature passed appropriations 
for fiscal year 2010 for most state agencies on June 30, 2009. The 
official added that several of the agency appropriations use Recovery 
Act funding as a funding source. However, the Governor is concerned 
that the Recovery Act funding will not be enough to address the 
deficits the state may face in the next 3 fiscal years. 

Recovery Act Funding May Lessen Recent Budget Reductions, but Gaps 
Remain: 

As we reported in April 2009, prior to the Recovery Act, Mississippi 
had made two budget reductions to maintain a balanced budget for the 
2009 fiscal year, which ended on June 30.[Footnote 5] In response to 
anticipated budget shortfalls, the Governor, in November 2008, cut most 
state agency budgets by 2 percent of the amount the legislature 
appropriated for fiscal year 2009, or $42 million. In January 2009, the 
Governor cut state agencies' budgets by an additional $158.3 million, 
bringing the total cuts to $200 million. The Governor made a smaller 
reduction, in terms of the program's overall budget, to the state's 
Adequate Education Program, which supports local education[Footnote 6]. 
The Governor determined that the reductions were necessary to comply 
with state law requiring a balanced budget, noting that the state had 
collected less tax revenue than expected. 

A May 2009 assessment by the Governor's office indicates that the 
state's revenue shortfall significantly increased from January 2009 
through April 2009. As figure 2 shows, the Governor's assessment is 
that the state's revenue shortfall has continued to worsen, reaching 
$304 million by May 2009. Similarly, the state's Joint Legislative 
Budget Committee issued revised revenue estimates in March 2009, 
indicating that the revenue shortfall for fiscal year 2009 would be 
larger than previously expected.[Footnote 7] 

Figure 2: The Governor's Office's Revenue Shortfall Projections: 

[Refer PDF for image: illustration] 

This illustration contains the Aggregate Revenue Shortfall for Fiscal 
Year 2009, with amounts represented as follows: 

Date: July 2008; 
Budgeted amount: $3.7 million. 

Date: August 2008; 
Budgeted amount: $6.1 million. 

Date: September 2008; 
Budgeted amount: -$23.1 million. 

Date: October 2008; 
Budgeted amount: -$35.0 million. 

Date: November 2008; 
Budgeted amount: -$36.8 million. 

Date: December 2008; 
Budgeted amount: -$69.8 million. 

Date: January 2009; 
Budgeted amount: -$95.3 million. 

Date: February 2009; 
Budgeted amount: -$111.1 million. 

Date: March 2009; 
Budgeted amount: -$152.3 million. 

Date: April 2009; 
Budgeted amount: -$242.0 million. 

Date: May 2009; 
Budgeted amount: -$304.0 million. 

Source: Governor’s Fiscal Year 2010 Modified Budget Recommendations, 
May 6, 2009. 

[End of figure] 

The Governor in his May 2009 budget recommendations had discussed plans 
to use Recovery Act funds to partially restore funding for some of the 
state programs that had been reduced in fiscal year 2009. However, a 
state budget official noted that a cautious approach was being taken in 
restoring funding because recent tax collections had been less than 
expected. The legislature and Governor were considering other sources 
of revenue such as drawing from the Rainy Day Fund,[Footnote 8] a 
tobacco tax increase, and a hospital assessment. As of June 30, 2009, 
it was not clear the extent to which funding had been restored for 
state programs as the legislature worked to finalize appropriations for 
fiscal year 2010. 

Governor Concerned about Longer-Term Budgetary Impacts: 

The Governor's assessment is that the state faces significant fiscal 
challenges beyond fiscal year 2010. The Governor believes that 
Mississippi will likely face deficits that exceed the amount of 
Recovery Act funds the state anticipates will be available, as shown in 
figure 3. The Governor noted that the global economy may worsen and 
historically state tax revenues recover more slowly than the overall 
economy. By fiscal year 2012, the Governor's office believes that the 
shortfall may reach $500 million or more. 

Figure 3: Governor's May 11, 2009, Assessment of the Impact on Recovery 
Act Funds on Addressing Revenue Shortfalls: 

[Refer to PDF for image: illustration] 

Sum of expected Recovery Act money impacting state budget: 
$1.17 billion; 
Annual anticipated state budget deficit: 
FY 2009: $363 million; 
FY 2010: $480 million; 
FY 2011: $544 million. 

Source: Governor’s Fiscal Year 2010 Modified Budget Recommendations, 
May 6, 2009. 

Note: Mississippi state law imposes upon the Mississippi Legislative 
Budget Office the duty to prepare an overall balanced budget of the 
entire expense and income of the state for each fiscal year. This 
balanced budget is to encompass the operations of all general-fund 
agencies of the state, all special-fund agencies of the state, and 
MDOT. Miss. Code § 27-103-113. 

[End of figure] 

The Governor suggests that the Recovery Act may only partly address the 
challenges the state is facing. Moreover, the Governor notes that when 
the Recovery Act funding ends the state may continue to face a large 
revenue shortfall. Consequently, the Governor says the legislature 
should at some point consider major reforms and restructuring. For 
example, one longer-term measure the Governor recommends is to "create 
a mechanism to consider every department and agency of the state 
government from the bottom up," to improve performance in the state 
government. 

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 rate at which 
states are reimbursed for Medicaid service expenditures is known as 
FMAP, which may range from 50 percent to no more than 83 percent. The 
Recovery Act provides eligible states with an increased FMAP for 27 
months from October 1, 2008, through December 31, 2010.[Footnote 9] 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 10] Generally, for 
federal fiscal year 2009 through the first quarter of federal fiscal 
year 2011, the increased FMAP, which is calculated on a quarterly 
basis, provides for (1) the maintenance of states' prior year FMAPs; 
(2) a general across-the-board increase of 6.2 percentage points in 
states' FMAPs; and (3) a further increase to FMAPs for those states 
that have a qualifying increase in unemployment rates. The increased 
FMAP available under the Recovery Act is for state expenditures for 
Medicaid services. However, the receipt of this increased FMAP may 
reduce the funds that states would otherwise have to use for their 
Medicaid programs, and states have reported using these available funds 
for a variety of purposes. 

Recent Increases in Mississippi Medicaid Enrollment Add Pressure to 
State Budget Situation, Underscoring Need for Additional Federal 
Guidance: 

From October 2007 to April 2009, the state's Medicaid enrollment grew 
from 562,545 to 591,710, an increase of 5.2 percent. (See figure 4.) 
The increase in enrollment varied over this period, with a larger 
increase from February to March 2009, and 3 months where enrollment 
decreased. Most of the increase in enrollment was attributable to two 
populations groups: (1) children and families and (2) disabled 
individuals. There was also a decrease in enrollment in a Family 
Planning Waiver.[Footnote 11] 

Figure 4: Monthly Percentage Change in Medicaid Enrollment for 
Mississippi, October 2007 to April 2009: 

[Refer to PDF for image: line graph] 

Oct.–Nov. 2007: 
Percentage change: 0.18. 

Nov.–Dec. 2007: 
Percentage change: -0.04. 

Dec.–Jan. 2007-08: 
Percentage change: -0.01. 

Jan.–Feb. 2008: 
Percentage change: 0.33. 

Feb.–Mar. 2008: 
Percentage change: 0.16. 

Mar.–Apr. 2008: 
Percentage change: 0.29. 

Apr.–May 2008: 
Percentage change: 0.21. 

May–June 2008: 
Percentage change: 0.08. 

Jun.–Jul. 2008: 
Percentage change: 0.24. 

Jul.–Aug. 2008: 
Percentage change: 0.36. 

Aug.–Sep. 2008: 
Percentage change: 0.29. 

Sep.–Oct. 2008: 
Percentage change: 0.36. 

Oct.–Nov. 2008: 
Percentage change: 0.28. 

Nov.–Dec. 2008: 
Percentage change: 0.01. 

Dec.–Jan. 2008-09: 
Percentage change: -2.45. 

Jan.–Feb. 2009: 
Percentage change: 0.61. 

Feb.–Mar. 2009: 
Percentage change: 3.81. 

Mar.–Apr. 2009: 
Percentage change: 0.47. 

October 2007 enrollment: 562,545; 
April 2009 enrollment: 591,710. 

Source: GAO analysis of state reported data. 

[End of figure] 

As of June 29, 2009, Mississippi had drawn down almost $207 million in 
increased FMAP grant awards, which is over 89 percent of its awards to 
date.[Footnote 12] Mississippi officials reported that they are using 
funds made available as a result of the increased FMAP to offset the 
state budget deficit. The state is also planning to use such funds to 
cover Medicaid's increased caseload. Mississippi Medicaid officials 
noted that due to the state's funding constraints they could not 
address any growth in the Medicaid program, which experienced an 
enrollment increase of about 22,000 beneficiaries in March 2009 alone. 
Mississippi officials reported that the Medicaid program has incurred 
additional costs related to: 

* personnel needed to ensure compliance with reporting requirements 
related to the increased FMAP, 

* systems development or adjustments to existing reporting systems, 
and: 

* personnel associated with the routine administration of the state's 
program. 

State Medicaid officials noted that they need additional guidance from 
CMS related to certain aspects of requirements for maintaining 
eligibility for increased FMAP funds and on the appropriate use of the 
increased FMAP funds. Specifically, according to state Medicaid 
officials, CMS required the state to change the frequency with which it 
determined beneficiary eligibility under its family planning waiver 
from every 2 years to annually before CMS would approve the renewal of 
the waiver. CMS also required the state to preclude individuals with 
additional health insurance from coverage under the wavier. Although 
these changes were required by CMS, state Medicaid officials were 
concerned that they could be considered more restrictive under the 
Recovery Act's maintenance of eligibility requirements.[Footnote 13] As 
of June 30, 2009, a state Medicaid official indicated that she has 
received a verbal response from CMS that any waiver changes made to be 
in compliance with federal Medicaid regulations will not affect the 
state's eligibility for the increased FMAP. The official added that 
they are waiting for written confirmation of this from CMS. Also, state 
Medicaid officials reported concerns related to the state's ability to 
comply with the increased workload associated with Recovery Act 
reporting requirements, given the state's hiring freeze. However, 
despite this concern, one of the officials noted that the state is 
currently utilizing existing staff to address the reporting 
requirements and there is not a need for additional staff at this time. 

Despite the additional funds available under the Recovery Act, 
Mississippi continues to have longer-term funding concerns for future 
periods, particularly after Recovery Act funds have been exhausted. 
[Footnote 14] State Medicaid officials expressed their understanding of 
the Recovery Act prohibition on depositing general fund savings 
resulting from the increased federal match into a rainy day fund for 
general use,[Footnote 15] and they inquired with CMS about setting 
aside state dollars from other sources in order to address a funding 
shortfall anticipated for Medicaid in 2011. In particular, state 
Medicaid officials noted that, based on conversations with CMS, it 
would be permissible to delay the use of Tobacco Settlement payments 
that are received in the state's "Healthcare Expendable Fund" in state 
fiscal year 2010 until state fiscal year 2011. These officials 
reiterated that the Tobacco funds have no connection to Recovery Act 
savings and thus, could be allocated to a later year. 

Regarding the tracking of the increased FMAP, Mississippi established 
new account codes for its existing accounting system, which allows the 
state to identify and track the increased FMAP. State officials also 
noted that the state separately codes expenditure transactions related 
to the increased FMAP and that the State Auditor's Office is currently 
undertaking a performance audit to determine compliance with Recovery 
Act requirements. In addition, the 2007 and 2008 Single Audit reports 
for Mississippi did not identify any material weaknesses specifically 
related to the Medicaid program.[Footnote 16] 

Contracts Awarded in March and April for Mississippi Recovery Act 
Highway Fund Projects Under Way: 

The Recovery Act provides funding to the states for restoration, 
repair, and construction of highways and other activities allowed under 
the Federal-Aid Highway Surface Transportation Program, and for other 
eligible surface transportation projects. The act requires that 30 
percent of these funds be suballocated for projects in metropolitan and 
other areas of the state. Highway funds are apportioned to the states 
through existing federal-aid highway program mechanisms and states must 
follow the requirements of the existing program including planning, 
environmental review, contracting, and other requirements. However, the 
federal fund share of highway infrastructure investment projects under 
the Recovery Act is up to 100 percent, while the federal share under 
the existing Federal-Aid Highway Program is generally 80 percent. 

In Mississippi, there are two agencies that administer Recovery Act 
funding for transportation projects. These two agencies are the 
Mississippi Department of Transportation (MDOT) and the Office of State 
Aid Road Construction (OSARC). MDOT has responsibility for 14,300 miles 
of roadway statewide, including interstate highways, U.S. highways, and 
State Routes. OSARC assists Mississippi's 82 counties in the 
construction and maintenance of 19,019 miles of secondary, non-state 
roads and bridges. The State Aid engineer is appointed by the governor 
in contrast to MDOT, which is controlled by an elected commission. 
Since the Federal Highway Administration (FHWA) only recognizes one 
transportation agency in each state, all federal funding must flow from 
FHWA through MDOT. While OSARC determines how they will use their 
Recovery Act funds and then administers the funding, the agency must 
seek MDOT's approval for each of their projects. After awarding 
contracts for federal projects, OSARC pays all contractor bills and 
then submits a request for reimbursement to MDOT. 

Mississippi Was Prepared to Have Recovery Act Funds Obligated Quickly 
and Has Awarded Numerous Contracts below Cost Estimates: 

As we previously reported, $355 million was apportioned to Mississippi 
in March 2009 for highway infrastructure and other eligible projects. 
As of June 25, 2009, $276 million had been obligated. The U.S. 
Department of Transportation has interpreted "obligation of funds" to 
mean the federal government's contractual commitment to pay for the 
federal share of the project. This commitment occurs at the time the 
federal government signs a project agreement and the project agreement 
is executed. As of June 25, 2009, about $8 million has been reimbursed 
by FHWA. A state requests reimbursement from FHWA as the state makes 
payments to contractors working on approved projects. 

As we reported in our April 2009 report, Mississippi began planning for 
federal highway infrastructure investment under potential stimulus 
legislation before the Recovery Act was passed. 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. With the assistance of this study, MDOT and OSARC chose to use 
Recovery Act funding for a wide range of "shovel ready" projects 
including highway resurfacing and bridge improvement projects as shown 
in table 1. MDOT's plan also includes new construction projects, one of 
which will build an interchange near the Mississippi-Alabama border in 
Lauderdale County.[Footnote 17] Further, 6 of the 12 OSARC Recovery Act 
projects are bridge replacements, as these projects typically take no 
longer than a year and a half to complete. 

Table 1: Highway Obligations for Mississippi, by Project Type as of 
June 25, 2009: 

Pavement projects: New construction: $25 million; 
Pavement projects: Pavement improvement: $150 million; 
Pavement projects: Pavement widening: $42 million; 
Bridge projects: New construction: $0 million; 
Bridge projects: Replacement: $24 million; 
Bridge projects: Improvement: $24 million; 
Other[A]: $11 million; 
Total: $276 million. 

Percent of total obligations: 
Pavement projects: New construction: 9.2; 
Pavement projects: Pavement improvement: 54.3; 
Pavement projects: Pavement widening: 15.2; 
Bridge projects: New construction: 0; 
Bridge projects: Replacement: 8.6; 
Bridge projects: Improvement: 8.7; 
Other[A]: 4; Total: 
100.0. 

Source: GAO analysis of Federal Highway Administration data. 

Note: Data includes both MDOT and OSARC projects. 

[A] Includes safety projects such as improving safety at railroad grade 
crossings, transportation enhancement projects such as pedestrian and 
bicycle facilities, engineering, and right-of-way purchases. 

[End of table] 

As of June 25, 2009, MDOT had awarded 36 contracts representing $201.2 
million and OSARC had awarded 8 contracts representing $7.2 million. Of 
the total 44 contracts awarded, 25 contracts are under way. MDOT 
completed its first Recovery Act project on May 6, 2009. The project 
was completed in less than half the time allotted and the project was 
completed under budget.[Footnote 18] 

The 36 MDOT contracts were awarded for $27 million less than estimated, 
while the 8 OSARC contracts were awarded for $708,000 less than 
estimated. MDOT and OSARC believe that bids are coming in under 
estimated costs because the price of liquid asphalt has fallen as a 
result of decreasing fuel prices. We also spoke with two in-state 
contractor representatives who cited not only lower prices for fuel 
purchased to make liquid asphalt, but also the economy and increased 
competition as reasons for bids coming in lower than state estimates. 
FHWA can use these excess funds to approve new projects. 

Meeting Recovery Act Requirements May Present Challenges: 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. The states are required to: 

* ensure that 50 percent of apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, regional 
and local use. The Secretary of Transportation is to withdraw and 
redistribute to other states any amount that is not obligated within 
these time frames. 

* give priority to projects that can be completed within 3 years, and 
to projects located in economically distressed areas (EDA). EDAs are 
defined by the Public Works and Economic Development Act of 1965, as 
amended. 

* certify that the state will maintain the level of spending for the 
types of transportation projects funded by the Recovery Act that it 
planned to spend the day the Recovery Act was enacted. As part of this 
certification, the Governor of each state is required to identify the 
amount of funds the state planned to expend from state sources as of 
February 17, 2009, for the period beginning on that date and extending 
through September 30, 2010.[Footnote 19] 

As of June 25, 2009, 86.9 percent of the approximately $248 million of 
Mississippi's Recovery Act funds subject to the 50 percent rule for the 
120-day redistribution had been obligated. To give priority to projects 
that can be completed within 3 years, FHWA worked with both MDOT and 
OSARC. MDOT tasked a selection committee to identify "shovel ready" 
projects--projects with developed plans, right-of-way clearances, and 
environmental clearances. OSARC also identified "shovel ready" 
projects, concentrating on bridge replacements, road widening, and 
resurfacing projects. Both MDOT and OSARC confirmed that all Recovery 
Act projects would be completed within 3 years as stipulated by the 
act. 

As of June 25, 2009, Mississippi had reported to FHWA that 90 percent 
of the funds obligated to date had been obligated for projects located 
in areas classified as economically distressed. MDOT and OSARC used the 
FHWA map, which is based on definitions set forth by section 301 of the 
Public Works and Economic Development Act of 1965, to identify 
economically distressed areas. FHWA cites 75 of 82 counties as 
economically distressed, and all but 5 of the 44 MDOT and OSARC 
projects awarded to date are located in these 75 counties. 

On March 16, 2009, Mississippi submitted an "explanatory" certification 
guaranteeing that the state would maintain its planned level of state 
expenditures for fiscal years 2009 and 2010 transportation projects. 
Mississippi's certification was considered "explanatory" because it 
intended to explain why the state's planned level of expenditures 
excluded expenditures for bonded projects.[Footnote 20] On April 22, 
2009, the U.S. Secretary of Transportation informed states that 
conditional and explanatory certifications were not permitted, provided 
additional guidance, and gave states the option of amending their 
certifications by May 22, 2009. Mississippi resubmitted the state's 
certification on April 28, 2009 and included state expenditures on 
bonded projects, which increased the dollar amount of the state's 
planned level of expenditures. DOT is currently evaluating whether the 
states' method of calculating the amounts they planned to expend for 
the covered programs is in compliance with DOT guidance. 

For the period February 17, 2009, through September 30, 2010, MDOT 
committed to expend $280 million and OSARC committed to expend $51.1 
million in state funding for a total of planned state expenditures of 
$331.1 million. MDOT calculated its planned level of expenditures by 
determining state funds available to be expended in the construction 
program for fiscal year 2010, which runs from July 1, 2009, through 
June 30, 2010. This included both state funds used for federal match 
and state-funded projects. MDOT then projected these expenditures over 
the 18-½-month timeframe. Additionally, MDOT included estimated 
construction expenditures for bonded projects during the same time 
period. OSARC calculated its planned level of expenditures by using a 
two-part formula including the 5-year averages of OSARC program 
construction expenditures and roadway mileage. The result of this 
formula was then added to all expenditures included in the Local System 
Bridge Program to calculate an annual expenditure average.[Footnote 21] 
This annual expenditure average was multiplied by 1.5 to arrive at the 
18-month total planned level of expenditures. 

According to MDOT's Budget Director, if MDOT's budget is reduced in 
2010, the agency will try to absorb the cuts and maintain the state's 
level of effort by reducing the MDOT administrative budget. OSARC 
officials said that their maintenance of effort could be affected, 
depending on the size of the budget cut. 

Mississippi Local Educational Agencies and Institutions of Higher 
Education Have Not Yet Received Funding from the State Fiscal 
Stabilization Fund: 

The Recovery Act created SFSF to be administered by the U.S. Department 
of Education (Education). 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 provides several assurances. These 
include assurances that the state will meet maintenance of effort 
requirements (or it will be able to comply with waiver provisions) and 
that it will implement strategies to meet certain educational 
requirements, including increasing teacher effectiveness, addressing 
inequities in the distribution of highly qualified teachers, and 
improving the quality of state academic standards and assessments. 
Further, the state applications must contain baseline data that 
demonstrate the state's current status in each of the assurances. 
States must allocate 81.8 percent of their SFSF funds to support 
education (education stabilization funds), and must use the remaining 
18.2 percent for public safety and other government services, which may 
include education (government services funds). After maintaining state 
support for education at fiscal year 2006 levels, states must use 
education stabilization funds to restore state funding to the greater 
of fiscal year 2008 or 2009 levels for state support to school 
districts or public institutions of higher education (IHE). When 
distributing these funds to school districts, states must use their 
primary education funding formula but maintain discretion in how funds 
are allocated to public IHEs. In general, school districts maintain 
broad discretion in how they can use stabilization funds, but states 
have some ability to direct IHEs in how to use these funds. 

As of June 2009, Mississippi has received $321.1 million of its total 
$479.3 million allocation for SFSF. Of that amount, $262.7 million is 
for education stabilization and $58.4 million is for government 
services. Based on the state's approved application, the state will 
allocate 38 percent of the education stabilization funds to local 
educational agencies (LEAs) and 10 percent to IHEs, and how the 
remaining 52 percent would be allocated had not been determined. The 
state plans to revise its application and change the allocation of 
funds to LEAs and IHEs. As of June 30, 2009, Mississippi had not made 
any of the funds available to LEAs and IHEs.[Footnote 22] The state's 
application provided assurance that the state will meet maintenance of 
effort requirements. 

On June 30, the state enacted budgets for fiscal year 2010 for most 
state agencies, including Education. The Governor will allocate the 
SFSF funds to the state oversight boards for education. The Mississippi 
Department of Education is the oversight board for K-12 public 
education in Mississippi. The Institutions of Higher Learning oversees 
the 4-year colleges and universities. The State Board for Community and 
Junior Colleges is the coordinating board for the state's 2-year 
institutions. Once the funds are allocated to the state boards, they 
will be made available to the individual LEAs and IHEs. For the LEAs, 
allocations will be made using the Mississippi Adequate Education 
Program formula. The Adequate Education Program formula is used to 
establish funding levels for each school district. The formula 
considers the average per pupil cost at efficient school districts and 
applies an equity factor that reduces funding for districts with higher-
than-average property values. For the IHEs, the funds will be allocated 
using a formula based on the schools' total credit hours, the normal 
formula used by the state boards to distribute state allocations. 

While the state is planning to amend its application for SFSF funds, 
the original completed application indicated that the Governor intended 
to use about 34 percent of the government services funds for public 
IHEs. A small portion, about 10 percent, would go toward Medicaid. And 
56.4 percent of these funds would be used to restore budget cuts in 
fiscal year 2009 and for Recovery Act accountability and transparency 
purposes. In his Executive Budget Recommendation, the Governor 
indicated that a portion of the dollars in the latter category would go 
toward the Department of Finance and Administration to be used for 
Recovery Act accountability. 

Mississippi Localities Request More Guidance from State Oversight 
Boards: 

The education oversight boards at the state level are still in the 
process of developing guidance on proper use of Recovery Act funds and 
reporting requirements for subrecipients, including the two LEAs 
(Holmes County School and Jackson Public School Districts) and three 
IHEs (Northwest Mississippi Community College, the University of 
Mississippi, and Jackson State University) that we visited.[Footnote 
23] The local officials at these institutions would like to obtain more 
information from their state oversight boards, including estimates of 
the funding they will receive and more guidance on reporting 
requirements. The state-level officials are expecting to receive 
additional guidance on reporting requirements from Education. They will 
share this with the LEAs when received. At the state level, concerns 
were also raised about the lack of guidance from the federal level 
regarding the application process for the LEAs to receive Recovery Act 
funds.[Footnote 24] In addition to a lack of guidance, the state 
legislature's delay in passing the fiscal year 2010 budget and 
releasing the initial allocation of SFSF funds has prevented school 
officials from hiring teachers or making extensive plans for the coming 
school year. Even without allocation estimates and clear guidance, the 
LEAs and IHEs are making preliminary plans for how they would like to 
spend the funds, such as for filling vacancies, increasing services to 
students, and providing professional development for instructors, but 
no definite plans have been made. 

Preliminary Plans for Two Mississippi LEAs Use of Education 
Stabilization Funds Include Saving and Creating Jobs: 

We visited two LEAs that expect to receive Recovery Act funds, the 
Holmes County School District and the Jackson Public School District. 
Both want to hire more teachers because declining budgets caused the 
LEAs to slow or freeze hiring over the last couple of years. Several 
schools in Holmes County currently do not have assistant principals, 
and the Superintendent would like to use Recovery Act funds to correct 
this. Holmes County schools also do not have enough math teachers. 
Jackson schools have been unable to fill several administrative 
position vacancies because of a lack of funds. School officials also 
said that with the SFSF funds, they will be able to retain staff they 
may have otherwise lost. 

Several of Mississippi's IHEs Will Use SFSF Funds to Avoid Layoffs and 
Mitigate Tuition Increases: 

We visited three IHEs that expect to receive Recovery Act funds. All 
plan to use these funds to avoid tuition increases and layoffs. The 
full extent to which jobs will be saved or created or tuition increases 
mitigated is currently unknown, but without Recovery Act funds, layoffs 
and tuition increases are extremely likely. In addition to preserving 
jobs and mitigating tuition increases, Recovery Act funds are expected 
to allow institutions to increase services to students. For example, 
Northwest Mississippi Community College would like to use some of the 
funds to increase its e-learning capacity to serve its rapidly 
increasing number of students. Jackson State University and the 
University of Mississippi would like to use some of the funds to 
strengthen the institutions' information technology infrastructures. 

Mississippi Plans for Use of Title I (Part A) Recovery Act Funds 
Include Professional Development for Teachers and Improved Student 
Services: 

The Recovery Act provides $10 billion to help local educational 
agencies (LEA) educate disadvantaged youth by making additional funds 
available beyond those regularly allocated through Title I, Part A, of 
ESEA. The Recovery Act requires these additional funds to be 
distributed through states to school districts using existing federal 
funding formulas, which target funds based on such factors as high 
concentrations of students from families living in poverty. In using 
the funds, local educational agencies are required to comply with 
current statutory and regulatory requirements and must obligate 85 
percent of its fiscal year 2009 funds (including Recovery Act funds) by 
September 30, 2010.[Footnote 25] Education is advising LEAs to use the 
funds in ways that will build their long-term capacity to serve 
disadvantaged youth, such as through providing professional development 
to teachers. Education made the first half of states' Title I, Part A 
funding available on April 1, 2009, with Mississippi receiving $66.4 
million, of its approximately $132.9 million total allocation. 

The Mississippi Department of Education has made determinations 
regarding the ESEA Title I, Part A, allocations for the individual LEAs 
and on June 25, 2009, released this information along with an 
application for the funds that the LEAs must complete. The department 
is currently developing training that will be provided to the LEAs as 
they complete their applications. In the completed applications, LEAs 
will be required to describe how they plan to use the Recovery Act 
funds and the measures they intend to use for accountability and 
transparency. 

The two LEAs that we visited are making preliminary plans and have many 
potential uses for these funds lined up. For example, the 
Superintendent of the Holmes County School District told us they hope 
to use the funds to seek professional development for teachers and 
purchase additional computers for classrooms. In the city of Jackson, 
school officials with the Jackson Public School District told us that 
they would like to use the funds to pursue professional development for 
teachers, develop an automatic parent notification system for absent 
students to decrease dropouts and increase attendance, fund student 
incentives to reward good behavior and academics, and purchase 
supplemental science and math programs for struggling students. 

Mississippi Making Preliminary Plans for IDEA (Part B & C) Recovery Act 
Funds: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of IDEA, the major federal statute that supports 
special education and related services for infants, toddlers, children, 
and youth with disabilities. Part B includes programs that ensure that 
preschool and school-aged children with disabilities have access to a 
free and appropriate public education, and Part C programs provide 
early intervention and related services for infants and toddlers with 
disabilities or at risk of developing disabilities and their families. 
IDEA funds are authorized to states through three grants--Part B 
preschool-age, Part B school-age, and Part C grants for infants and 
families. States were not required to submit applications to Education 
in order to receive the initial Recovery Act funding for IDEA, Part B & 
C (50 percent of the total IDEA funding provided in the Recovery Act). 
States will receive the remaining 50 percent by September 30, 2009, 
after submitting information to Education addressing how they will meet 
Recovery Act accountability and reporting requirements. All IDEA 
Recovery Act funds must be used in accordance with IDEA statutory and 
regulatory requirements. Education allocated the first half of states' 
IDEA allocations on April 1, 2009, with Mississippi receiving a total 
of $63.4 million for all IDEA programs. The largest share of IDEA 
funding is for the Part B school-aged program for children and youth. 
The state's initial allocation was: 

* $2.3 million for Part B preschool grants, 

* $58.9 million for Part B grants to states for school-aged children 
and youth, and: 

* $2.1 million for Part C grants for infants and families for early 
intervention services. 

The Mississippi Department of Education has made determinations 
regarding the IDEA Part B allocations for the individual LEAs and 
planned to release this information along with an application for the 
funds by early July. The department is currently developing training 
that will be provided to the LEAs as they complete their applications. 
In the completed applications, LEAs will be required to describe how 
they plan to use the Recovery Act funds and the measures they intend to 
use for accountability and transparency. IDEA, Part C, funds will be 
administered separately by the Mississippi Department of Health. A 
Department of Health official told us that the agency is planning to 
use the Recovery Act funds for purchasing new equipment and contracting 
to provide comprehensive personnel development; statewide training; and 
direct services for children, such as speech and physical therapy. 

The two LEAs we visited, Holmes County School District and Jackson 
Public School District, are making preliminary plans and have 
identified many potential uses for their IDEA, Part B, funds. For 
example, in Holmes County, the superintendent told us that the school 
district hopes to use the funds to purchase communication devices for 
students with cerebral palsy and hire and provide training for special 
education teachers. In Jackson, school officials told us that they 
would like to purchase computers and printers for special education 
teachers and classrooms; assistive devices targeted to the individual 
needs of disabled students; adaptive physical education training 
programs, material, and equipment; supplemental language and reading 
program material; after school programs; and a data warehouse system. 
Jackson Public School officials also want to hire tutors to assist 
students with passing their state exams and instructors for freshman 
seminar classes. Some of these positions could be filled with retired 
teachers on a part-time basis. These hires may not be retainable when 
the funds are depleted; however, the Superintendent's staff said that 
the hires are necessary and the money would be well used in this way, 
even if they are not retained in the long term. 

Department of Energy Recovery Act Weatherization Assistance Program: 

The Recovery Act appropriated $5 billion for the Weatherization 
Assistance Program, administered by the Department of Energy (DOE) 
through each of the states and the District of Columbia.[Footnote 26] 
This funding is a significant addition to the annual appropriations for 
the program that have been about $225 million per year in recent years. 
The program is designed to reduce the utility bills of low-income 
households by making long-term energy efficiency improvements to homes 
by, for example, installing insulation, sealing leaks around doors and 
windows, or modernizing heating and air conditioning equipment. During 
the past 32 years, the Weatherization Assistance Program has assisted 
more than 6.2 million low-income families. According to DOE, by 
reducing the utility bills of low-income households instead of offering 
aid, the Weatherization Assistance Program reduces their dependency by 
allowing these funds to be spent on more pressing family needs. 

DOE allocates weatherization funds among the states and the District, 
using a formula based on low-income households, climate conditions, and 
residential energy expenditures by low-income households. DOE required 
each state to submit an application as a basis for providing the first 
10 percent of the Recovery Act allocation. DOE will provide the next 40 
percent of funds to a state once the department has approved its State 
Program Plan, which outlines, among other things, its strategy for 
using the weatherization funds, metrics for measuring performance, and 
its risk mitigation strategies. The release of the final 50 percent of 
the funding to the states will occur in the future based on DOE 
progress reviews examining each state's performance in spending its 
first 50 percent of the funds. 

Mississippi Receiving Large Increase in Weatherization Funding: 

DOE has allocated to Mississippi $49.4 million in Recovery Act funding 
for the Weatherization Assistance Program for a 3-year period. Over the 
past 5 years, DOE has allocated to Mississippi from $1.5 million to $2 
million for this program. The Mississippi Department of Human Services 
(MDHS) is responsible for administering the program. MDHS contracts 
with 10 local weatherization agencies across the state to provide 
services. MDHS received a Funding Opportunity Announcement on March 12 
and subsequently received additional guidance via phone, e-mail, and 
regional conference calls. On March 18, 2009, MDHS submitted a 
preliminary plan to DOE. On April 3, 2009, MDHS received a 10 percent 
allocation ($4.9 million) from DOE. MDHS has used these funds to cover 
administrative costs, such as hiring and training new staff. 

On May 11, 2009, MDHS submitted a comprehensive plan and certification 
to DOE. On June 5, 2009, DOE provided another 40 percent ($19.7 
million), bringing the total allocation to 50 percent ($24.7 million). 
MDHS has obligated all of these funds. In the approved plan, MDHS plans 
on reducing energy usage by 17,000 Mbtu[Footnote 27] across 5,468 
homes. Of the total $49 million the state will receive, MDHS plans to 
spend about $45.9 million on contracted services (for home assessments 
and improvements) and $3.1 million on administrative costs. 

Mississippi Is Leveraging Recovery Act Dollars to Expand Summer Youth 
Services: 

The Recovery Act provides an additional $1.2 billion in funds 
nationwide for the Workforce Investment Act (WIA) Youth Program to 
facilitate the employment and training of youth. The WIA Youth Program 
is designed to provide low-income in-school and out-of-school youth 
ages 14 to 21, who have additional barriers to success, with services 
that lead to educational achievement and successful employment. The 
Recovery Act extended eligibility through age 24 for youth receiving 
services funded by the act. In addition, the Recovery Act provided that 
of the WIA Youth performance measures, only the work readiness measure 
is required to assess the effectiveness of summer-only employment for 
youth served with Recovery Act funds. Within the parameters set forth 
within federal agency guidance, local areas may determine the 
methodology for measuring work readiness gains. The program is 
administered by the U.S. Department of Labor, and funds are distributed 
to states based upon a statutory formula; states, in turn, distribute 
at least 85 percent of the funds to local areas, reserving up to 15 
percent for statewide activities. The local areas, through their local 
workforce investment boards, have flexibility in deciding how they will 
use these funds to provide required services. In the conference report 
accompanying the bill that became the Recovery Act, the conferees 
stated that they were particularly interested in states using these 
funds to create summer employment opportunities for youth. Summer 
employment opportunities may include any set of allowable WIA Youth 
activities--such as tutoring and study skills training, occupational 
skills training, and supportive services--as long as it also includes a 
work experience component. Work experience may be provided at public 
sector, private sector, or nonprofit work sites. The work sites must 
meet safety guidelines and federal/state wage laws.[Footnote 28] 

The Mississippi Department of Employment Security (MDES) received about 
$18.7 million in additional WIA Youth funding from the U.S. Department 
of Labor. MDES plans to use $2.8 million to administer the program at 
the state level and has allocated about $15.9 million by formula to the 
state's four local workforce investment areas (see figure 5). 

Figure 5: Allocations Made to Local Workforce Areas in Mississippi for 
Providing Summer Employment Opportunities for Youth: 

[Refer to PDF for image: map of Mississippi] 

Local Workforce Area: Delta; 
Allocation: $3,606,715. 

Local Workforce Area: Mississippi partnership; 
Allocation: $4,234,453. 

Local Workforce Area: Southcentral Mississippi works; 
Allocation: $3,362,992. 

Local Workforce Area: Twin Districts; 
Allocation: $4,679,808. 

Total allocations: $15,883,968. 

Sources: Mississippi Department of Employment Security; MapInfo (map). 

[End of figure] 

During our review, we met with officials for each of the state's local 
workforce investment areas. Each area plans to provide summer 
employment opportunities to youth using additional WIA Youth funding. 
For example, an official from the Southcentral Mississippi Works local 
workforce area told us that their program will run from June 1 through 
July 31. In addition, an official from the Delta local workforce area 
told us that their program will start in late May and end on July 31. 

Officials from each of the four local workforce areas told us that 
youth selected for summer employment will be expected to work from 30 
to 40 hours per week and will earn at least minimum wage. For instance, 
in the Southcentral Mississippi Works local workforce area, youth will 
work 32 hours per week and will receive a wage of $7.25 per hour. 

As of May 20, 2009, three of the state's four local workforce areas 
were accepting applications from youth from ages 14 to 24. Two of the 
areas initiated advertisement campaigns to make youth aware of the 
program. For example, both the Mississippi Partnership and Delta local 
workforce areas developed television advertisements to highlight the 
summer opportunities available for youth. As a result, officials from 
these areas noted that the demand for the available positions was high. 
An official from the Mississippi Partnership local workforce area told 
us that they had received over 10,000 applications for 1,500 positions. 
In addition, an official from the Delta local workforce area told us 
that they had received over 4,000 applications for 1,500 positions. 
MDES officials estimate that the state will provide summer employment 
opportunities for about 6,000 youth as a result of the additional 
Recovery Act funding. In previous years, Mississippi did not operate a 
summer youth program. 

Officials from each of the four local workforce areas told us that many 
of the youths selected for summer employment will work at public 
institutions, including schools, libraries, and camps where they will 
provide manual labor, clerical help, and research assistance. Some jobs 
will focus on improving the environment. In Desoto County, the 
Mississippi Partnership local workforce area will use youth to clean 
the Coldwater River and open it to the Mississippi River. Local 
officials noted that this project will provide new recreational 
opportunities and will improve the area's ecology. 

MDES officials do not anticipate significant challenges in providing 
oversight and reporting on the additional funding that will provide 
summer employment opportunities for youth. The officials noted that the 
state follows strict procurement policies and reporting requirements 
issued by the U.S. Department of Labor. They also noted that they will 
be able to separately track and account for each dollar spent on the 
program. Specifically, each dollar Mississippi receives from the 
Recovery Act for the WIA Youth program will have a unique accounting 
symbol that can be used to track funds. To assess outcomes, the 
workforce areas will conduct a pretest, midpoint evaluation, and post- 
test of youth enrolled in the programs that focus on youth's worker 
readiness and skill development. The preliminary and postassessments 
will be in a written format while the midpoint assessment will be an 
interview conducted by an employment advisor. Local workforce areas do 
not plan on setting aside summer youth employment funds to cover 
administrative costs. State officials noted that the state is providing 
funds that will cover the expected costs of conducting the program. 

State Using Increase in Justice Assistance Grants to Fund Additional 
Law Enforcement Programs: 

The Edward Byrne Memorial Justice Assistance Grants (JAG) program 
within the U.S. Department of Justice's Bureau of Justice Assistance 
(BJA) provides federal grants to state and local governments for law 
enforcement and other criminal justice activities, such as crime 
prevention and domestic violence programs, corrections, treatment, 
justice information sharing initiatives, and victims' services. Under 
the Recovery Act, an additional $2 billion in grants is available to 
state and local governments for such activities, using the rules and 
structure of the existing JAG program. The level of funding is formula 
based and is determined by a combination of crime and population 
statistics. Using this formula, 60 percent of a state's JAG allocation 
is awarded by BJA directly to the state, which must in turn allocate a 
formula-based share of those funds to local governments within the 
state. The remaining 40 percent of funds is awarded directly by BJA to 
eligible units of local government within the state.[Footnote 29] The 
total JAG allocation for Mississippi state and local governments under 
the Recovery Act is about $18.4 million, a significant increase from 
the previous fiscal year 2008 allocation of about $1.4 million. 

As of June 30, 2009, Mississippi has received its full state award of 
about $11.2 million.[Footnote 30] The Mississippi Department of Public 
Safety Office of Justice Programs, the state administering agency, 
plans to allocate JAG funds to the state and local programs within the 
state. JAG funds coming directly to state programs will total 
approximately $4.3 million, while Mississippi cities and towns will 
receive about $5.8 million in funds as a result of the formula-based 
share that states must allocate to local governments. The remainder of 
the funds (approximately $1.0 million) will be used for state JAG 
administration. Of the $4.3 million JAG funds coming to state programs, 
$2.2 million will be used for planning, evaluation, and technology 
programs, which includes the Mississippi Crime Laboratory Enhancement 
Program. This program is to equip the Gulf Coast Crime Laboratory with 
the necessary instruments and staff to conduct clandestine laboratory 
analysis.[Footnote 31] The remainder of these state funds is to be used 
for a variety of programs, including law enforcement programs, such as 
the State Narcotics Enforcement Initiative and the Unsolved Cold Case 
Initiative, and prevention and education programs, such as the Law 
Enforcement Standards and Training Program. Of the $5.8 million JAG 
funds being passed through to Mississippi cities and towns, nearly $2.0 
million is planned to be used to fund local drug treatment and 
enforcement through adult, family, and juvenile drug courts. Other 
local programs to be funded include law enforcement programs, such as 
multijurisdictional narcotics task forces and local street sales drug 
enforcement, as well as community corrections programs that provide an 
alternative to juvenile detention. Currently, the Mississippi 
Department of Public Safety Office of Justice Programs has not 
completed the request for proposal to be filled out by state and local 
agencies competing for funding, but they are working with consultants 
to finish this task. They plan to have a final request for proposal 
done in time to make awards by August 1, 2009. 

Public Housing Agencies Have Started to Obligate and Expend Capital 
Formula Grants: 

The Public Housing Capital Fund provides formula-based grant funds 
directly to public housing agencies for improving the physical 
condition of properties; the development, financing, and modernization 
of public housing developments; and management improvements.[Footnote 
32] The Recovery Act requires the U.S. Department of Housing and Urban 
Development (HUD) to allocate $3 billion through the Public Housing 
Capital Fund to public housing agencies using the same formula for 
amounts made available in fiscal year 2008. Recovery Act requirements 
specify that public housing agencies must obligate funds within 1 year 
of the date they are made available to them for obligation, expend at 
least 60 percent of funds within 2 years of that date, and expend 100 
percent of the funds within 3 years of that date. Public housing 
agencies are expected to give priority to projects that can award 
contracts based on bids within 120 days from the date the funds are 
made available, as well as capital projects that rehabilitate vacant 
units, or those already under way or included in the required 5-year 
capital fund plans. HUD is also required to award $1 billion to housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding/financing for 
renovations and energy conservation retrofit investments. On May 7, 
2009, HUD issued its Notice of Funding Availability that describes the 
competitive process, criteria for applications, and time frames for 
submitting applications.[Footnote 33] Mississippi has 52 public housing 
agencies that have received Recovery Act formula grant awards. These 
public housing agencies received about $32.4 million from the Public 
Housing Capital Fund formula grant awards. As of June 20, 2009, these 
52 public housing agencies had obligated about $5.7 million and 
expended $470,530 (see figure 6). We visited the Mississippi Regional 
Housing Authority No. VIII (MRHA-VIII) in Gulfport and the City of 
Picayune Housing Authority in Mississippi for site visits related to 
their use of Capital Fund formula grants totaling $4,480,981. We 
selected MRHA-VIII because it received the largest capital fund grant 
allocation in Mississippi and selected the Picayune Housing Authority 
because of its geographic proximity to MRHA-VIII. 

Figure 5: Percentage of Public Housing Capital Funds Allocated by HUD 
that Have Been Obligated and Drawn Down in Mississippi: 

[Refer to PDF for image: three pie-charts, one horizontal bar graph] 

Funds obligated by HUD: $32,395,555; 100%; 
Funds obligated by public housing agencies: $5,695,681; 17.6%; 
Funds drawn down by public housing agencies: $470,530; 1.5%. 

Number of public housing agencies: 
Entering into agreements for funds: 52; 
Obligating funds: 18; 
Drawing down funds: 4. 

Source: GAO analysis of HUD data. 

[End of figure] 

Use of Funds: 

The two public housing agencies we visited in Mississippi received 
Capital Fund formula grants totaling about $4.5 million. As of June 20, 
2009, the Picayune Housing Authority had obligated $433,370 or 62 
percent of its $697,630 Capital Fund formula grant, and drawn down 
$293,027 or 42 percent of its grant. MRHA-VIII officials told us that 
they had not obligated or drawn down any of their $3,783,351 Capital 
Fund formula grant because they had not awarded contracts for the work 
that will be completed using the grant. 

The Picayune Housing Authority is using its Capital Fund formula grant 
to complete a substantial modernization of 22 rental units at two 
public housing developments. According to the Executive Director, the 
bathroom and kitchen areas will be modernized in each unit, including 
the cabinetry, fixtures, and flooring. In addition, other flooring, 
plumbing, and entrance doors will be replaced in each unit. The 
Picayune Housing Authority initiated work on this project in March 
2009, and the work is scheduled for completion in November 2009. Figure 
7 shows a rental unit that will be modernized using Recovery Act funds 
and a partially renovated rental unit that has already been funded 
using Recovery Act dollars. The Picayune Housing Authority also will 
use its Capital Fund formula grant to replace the original central heat 
and air conditioning units in a public housing development that houses 
elderly residents. It expects to complete work on this project during 
calendar year 2009. 

Figure 7: Rental Unit Scheduled for Renovation and Partially Renovated 
Rental Unit Funded with Recovery Act Dollars in Picayune, Mississippi: 

[Refer to PDF for image: four photographs] 

Housing unit with bathroom scheduled for renovation; 
Housing unit with partially renovated bathroom; 
Housing unit with front door scheduled for replacement; 
Housing unit with front door replaced. 

Source: GAO. 

[End of figure] 

MRHA-VIII plans to use its Capital Fund formula grant to complete 
interior and exterior renovations on a total of 140 rental units at two 
public housing developments. For example, MRHA-VIII plans to complete 
interior renovations on 68 rental units at one development, and the 
renovated units will include new kitchen cabinetry and completely 
remodeled bathroom areas. In addition, MRHA-VIII will complete exterior 
renovations on 140 rental units at two developments, including the 
installation of new roofing, siding, and numbering. MRHA-VIII also 
plans to use its grant to complete renovations on 4 first-floor rental 
units at one public housing development so these units will comply with 
the accessibility requirements as defined in Section 504 of the 
Rehabilitation Act of 1973, as amended.[Footnote 34] Finally, MRHA-VIII 
plans to use its Capital Fund formula grant to complete interior and 
exterior office renovations at one public housing development. MRHA- 
VIII plans to initiate work on all of its Recovery Act-funded projects 
from July through August 2009 and complete work on all projects by 
August 2010. 

Officials from the two public housing agencies we visited told us that 
they selected projects to fund that were consistent with the Recovery 
Act requirements as previously discussed. For example, Picayune Housing 
Authority officials told us that they initiated work on their project 
to substantially modernize rental units at two public housing 
developments, and they expect to award the contract for their other 
project to replace the original central heat and air conditioning units 
in an elderly public housing development within 120 days of when the 
Recovery Act funds were made available. MRHA-VIII officials also told 
us that they planned to award contracts for the projects selected for 
Recovery Act funding within this time frame. In addition, officials 
from both public housing agencies told us that they awarded Recovery 
Act funds to projects already under way or included in their 5-year 
Capital Fund plans--for instance, the Picayune Housing Authority is 
using these funds to substantially modernize rental units at two public 
housing developments where modernization efforts were already under 
way. According to the Executive Director, the Recovery Act funds will 
enable the public housing agency to complete a substantial 
modernization of all of its rental units that had not been previously 
rehabilitated, except for one apartment complex that was scheduled for 
demolition. 

Officials from the two public housing agencies we visited also told us 
that they did not anticipate challenges in accessing their Capital Fund 
formula grant or meeting the accelerated time frames of the Recovery 
Act. For example, Picayune Housing Authority officials told us that 
they did not experience any challenges in drawing down Recovery Act 
funds from HUD's Electronic Line of Credit and Control System compared 
with its regular Capital Fund grants. In addition, officials from both 
public housing agencies told us that they did not expect to encounter 
challenges in meeting the accelerated time frames for obligating and 
expending funds under the Recovery Act. Picayune Housing Authority 
officials told us that they expect all projects funded with Recovery 
Act dollars to be completed in 2009, while MRHA-VIII officials told us 
that all of their Recovery Act-funded projects will be completed by 
August 2010. 

Public Housing Agencies we visited in Mississippi have established 
processes to track Recovery Act funds. For example, MRHA-VIII officials 
told us that they plan to track these funds separately using existing 
processes. In addition, they plan to maintain a separate general ledger 
for their Recovery Act funds. Similarly, Picayune Housing Authority 
officials told us that they were tracking Recovery Act funds separately 
and ensuring that the accounting and project planning for these funds 
was maintained separately. Regarding internal controls, officials from 
both public housing agencies we visited told us that their existing 
controls were sufficient to manage the additional infusion of Recovery 
Act funds and the accelerated timeframes for obligating and expending 
these funds. 

State Is Tracking Recovery Act Funds: 

To provide transparency in the use of Recovery Act funds flowing into 
Mississippi through the state treasury and the state central accounting 
system, the state's Department of Finance and Administration (DFA) has 
required agencies to establish reporting categories within the 
accounting system using a specified format. This will allow the state 
to separately track and report on the uses of Recovery Act funds. The 
new categories enable DFA to track the receipt, obligation, and 
expenditure of Recovery Act funds. Agencies began adding Recovery Act 
reporting category codes in March 2009 and, as of May 18, 2009, had 
established 35 codes for education, rehabilitation services, health, 
Medicaid, wildlife, fisheries and parks, human services, employment 
security, and transportation programs. According to DFA officials, the 
state will add other codes as it receives funds for other uses. 

The use of reporting categories does not currently allow DFA to tie 
individual obligations or expenditures to the contract for which they 
were incurred. However, DFA is in the process of making modifications 
to the state central accounting system that will allow the system to do 
so. Once completed, these changes will provide greater transparency of 
Recovery Act fund usage. For example, the changes will allow the public 
to view online Recovery Act contracts and expenditures for specific 
contracts. In addition, the changes will add further system controls, 
such as the ability to deny the obligation of funds until a state 
agency has posted the contract that supports the obligation. 

Most of the state's central accounting and reporting systems are 
undergoing some changes. DFA is making significant changes to the 
Statewide Automated Accounting System, which tracks purchasing, 
accounts payable, revenues, and accounts receivable and includes the 
state's general ledger. It is making minimal changes to the Statewide 
Payroll and Human Resource System that contains payroll, employment, 
travel, and personal services contract information. DFA is 
significantly enhancing the Mississippi Executive Resource Library and 
Information Network (MERLIN), an administrative data warehouse. Once 
DFA completes the MERLIN enhancements in the June to August 2009 time 
frame, the data warehouse will include a document depository to collect 
Recovery Act contract documents, grant/subgrant award documents, 
reporting data required by section 1512 of the Recovery Act that is not 
captured in the Statewide Automated Accounting System, as well as 
provide a means to perform such tasks as tracking payments to a 
specific contract and reporting Recovery Act revenues and expenditures. 
Detailed information on the use of Recovery Act funds, including the 
total amount of Recovery Act funds received, the amount of funds 
obligated or expended for grants, a detailed list of all grants and 
activities (including projects under those grants), and the number of 
jobs created or sustained, will flow from MERLIN to the State of 
Mississippi Web site. The office of Management and Budget (OMB) issued 
reporting guidance on June 22, which identified three methods that a 
state can use to report this information to the federal government for 
inclusion on the Recovery Act federal Web site, Recovery.gov. Two of 
the methods require some manual input, while the third method transmits 
the information via electronic file. According to the Deputy Executive 
Director, DFA has not yet decided which method it will use. 

DFA estimates that the cost of manpower and software changes will be at 
least $1 million. DFA had discussed making some of these software 
changes for some time, but had deferred such implementation because of 
the cost and the risk of making changes to an aging system. However, 
DFA's Deputy Executive Director told us that with the inflow of 
Recovery Act funds into the state, it was no longer possible to defer 
the changes. 

Department officials also questioned whether the state is responsible 
for tracking all funds flowing into the state. The state can track 
funds that flow through the state treasury or are reported through the 
state's central accounting system, but it cannot track funds provided 
directly to other state recipients. For example, the state cannot track 
funds that HUD provides to public housing agencies, funds that the 
National Science Foundation provides directly to universities, or funds 
that federal agencies provide directly to not-for-profit organizations. 

State Begins to Actively Examine Internal Controls: 

DFA is taking steps to assist state agencies in spending Recovery Act 
funds responsibly and to put controls in place to mitigate the effects 
of fraud, waste, and abuse. With the issuance of Statement on Auditing 
Standards 112, Communicating Internal Control Related Matters 
Identified in an Audit, in May 2006, the state began to update the 
internal control section of its Mississippi Agency Accounting Policies 
and Procedures Manual (MAAPP Manual). In addition, DFA brought in an 
expert to conduct a training session on Statement on Auditing Standards 
112 and on internal controls. DFA followed up by activating an Internal 
Control and Risk Management Office and began plans to have all state 
agency executive directors and internal control officers certify that 
their agencies have evaluated internal controls, including assessing 
risks, in accordance with guidelines established by the MAAPP Manual. 
On February 4, 2009, the DFA Executive Director issued the letter 
requiring a documented internal control plan, an internal control 
certification, and risk assessments. Although DFA's Internal Control 
and Risk Management Office planned to review the State Auditor's 2008 
Single Audit report and begin monitoring agencies that the report 
identified as having deficiencies, it is now focusing on agencies 
receiving Recovery Act funds. 

Internal Control Assessments Are Under Way: 

In his February 4, 2009, letter, DFA's Executive Director, in 
accordance with Mississippi law, required each state agency to certify 
in writing that it conducted an evaluation of internal controls and 
that the findings of the evaluation provide reasonable assurance that 
the assets of the agency have been preserved, the duties have been 
segregated by function, and transactions are executed in accordance 
with laws of the State of Mississippi.[Footnote 35] The Executive 
Director noted that sound internal controls require that an agency 
reassess its internal control structure periodically because of staff 
turnover and a variety of other reasons that cause internal controls to 
change over time. Further, the Executive Director required that 
agencies perform and document a comprehensive assessment of their 
internal controls on an annual basis; develop a written internal 
control plan; and maintain adequate written documentation for risk 
assessments, internal control reviews, and follow-up actions. In 
conjunction with the preparation of internal control plans, the 
Executive Director also required agencies to develop and document 
procedures for performing assessments of their internal control 
structures, which should include: 

* a comprehensive review of the agency's internal control structure to 
determine if it is functioning properly and in accordance with the 
agency's internal control plan; 

* whether the internal control structure has been updated to address 
operational or procedural changes made during the period under review 
to processes, program areas, or functions; 

* any internal control weaknesses; 

* actions to ensure that control weaknesses discovered during the 
period under review, and in prior periods, have been adequately 
addressed; and: 

* immediate attention to all internal control-related findings and 
recommendations reported by auditors during the year. 

The assessments directed by DFA evaluate areas of internal control that 
the Committee of Sponsoring Organizations (COSO) and GAO consider to be 
the framework of an internal control system.[Footnote 36] Table 2 
provides the five interrelated components that compose COSO's internal 
control framework. 

Table 2: Components of Internal Control as Defined by COSO: 

Internal control component: Control environment; 
Component description: The integrity and ethical values of the company, 
including its code of conduct, involvement of the Board of Directors, 
and other actions that set the tone of the organization. 

Internal control component: Risk assessment; 
Component description: Management's process of identifying potential 
risks that could result in the organization's failure to achieve 
specified objectives. 

Internal control component: Control activities; 
Component description: Activities usually thought of as "the internal 
controls." They include such things as authorizations, analytical 
reviews, verifications, and reviews of operating performance that are 
established to see that compliance requirements and risk responses 
selected by management are effectively carried out. 

Internal control component: Information and communication; 
Component description: The organization's internal and external 
reporting process and its technology environment. 

Internal control component: Monitoring; 
Component description: Procedures used to assess the quality of a 
company's internal control and the company's actions to ensure that it 
continues to address the risks of the organization. 

Source: GAO analysis of Internal Control--Integrated Framework issued 
by the Committee of Sponsoring Organizations of the Treadway 
Commission. 

[End of table] 

Each state agency is in the process of preparing its internal control 
assessment and certification, which agencies were to submit to DFA by 
June 1, 2009. However, the Director of Fiscal Management told us that 
because of the amount of work required to accurately assess an internal 
control system, many agencies have asked for extensions. According to 
the Director responsible for the Internal Control and Risk Management 
Office, DFA has granted the extensions because it prefers that the 
agencies prepare proper assessments. DFA officials told us that by 
granting extensions they believe that agency assessments will be more 
accurate and comprehensive. 

In addition to the certification required of all state agencies, DFA is 
requiring another certification of agencies receiving Recovery Act 
funds. Agencies must certify that they accept responsibility for 
spending the funds as responsibly and effectively as possible while 
maintaining the appropriate controls and reporting mechanisms to ensure 
accountability and transparency in compliance with the Recovery Act. 
The certifications also include an agency's guarantee that program 
risks are, or will be, identified and that the agency has, or will, 
implement internal controls sufficient to mitigate the risk of waste, 
fraud, and abuse. 

MAAPP Manual Includes Assessment Tools: 

In its update of the MAAPP Manual, DFA included tools to assist state 
agencies in performing their internal control assessments. The tools, 
which are essentially questionnaires, allow the assessors to gauge all 
aspects of the agency's internal control environment and determine if 
weaknesses are present that need correction. Tools are available to 
assess subjects such as management's internal control philosophy, 
commitment to professional and technical competence, the assignment of 
authority and responsibility, procedures used to analyze program risks, 
and control activities applicable to agency processes. According to DFA 
officials, the tools were developed using the Commonwealth of Virginia 
Agency Risk Management and Internal Control Standards as a model. 
[Footnote 37] Figure 8 illustrates one of the many assessment tools 
available to Mississippi state agencies. 

Figure 8: MAAPP Manual Ethics Tool: 

[Refer to PDF for image: illustration] 

This illustration is a survey form that includes the following 
questions: 

This Control Implemented and Operating Effectively: 

Agree/Disagree: 
5- Strongly agree; 
4- Agree; 
3- Somewhat agree; 
2- Somewhat disagree; 
1- Strongly disagree; 
N/A- Control does not/cannot exist. 

1. The agency’s Code of Ethics and other policies regarding acceptable 
business practice, conflicts of interest, and expected standards of 
ethical and moral behavior are comprehensive and relevant and address 
matters of significance. 
Agree/Disagree: 
Comments: 

2. Employees fully and clearly understand what behavior is acceptable 
and unacceptable under the agency’s Code of Ethics and know what to do 
when they encounter improper behavior. 
Agree/Disagree: 
Comments: 

3. Management demonstrates a commitment to integrity and ethical 
behavior by example in their day-to-day activities. 
Agree/Disagree: 
Comments: 

4. Management frequently and clearly communicates the importance of 
integrity and ethical behavior during staff meetings, one-on-one 
discussions, training and periodic written statements of compliance 
from key employees. 
Agree/Disagree: 
Comments: 

5. Employees are generally inclined to do the “right thing” when faced 
with pressures to cut corners with regard to policies and procedures. 
Agree/Disagree: 
Comments: 

6. Management addresses and resolves violations of behavioral and 
ethical standards consistently, timely, and equitably in accordance 
with the provisions of the agency’s Code of Ethics. 
Agree/Disagree: 
Comments: 

7. The existence of the agency’s Code of Ethics and the consequences of 
its breach are an effective deterrent to unethical behavior. 
Agree/Disagree: 
Comments: 

8. Management strictly prohibits circumvention of established policies 
and procedures, except where specific guidance has been provided, and 
demonstrates commitment to this principle. 
Agree/Disagree: 
Comments: 

9. Performance targets are reasonable and realistic and do not create 
undue pressure on achievement of short-term results. 
Agree/Disagree: 
Comments: 

10. Ethics are woven into criteria used to evaluate individual or 
division’s performance. 
Agree/Disagree: 
Comments: 

11. Management reacts appropriately when receiving bad news from 
subordinates and divisions. 
Agree/Disagree: 
Comments: 

12. Agency has obtained adequate fidelity/surety bond coverage for: a) 
Key administrative and accounting personnel b) Other employees c) 
Positions for which coverage is required by state statue. 
Agree/Disagree: 
Comments: 

13. Agency identifies related employees and asserts that no conflict of 
interest exists. Related employees have job assignments that minimize 
opportunities for collusion. 
Agree/Disagree: 
Comments: 

14. Agency has a process to identify and prevent significant related-
party transactions. 
Agree/Disagree: 
Comments: 

Conclusions Reached and Actions Needed: 

Source: Mississippi Agency Accounting Policies and Procedures Manual. 

[End of figure] 

State Internal Control Office and Some Agency Internal Control Offices 
Are in Place: 

In 2007, as DFA planned its Internal Control and Risk Assessment 
Office, it intended to staff the office with six people, but it 
currently has only three staff members. DFA has requested three 
additional staff in its fiscal year 2010 budget. However, the office 
has already developed a work plan that for the first time includes 
monitoring state agencies' internal control plans and assessments. In 
addition, staff members are reviewing the findings and corrective 
action plans noted in the 2007 and 2008 Single Audit report prepared by 
the Office of the State Auditor to determine if the audits identify 
agencies receiving Recovery Act funds as having deficiencies. The 
analysis will inform monitoring efforts. The office's concentration 
will be on agencies that are prime recipients of Recovery Act funds. 
DFA expects to contract with certified public accounting firms to 
perform some monitoring so that it can ensure that state agencies 
receiving Recovery Act funds are adequately monitored. The monitoring 
activities should begin in the August to September 2009 time frame. As 
time and money allow, the office also expects to conduct internal 
control training for state agencies. 

According to the Executive Director of the Joint Legislative Committee 
on Performance Evaluation and Expenditure Review, 13 of the 19 state 
agencies required by statute to establish internal control offices had 
the offices in place by December 2008. For example, DFA's Deputy 
Executive Director told us that the Mississippi education and 
transportation departments have set up internal control offices to 
comply with a bill passed by the state legislature requiring their 
establishment. DFA's Deputy Executive Director also told us that 
because the legislature did not appropriate funds for such offices, 
many smaller agencies have never established them. According to an 
official with MDOT internal review office, six people are responsible 
for auditing each project's transactions from documentation to 
disbursement. The official told us that because the Recovery Act 
projects are additions to the state's normal transportation work, the 
office will likely feel some stress in meeting its audit 
responsibilities. The official also told us that each project's 
construction engineer and the engineer's on-site staff are responsible 
for ensuring that documentation is valid and accurate. For example, on- 
site supervisors collect weight tickets for each truck bringing asphalt 
to a project. An automated system weighs each truck and produces a 
computerized weight ticket at the contractor's facility. A state 
engineer calibrates this system every 6 months to help ensure its 
reliability. In addition, on-site supervisors check the reasonableness 
of a project's daily asphalt usage using a calculation that predicts 
the amount of asphalt required based on length, width, and thickness. 
Construction engineers told us that they have sufficient staff to 
oversee their normal workload as well as the additional Recovery Act 
projects. 

The Joint Legislative Committee on Performance Evaluation and 
Expenditure Review noted limitations in the internal audit functions of 
some state agencies--for instance, the committee reviewed the internal 
audit functions of eight agencies and found that most focused on 
reviewing agency programs rather than testing internal controls. In 
addition, the committee found that the executive directors for these 
agencies reviewed and approved the plans for their internal audit 
functions, but this could limit the internal auditor's freedom to 
determine the internal controls tested and programs reviewed. 

State Auditor Begins Preliminary Recovery Act Work: 

Mississippi law authorizes the state auditor to preaudit or postaudit; 
conduct performance audits and reviews; and investigate projects and 
entities' use of Recovery Act funds provided to the state, its agency 
or subdivisions, or nonprofit organizations.[Footnote 38] The Office of 
the State Auditor began preliminary evaluations in May 2009 of all 
state agencies, boards, and commissions that are expected to receive 
Recovery Act funds. Currently, the Office of the State Auditor, 
Performance Audit Division is examining each agency's staffing levels, 
goals and objectives for Recovery Act funds, and the policies and 
procedures in place to mitigate the effects of fraud, waste, and abuse. 
The impetus for the survey is the State Auditor's recognition that (1) 
Recovery Act funds will significantly expand the scope and number of 
federal programs carried out by many state agencies, (2) many agencies 
will welcome an independent assessment of agency activities, especially 
of new or small federal programs, and (3) the surveys will provide the 
Performance Audit Division with the insight to determine risk levels 
that will enable the Division to prioritize future Recovery Act related 
performance audit work. If additional Recovery Act funding is made 
available, the Office of the State Auditor plans to contract with one 
or more firms to conduct "real-time" performance audits based on 
Recovery Act goals, rules, and guidelines. If no additional Recovery 
Act related funding becomes available to conduct pre-audit or 
investigative work, then the Office of the State Auditor will 
prioritize agency programs and conduct "real time audits" based on 
available funding and resources. 

In addition to the evaluations, the Office of the State Auditor is 
taking other steps to ensure that state agencies comply with the 
Recovery Act. The office's Technical Assistance Division plans to 
expand its monthly newsletter to include Recovery Act information and 
updates. This publication will complement the Recovery Act training 
that the Division will make available to school districts, institutions 
of higher learning, planning and development districts, state agencies, 
municipalities, and counties. 

Single Audit as a Risk Assessment and Monitoring Tool: 

Each year, in compliance with OMB Circular No. A-133, Audits of States, 
Non-Profits, and Local Organizations, the Office of the State Auditor 
produces a Single Audit report.[Footnote 39] Congress established the 
requirement of the Single Audit report to improve state and local 
governments' financial management of federal financial assistance 
programs; promote the efficient and effective use of audit resources; 
and ensure that federal departments and agencies, to the maximum extent 
practicable, rely upon and use audit work. 

DFA's Office of Internal Control and Risk Management expects to use the 
Single Audit report to assess program risk and to determine the extent 
to which it should monitor state agencies. As discussed above, agency 
risk assessments and the Single Audit report will be key to determining 
which agencies receiving Recovery Act funds should be given attention 
first. The office will also use the Single Audit report as a tool to 
identify state agencies that are not properly monitoring their 
subrecipients (entities that receive Recovery Act funds from a state 
agency) or that have not collected and reviewed any required audits of 
their subrecipients in the required time frame. 

Not only does the state expect to use the Single Audit report to 
monitor state agencies, officials representing two state agencies and 
one federal district agency told us that they already use the report to 
monitor their activities. MDOT monitors Single Audit report results and 
uses them to determine if policies and procedures need improvement, 
staff require additional training, and to identify processes that need 
to be more closely monitored. MDOT officials told us that they review 
each Single Audit report and immediately implement corrective action on 
any findings identified by the Office of the State Auditor. If the 
audit finds policies and procedures that need to be developed or 
improved, MDOT adds to or modifies them to document the correct 
processes and communicates the corrections to staff responsible for 
their implementation. If staff are not properly implementing policies 
and procedures, MDOT provides training as well as additional oversight, 
including periodic reviews that monitor the implementation of the 
policies and procedures. MDOT's operational management is involved in 
developing corrective action plans for all audit findings, and MDOT 
keeps the State Transportation Commission informed of audit findings 
and corrective actions. Similarly, an official in the Mississippi 
Division of the U.S. Federal Highway Administration told us that the 
division's Financial Management Team immediately brings any Single 
Audit report findings related to the Federal-Aid Highway Program to the 
attention of division leadership and others as appropriate. Members of 
the team also work with MDOT to develop a satisfactory corrective 
action plan and monitor MDOT's implementation of plans to ensure that 
MDOT is taking the steps necessary to resolve findings. 

OSARC, which receives federal funding through MDOT and is responsible 
for county road projects, also told us that it uses the Single Audit 
report as a tool to evaluate the risk of providing federal dollars to 
subrecipient counties. According to the OSARC Director of Finance and 
Accounting, if the report contains a finding for a county, OSARC 
examines the response/corrective action that the county submitted to 
the Office of the State Auditor. Based on