North Carolina – September 23, 2009

The content below was excerpted from the North Carolina Appendix (PDF, 44 pages) of GAO's third bimonthly review of the Recovery Act.[1]


Use of Funds

Our work in North Carolina focused on three programs funded under the Recovery Act—the State Fiscal Stabilization Fund (SFSF) administered by the U.S. Department of Education (Education), Highway Infrastructure Investment funds administered by the U.S. Department of Transportation’s Federal Highway Administration (FHWA), and the Weatherization Assistance Program administered by the U.S. Department of Energy (DOE). Because SFSF is a new program and the state has disbursed funds to localities, we reviewed the SFSF to determine how the state was managing the allocation and distribution of funds. We also reviewed selected localities’ planned expenditures and contracting procedures for education Recovery Act funds, including those that expanded existing funding under Title I, Part A of the Elementary and Secondary Education Act (ESEA) and Part B of the Individuals with Disabilities Education Act (IDEA). In addition, we reviewed contracts for highway projects using Highway Infrastructure Investment funds that have been underway in North Carolina for several months, including oversight of these contracts. As we have done in our previous reports, we reviewed the Weatherization Assistance Program because it is considered a high-risk area because it will receive significantly more funds than in prior years. For each program, we reviewed the planning and preparation efforts in place for the October 2009 Recovery Act recipient reporting requirement. In addition to these programs, we also reviewed challenges that rural small localities have faced in accessing Recovery Act funds because several state officials have told us that this is an area of risk in the state. We also reviewed and analyzed preliminary data collected by the North Carolina League of Municipalities (NCLM) on municipalities’ efforts to pursue Recovery Act funds. We determined this information to be reliable for our purposes. Also, we updated information on North Carolina’s budget situation and how the Recovery Act funds will be used to stabilize the budget.

Recovery Act funds are being directed to helping North Carolina stabilize its budget and support local governments, and to stimulate infrastructure development and expand existing programs that will provide needed services and potential jobs.


  • On August 7, 2009, the Governor of North Carolina signed the budget bill (SB 202) into law, after the state used continuing resolutions to keep the government operating from June 30—the end of the prior fiscal year—until the budget was signed.
  • To close the state’s $4.8 billion shortfall, the state is using $1.4 billion of Recovery Act funds, making $2 billion in cuts to the state budget, and closing the remaining gap with $1.4 billion in tax and fee increases.
  • Beginning in October 2008 and continuing through May 2009, the North Carolina Division of Medical Assistance (DMA) overbilled the federal Centers for Medicare & Medicaid Services (CMS) and received $291 million for federal reimbursement for Qualified Public Hospital medical claims under Medicaid. The overbilling occurred because a DMA employee, who was new to this area of responsibility, erroneously requested federal reimbursement for this program rather than state funding. However, according to state officials, none of the $291 million in overbillings involved Recovery Act funds. Nevertheless, this will impact the state’s 2010 budget. To begin repaying the overbillings, the North Carolina Department of Health and Human Services (NCDHHS) requested $160 million less in federal reimbursement than actual Medicaid expenditures incurred by the state for the period covered by the July 31, 2009 reimbursement. The NCDHHS anticipates paying the balance in quarterly installments over the remainder of fiscal year 2010 by reducing the federal reimbursement for its actual expenditures.

U.S. Department of Education State Fiscal Stabilization Fund; ESEA Title I, Part A; and IDEA, Part B Funds

  • Education had approved North Carolina’s application for the state’s SFSF award and released $1 billion to the state as of August 19, 2009.
  • The state approved 115 applications from local educational agencies (LEA) and 96 applications from charter schools,[2] which are also LEAs, for SFSF funds and released the funds in August 2009.
  • As of September 1, 2009, the state had allocated $129 million in ESEA Title I, Part A and $130 million in IDEA, Part B funds awarded under the Recovery Act to LEAs. The state reported that as of August 31, 2009, LEAs had expended about $9.6 million and $27 million, respectively, for these two programs.
  • LEAs GAO visited reported using Recovery Act funds to save jobs of school personnel.
  • State officials report that after receiving guidance from Education they are developing a comprehensive plan for monitoring SFSF use at the local level.

Highway Infrastructure Investment

  • FHWA apportioned $736 million in Recovery Act funds to North Carolina. As of September 1, 2009, the federal government had obligated $452.9 million for North Carolina and $38 million had been reimbursed by the federal government.
  • As of September 1, 2009, the North Carolina Department of Transportation (NCDOT) had advertised for bids for 101 proposed contracts representing a total value of $386 million in estimated Recovery Act funding. Of the 101 proposed contracts, 88 contracts had been awarded for $348 million, and work has begun on 77 of these contracts representing a total value of about $330 million. Many of these contracts involve road paving.
  • Based on the high-profile nature of the Recovery Act, the FHWA—NC Division has increased oversight for Recovery Act highway projects.
  • NCDOT is using its established process for awarding and overseeing contracts for Recovery Act highway projects.
  • NCDOT anticipates meeting the October 2009 recipient reporting requirements for Section 1512 (c) of the Recovery Act.

Weatherization Assistance Program

  • Of the $132 million in Recovery Act weatherization funding North Carolina is expected to receive, DOE has provided $66 million. State weatherization officials are in the process of disbursing approximately $13 million of the Recovery Act weatherization funds to local weatherization agencies to fund start up activities such as buying equipment and vehicles and funding public awareness campaigns.
  • State weatherization officials do not have any concerns associated with incorporating the Recovery Act weatherization requirements, such as compliance with the Davis-Bacon Act, or with monitoring the use of funds.
  • State weatherization officials plan to follow both the normal and Recovery Act reporting requirements, which include programmatic quarterly reports, monthly financial status reports, and Office of Management and Budget (OMB) Section 1512 reporting requirements. Officials do not anticipate having any challenges with respect to complying with these reporting requirements in a timely manner.

Rural Issues

  • North Carolina includes approximately 550 municipalities and 100 counties, many of which are small or rural. According to U.S. Department of Agriculture 2008 estimates, about one-third of the state’s residents lived in nonmetropolitan counties, and these counties had higher poverty rates and lower income than the statewide averages.
  • North Carolina municipalities rely on a variety of sources in obtaining information about the Recovery Act that include federal, state, and nonprofit sectors. Officials from North Carolina’s Office of Economic Recovery and Investment (OERI) told us that they have held a series of informational workshops across the state since April 2009 designed to provide a question and answer forum for local officials and the general public. Still, officials in three of the municipalities we visited reported a variety of challenges identifying information about Recovery Act funding opportunities, such as navigating a “maze” of funding opportunities and having staff-capacity issues.
  • Several North Carolina state officials told us that many of the state’s small towns and cities have been historically understaffed and may lack the expertise to apply for and administer federal grants. Local officials we interviewed expressed concerns about their capacity to apply for and administer Recovery Act funding. For example, officials in two localities told us that they lack funds to meet the federal matching requirements or other up-front costs needed for some Recovery Act programs.

Recipient Reporting

  • OERI has undertaken initiatives to help ensure state agency Section 1512 Recovery Act Recipient Reports are complete, accurate, and submitted on time.
  • Based on the results of an assessment, the OERI official in charge of reporting issues told us that he has a high level of confidence that North Carolina state agencies will be ready to submit the required reports in October.
  • As of September 4, 2009, none of the respondents to a state survey on subrecipient delegation and data quality requirements reported they were planning to delegate reporting responsibility to subrecipients.
  • Some state officials indicated concerns with the methodology to be used for measuring jobs created or retained.

Full September ReportBack to top

Recovery Act: Funds Continue to Provide Fiscal Relief to States and Localities, While Accountability and Reporting Challenges Need to Be Fully Addressed
Recovery Act: Funds Continue to Provide Fiscal Relief to States and Localities, While Accountability and Reporting Challenges Need to Be Fully Addressed (Appendixes)
  • [1] Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
  • [2]A charter school LEA must receive SFSF funding on the same basis as other LEAs in the state. State law determines whether a charter school is an LEA or a school within an LEA.
GAO Contact
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Cornelia M. Ashby

Director, Education, Workforce, and Income Security

(202) 512-8403

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Paula M. Rascona

Director, Financial Management and Assurance

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