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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