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entitled 'Recovery Act: States' and Localities' Current and Planned 
Uses of Funds While Facing Fiscal Stresses' which was released on July 
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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: 

GAO-09-829: 

GAO Highlights: 

Highlights of GAO-09-831T a testimony before the Committee on Oversight 
and Government Reform, House of Representatives. 

Why GAO Did This Study: 

This testimony is based on a GAO report being released today—the second 
in response to a mandate under the American Recovery and Reinvestment 
Act of 2009 (Recovery Act). The report addresses: (1) selected states’ 
and localities’ uses of Recovery Act funds, (2) the approaches taken by 
the selected states and localities to ensure accountability for 
Recovery Act funds, and (3) states’ plans to evaluate the impact of 
Recovery Act funds. GAO’s work for the report is focused on 16 states 
and certain localities in those jurisdictions as well as the District 
of Columbia—representing about 65 percent of the U.S. population and 
two-thirds of the intergovernmental federal assistance available. GAO 
collected documents and interviewed state and local officials. GAO 
analyzed federal agency guidance and spoke with Office of Management 
and Budget (OMB) officials and with program officials at the Centers 
for Medicare and Medicaid Services, and the Departments of Education, 
Energy, Housing and Urban Development, Justice, Labor, and 
Transportation. 

What GAO Found: 

Across the United States, as of June 19, 2009, Treasury had outlayed 
about $29 billion of the estimated $49 billion in Recovery Act funds 
projected for use in states and localities in fiscal year 2009. More 
than 90 percent of the $29 billion in federal outlays has been provided 
through the increased Medicaid Federal Medical Assistance Percentage 
(FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by 
the Department of Education. 

GAO’s work focused on nine federal programs that are estimated to 
account for approximately 87 percent of federal Recovery Act outlays in 
fiscal year 2009 for programs administered by states and localities. 
The following figure shows the distribution by program of anticipated 
federal Recovery Act spending in fiscal year 2009 for the nine programs 
discussed in this report. 

Figure: Programs in July Review, Estimated Federal Recovery Act Outlays 
to States and Localities in Fiscal Year 2009 as a Share of Total: 

[Refer to PDF for image] 

Medicaid: 63%; 
State Fiscal Stabilization Fund: 13%; Highways: 6%; 
Other Selected programs: 5%: 
* IDEA, Parts B and C, 1%; 
* WIA Youth Programs, 1%; 
* ESEA, Title i, Part A: 1%; 
* Less than 1%: 
- Byrne Grants; 
- Weatherization Assistance Program; 
- Public Housing Capital Fund; 
Other programs not in study: 13%. 

Source: GAO analysis of data from CBO and Federal Fund Information for 
States. 

[End of figure] 

Increased Medicaid FMAP Funding: 

All 16 states and the District have drawn down increased Medicaid FMAP 
grant awards of just over $15 billion for October 1, 2008, through June 
29, 2009, which amounted to almost 86 percent of funds available. 
Medicaid enrollment increased for most of the selected states and the 
District, and several states noted that the increased FMAP funds were 
critical in their efforts to maintain coverage at current levels. 
States and the District reported they are planning to use the increased 
federal funds to cover their increased Medicaid caseload and to 
maintain current benefits and eligibility levels. Due to the increased 
federal share of Medicaid funding, most state officials also said they 
would use freed-up state funds to help cope with fiscal stresses. 

Highway Infrastructure Investment: 

As of June 25, the Department of Transportation (DOT) had obligated 
about $9.2 billion for almost 2,600 highway infrastructure and other 
eligible projects in the 16 states and the District and had reimbursed 
about $96.4 million. Across the nation, almost half of the obligations 
have been for pavement improvement projects because they did not 
require extensive environmental clearances, were quick to design, 
obligate and bid on, could employ people quickly, and could be 
completed within 3 years. Officials from most states considered project 
readiness, including the 3-year completion requirement, when making 
project selections and only later identified to what extent these 
projects fulfilled the economically distressed area requirement. We 
found substantial variation in how states identified economically 
distressed areas and how they prioritized project selection for these 
areas. 

State Fiscal Stabilization Fund: 

As of June 30, 2009, of the 16 states and the District, only Texas had 
not submitted an SFSF application. Pennsylvania recently submitted an 
application but had not yet received funding. The remaining 14 states 
and the District have been awarded a total of about $17 billion in 
initial funding from Education—of which about $4.3 billion has been 
drawn down. School districts said they would use SFSF funds to maintain 
current levels of education funding, particularly for retaining staff 
and current education programs. They also told us that SFSF funds would 
help offset state budget cuts. 

Overall, states reported using Recovery Act funds to stabilize state 
budgets and to cope with fiscal stresses. The funds helped them 
maintain staffing for existing programs and minimize or avoid tax 
increases as well as reductions in services. 

Accountability: 

States have implemented various internal control programs; however, 
federal Single Audit guidance and reporting does not fully address 
Recovery Act risk. The Single Audit reporting deadline is too late to 
provide audit results in time for the audited entity to take action on 
deficiencies noted in Recovery Act programs. Moreover, current guidance 
does not achieve the level of accountability needed to effectively 
respond to Recovery Act risks. Finally, state auditors need additional 
flexibility and funding to undertake the added Single Audit 
responsibilities under the Recovery Act. 

Impact: 

Direct recipients of Recovery Act funds, including states and 
localities, are expected to report quarterly on a number of measures, 
including the use of funds and estimates of the number of jobs created 
and retained. The first of these reports is due in October 2009. OMB—in 
consultation with a range of stakeholders—issued additional 
implementing guidance for recipient reporting on June 22, 2009, that 
clarifies some requirements and establishes a central reporting 
framework. 

In addition to employment-related reporting, OMB requires reporting on 
the use of funds by recipients and nonfederal subrecipients receiving 
Recovery Act funds. The tracking of funds is consistent with the 
Federal Funding Accountability and Transparency Act (FFATA). Like the 
Recovery Act, FFATA requires a publicly available Web site—[hyperlink, 
http://www.USAspending.gov]—to report financial information about 
entities awarded federal funds. Yet, significant questions have been 
raised about the reliability of the data on www.USAspending.gov, 
primarily because what is reported by the prime recipients is dependent 
on the unknown data quality and reporting capabilities of 
subrecipients. 

GAO’s Recommendations: 

Accountability and Transparency: 

To leverage Single Audits as an effective oversight tool for Recovery 
Act programs, the Director of OMB should: 

* develop requirements for reporting on internal controls during 2009 
before significant Recovery Act expenditures occur, as well as for 
ongoing reporting after the initial report; 

* provide more direct focus on Recovery Act programs through the Single 
Audit to help ensure that smaller programs with high risk have audit 
coverage in the area of internal controls and compliance; 

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

* develop mechanisms to help fund the additional Single Audit costs and 
efforts for auditing Recovery Act programs. 

Matter for Congressional Consideration: Congress should consider a 
mechanism to help fund the additional Single Audit costs and efforts 
for auditing Recovery Act programs. 

Reporting on Impact: 

The Director of OMB should work with federal agencies to provide 
recipients with examples of the application of OMB’s guidance on 
recipient reporting of jobs created and retained. In addition, the 
Director of OMB should work with agencies to clarify what new or 
existing program performance measures are needed to assess the impact 
of Recovery Act funding. 

Communications and Guidance: 

To strengthen the effort to track funds and their uses, the Director of 
OMB should (1) ensure more direct communication with key state 
officials, (2) provide a long range time line on issuing federal 
guidance, (3) clarify what constitutes appropriate quality control and 
reconciliation by prime recipients, and (4) specify who should best 
provide formal certification and approval of the data reported. 

The Secretary of Transportation should develop clear guidance on 
identifying and giving priority to economically distressed areas that 
are in accordance with the requirements of the Recovery Act and the 
Public Works and Economic Development Act of 1965, as amended, and more 
consistent procedures for the Federal Highway Administration to use in 
reviewing and approving states’ criteria. 

What GAO Recommends: 

GAO makes recommendations and a matter for congressional consideration 
discussed on the next page. The report draft was discussed with federal 
and state officials who generally agreed with its contents. OMB 
officials generally agreed with GAO’s recommendations to OMB; DOT 
agreed to consider GAO’s recommendation. 

View [hyperlink, http://www.gao.gov/products/GAO-09-829] or key 
components. For state summaries, see [hyperlink, 
http://www.gao.gov/products/GAO-09-830SP]. For more information, 
contact J. Christopher Mihm at (202) 512-6806 or mihmj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

States and Localities Are Using Recovery Act Funds for Purposes of the 
Act and to Help Address Fiscal Stresses: 

States Have Implemented Various Internal Control Programs: However, 
Single Audit Guidance and Reporting Does Not Adequately Address 
Recovery Act Risk: 

Efforts to Assess Impact of Recovery Act Spending: 

Concluding Observations and Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Office of Management and Budget: 

Appendix III: Localities: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Percentage Point Increases in FMAP from Original Fiscal Year 
2009 to Third Quarter 2009 (estimated), for 16 States and the District: 

Table 2: FMAP Grant Awards and Funds Drawn Down, for 16 States and the 
District as of June 29, 2009: 

Table 3: Highway Apportionments and Obligations Nationwide and in 
Selected States as of June 25, 2009: 

Table 4: Nationwide Highway Obligations by Project Improvement Type as 
of June 25, 2009: 

Table 5: SFSF Recovery Act Allocations and Drawdowns for the 16 States 
and the District of Columbia: 

Table 6: Education Stabilization Funds Made Available to States and the 
Division of Education Stabilization Funds between LEAs and IHEs: 

Table 7: Data Source and Data Elements for the Four SFSF Education 
Reform Assurances: 

Table 8: Title I, Part A Recovery Act Allocations and Drawdowns for 16 
States and the District of Columbia: 

Table 9: IDEA, Parts B and C Recovery Act Allocations and Draw Downs 
for the 16 States and the District of Columbia: 

Table 10: Allocations of Recovery Act WIA Youth Funds for 13 States and 
the District, as of June 30, 2009: 

Table 11: Recovery Act Edward Byrne Memorial Justice Assistance Grant 
Program's State Allocations and Pass-Through Percentages, Local 
Allocations and Total Allocations for 16 States and the District: 

Table 12: Allocation of Edward Byrne Memorial Justice Assistance Grants 
for 16 States and the District for Fiscal Years 2007 and 2008, as well 
as a Result of the Recovery Act: 

Table 13: Planned Use of Recovery Act JAG Funds for 16 States and the 
District: 

Table 14: Recovery Act Edward Byrne Memorial Justice Assistance Grants 
Awarded by the Bureau of Justice Assistance to Localities in 16 States 
and the District: 

Table 15: DOE's Allocation of the Recovery Act's Weatherization Funds 
for 16 States and the District: 

Table 16: DOE's Approval of State Plans and Second Allocation of the 
Recovery Act's Weatherization Funds for 16 States and the District: 

Table 17: States' Proposed Funding Plans for Using the Recovery Act's 
Weatherization Funds: 

Table 18: Number of Housing Units Expected to Be Weatherized Using 
Recovery Act Funds: 

Table 19: Single Audit Extensions for June 30, 2008, Fiscal Year End: 

Table 20: Local School Districts and Postsecondary Institutions Visited 
by GAO: 

Table 21: Public Housing Authorities Visited by GAO: 

Table 22: Location of Highway Projects visited by GAO: 

Table 23: Summer Youth Programs Visited by GAO: 

Table 24: Weatherization Programs Visited by GAO: 

Figures: 

Figure 1: Projected versus Actual Federal Outlays to States and 
Localities under the Recovery Act: 

Figure 2: Programs in July Review, Estimated Federal Recovery Act 
Outlays to States and Localities in Fiscal Year 2009 as a Share of 
Total: 

Figure 3: Percentage Increase in Medicaid Enrollment from October 2007 
to May 2009, for 16 States and the District: 

Figure 4: Percentage of Recovery Act Highway Funds Obligated as of June 
25, 2009: 

Figure 5: Planned Uses of Title I Recovery Act Funds in the School 
Districts We Visited: 

Figure 6: Officials in Districts We Visited Reported Receiving Guidance 
in Many Forms: 

Figure 7: Percent of Public Housing Capital Fund Formula Grants 
Allocated by HUD that Have Been Obligated and Drawn Down Nationwide, as 
of June 20, 2009: 

Figure 8: Percent of Public Housing Capital Fund Formula Grants 
Allocated by HUD that Have Been Obligated and Drawn Down by 47 Public 
Housing Agencies Visited by GAO, as of June 20, 2009: 

Figure 9: Unit That the Athens Housing Authority Plans to Renovate with 
Recovery Act Funds: 

Figure 10: Philadelphia, Pennsylvania, Plans to Rehabilitate Vacant 
Units at Scattered Sites: 

Figure 11: Siding in the process of completion using Rahway Housing 
Authority's Recovery Act funds: 

Figure 12: State and Local Government Current Receipts, Fiscal Year 
2008: 

Figure 13: Year-Over-Year Change in State and Local Government Current 
Tax Receipts: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

July 8, 2009: 

Report to Congressional Committees: 

As federal funds provided by the American Recovery and Reinvestment Act 
of 2009 (Recovery Act)[Footnote 1] flow into the U.S. economy, state 
fiscal conditions continue to be stressed. Actual declines in sales, 
personal income, and corporate income tax revenues influenced state 
actions to begin to fill an estimated $230 billion in budget gaps for 
fiscal years 2009 through 2011.[Footnote 2] The national unemployment 
rate also increased to 9.5 percent in June 2009, and high unemployment 
can place greater stress on state budgets as demand for services, such 
as Medicaid, increases. Some economists have pointed to signs of 
economic improvement, although associations representing state 
officials have also reported that state fiscal conditions historically 
lag behind any national economic recovery. 

The Recovery Act specifies several roles for GAO, including conducting 
bimonthly reviews of selected states' and localities' use of funds made 
available under the act.[Footnote 3] This report, the second in 
response to the act's mandate, addresses the following objectives: (1) 
selected states' and localities' uses of Recovery Act funds, (2) the 
approaches taken by the selected states and localities to ensure 
accountability for Recovery Act funds, and (3) states' plans to 
evaluate the impact of the Recovery Act funds they received.[Footnote 
4] The report provides overall findings, makes recommendations, and 
discusses the status of actions in response to the recommendations we 
made in our April 2009 report. Individual summaries for the 16 selected 
states and the District of Columbia (District) are accessible through 
GAO's recovery page at [hyperlink, http://www.gao.gov/recovery]. In 
addition, all of the summaries have been compiled into an electronic 
supplement, GAO-09-830SP. 

As reported in our April 2009 review, to address these objectives, we 
selected a core group of 16 states and the District that we will follow 
over the next few years.[Footnote 5] Our bimonthly reviews examine how 
Recovery Act funds are being used and whether they are achieving the 
stated purposes of the act. These purposes include: 

* to preserve and create jobs and promote economic recovery; 

* to assist those most impacted by the recession; 

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

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

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

The states selected for our bimonthly reviews contain about 65 percent 
of the U.S. population and are estimated to receive collectively about 
two-thirds of the intergovernmental federal assistance funds available 
through the Recovery Act. We selected these states and the District on 
the basis of federal outlay projections, percentage of the U.S. 
population represented, unemployment rates and changes, and a mix of 
states' poverty levels, geographic coverage, and representation of both 
urban and rural areas. In addition, we visited a nonprobability sample 
of about 178 local entities within the 16 selected states and the 
District.[Footnote 6] 

GAO's work for this report focused on nine federal programs primarily 
because they have begun disbursing funds to states or have known or 
potential risks.[Footnote 7] These risks can include existing programs 
receiving significant amounts of Recovery Act funds or new programs. We 
collected documents from and conducted semistructured interviews with 
executive-level state and local officials and staff from state offices 
including governors' offices, "recovery czars," state auditors, and 
controllers. In addition, our work focused on federal, state, and local 
agencies administering the selected programs receiving Recovery Act 
funds. We analyzed guidance and interviewed officials from the federal 
Office of Management and Budget (OMB). We also analyzed other federal 
agency guidance on programs selected for this review and spoke with 
relevant program officials at the Centers for Medicare and Medicaid 
Services (CMS), the U.S. Departments of Education, Energy, Housing and 
Urban Development, Justice, Labor, and Transportation. Where attributed 
to state officials, we did not review state legal materials for this 
report, but relied on state officials and other state sources for 
description and interpretation of relevant state constitutions, 
statutes, legislative proposals, and other state legal materials. The 
information obtained from this review cannot be generalized to all 
states and localities receiving Recovery Act funding. A detailed 
description of our scope and methodology can be found in appendix I. 

We conducted this performance audit from April 21, 2009, to July 2, 
2009, in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

Our analysis of initial estimates of Recovery Act spending provided by 
the Congressional Budget Office (CBO) suggested that about $49 billion 
would be outlayed to states and localities by the federal government in 
fiscal year 2009, which runs through September 30. However, our 
analysis of the latest information available on actual federal outlays 
reported on [hyperlink, http://www.recovery.gov][Footnote 8] indicates 
that in the 4 months since enactment, the federal Treasury has paid out 
approximately $29 billion to states and localities, which is about 60 
percent of payments estimated for fiscal year 2009. Although this 
pattern may not continue for the remaining 3-1/2 months, at present 
spending is slightly ahead of estimates. More than 90 percent of the 
$29 billion in federal outlays has been provided through the increased 
Federal Medical Assistance Percentage (FMAP) grant awards and the State 
Fiscal Stabilization Fund administered by the Department of Education. 
Figure 1 shows the original estimate of federal outlays to states and 
localities under the Recovery Act compared with actual federal outlays 
as reported by federal agencies on www.recovery.gov. The 16 states and 
the District of Columbia covered by our review account for about two- 
thirds of the Recovery Act funding available to states and localities. 
According to the Office of Management and Budget (OMB), an estimated 
$149 billion in Recovery Act funding will be obligated to states and 
localities in fiscal year 2009. 

Figure 1: Projected versus Actual Federal Outlays to States and 
Localities under the Recovery Act: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2009; 
Projected outlay: $48.9 billion; 
Actual outlay: $28.8 billion (as of June 19, 2009). 

Fiscal year: 2010; 
Projected outlay: $107.7 billion. 

Fiscal year: 2011; 
Projected outlay: $63.4 billion. 

Fiscal year: 2012; 
Projected outlay: $23.3 billion. 

Fiscal year: 2013; 
Projected outlay: $14.4 billion. 

Fiscal year: 2014; 
Projected outlay: $9.1 billion. 

Fiscal year: 2015; 
Projected outlay: $5.7 billion. 

Fiscal year: 2016; 
Projected outlay: $2.5 billion. 

Source: GAO analysis of CBO, Federal Funds Information for States, and 
Recovery.gov data. 

[End of figure] 

Our work for this bimonthly report focused on nine federal programs, 
selected primarily because they have begun disbursing funds to states 
and include programs with significant amounts of Recovery Act funds, 
programs receiving significant increases in funding, and new programs. 
Recovery Act funding of some of these programs is intended for further 
disbursement to localities. Together, these nine programs are estimated 
to account for approximately 87 percent of federal Recovery Act outlays 
to state and localities in fiscal year 2009. Figure 2 shows the 
distribution by program of anticipated federal Recovery Act spending in 
fiscal year 2009 to states and localities. 

Figure 2: Programs in July Review, Estimated Federal Recovery Act 
Outlays to States and Localities in Fiscal Year 2009 as a Share of 
Total: 

[Refer to PDF for image] 

Medicaid: 63%; 
State Fiscal Stabilization Fund: 13%; 
Highways: 6%; 
Other Selected programs: 5%: 
* IDEA, Parts B and C, 1%; 
* WIA Youth Programs, 1%; 
* ESEA, Title i, Part A: 1%; 
* Less than 1%: 
- Byrne Grants; 
- Weatherization Assistance Program; 
- Public Housing Capital Fund; 
Other programs not in study: 13%. 

Source: GAO analysis of data from CBO and Federal Fund Information for 
States. 

[End of figure] 

States and Localities Are Using Recovery Act Funds for Purposes of the 
Act and to Help Address Fiscal Stresses: 

Increased FMAP Has Helped States Finance Their Growing Medicaid 
Programs, but Concerns Remain about Compliance with Recovery Act 
Provisions: 

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 between October 1, 2008, and December 31, 2010.[Footnote 9] On 
February 25, 2009, CMS made increased FMAP grant awards to states, and 
states may retroactively claim reimbursement for expenditures that 
occurred prior to the effective date of the Recovery Act. Generally, 
for fiscal year 2009 through the first quarter of fiscal year 2011, the 
increased FMAP, which is calculated on a quarterly basis, provides for 
(1) the maintenance of states' prior year FMAPs, (2) a general across-
the-board increase of 6.2 percentage points in states' FMAPs, and (3) a 
further increase to the FMAPs for those states that have a qualifying 
increase in unemployment rates. The increased FMAP available under the 
Recovery Act is for state expenditures for Medicaid services. However, 
the receipt of this increased FMAP may reduce the funds that states 
would otherwise have to use for their Medicaid programs, and states 
have reported using these available funds for a variety of purposes. 

For the third quarter of fiscal year 2009, the increases in FMAP for 
the 16 states and the District of Columbia compared with the original 
fiscal year 2009 levels are estimated to range from 6.2 percentage 
points in Iowa to 12.24 percentage points in Florida, with the FMAP 
increase averaging almost 10 percentage points. When compared with the 
first two quarters of fiscal year 2009, the FMAP in the third quarter 
of fiscal year 2009 is estimated to have increased in 12 of the 16 
states and the District. 

Table 1: Percentage Point Increases in FMAP from Original Fiscal Year 
2009 to Third Quarter 2009 (estimated), for 16 States and the District: 

State: Arizona; 
Original fiscal year 2009 FMAP[A]: 65.77; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 75.01; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.24. 

State: California; 
Original fiscal year 2009 FMAP[A]: 50.00; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 61.59; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 11.59. 

State: Colorado; Original fiscal year 2009 FMAP[A]: 50.00; Adjusted 
fiscal year 2009 FMAP, third quarter (estimated): 60.19; Difference 
between original and adjusted FMAP, third quarter (estimated): 10.19. 

State: District of Columbia; 
Original fiscal year 2009 FMAP[A]: 70.00; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 79.29; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.29. 

State: Florida; 
Original fiscal year 2009 FMAP[A]: 55.40; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 67.64; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 12.24. 

State: Georgia; 
Original fiscal year 2009 FMAP[A]: 64.49; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 74.42; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.93. 

State: Illinois; 
Original fiscal year 2009 FMAP[A]: 50.32; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 61.88; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 11.56. 

State: Iowa; 
Original fiscal year 2009 FMAP[A]: 62.62; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 68.82; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 6.20. 

State: Massachusetts; 
Original fiscal year 2009 FMAP[A]: 50.00; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 60.19; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 10.19. 

State: Michigan; 
Original fiscal year 2009 FMAP[A]: 60.27; Adjusted fiscal year 2009 
FMAP, third quarter (estimated): 70.68; Difference between original and 
adjusted FMAP, third quarter (estimated): 10.41. 

State: Mississippi; 
Original fiscal year 2009 FMAP[A]: 75.84; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 84.24; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 8.40. 

State: New York; 
Original fiscal year 2009 FMAP[A]: 50.00; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 60.19; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 10.19. 

State: North Carolina; 
Original fiscal year 2009 FMAP[A]: 64.60; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 74.51; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.91. 

State: Ohio; 
Original fiscal year 2009 FMAP[A]: 62.14; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 71.29; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.15. 

State: Pennsylvania; 
Original fiscal year 2009 FMAP[A]: 54.52; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 64.32; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.80. 

State: Texas; 
Original fiscal year 2009 FMAP[A]: 59.44; 
Adjusted fiscal year 2009 FMAP, third quarter (estimated): 68.76; 
Difference between original and adjusted FMAP, third quarter 
(estimated): 9.32. 

Source: GAO analysis of data from Federal Funds Information for States, 
as of April 8, 2009. 

[A] The original fiscal year 2009 FMAP data were published in the 
Federal Register on November 28, 2007. 

[End of table] 

From October 2007 to May 2009, overall Medicaid enrollment in the 16 
states and the District increased by 7 percent.[Footnote 10] In 
addition, each of the states and the District experienced an enrollment 
increase during this period, with the highest number of programs 
experiencing an increase of 5 percent to 10 percent. However, the 
percentage increase in enrollment varied widely ranging from just under 
3 percent in California to nearly 20 percent in Colorado. (Figure 3.) 

Figure 3: Percentage Increase in Medicaid Enrollment from October 2007 
to May 2009, for 16 States and the District: 

[Refer to PDF for image: vertical bar graph] 

Overall Medicaid enrollment increased by 7%. 

Quintile category: 0% to less than 5%: 
California: 2.73%; 
Massachusetts: 4.94%. 

Quintile category: 5% to less than 10%: 
New Jersey: 5.06%; 
Texas: 5.13%; 
Mississippi: 5.18%; 
New York: 5.52%; 
Pennsylvania: 5.84%; 
Illinois: 5.93%; 
District of Columbia: 6.75%; 
Georgia: 7.94%; 
Michigan: 8.72%. 

Quintile category: 10% to less than 15%: 
Ohio: 11.03%; 
North Carolina: 11.21%. 

Quintile category: 15% to less than 20%: 
Iowa: 15.16%; 
Arizona: 15.32%; 
Florida: 17.96%; 
Colorado: 19.76%. 

Source: GAO analysis of state data. 

Note: The percentage increase for each state is based on actual state 
enrollment data for October 2007 to April 2009 and projected enrollment 
data for May 2009, with the exception of New York, which provided 
projected enrollment data for March, April and May 2009. Three states--
Florida, Georgia, and Mississippi--did not provide projected enrollment 
data for May 2009. 

[End of figure] 

Overall enrollment growth was the most rapid in early 2009--generally 
from January through April 2009--an enrollment trend that was mirrored 
in several states and the District; however, variation existed. For 
example, while Colorado and Mississippi experienced a nearly 5 percent 
increase in Medicaid enrollment during this time, Medicaid enrollment 
in Illinois remained relatively stable, growing at less than 1 percent. 
Most of the increase in overall enrollment was attributable to 
populations that are sensitive to economic downturns--primarily 
children and families Nonetheless, enrollment growth in other 
population groups, such as disabled individuals, also contributed to 
enrollment growth. 

With regard to the states' receipt of the increased FMAP, all 16 states 
and the District had drawn down increased FMAP grant awards totaling 
just over $15.0 billion for the period of October 1, 2008 through June 
29, 2009 which amounted to 86 percent of funds available. [Footnote 11] 
(See table 2.) In addition, except for the initial weeks that increased 
FMAP funds were available, the weekly rate at which the sample states 
and the District have drawn down these funds has remained relatively 
constant. 

Table 2: FMAP Grant Awards and Funds Drawn Down, for 16 States and the 
District as of June 29, 2009 (Dollars in thousands): 

State: Arizona; 
FMAP grant awards[A]: $534,576; 
Funds drawn: $512,550; 
Percentage of funds drawn: 96. 

State: California; 
FMAP grant awards[A]: $3,330,010; 
Funds drawn: $2,753,245; 
Percentage of funds drawn: 83. 

State: Colorado; 
FMAP grant awards[A]: $240,777; 
Funds drawn: $197,035; 
Percentage of funds drawn: 82. 

State: District of Columbia; 
FMAP grant awards[A]: $98,339; 
Funds drawn: $89,344; 
Percentage of funds drawn: 91. 

State: Florida; 
FMAP grant awards[A]: $1,394,946; 
Funds drawn: $1,263,179; 
Percentage of funds drawn: 91. 

State: Georgia; 
FMAP grant awards[A]: $541,145; 
Funds drawn: $497,893; 
Percentage of funds drawn: 92. 

State: Illinois; 
FMAP grant awards[A]: $1,040,031; 
Funds drawn: $867,909; 
Percentage of funds drawn: 83. 

State: Iowa; 
FMAP grant awards[A]: $136,023; 
Funds drawn: $126,815; 
Percentage of funds drawn: 93. 

State: Massachusetts; 
FMAP grant awards[A]: $1,229,501; 
Funds drawn: $833,031; 
Percentage of funds drawn: 68. 

State: Michigan; 
FMAP grant awards[A]: $728,425; 
Funds drawn: $715,843; 
Percentage of funds drawn: 98. 

State: Mississippi; 
FMAP grant awards[A]: $232,014; 
Funds drawn: $206,890; 
Percentage of funds drawn: 89. 

State: New Jersey; 
FMAP grant awards[A]: $579,976; 
Funds drawn: $579,976; 
Percentage of funds drawn: 100. 

State: New York; 
FMAP grant awards[A]: $3,312,089; 
Funds drawn: $2,643,136; 
Percentage of funds drawn: 80. 

State: North Carolina; 
FMAP grant awards[A]: $710,243; 
Funds drawn: $710,243; 
Percentage of funds drawn: 100. 

State: Ohio; 
FMAP grant awards[A]: $832,391; 
Funds drawn: $711,435; 
Percentage of funds drawn: 85. 

State: Pennsylvania; 
FMAP grant awards[A]: $1,097,544; 
Funds drawn: $957,094; 
Percentage of funds drawn: 87. 

State: Texas; 
FMAP grant awards[A]: $1,444,026; 
Funds drawn: $1,351,960; 
Percentage of funds drawn: 94. 

State: Total; 
FMAP grant awards[A]: $17,482,055; 
Funds drawn: $15,017,578; 
Percentage of funds drawn: 86. 

Source: GAO analysis of HHS data. 

[A] The FMAP grant awards listed are for the first three quarters of 
federal fiscal year 2009. 

[End of table] 

While the increased FMAP available under the Recovery Act is for state 
expenditures for Medicaid services, the receipt of these funds may 
reduce the state share for their Medicaid programs. As such, states 
reported that they are using or are planning to use the funds that have 
become freed up as a result of increased FMAP for a variety of 
purposes. Most commonly, states reported that they are using or 
planning to use freed-up funds to cover their increased Medicaid 
caseload, to maintain current benefits and eligibility levels, and to 
help finance their respective state budgets. Several states noted that 
given the poor economic climate in their respective states, these funds 
were critical in their efforts to maintain Medicaid coverage at current 
levels. For example, officials from Georgia, Michigan, and Pennsylvania 
reported that the increased FMAP funds have allowed their respective 
states to maintain their Medicaid programs, which could have been 
subject to cuts in eligibility or services without the increased funds. 
Additionally, Medicaid officials in five states and the District 
indicated that they used the funds made available as a result of the 
increased FMAP to maintain program expansions or local health care 
reform initiatives, which in some states would have otherwise been 
vulnerable to program cuts. Lastly, all but Texas and the District 
reported they are using or planning to use the freed-up funds to help 
finance their state budgets. Five states--Arizona, California, 
Colorado, North Carolina, and Ohio---reported using or planning to use 
these funds solely for this purpose. 

For states to qualify for the increased FMAP available under the 
Recovery Act, they must meet a number of requirements, including the 
following: 

* States generally may not apply eligibility standards, methodologies, 
or procedures that are more restrictive than those in effect under 
their state Medicaid programs on July 1, 2008.[Footnote 12] 

* States must comply with prompt payment requirements.[Footnote 13] 

* States cannot deposit or credit amounts attributable (either directly 
or indirectly) to certain elements of the increased FMAP into any 
reserve or rainy-day fund of the state.[Footnote 14] 

* States with political subdivisions--such as cities and counties--that 
contribute to the nonfederal share of Medicaid spending cannot require 
the subdivisions to pay a greater percentage of the nonfederal share 
than would have been required on September 30, 2008.[Footnote 15] 

Medicaid officials from many states and the District raised concerns 
about their ability to meet these requirements and, thus, maintain 
eligibility for the increased FMAP. While officials from several states 
spoke positively about CMS's guidance related to FMAP requirements, at 
least nine states and the District reported they wanted CMS to provide 
additional guidance regarding (1) how they report daily compliance with 
prompt pay requirements, (2) how they report monthly on increased FMAP 
spending, and (3) whether certain programmatic changes would affect 
their eligibility for funds. For example, Medicaid officials from 
several states told us they were hesitant to implement minor 
programmatic changes, such as changes to prior authorization 
requirements, pregnancy verifications, or ongoing rate changes, out of 
concern that doing so would jeopardize their eligibility for increased 
FMAP. In addition, at least three states raised concerns that glitches 
related to new or updated information systems used to generate provider 
payments could affect their eligibility for these funds. Specifically, 
Massachusetts Medicaid officials said they are implementing a new 
provider payment system that will generate payments to some providers 
on a monthly versus daily basis and would like guidance from CMS on the 
availability of waivers for the prompt payment requirement. A CMS 
official told us that the agency is in the process of finalizing its 
guidance to states on reporting compliance with the prompt payment 
requirement of the Recovery Act, but did not know when this guidance 
would be publicly available. However, the official noted that, in the 
near term, the agency intends to issue a new Fact Sheet, which will 
include questions and answers on a variety of issues related to the 
increased FMAP. 

Due to the variability of state operations, funding processes, and 
political structures, CMS has worked with states on a case-by-case 
basis to discuss and resolve issues that arise. Specifically, 
communications between CMS and several states indicate efforts to 
clarify issues related to the contributions to the state share of 
Medicaid spending by political subdivisions or to rainy-day funds. For 
example, in a May 20, 2009, letter, CMS clarified that California would 
not fail to meet the provision of the Recovery Act related to 
contributions by political subdivisions if a county voluntarily used 
its funds to make up for a decrease in the amount the state 
appropriated for the Medicaid payment of wages of personal care service 
providers. Similarly, Mississippi clarified with CMS its understanding 
that it would not be permissible to deposit general fund savings 
resulting from the increased FMAP into the rainy-day fund in state 
fiscal year 2010 in order to use those funds in state fiscal year 2011. 
[Footnote 16] 

Regarding the tracking of the increased FMAP, most of the states and 
the District use existing processes to track the receipt of the 
increased FMAP separately from regular FMAP, and almost half of the 
states reported using existing processes to reconcile these 
expenditures. In addition, we reviewed the 2007 Single Audits[Footnote 
17] for the states and the District and identified material weaknesses 
related to Medicaid, including weaknesses related to provider 
enrollment processes and subrecipient monitoring, for most of them. 
[Footnote 18] The Single Audits indicated that many states and the 
District planned or implemented actions to correct identified 
weaknesses. According to CMS officials, CMS regional offices work with 
states to address single audit findings related to Medicaid. 

States Are Using Highway Infrastructure Funds Mainly For Pavement 
Improvements and Are Generally Complying with Recovery Act 
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 federal-aid highway program mechanisms, and states must follow 
the requirements of the existing program, which include ensuring the 
project meets all environmental requirements associated with the 
National Environmental Policy Act (NEPA), paying a prevailing wage in 
accordance with federal Davis-Bacon requirements, complying with goals 
to ensure disadvantaged businesses are not discriminated against in the 
awarding of construction contracts, and using American-made iron and 
steel in accordance with Buy America program requirements. However, the 
maximum federal fund share of highway infrastructure investment 
projects under the Recovery Act is 100 percent, while the federal share 
under the existing federal-aid highway program is generally 80 percent. 

In March 2009, $26.7 billion was apportioned to all 50 states and the 
District of Columbia (District) for highway infrastructure and other 
eligible projects. As of June 25, 2009, $15.9 billion of the funds had 
been obligated[Footnote 19] for over 5,000 projects nationwide, and 
$9.2 billion had been obligated for nearly 2,600 projects in the 16 
states and the District that are the focus of our review. 

Table 3: Highway Apportionments and Obligations Nationwide and in 
Selected States as of June 25, 2009 (Dollars in millions): 

State: Arizona; 
Apportionment: $522; 
Obligations[A]: Obligated amount: $262; 
Obligations[A]: Percentage of apportionment obligated: 50.2. 

State: California; 
Apportionment: $2,570; 
Obligations[A]: Obligated amount: $1,558; 
Obligations[A]: Percentage of apportionment obligated: 60.6. 

State: Colorado; 
Apportionment: $404; 
Obligations[A]: Obligated amount: $244; 
Obligations[A]: Percentage of apportionment obligated: 60.4. 

State: District of Columbia; 
Apportionment: $124; 
Obligations[A]: Obligated amount: $100; 
Obligations[A]: Percentage of apportionment obligated: 81.0. 

State: Florida; 
Apportionment: $1,347; 
Obligations[A]: Obligated amount: $1,049; 
Obligations[A]: Percentage of apportionment obligated: 77.9. 

State: Georgia; 
Apportionment: $932; 
Obligations[A]: Obligated amount: $449; 
Obligations[A]: Percentage of apportionment obligated: 48.2. 

State: Illinois; 
Apportionment: $936; 
Obligations[A]: Obligated amount: $671; 
Obligations[A]: Percentage of apportionment obligated: 71.7. 

State: Iowa; 
Apportionment: $358; 
Obligations[A]: Obligated amount: $319; 
Obligations[A]: Percentage of apportionment obligated: 89.2. 

State: Massachusetts; 
Apportionment: $438; 
Obligations[A]: Obligated amount: $174; 
Obligations[A]: Percentage of apportionment obligated: 39.6. 

State: Michigan; 
Apportionment: $847; 
Obligations[A]: Obligated amount: $421; 
Obligations[A]: Percentage of apportionment obligated: 49.7. 

State: Mississippi; 
Apportionment: $355; 
Obligations[A]: Obligated amount: $276; 
Obligations[A]: Percentage of apportionment obligated: 77.9. 

State: New Jersey; 
Apportionment: $652; 
Obligations[A]: Obligated amount: $410; 
Obligations[A]: Percentage of apportionment obligated: 62.9. 

State: New York; 
Apportionment: $1,121; 
Obligations[A]: Obligated amount: $589; 
Obligations[A]: Percentage of apportionment obligated: 52.6. 

State: North Carolina; 
Apportionment: $736; 
Obligations[A]: Obligated amount: $423; 
Obligations[A]: Percentage of apportionment obligated: 57.6. 

State: Ohio; 
Apportionment: $936; 
Obligations[A]: Obligated amount: $384; 
Obligations[A]: Percentage of apportionment obligated: 41.1. 

State: Pennsylvania; 
Apportionment: $1,026; 
Obligations[A]: Obligated amount: $729; 
Obligations[A]: Percentage of apportionment obligated: 71.0. 

State: Texas; 
Apportionment: $2,250; 
Obligations[A]: Obligated amount: $1,163; 
Obligations[A]: Percentage of apportionment obligated: 51.7. 

Selected states total; 
Apportionment: $15,551; 
Obligations[A]: Obligated amount: $9,222; 
Obligations[A]: Percentage of apportionment obligated: 59.3. 

U.S. total; 
Apportionment: $26,660; 
Obligations[A]: Obligated amount: $15,867; 
Obligations[A]: Percentage of apportionment obligated: 59.5. 

Source: GAO analysis of Federal Highway Administration data. 

Note: As of June 25, 2009, all states have met the Recovery Act 
requirement that 50 percent of apportioned funds be obligated within 
120 days of apportionment (before June 30, 2009), as discussed later in 
this report. However, this requirement 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 or to funds transferred to FTA. 
This table shows the percentage of all apportioned funds that have been 
obligated, which is why some states show an obligation rate of less 
than 50 percent. 

[A] This does not include obligations associated with $61 million of 
apportioned funds that were transferred from the Federal Highway 
Administration (FHWA) to the Federal Transit Administration (FTA) for 
transit projects. Generally, FHWA has authority pursuant to 23 U.S.C. § 
104(k)(1) to transfer funds made available for transit projects to FTA. 

[End of table] 

Almost half of Recovery Act highway obligations have been for pavement 
improvements. Specifically, $7.8 billion of the $15.9 billion obligated 
nationwide as of June 25, 2009, is being used for projects such as 
reconstructing or rehabilitating deteriorated roads, including $3.6 
billion for road resurfacing projects. Many state officials told us 
they selected a large percentage of resurfacing and other pavement 
improvement projects because they did not require extensive 
environmental clearances, were quick to design, could be quickly 
obligated and bid, could employ people quickly, and could be completed 
within 3 years. For example, Michigan began a $22 million project on 
Interstate 196 in Allegan County that involves resurfacing about seven 
miles of road. Michigan Department of Transportation officials told us 
they focused primarily on pavement improvements for Recovery Act 
projects because they could be obligated quickly and could be under 
construction quickly, thereby employing people this calendar year. 
Since many of the environmental clearances had been completed, Michigan 
could accelerate the construction of these projects when Recovery Act 
funds became available. Table 4 shows obligations by the types of road 
and bridge improvements being made. 

Table 4: Nationwide Highway Obligations by Project Improvement Type as 
of June 25, 2009 (Dollars in millions): 

Pavement projects (percent of total obligations): 
New construction: $994 (6.3%); 
Pavement improvement: $7,765 (48.9%); 
Pavement widening: $2,701 (17.0%). 

Bridge projects: 
New construction: $418 (2.6%); 
Replacement: $708 (4.5%); 
Improvement: $851 (5.4%). 

Other[A]: $2,429 (15.3%). 

Total[B]: $15,867 (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. 

[B] Totals may not add because of rounding. 

[End of table] 

As table 4 shows, in addition to pavement improvements, $2.7 billion, 
or about 17 percent of Recovery Act funds nationally, has been 
obligated for pavement-widening projects. These projects provide for 
reconstructing and improving existing roads as well as increasing the 
capacity of the road to accommodate traffic, which can reduce 
congestion. In Florida, around 47 percent of Recovery Act funds were 
obligated for widening projects that increase capacity, while about 9 
percent was obligated for pavement improvements such as resurfacing. 

As of June 25, 2009, around 10 percent of the funds apportioned 
nationwide have been obligated for the replacement or improvement or 
rehabilitation of bridges. Funding for bridge rehabilitation and 
replacement has been a growing national concern since the I-35 bridge 
collapse in Minnesota in 2007.[Footnote 20] Eleven of the states we 
visited had less than 10 percent of their Recovery Act funds obligated 
for bridge replacement and rehabilitation, while two states--New York 
and Pennsylvania--and the District each had more than one-quarter of 
their funds obligated for bridge replacement and rehabilitation. In the 
District, about 36 percent of its obligations are for rehabilitating 
bridges, including the District's largest Recovery Act project--a 
bridge that has been identified as having potentially significant 
safety concerns. Around 2.6 percent of apportioned funds have been 
obligated for construction of new bridges. 

As of June 25, 2009, $233 million had been reimbursed nationwide by the 
Federal Highway Administration (FHWA) and $96.4 million had been 
reimbursed to the 16 states and the District. States are just beginning 
to get projects awarded so that contractors can begin work, and U.S. 
Department of Transportation officials told us that although funding 
has been obligated for more than 5,000 projects, it may be months 
before states can request reimbursement. Once contractors mobilize and 
begin work, states make payments to these contractors for completed 
work, and may request reimbursement from FHWA. FHWA told us that once 
funds are obligated for a project, it may take 2 or more months for a 
state to bid and award the work to a contractor and have work begin. 
According to FHWA, depending on the type of project, it can take days 
or years from the date of obligation for those funds to be reimbursed. 
For example, the North Carolina Department of Transportation (as of 
June 30, 2009) had advertised 65 contracts representing $335 million in 
Recovery Act funding. Of the 65 contracts, 55, representing $309 
million, had been awarded; of these contracts, 33, representing $200 
million, are under way. North Carolina has been reimbursed about $4 
million of Recovery Act funding for projects as of June 25, 2009. 
Approximately 27 of the 65 projects, representing $70 million, are 
anticipated to be complete by December 1, 2009. 

According to state officials, because an increasing number of 
contractors are looking for work, bids for Recovery Act contracts have 
come in under estimates. State officials told us that bids for the 
first Recovery Act contracts were ranging from around 5 percent to 30 
percent below the estimated cost. For example in California, officials 
reported they have had 8 to 10 bidders for each contract bid, compared 
with 2 to 4 bids per contract prior to the economic downturn, and that 
bids are generally coming in 30 percent below estimates. Arizona 
officials told us that contractors are willing to bid for contracts 
with little profit margin in order to cover overhead and put people to 
work, while Mississippi officials told us that material costs had 
decreased. Several state officials told us they expect this trend to 
continue until the economy substantially improves and contractors begin 
taking on enough other work. 

Funds appropriated for highway infrastructure spending must be used as 
required by the Recovery Act. States are required to do the following: 

* Ensure that 50 percent of apportioned Recovery Act funds are 
obligated within 120 days of apportionment (before June 30, 2009) and 
that the remaining apportioned funds are obligated within 1 year. The 
50 percent rule applies only to funds apportioned to the state and not 
to the 30 percent of funds required by the Recovery Act to be 
suballocated, primarily based on population, for metropolitan, 
regional, and local use. The Secretary of Transportation is to withdraw 
and redistribute to other states any amount that is not obligated 
within these time frames.[Footnote 21] 

* 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.[Footnote 22] According to this act, to qualify as an EDA, an 
area must meet one or more of three criteria related to income and 
unemployment based on the most recent federal or state data.[Footnote 
23] 

* 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 plans to expend from state sources from 
February 17, 2009, through September 30, 2010.[Footnote 24] 

All states have met the first Recovery Act requirement that 50 percent 
of their apportioned funds are obligated within 120 days. Of the $18.7 
billion nationally that is subject to this provision, 69 percent was 
obligated as of June 25, 2009. The percentage of funds obligated 
nationwide and in each of the states included in our review is shown in 
figure 4. 

Figure 9: Percentage of Recovery Act Highway Funds Obligated as of June 
25, 2009[A]: 

[Refer to PDF for image: vertical bar graph] 

Level states were required to reach before June 30, 2009: 50%. 

State: Nationwide; 
Percentage of funds obligated as on June 25, 2009: 69.5%. 

State: District of Columbia; 
Percentage of funds obligated as on June 25, 2009: 95.5%. 

State: Florida; 
Percentage of funds obligated as on June 25, 2009: 93.3%. 

State: Illinois; 
Percentage of funds obligated as on June 25, 2009: 91.3%. 

State: Iowa; 
Percentage of funds obligated as on June 25, 2009: 89.3%. 

State: Mississippi; 
Percentage of funds obligated as on June 25, 2009: 86.9%. 

State: New Jersey; 
Percentage of funds obligated as on June 25, 2009: 83%. 

State: Colorado; 
Percentage of funds obligated as on June 25, 2009: 74.5%. 

State: Arizona; 
Percentage of funds obligated as on June 25, 2009: 71.4%. 

State: Pennsylvania; 
Percentage of funds obligated as on June 25, 2009: 66.9%. 

State: California; 
Percentage of funds obligated as on June 25, 2009: 66.1%. 

State: New York; 
Percentage of funds obligated as on June 25, 2009: 62.6%. 

State: Michigan; 
Percentage of funds obligated as on June 25, 2009: 62.3%. 

State: North Carolina; 
Percentage of funds obligated as on June 25, 2009: 61%. 

State: Texas; 
Percentage of funds obligated as on June 25, 2009: 61%. 

State: Massachusetts; 
Percentage of funds obligated as on June 25, 2009: 59.1%. 

State: Georgia; 
Percentage of funds obligated as on June 25, 2009: 58.7%. 

State: Ohio; 
Percentage of funds obligated as on June 25, 2009: 51.7%. 

Source: GAO analysis of Federal Highway Administration data. 

[A] This figure does not include obligations that are not subject to 
the 120-day redistribution requirement (including funds suballocated to 
localities) and obligations associated with apportioned funds that were 
transferred from FHWA to the Federal Transit Administration (FTA) for 
transit projects. Generally, FHWA has authority pursuant to 23 U.S.C. § 
104(k)(1) to transfer funds made available for transit projects to FTA. 

[End of figure] 

The second Recovery Act requirement is to give priority to projects 
that can be completed within 3 years and to projects located in 
economically distressed areas. Officials from almost all of the states 
said they considered project readiness, including the 3-year completion 
requirement, when making project selections, and, according to 
officials from just fewer than half of the states, project readiness 
was the single most important consideration for selecting projects. 
Officials from most states reported they expect all or most projects 
funded with Recovery Act funds to be completed within 3 years, with the 
exception of some larger or more complex projects that may take longer 
to complete. For example, Massachusetts chose to use Recovery Act funds 
to construct a new highway interchange in Fall River. Although this 
project will take longer than other projects to complete, Massachusetts 
officials said they selected it because it was located in the state's 
only EDA. 

We found that due to the need to select projects and obligate funds 
quickly, many states first selected projects based on other factors and 
only later identified to what extent these projects fulfilled the EDA 
requirement. According to the American Association of State Highway and 
Transportation Officials, in December 2008, states had already 
identified more than 5,000 "ready-to-go" projects as possible 
selections for federal stimulus funding, 2 months prior to enactment of 
the Recovery Act. Officials from several states also told us they had 
selected projects prior to the enactment of the Recovery Act and that 
they only gave consideration to EDAs after they received EDA guidance 
from DOT. For instance, officials in New York said that in anticipation 
of the Recovery Act being enacted the state initially selected projects 
that were ready to go and were distributed throughout the state, 
without regard to their location in EDAs. Since then, the state has 
emphasized the need to identify and fund projects in EDAs, pushing such 
projects to the "head of the line." Officials in Pennsylvania said they 
selected projects before federal guidance was available and that after 
reviewing project selections for compliance with the EDA requirement, 
decided to make no changes because their choices provided the greatest 
potential to provide jobs in an expeditious manner. 

States also based project selection on priorities other than EDAs. 
State officials we met with said they considered factors based on their 
own state priorities, such as geographic distribution and a project's 
potential for job creation or other economic benefits. The use of state 
planning criteria or funding formulas to distribute federal and state 
highway funds was one factor that we found affected states' 
implementation of the Recovery Act's prioritization requirements. 
According to officials in North Carolina, for instance, the state used 
its statutory Equity Allocation Formula to determine how highway 
infrastructure investment funds would be distributed. Similarly, in 
Texas, state officials said they first selected highway preservation 
projects by allocating a specific amount of funding to each of the 
state's 25 districts, where projects were identified that addressed the 
most pressing needs. Officials then gave priority for funding to those 
projects that were in EDAs. 

In commenting on a draft of this report, DOT agreed that states must 
give priority to projects located in EDAs, but said that states must 
balance all the Recovery Act project selection criteria when selecting 
projects including giving preference to activities that can be started 
and completed expeditiously, using funds in a manner that maximizes job 
creation and economic benefit, and other factors. DOT stated that the 
Recovery Act does not give EDA projects absolute primacy over projects 
not located in EDAs. However we would note that the Recovery Act 
contains both general directives, such as using funds in a manner that 
maximizes job creation and economic benefit, and specific directives 
which we believe must be seen as taking precedence. While we agree with 
DOT that there is no absolute primacy of EDA projects in the sense that 
they must always be started first, the specific directives in the act 
that apply to highway infrastructure are that priority is to be given 
to projects that can be completed in 3 years, and are located in EDAs. 

We also found some instances of states developing their own eligibility 
requirements using data or criteria not specified in the Public Works 
and Economic Development Act, as amended. According to the act, the 
Secretary of Commerce, not individual states, has the authority to 
determine the eligibility of an area that does not meet the first two 
criteria of the act. In each of these cases, FHWA approved the use of 
the states' alternative criteria, but it is not clear on what authority 
FHWA approved these criteria. For example: 

* Arizona based the identification of EDAs on home foreclosure rates 
and disadvantaged business enterprises--data not specified in the 
Public Works Act. Arizona officials said they used alternative criteria 
because the initial determination of economic distress based on the 
act's criteria excluded three of Arizona's largest and most populous 
counties, which also contain substantial areas that, according to state 
officials, are clearly economically distressed and include all or 
substantial portions of major Indian reservations and many towns and 
cities hit especially hard by the economic downturn. The state of 
Arizona, in consultation with FHWA, developed additional criteria that 
resulted in these three counties being classified as economically 
distressed. 

* Illinois based EDA classification on increases in the number of 
unemployed persons and the unemployment rate,[Footnote 25] whereas the 
act bases this determination on how a county's unemployment rate 
compares with the national average unemployment rate. According to 
FHWA, Illinois opted to explore other means of measuring recent 
economic distress because the initial determination of economic 
distress based on the act's criteria was based on data not as current 
as information available within the state and did not appear to 
accurately reflect the recent economic downturn in the state. Using the 
criteria established by the Public Works Act, 30 of the 102 counties in 
Illinois were identified as not economically distressed. Illinois's use 
of alternative criteria resulted in 21 counties being identified as 
EDAs that would not have been so classified following the act's 
criteria.[Footnote 26] 

In commenting on a draft of this report, DOT stated that the basic 
approach used in Arizona and Illinois is consistent with the Public 
Works Act and its implementing regulations on EDAs because it makes use 
of flexibilities provided by the Act to more accurately reflect 
changing economic conditions. DOT recognizes that the Public Works Act 
provides the definition of EDAs that states are to follow. DOT 
believes, however, that it is appropriate to interpret the requirements 
of the Public Works Act flexibly by applying the EDA special needs 
criteria to areas that are experiencing unemployment or economic 
adjustment problems. We recognize that states may want to reflect their 
own particular circumstances in defining EDAs. However, the Public 
Works Act states that to apply the definition to a special needs area, 
the area must be one "that the Secretary of Commerce determines has 
experienced or is about to experience a special need arising from 
actual or threatened severe unemployment or economic adjustment 
problems..." The result of DOT's interpretation would be to allow 
states to prioritize projects based on criteria that are not mentioned 
in the highway infrastructure investment portion of the Recovery or the 
Public Works Acts without the involvement of the Secretary or 
Department of Commerce. We plan to continue to monitor states' 
implementation of the EDA requirements and interagency coordination at 
the federal level in future reports. 

Some states' circumstances served to largely ensure compliance with the 
EDA requirement. For instance, all areas within the District of 
Columbia, which the Recovery Act treats as a state, are a single EDA, 
assuring that the selection of any project that can be completed within 
3 years satisfies the statutory priority rules. Mississippi has 75 of 
82 counties that qualify as EDAs, and Mississippi reported to FHWA that 
87 percent of the funds obligated to date had been obligated for to 
projects located in areas classified as economically distressed. 
Likewise in Ohio, where 90 percent of all counties qualify as EDAs, a 
substantial number of Recovery Act highway projects are located in 
EDAs. 

DOT and FHWA have yet to provide clear guidance regarding how states 
are to implement the EDA requirement. In February 2009, FHWA published 
replies to questions from state transportation departments on its 
Recovery Act Web site stating that because states have the authority to 
prioritize and select federal-aid projects, it did not intend to 
develop or prescribe a uniform procedure for applying the Recovery 
Act's priority rules. Nonetheless, FHWA provided a tool to help states 
identify whether projects were located in EDAs. Further, in March 2009, 
FHWA provided guidance to its division offices stating that FHWA would 
support the use of "whatever current, defensible, and reliable 
information is available to make the case that [a state] has made a 
good faith effort to consider EDAs" and directed its division offices 
to take appropriate action to ensure that the states gave adequate 
consideration to EDAs. FHWA officials we spoke with said they discussed 
the priority requirements with states and that the requirements were 
taken into consideration when approving projects. They also stated that 
whether a state has satisfied the EDA priority requirement will not be 
finally determined until the funds apportioned to the state under the 
Recovery Act are all obligated, which may not be completed until 2010. 
According to FHWA the states have until then to address future 
compliance with the EDA priority requirement. By 2010, however, it will 
be too late to take corrective action. In each of the cases where a 
state used its own criteria, state officials told us they did so with 
the approval of the FHWA division office in that state. Without clearer 
guidance to the states, it will be difficult to ensure that the act's 
priority provision is applied consistently. 

Finally, the states are required to certify that they will maintain the 
level of state effort for programs covered by the Recovery Act. With 
one exception, the states have completed these certifications, but they 
face challenges. Maintaining a state's level of effort can be 
particularly important in the highway program. We have found that the 
preponderance of evidence suggests that increasing federal highway 
funds influences states and localities to substitute federal funds for 
funds they otherwise would have spent on highways. In 2004, we 
estimated that during the 1983 through 2000 period, states used roughly 
half of the increases in federal highway funds to substitute for 
funding they would otherwise have spent from their own resources and 
that the rate of substitution increased during the 1990s. The federal- 
aid highway program creates the opportunity for substitution because 
states typically spend substantially more than the amount required to 
meet federal matching requirements.[Footnote 27] As a consequence, when 
federal funding increases, states are able to reduce their own highway 
spending and still obtain increased federal funds.[Footnote 28] As we 
previously reported, substitution makes it difficult to target an 
economic stimulus package so that it results in a dollar-for-dollar 
increase in infrastructure investment.[Footnote 29] 

Most states revised the initial certifications they submitted to DOT. 
As we reported in April, many states submitted explanatory 
certifications--such as stating that the certification was based on the 
"best information available at the time"--or conditional 
certifications, meaning that the certification was subject to 
conditions or assumptions, future legislative action, future revenues, 
or other conditions. The legal effect of such qualifications was being 
examined by DOT when we completed our review. On April 22, 2009, the 
Secretary of Transportation sent a letter to each of the nation's 
governors and provided additional guidance, including that conditional 
and explanatory certifications were not permitted, and gave states the 
option of amending their certifications by May 22. Each of the 16 
states and District selected for our review resubmitted their 
certifications. According to DOT officials, the department has 
concluded that the form of each certification is consistent with the 
additional guidance, with the exception of Texas. Texas submitted an 
amended certification on May 27, 2009, which contained qualifying 
language explaining that the Governor could not certify any expenditure 
of funds until the legislature passed an appropriation act. According 
to DOT officials, as of June 25, 2009, the status of Texas' revised 
certification remains unresolved. Texas officials told us the state 
plans to submit a revised certification letter, removing the qualifying 
language. For the remaining states, while DOT has concluded that the 
form of the revised certifications is consistent with the additional 
guidance, it 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. 

States face drastic fiscal challenges, and most states are estimating 
that their fiscal year 2009 and 2010 revenue collections will be well 
below estimates. In the face of these challenges, some states told us 
that meeting the maintenance-of-effort requirements over time poses 
significant challenges. For example, federal and state transportation 
officials in Illinois told us that to meet its maintenance-of-effort 
requirements in the face of lower-than-expected fuel tax receipts, the 
state would have to use general fund or other revenues to cover any 
shortfall in the level of effort stated in its certification. 
Mississippi transportation officials are concerned about the 
possibility of statewide, across-the-board spending cuts in 2010. 
According to the Mississippi transportation department's budget 
director, the agency will try to absorb any budget reductions in 2010 
by reducing administrative expenses to maintain the state's level of 
effort. 

Other states have faced challenges calculating an appropriate level of 
effort. For example, Georgia officials told us the state does not 
routinely estimate future expenditures and had to develop an 
alternative method for its revised certification using past 
expenditures to extrapolate future expenditures. In Pennsylvania, 
transportation officials told us that calculating the amounts for the 
amended certification involved making estimates over three state fiscal 
years and making assumptions about proposed budgets that are subject to 
future legislative action. 

As discussed earlier, states using Recovery Act funds must comply with 
the requirements of the federal-aid highway program, including 
environmental requirements, paying a prevailing wage in accordance with 
federal Davis-Bacon requirements, complying with goals to ensure 
disadvantaged business enterprises are not discriminated against in 
awarding construction contracts, and using American-made iron and steel 
in accordance with Buy America program requirements. We discussed the 
impact these requirements were having on project costs and time frames 
with officials in three states.[Footnote 30] Transportation officials 
in Arizona, Mississippi, and New Jersey each reported that these 
requirements were not causing increases in project costs and were not 
delaying projects from moving forward. For example, New Jersey 
officials stated that since these requirements apply to all highway 
construction using federal highway funds, not solely to Recovery Act 
funding, they were accustomed to complying with these requirements and 
had a process in place for quickly documenting compliance. In addition, 
these officials stated that to meet the Recovery Act's requirements to 
spend the funds quickly, the state selected projects that had already 
completed the environmental review process or that were relatively 
simple projects that would have limited environmental impact. 

State Fiscal Stabilization Fund: 

The Recovery Act created a State Fiscal Stabilization Fund (SFSF) in 
part to help state and local governments stabilize their budgets by 
minimizing budgetary cuts in education and other essential government 
services, such as public safety. Stabilization funds for education 
distributed under the Recovery Act must be used to alleviate shortfalls 
in state support for education to school districts and public 
institutions of higher education (IHEs). The U.S. Department of 
Education (Education), the federal agency charged with administration 
and oversight of the SFSF, distributes the funds on a formula basis, 
with 81.8 percent of each state's allocation designated for the 
education stabilization fund for local educational agencies (LEA) and 
public IHEs. The remaining 18.2 percent of each state's allocation is 
designated for the government services fund for public safety and other 
government services, which may include education. Consistent with the 
purposes of the Recovery Act--which include, in addition to stabilizing 
state and local budgets, promoting economic recovery and preserving and 
creating jobs--the SFSF can be used by states to restore cuts to state 
education spending. In return for SFSF funding, a state must make 
several assurances, including that it will maintain state support for 
education at least at fiscal year 2006 levels. In order to receive SFSF 
funds, each state must also assure it will implement strategies to 
advance education reform in four specific ways as described by 
Education: 

1. Increase teacher effectiveness and address inequities in the 
distribution of highly qualified teachers; 

2. Establish a pre-K-through-college data system to track student 
progress and foster improvement; 

3. Make progress toward rigorous college-and career-ready standards and 
high-quality assessments that are valid and reliable for all students, 
including students with limited English proficiency and students with 
disabilities; and: 

4. Provide targeted, intensive support and effective interventions to 
turn around schools identified for corrective action or restructuring. 
[Footnote 31] 

Along with these education reform assurances, additional state 
assurances must address federal requirements concerning accountability, 
transparency, reporting, and compliance with certain federal laws and 
regulations. 

Beginning in March 2009, the Department of Education issued a series of 
fact sheets, letters, and other guidance to states on the SFSF. 
Specifically, a March fact sheet, the Secretary's April letter to 
Governors, and program guidance issued in April and May mention that 
the purposes of the SFSF include helping stabilize state and local 
budgets, avoiding reductions in education and other essential services, 
and ensuring LEAs and public IHEs have resources to "avert cuts and 
retain teachers and professors." The documents also link educational 
progress to economic recovery and growth and identify four principles 
to guide the distribution and use of Recovery Act funds: (1) spend 
funds quickly to retain and create jobs; (2) improve student 
achievement through school improvement and reform; (3) ensure 
transparency, public reporting, and accountability; and (4) invest one- 
time Recovery Act funds thoughtfully to avoid unsustainable continuing 
commitments after the funding expires, known as the "funding cliff." 

After meeting assurances to maintain state support for education at 
least at fiscal year 2006 levels, states are required to use the 
education stabilization fund to restore state support to the greater of 
fiscal year 2008 or 2009 levels for elementary and secondary education, 
public IHEs, and, if applicable, early childhood education programs. 
States must distribute these funds to school districts using the 
primary state education formula but maintain discretion in how funds 
are allocated to public IHEs. If, after restoring state support for 
education, additional funds remain, the state must allocate those funds 
to school districts according to the Elementary and Secondary Education 
Act of 1965 (ESEA), Title I, Part A funding formula. On the other hand, 
if a state's education stabilization fund allocation is insufficient to 
restore state support for education, then a state must allocate funds 
in proportion to the relative shortfall in state support to public 
school districts and public IHEs. Education stabilization funds must be 
allocated to school districts and public IHEs and cannot be retained at 
the state level. 

Once education stabilization funds are awarded to school districts and 
public IHEs, they have considerable flexibility over how they use those 
funds. School districts are allowed to use education stabilization 
funds for any allowable purpose under ESEA, the Individuals with 
Disabilities Education Act (IDEA), the Adult Education and Family 
Literacy Act, or the Carl D. Perkins Career and Technical Education Act 
of 2006 (Perkins Act), subject to some prohibitions on using funds for, 
among other things, sports facilities and vehicles. In particular, 
Education's guidance states that because allowable uses under the 
Impact Aid provisions of ESEA are broad, school districts have 
discretion to use education stabilization funds for a broad range of 
things, such as salaries of teachers, administrators, and support staff 
and purchases of textbooks, computers, and other equipment. The 
Recovery Act allows public IHEs to use education stabilization funds in 
such a way as to mitigate the need to raise tuition and fees, as well 
as for the modernization, renovation, and repair of facilities, subject 
to certain limitations. However, the Recovery Act prohibits public IHEs 
from using education stabilization funds for such things as increasing 
endowments; modernizing, renovating, or repairing sports facilities; or 
maintaining equipment. Education's SFSF guidance expressly prohibits 
states from placing restrictions on LEAs' use of education 
stabilization funds, beyond those in the law, but allows states some 
discretion in placing limits on how IHEs may use these funds. 

The SFSF provides states and school districts with additional 
flexibility, subject to certain conditions, to help them address fiscal 
challenges. For example, the Secretary of Education is granted 
authority to permit waivers of state maintenance-of-effort (MOE) 
requirements if a state certified that state education spending will 
not decrease as a percentage of total state revenues. Education issued 
guidance on the MOE requirement, including the waiver provision, on May 
1, 2009. Also, the Secretary may permit a state or school district to 
treat education stabilization funds as nonfederal funds for the purpose 
of meeting MOE requirements for any program administered by Education, 
subject to certain conditions. Education, as of June 29, 2009, has not 
provided specific guidance on the process for states and school 
districts to apply for the Secretary's approval. 

States have broad discretion over how the $8.8 billion in the SFSF 
government services fund are used. The Recovery Act provides that these 
funds must be used for public safety and other government services and 
that these services may include assistance for education, as well as 
modernization, renovation, and repairs of public schools or IHEs. 

On April 1, 2009, Education made at least 67 percent of each state's 
SFSF funds[Footnote 32] available, subject to the receipt of an 
application containing state assurances, information on state levels of 
support for education and estimates of restoration amounts, and 
baseline data demonstrating state status on each of the four education 
reform assurances. If a state could not certify that it would meet the 
MOE requirement, Education required it to certify that it will meet 
requirements for receiving a waiver--that is, that education spending 
would not decrease relative to total state revenues. In determining 
state level of support for elementary and secondary education, 
Education required states to use their primary formula for distributing 
funds to school districts but also allowed states some flexibility in 
broadening this definition. For IHEs, states have some discretion in 
how they establish the state level of support, with the provision that 
they cannot include support for capital projects, research and 
development, or amounts paid in tuition and fees by students. In order 
to meet statutory requirements for states to establish their current 
status regarding each of the four required programmatic assurances, 
Education provided each state with the option of using baseline data 
Education had identified or providing another source of baseline data. 
Some of the data provided by Education was derived from self-reported 
data submitted annually by the states to Education as part of their 
Consolidated State Performance Reports (CSPR), but Education also 
relied on data from third parties, including the Data Quality Campaign 
(DQC), the National Center for Educational Achievement (NCEA), and 
Achieve.[Footnote 33] Education has reviewed applications as they 
arrive for completeness and has awarded states their funds once it 
determined all assurances and required information had been submitted. 
Education set the application deadline for July 1, 2009. On June 24, 
2009, Education issued guidance to states informing them they must 
amend their applications if there are changes to the reported levels of 
state support that were used to determine maintenance of effort or to 
calculate restoration amounts. 

Most States We Visited Have Received SFSF Funds and Have Planned to 
Allocate Most Education Stabilization Funds to LEAs. 

As of June 30, 2009, of the 16 states and the District of Columbia 
covered by our review, only Texas had not submitted an SFSF 
application. Pennsylvania recently submitted an application but had not 
yet received funding. The remaining 14 states and the District of 
Columbia had submitted applications and Education had made available to 
them a total of about $17 billion in initial funding. As of June 26, 
2009, only 5 of these states had drawn down SFSF Recovery Act funds. In 
total, about 25 percent of allocated funds had been drawn down by these 
states. (See table 5.)[Footnote 34] 

Table 5: SFSF Recovery Act Allocations and Drawdowns for the 16 States 
and the District of Columbia: 

State: Arizona; 
Total state allocation: $1,016,955,172; 
Phase I funds made available to states as of June 30, 2009: 
$681,359,965; 
Funds drawn down by states as of June 26, 2009: $0; 
Percentage of available funds drawn down by states: 0. 

State: California; 
Total state allocation: $5,960,267,431; 
Phase I funds made available to states as of June 30, 2009: 
$3,993,379,179; 
Funds drawn down by states as of June 26, 2009: $2,867,792,114; 
Percentage of available funds drawn down by states: 71. 

State: Colorado; 
Total state allocation: $760,242,539; 
Phase I funds made available to states as of June 30, 2009: 
$509,362,501; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: District of Columbia; 
Total state allocation: $89,377,071; 
Phase I funds made available to states as of June 30, 2009: 
$59,882,637; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Florida; 
Total state allocation: $2,700,292,474; 
Phase I funds made available to states as of June 30, 2009: 
$1,809,195,958; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Georgia; 
Total state allocation: $1,541,319,187; 
Phase I funds made available to states as of June 30, 2009: 
$1,032,683,856; 
Funds drawn down by states as of June 26, 2009: $189,592,329; 
Percentage of available funds drawn down by states: 18. 

State: Illinois; 
Total state allocation: $2,055,171,987; 
Phase I funds made available to states as of June 30, 2009: 
$1,376,965,231; 
Funds drawn down by states as of June 26, 2009: $1,038,987,579; 
Percentage of available funds drawn down by states: 75. 

State: Iowa; 
Total state allocation: $472,339,542; 
Phase I funds made available to states as of June 30, 2009: 
$316,467,493; 
Funds drawn down by states as of June 26, 2009: $40,000,000; 
Percentage of available funds drawn down by states: 13. 

State: Massachusetts; 
Total state allocation: $994,258,205; 
Phase I funds made available to states as of June 30, 2009: 
$666,152,997; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Michigan; 
Total state allocation: $1,592,138,132; 
Phase I funds made available to states as of June 30, 2009: 
$1,066,732,549; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Mississippi; 
Total state allocation: $479,300,666; 
Phase I funds made available to states as of June 30, 2009: 
$321,131,446; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: New Jersey; 
Total state allocation: $1,330,483,831; 
Phase I funds made available to states as of June 30, 2009: 
$891,424,167; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: New York; 
Total state allocation: $3,017,796,810; 
Phase I funds made available to states as of June 30, 2009: 
$2,021,923,863; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: North Carolina; 
Total state allocation: $1,420,454,235; 
Phase I funds made available to states as of June 30, 2009: 
$1,011,164,552; 
Funds drawn down by states as of June 26, 2009: $150,867,275; 
Percentage of available funds drawn down by states: 16. 

State: Ohio; 
Total state allocation: $1,789,376,483; 
Phase I funds made available to states as of June 30, 2009: 
$1,198,882,243; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Pennsylvania; 
Total state allocation: $1,905,620,952; 
Phase I funds made available to states as of June 30, 2009: [Empty]; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Texas; 
Total state allocation: $3,973,437,816; 
Phase I funds made available to states as of June 30, 2009: [Empty]; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Total; 
Total state allocation: $31,098,832,533; 
Phase I funds made available to states as of June 30, 2009: 
$16,956,708,637; 
Funds drawn down by states as of June 26, 2009: $4,287,239,297; 
Percentage of available funds drawn down by states: 25. 

Source: U.S. Department of Education. 

[End of table] 

Three of these states--Florida, Massachusetts, and New Jersey--said 
they would not meet the maintenance-of-effort requirements but would 
meet the eligibility requirements for a waiver and that they would 
apply for a waiver. Most of the states' applications show that they 
plan to provide the majority of education stabilization funds to LEAs, 
with the remainder of funds going to IHEs. Several states and the 
District of Columbia estimated in their application that they would 
have funds remaining beyond those that would be used to restore 
education spending in fiscal years 2009 and 2010. These funds can be 
used to restore education spending in fiscal year 2011, with any amount 
left over to be distributed to LEAs. Table 6 shows the amount of SFSF 
funds received by states and how the states indicate they will divide 
education stabilization funds between LEAs and IHEs, based on the 
states' SFSF applications. 

Table 6: Education Stabilization Funds Made Available to States and the 
Division of Education Stabilization Funds between LEAs and IHEs: 

State: Arizona; 
Education stabilization funds made available as of June 30, 2009: 
$557,352,452; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 57; 
IHEs: 43; 
Remaining amount: 0. 

State: California; 
Education stabilization funds made available as of June 30, 2009: 
3,266,584,168; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 75; 
IHEs: 25; 
Remaining amount: 0. 

State: Colorado; 
Education stabilization funds made available as of June 30, 2009: 
416,658,526; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 24; 
IHEs: 48; 
Remaining amount: 27. 

State: District of Columbia; 
Education stabilization funds made available as of June 30, 2009: 
48,983,997; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 24; 
IHEs: 2; 
Remaining amount: 74. 

State: Florida; 
Education stabilization funds made available as of June 30, 2009: 
1,479,922,294; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 79; 
IHEs: 21; 
Remaining amount: 0. 

State: Georgia; 
Education stabilization funds made available as of June 30, 2009: 
844,735,394; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 74; 
IHEs: 26; 
Remaining amount: 0. 

State: Iowa; 
Education stabilization funds made available as of June 30, 2009: 
258,870,409; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 67; 
IHEs: 27; 
Remaining amount: 7. 

State: Illinois; 
Education stabilization funds made available as of June 30, 2009: 
1,126,357,559; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 98; 
IHEs: 2; 
Remaining amount: 0. 

State: Massachusetts; 
Education stabilization funds made available as of June 30, 2009: 
544,913,152; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 60; 
IHEs: 26; 
Remaining amount: 14. 

State: Michigan; 
Education stabilization funds made available as of June 30, 2009: 
872,587,225; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 95; 
IHEs: 5; 
Remaining amount: 0. 

State: Mississippi; 
Education stabilization funds made available as of June 30, 2009: 
262,685,523; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 38; 
IHEs: 10; 
Remaining amount: 52. 

State: New Jersey; 
Education stabilization funds made available as of June 30, 2009: 
729,184,969; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 93; 
IHEs: 7; 
Remaining amount: 0. 

State: New York; 
Education stabilization funds made available as of June 30, 2009: 
1,653,933,720; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 95; 
IHEs: 3; 
Remaining amount: 2. 

State: North Carolina; 
Education stabilization funds made available as of June 30, 2009: 
778,494,148; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 62; 
IHEs: 11; 
Remaining amount: 27. 

State: Ohio; 
Education stabilization funds made available as of June 30, 2009: 
980,685,675; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: 27; 
IHEs: 21; 
Remaining amount: 52. 

State: Pennsylvania; 
Education stabilization funds made available as of June 30, 2009: 0; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: [Empty]; 
IHEs: [Empty]; 
Remaining amount: [Empty]. 

State: Texas; Education stabilization funds made available as of June 
30, 2009: 0; 
Percentage of total available education stabilization funds between 
LEAs and IHEs to restore state support for elementary and secondary 
education and IHEs in 2009 and 2010: 
LEAs: [Empty]; 
IHEs: [Empty]; 
Remaining amount: [Empty]. 

Source: GAO analysis of state applications for SFSF that were approved 
by Education as of June 30, 2009. 

[End of table] 

States have flexibility in how they allocate education stabilization 
funds among IHEs but, once they establish their state funding formula, 
not in how they allocate the funds among LEAs. Florida and Mississippi 
allocated funds among their IHEs, including universities and community 
colleges, using formulas based on factors such as enrollment levels. 
Other states allocated SFSF funds taking into consideration the budget 
conditions of the IHEs. For example, Georgia allocated funds to 
universities based on the degree to which each institution's budget had 
been cut, and Illinois allocated funds among universities to provide 
each university a share of SFSF funds proportionate to its share of 
state support in fiscal year 2006. New York provided all SFSF funds 
slated for IHEs to community colleges to avoid cutting community 
college budgets. On the other hand, California planned to provide SFSF 
funds to its state university systems and not to community colleges 
because the universities had received significant budget cuts. However, 
California may change this plan because budget cuts at community 
colleges are now likely. 

Regarding LEAs, most states planned to allocate funds based on states' 
primary funding formulae. Many states are using a state formula based 
on student enrollment weighted by characteristics of students and LEAs. 
For example, Colorado's formula accounts for the number of students at 
risk while the formula used by the District of Columbia allocates funds 
to LEAs using weights for each student based on the relative cost of 
educating students with specific characteristics. For example, an 
official from Washington, D.C., Public Schools said a student who is an 
English language learner may cost more to educate than a similar 
student who is fluent in English. 

States may use the government services portion of SFSF for education 
but have discretion to use the funds for a variety of purposes. 
Officials from Florida, Illinois, New Jersey, and New York reported 
that their states plan to use some or most of their government services 
funds for educational purposes. Other states are applying the funds to 
public safety. For example, according to state officials, California is 
using the government services fund for it corrections system, and 
Georgia will use the funds for salaries of state troopers and staff of 
forensic laboratories and state prisons. 

Plans for SFSF Funds Usually Target Restoring Funding, and Many School 
Districts Reported It Would Be Challenging to Use SFSF Funds for 
Educational Reform: 

Officials in many school districts told us that SFSF funds would help 
offset state budget cuts and would be used to maintain current levels 
of education funding. However, many school district officials also 
reported that using SFSF funds for education reforms was challenging 
given the other more pressing fiscal needs. 

Although their plans are generally not finalized, officials in many 
school districts we visited reported that their districts are preparing 
to use SFSF funds to prevent teacher layoffs, hire new teachers, and 
provide professional development programs. Most school districts will 
use the funding to help retain jobs that would have been cut without 
SFSF funding. For example, Miami Dade officials estimate that the 
stabilization funds will help them save nearly two thousand teaching 
positions. State and school district officials in eight states we 
visited (California, Colorado, Florida, Georgia, Massachusetts, 
Michigan, New York, and North Carolina) also reported that SFSF funding 
will allow their state to retain positions, including teaching 
positions that would have been eliminated without the funding. In the 
Richmond County School System in Georgia, officials noted they plan to 
retain positions that support its schools, such as teachers, 
paraprofessionals, nurses, media specialists and guidance counselors. 
Local officials in Mississippi reported that budget-related hiring 
freezes had hindered their ability to hire new staff, but because of 
SFSF funding, they now plan to hire. In addition, local officials in a 
few states told us they plan to use the funding to support teachers. 
For example, officials in Waterloo Community and Ottumwa Community 
School Districts in Iowa as well as officials from Miami-Dade County in 
Florida cited professional development as a potential use of funding to 
support teachers. 

Although school districts are preventing layoffs and continuing to 
provide educational services with the SFSF funding, most did not 
indicate they would use these funds to pursue educational reform. 
School district officials cited a number of barriers, which include 
budget shortfalls, lack of guidance from states, and insufficient 
planning time. In addition to retaining and creating jobs, school 
districts have considerable flexibility to use these resources over the 
next 2 years to advance reforms that could have long-term impact. 
However, a few school district officials reported that addressing 
reform efforts was not in their capacity when faced with teacher 
layoffs and deep budget cuts. In Flint, Michigan, officials reported 
that SFSF funds will be used to cope with budget deficits rather than 
to advance programs, such as early childhood education or repairing 
public school facilities. According to the Superintendent of Flint 
Community Schools, the infrastructure in Flint is deteriorating, and no 
new school buildings have been built in over 30 years. Flint officials 
said they would like to use SFSF funds for renovating buildings and 
other programs, but the SFSF funds are needed to maintain current 
education programs. 

Officials in many school districts we visited reported having 
inadequate guidance from their state on using SFSF funding, making 
reform efforts more difficult to pursue. School district officials in 
most states we visited reported they lacked adequate guidance from 
their state to plan and report on the use of SFSF funding. Without 
adequate guidance and time for planning, school district officials told 
us that preparing for the funds was difficult. At the time of our 
visits, several school districts were unaware of their funding amounts, 
which, officials in two school districts said, created additional 
challenges in planning for the 2009-2010 school year. One charter 
school we visited in North Carolina reported that layoffs will be 
required unless their state notifies them soon how much SFSF funding 
they will receive. State officials in North Carolina, as well as in 
several other states, told us they are waiting for the state 
legislature to pass the state budget before finalizing SFSF funding 
amounts for school districts. 

IHEs Plan to Use SFSF Funds for Faculty Salaries and Other Purposes and 
Expect the Funds to Save Jobs and Mitigate Tuition Increases: 

Although many IHEs had not finalized plans for using SFSF funds, the 
most common expected use for the funds at the IHEs we visited was to 
pay salaries of IHE faculty and staff.[Footnote 35] Officials at most 
of the IHEs we visited told us that, due to budget cuts, their 
institutions would have faced difficult reductions in faculty and staff 
if they were not receiving SFSF funds. In California and North 
Carolina, according to the IHE officials, the states instructed their 
IHEs to use the funds to cover IHE payroll expenses in certain months 
in spring 2009. Other IHEs expected to use SFSF funds in the future to 
pay salaries of certain employees during the year. For example, 
according to an official at Hillsborough Community College in Florida, 
to avoid using the nonrecurring SFSF money for recurring expenses, the 
IHE expects to use the funds to pay salaries of about 400 nonpermanent 
adjunct faculty members. Georgia Perimeter College plans to use its 
SFSF funds to retain 51 full-time and 17 part-time positions in its 
science department, and the University of Georgia plans to use the 
funds to retain approximately 160 full-time positions in various 
departments. 

Several IHEs we visited are considering other uses for SFSF funds. 
Officials at the Borough of Manhattan Community College in New York 
City want to use some of their SFSF funds to buy energy saving light 
bulbs and to make improvements in the college's very limited space such 
as, by creating tutoring areas and study lounges. Northwest Mississippi 
Community College wants to use some of the funds to increase e-learning 
capacity to serve the institution's rapidly increasing number of 
students. Several other IHEs plan to use some of the SFSF funds for 
student financial aid. For example, Hudson Valley Community College 
plans to use some SFSF funds to provide financial aid to 500 or more 
low-income students who do not qualify for federal Pell Grants or New 
York's Tuition Assistance Program. 

Because many IHEs expect to use SFSF funds to pay salaries of current 
employees that they likely would not have been able to pay without the 
SFSF funds, IHEs officials said that SFSF funds will save jobs. 
Officials at several IHEs noted that this will have a positive impact 
on the educational environment such as, by preventing increases in 
class size and enabling the institutions to offer the classes that 
students need to graduate. In addition to preserving existing jobs, 
some IHEs anticipate creating jobs with SFSF funds. For example, New 
York IHEs we spoke with plan to use SFSF funds to hire additional staff 
and faculty. The University of South Florida is considering using some 
SFSF money to hire postdoctoral fellows to conduct scientific research, 
and Florida A&M University plans to use the funds to hire students for 
assistantships. Besides saving and creating jobs at IHEs, officials 
noted that SFSF monies will have an indirect impact on jobs in the 
community. For example, University of Mississippi officials noted that, 
without the SFSF funds, the university probably would have shut down 
ongoing capital projects building dormitories and upgrading campus 
heating and cooling systems, and this would have had a negative impact 
on construction and engineering jobs in the community. Jackson State 
University officials said SFSF monies will help local contractors and 
vendors who conduct business with the university because the funds will 
enable the university to recover from severe budget cuts and resume 
normal spending. IHE officials also noted that SFSF funds will 
indirectly improve employment because some faculty being paid with the 
funds will help unemployed workers develop new skills, including skills 
in fields, such as health care, that have a high demand for trained 
workers. 

State and IHE officials also believe that SFSF funds are reducing the 
size of tuition and fee increases. For example, Florida officials said 
that the 8 percent tuition increase approved by the Florida Legislature 
likely would have been much higher if the state had not received SFSF 
funds. Officials estimated that without SFSF 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. A University of California official 
stated that, if the university system had not received SFSF funds and 
had to use fee increases to cover its budget shortfall, system-wide 
fees would have increased by about 24 percent instead of the approved 
9.3 percent increase. 

Education Provided Preliminary Baseline Data to States to Ease the 
Application Process but Plans to Implement a New Approach for the 
Second Round of Applications: 

U.S. Department of Education officials told us that to benchmark 
states' current position on the four education reform assurances and to 
ease the application process, they had provided base-line data for each 
state and asked states to certify their acceptance of these data as 
part of their application for SFSF funding, or provide alternate data. 
In their applications to Education for SFSF funds, states were required 
to provide assurances that they were committed to advancing education 
reform in these four areas. The table below lists the four assurances 
and the data elements and sources Education chose to set base-line 
benchmarks for states. Education officials told us that these data, 
while not perfect, were the best available. Officials also told us that 
the data in the application package were preliminary, and that they 
plan to develop a more complete set of performance measures under each 
assurance for states to use or develop for the final SFSF application. 

Table 7: Data Source and Data Elements for the Four SFSF Education 
Reform Assurances: 

Assurance: 1. Increasing Equity in Teacher Distribution; 
Data source: States report these data annually on their Consolidated 
State Performance Report (CSPR); 
Data element: The number and percentage of core academic courses that 
are taught by highly qualified teachers in high-poverty schools and low-
poverty schools (presented separately for elementary and high schools). 

Assurance: 2. Improving Collection and Use of Data; 
Data source: 
* The Data Quality Campaign and National Center for Education 
Achievement 2008 survey assessing the status of state educational data 
systems; 
* State officials, primarily K-12 state data managers, self-report on 
the capabilities of their data systems; 
Data element: 
* The survey identifies 10 essential elements of a longitudinal data 
system; 
* Survey results indicate which states have achieved which elements 
(e.g., 28 states reported being able to match student-level preschool- 
12 data with higher education data.) 

Assurance: 3. Standards and Assessments: 3-1. Enhancing the Quality of 
Academic Assessments; 
Data source: 
1. State information chart, available at [hyperlink, 
http://www.ed.gov.policy/elsec/guid/stateletters/ssc/xls]; 
2. State-specific letters the U.S. Department of Education sent to 
state education agency officials in January and February 2009; 
Data element: 
1. This chart identifies whether a state's assessment systems are 
"approved" or "pending" or not yet approved or pending for reading and 
mathematics and for science, based on the results of Education's peer 
review process; 
2. These letters describe what states must do to satisfy assessment 
requirements set forth in NCLB. 

Assurance: 3. Standards and Assessments: 3.2 Inclusion of Children with 
Disabilities and Limited English Proficient Student; 
Data source: State information chart, available at [hyperlink, 
http://www.ed.gov.policy/elsec/guid/stateletters/ssc/xls]; 
Data element: 
1. This chart identifies whether a state's assessment systems are 
"approved," "not approved" or "pending"; 
2. These letters describe the state's current status related to the 
inclusion of children with disabilities and limited English proficient 
students in state assessments, the validity and reliability of the 
assessments for such children, and the provision of accommodations. 

Assurance: 3. Standards and Assessments: 3.3 Improving State Academic 
Content and Achievement Standards; 
Data source: Achieve's 2009 report Closing the Expectations Gap, a 
report based on a survey of state policymakers to assess states' 
policies regarding standards and assessments; 
Data element: The survey provides information on what states are 
currently doing to align their standards, graduation requirements, and 
assessments with college and career expectations. 

Assurance: 4. Supporting Struggling Schools; 
Data source: States report these data annually on their Consolidated 
State Performance Report (CSPR); 
Data element: The number and names of schools in corrective action and 
restructuring for the 2008-2009 school year; These data are based on 
assessments in the 2007-2008 school year. 

Source: GAO analysis of SFSF applications and descriptions of Achieve 
and Data Quality Campaigns Surveys. 

[End of table] 

While Education officials told us that the base-line data are 
preliminary, staff working at Achieve and the Data Quality Campaign-- 
the two educational advocacy groups whose survey data are being used to 
measure two of the assurances--told us that while they believed their 
data set appropriate baselines, they did not believe measuring change 
against these baselines would be the best accountability mechanism. One 
staff member said that since many states were already poised to make 
substantial progress in implementing improved data systems in the next 
two years, it would not be appropriate to automatically attribute state 
progress in implementing the elements of a longitudinal data system to 
Recovery Act funds. Staff at the Data Quality Campaign said that they 
have told Education that it was fine to use their survey as a baseline, 
but that they were not comfortable with the survey becoming a primary 
auditing tool; doing so could change the incentives for states to 
respond to the survey. Moreover, staff at the Data Quality Campaign 
believe the more appropriate way to monitor progress is to ask states 
to publicly post information and analyses on a series of metrics, 
because by posting such information states would be verifying the 
capacity of their longitudinal data systems. 

Education officials told us that in making phase II SFSF funding 
available to states, Education will ask states to report on a series of 
performance measures for each of the four major themes for reform, 
which align with the education reform assurances. According to these 
officials, the performance measures developed for the second and final 
application will allow Education to fulfill three main purposes: (1) to 
get a status report on states' progress in developing performance 
measures, (2) to put plans in place to gather the relevant information 
if performance measures are not available, and 3) to be able to track 
how states are progressing over time with respect to education reform. 
Education officials also said that they were aware of potential issues 
regarding data quality and that they plan to conduct an initial staff 
review and may later conduct an external review of the reliability of 
data used for its performance measures. 

Seven States We Visited Have Drawn Down Title I Recovery Act Funds and 
Made Funds Available to Local Educational Agencies: 

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 (ESEA) of 1965.[Footnote 36] 
The Recovery Act requires these additional funds to be distributed 
through states to local educational agencies (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, local educational agencies are required to comply with 
current statutory and regulatory requirements and must obligate 85 
percent of these funds by September 30, 2010.[Footnote 37] The 
Department of Education is advising LEAs to use the funds in ways that 
will build the agencies' long-term capacity to serve disadvantaged 
youth, such as through providing professional development to 
teachers.[Footnote 38] The Department of Education made the first half 
of states' Recovery Act Title I, Part A funding available on April 1, 
2009, with the 16 states and the District in our review receiving more 
than $3 billion of the $5 billion released to all of the states and 
territories. The initial state allocations and amounts drawn down as of 
June 26, 2009, are shown in table 8 below. 

Table 8: Title I, Part A Recovery Act Allocations and Drawdowns for 16 
States and the District of Columbia: 

State: Arizona; 
Total state allocation: $195,087,322; 
Funds made available to states as of April 1, 2009: $97,543,661; 
Funds drawn down by states as of June 26, 2009: $16,000; 
Percentage of available funds drawn down by states: <1. 

State: California; 
Total state allocation: $1,124,920,474; 
Funds made available to states as of April 1, 2009: $562,460,237; 
Funds drawn down by states as of June 26, 2009: $450,284,592; 
Percentage of available funds drawn down by states: 80. 

State: Colorado; 
Total state allocation: $111,135,922; 
Funds made available to states as of April 1, 2009: $55,567,961; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: District of Columbia; 
Total state allocation: $37,602,324; 
Funds made available to states as of April 1, 2009: $18,801,162; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Florida; 
Total state allocation: $490,575,352; 
Funds made available to states as of April 1, 2009: $245,287,676; 
Funds drawn down by states as of June 26, 2009: $247,713; 
Percentage of available funds drawn down by states: <1. 

State: Georgia; 
Total state allocation: $351,008,292; 
Funds made available to states as of April 1, 2009: $175,504,146; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Illinois; 
Total state allocation: $420,263,562; 
Funds made available to states as of April 1, 2009: $210,131,781; 
Funds drawn down by states as of June 26, 2009: $120,476; 
Percentage of available funds drawn down by states: <1. 

State: Iowa; 
Total state allocation: $51,497,022; 
Funds made available to states as of April 1, 2009: $25,748,511; 
Funds drawn down by states as of June 26, 2009: $8,111,953; 
Percentage of available funds drawn down by states: 31.5. 

State: Massachusetts; 
Total state allocation: $163,680,278; 
Funds made available to states as of April 1, 2009: $81,840,139; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Michigan; 
Total state allocation: $389,902,874; 
Funds made available to states as of April 1, 2009: $194,951,437; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Mississippi; 
Total state allocation: $132,888,490; 
Funds made available to states as of April 1, 2009: $66,444,245; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: New Jersey; 
Total state allocation: $182,971,300; 
Funds made available to states as of April 1, 2009: $91,485,650; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: New York; 
Total state allocation: $907,152,150; 
Funds made available to states as of April 1, 2009: $453,576,075; 
Funds drawn down by states as of June 26, 2009: [Empty]; 
Percentage of available funds drawn down by states: 0. 

State: North Carolina; 
Total state allocation: $257,444,956;
Funds made available to states as of April 1, 2009: $128,722,478; 
Funds drawn down by states as of June 26, 2009: $780,237; 
Percentage of available funds drawn down by states: <1. 

State: Ohio; 
Total state allocation: $372,673,474; 
Funds made available to states as of April 1, 2009: $186,336,737; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Pennsylvania; 
Total state allocation: $400,603,678; 
Funds made available to states as of April 1, 2009: $200,301,839; 
Funds drawn down by states as of June 26, 2009: 0; 
Percentage of available funds drawn down by states: 0. 

State: Texas; 
Total state allocation: $948,737,780; 
Funds made available to states as of April 1, 2009: $474,368,890; 
Funds drawn down by states as of June 26, 2009: $58,060; 
Percentage of available funds drawn down by states: <1. 

State: Total for 16 states and the District; 
Total state allocation: $6,538,145,250; 
Funds made available to states as of April 1, 2009: $3,269,072,625; 
Funds drawn down by states as of June 26, 2009: $459,619,032; 
Percentage of available funds drawn down by states: 14. 

State: Total Nationwide; 
Total state allocation: $10,000,000,000; 
Funds made available to states as of April 1, 2009: $5,000,000,000; 
Funds drawn down by states as of June 26, 2009: [Empty]; 
Percentage of available funds drawn down by states: [Empty]. 

Source: U.S. Department of Education data. 

[End of table] 

As shown in table 8, as of June 26, education officials in seven 
states--Arizona, California, Florida, Illinois, Iowa, North Carolina, 
and Texas--had drawn down a portion of their Title I Recovery Act 
funds. As of June 26, Arizona had drawn down $16,000 in Title I 
Recovery Act funds. California authorized the funds to be released to 
LEAs on May 28, 2009 and has drawn down 80 percent of its available 
funds. According to local officials, both of the LEAs we visited in 
California received funds the week of June 1, 2009. 

According to U.S. Department of Education officials, they monitor state 
drawdowns of Recovery Act funds and will meet with state officials if 
they notice anything unusual. As a result of California's large 
drawdown, Education officials met with California state officials to 
discuss their justification, especially given recent findings by the 
department's Inspector General (IG) that the state lacked adequate 
oversight over cash management practices of school districts.[Footnote 
39] According to department officials, California officials informed 
the department that the drawdown of Title I Recovery Act funds was in 
lieu of its normally scheduled drawdown of school year 2008-2009 Title 
I funds. As a result, officials told us the school districts were ready 
to use these funds quickly as they would be used under approved plans 
for the current school year. However, the department remains concerned 
over the state's cash management system. Further, the California State 
Auditor has cited continued concerns about the California Department of 
Education's (CDE) internal controls in both the most recent statewide 
Single Audit issued on May 27, 2009, and a Recovery Act funding review 
issued on June 24, 2009. The Single Audit identified a number of 
significant deficiencies or material weaknesses, including 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. 

According to California officials, the California Department of 
Education has developed an improvement plan to address cash management 
concerns. It involves LEAs reporting federal cash balances on a 
quarterly basis using a Web-based reporting system. According to 
Education officials, the first phase of this plan will be piloted 
beginning this summer. CDE officials stated that the pilot project 
includes cash management fiscal monitoring procedures to verify LEAs' 
reported cash balances, ensure compliance with cash management 
practices, and ensure that interest earned on federal dollars is 
properly accounted for. Education officials told us that, given the 
cash management concerns, they would work with the California State 
Auditor and the Education Inspector General to develop a monitoring and 
assistance plan to ensure that California properly followed cash 
management requirements. 

According to state education officials, Illinois allowed districts to 
complete an application due May 29 to receive funds for summer 
programming use and has started to draw down funds. State officials 
told us that on June 2, Iowa made the first of six payments of Title I 
Recovery funds available to LEAs. Florida allowed LEAs to begin 
obligating and spending funds in late April or early May, according to 
a state official. In North Carolina, a state official told us that 
Recovery Act Title I funds have been available since May 4 for all LEAs 
with a current Title I application on file and that as of June 19, 31 
LEAs had submitted planning budgets to the state's Department of Public 
Instruction and the budgets have been approved; these LEAs, in turn, 
can now obligate and spend funds. As of June 26, Texas had drawn down 
$58,060 in Title I Recovery Act funds. 

State Application Procedures and Budget Deliberations Have Affected the 
Release of Title I, Part A Recovery Act Funds: 

Officials in Colorado and New Jersey were planning to release some 
Title I Recovery Act funds to a small number of their districts in June 
to allow them to fund summer programming and to release the rest of 
their funds later in the summer. In the remaining states we visited, 
funds will not be released to LEAs until July, August, or September. 
[Footnote 40] Officials in the District of Columbia, Massachusetts, 
Michigan, and New York said they expected to release funds to LEAs in 
July. 

Nearly all of the 16 states and the District of Columbia have required 
(or will require) LEAs to submit an application, a budget, or a 
detailed plan as a condition for receiving Recovery Act funding, 
[Footnote 41] but the amount of time needed to complete these processes 
has varied. For example, in Florida, the State Educational Agency made 
available an online, abbreviated application to receive funds on April 
9, 2009, according to a state official. The application asked LEAs to 
describe how they planned to spend the funds, submit a budget, and make 
assurances specific to Title I. The state sent award notices to LEAs 
the last week of April and the first week of May 2009, allowing LEAs to 
begin obligating and expending funds, according to a state official. In 
contrast, when we spoke with Mississippi educational officials in early 
June, the state was still in the process of developing a new 
application for Title I Recovery Act funds. Mississippi planned to 
release the application within several weeks, provide LEAs with 
training and a handbook on the application, and hoped to release funds 
to LEAs by August 2009. Similarly, New York plans to require school 
districts to agree to a number of assurances regarding the use of the 
Title I Recovery Act funds before funds are disbursed; however, the 
application was in draft form as of June 17, 2009 according to a state 
official. 

Three of the states we visited (Colorado, Illinois, and New Jersey) 
issued early applications inviting districts to apply to receive 
Recovery Act funding for school year 2008-2009, such as to fund summer 
school programs. Other states have tied the release of funds into their 
annual application for regular Title I funding. For example, Georgia 
added seven additional questions to its consolidated application and 
expects to release funds on a rolling basis once LEA applications and 
budgets have been approved. 

According to officials in three of the states we visited, the state 
budget process is slowing the release of funds and the ability of local 
and state educational agencies to finalize their plans for using Title 
I Recovery Act funds. For example, in Pennsylvania, funds have been 
allocated and obligated but cannot be expended until the legislature 
passes a budget, according to state officials. Similarly, in Ohio, a 
state official told us that LEAs cannot yet spend their allocated funds 
because state law requires the state legislature to pass a final budget 
before federal funds are made available for use by state and local 
agencies. Education officials in Chicago told us that because the 
General Assembly had not yet finalized the state budget, they do not 
know exactly how much state funding they will receive in fiscal year 
2010 and have not been able to make final decisions as to how they will 
spend Recovery Act Title I funds. 

Many LEAs We Visited Plan to Use Title I Recovery Act Funds for 
Professional Development to Build Capacity and Avoid the "Funding 
Cliff" or to Fund High School Programs: 

As shown in figure 5 below, local officials most frequently reported 
planning to use their Title I Recovery Act funds for professional 
development or to fund high school programs; officials in nearly half 
of the districts we visited[Footnote 42] said they planned to use funds 
for these purposes. Approximately one-third of these local officials 
indicated that spending on professional development would allow them to 
build their long-term capacity and avoid the "funding cliff." 

Figure 5: Planned Uses of Title I Recovery Act Funds in the School 
Districts We Visited: 

[Refer to PDF for image: vertical bar graph] 

Planned use: Professional development; 
Number of districts: 20. 

Planned use: High school; 
Number of districts: 20. 

Planned use: Pre-K; 
Number of districts: 16. 

Planned use: Technology or software licenses; 
Number of districts: 11. 

Planned use: New schools; 
Number of districts: 10. 

Planned use: Instructional material; 
Number of districts: 10. 

Planned use: Longer day or school year; 
Number of districts: 8. 

Planned use: Parent involvement; 
Number of districts: 8. 

Planned use: Summer program; 
Number of districts: 7. 

Planned use: Create or save jobs; 
Number of districts: 7. 

Planned use: Other; 
Number of districts: 7. 

Planned use: Hire counselors; 
Number of districts: 6. 

Planned use: Hire instructional coaches; 
Number of districts: 4. 

Planned use: Tutoring; 
Number of districts: 2. 

Planned use: Mentoring; 
Number of districts: 2. 

Planned use: Reading specialists or coaches; 
Number of districts: 2. 

Planned use: No planned uses specified in DCI writeup; 
Number of districts: 2. 

Source: GAO analysis of site visit interviews. 

Note: Many local officials we spoke with mentioned more than one 
planned use of funds. 

[End of figure] 

Nearly one-half of the districts we visited plan to use funds to serve 
high school students, and nearly 40 percent plan to use funds to serve 
preschool students--purposes that the Department of Education gave as 
examples of uses that are allowable under Title I and consistent with 
the goals of the Recovery Act. About one quarter of the districts 
planned to fund schools that did not previously receive Title I 
funding, purchase technology or software licenses, or purchase 
instructional materials. About 20 percent planned to make the school 
day or year longer, fund programs to increase parent involvement, or 
create or save jobs. 

State and Local Education Officials Express Interest in Securing 
Flexibility, Such as through Waivers: 

A common theme in our discussions with state education officials was 
the desire to secure flexibility in using Title I Recovery Act funds. 
For example, of the 16 states and the District in our review, officials 
from 14 states expressed interest in at least one waiver. Specifically, 
state officials in 8 states planned to apply for at least one waiver: 
All of these officials planned to apply for the carryover waiver, and 3 
also planned to apply for a maintenance-of-effort waiver. In addition, 
officials in 6 other states we visited had not yet decided whether to 
apply for a waiver, but all mentioned considering the carryover waiver 
and 3 mentioned considering the maintenance-of-effort waiver. Officials 
in the remaining 3 states did not plan to request a waiver. The most 
common waivers mentioned were carryover waivers[Footnote 43] (14 
states), maintenance-of-effort waivers (6 states),[Footnote 44] and 
waivers for required spending for supplemental educational services or 
school choice transportation (3 states).[Footnote 45] 

Local education officials were similarly interested in securing 
flexibility in the uses of Title I Recovery Act Funds. Of the local 
officials we interviewed, more than 40 percent said they planned to 
request at least one waiver and approximately one quarter said they did 
not plan to request a waiver. The remaining officials were undecided at 
the time of our interviews. The particular waivers most frequently 
mentioned by local officials were carryover waivers, waivers of 
requirements for supplemental educational services (SES) funding, and 
maintenance-of-effort waivers. Nearly 40 percent of officials said they 
would request a waiver on maintenance-of-effort, over half said they 
would request a waiver for SES, and nearly 75 percent of these 
officials said they would request a carryover waiver. Of those 
officials planning to request a waiver for SES, officials in two school 
districts mentioned they did not typically need all of the funds they 
were required to set aside for supplemental services and wanted the 
flexibility to spend the funds more quickly and on purposes that would 
most benefit disadvantaged students. 

State and Local Officials Do Not Want to Finalize Plans before 
Receiving More Guidance: 

On April 1, 2009, Education released policy guidance that included 
principles, goals, and possible uses of funds. This guidance also 
included information on allocations from Education to state educational 
agencies and from states and the District of Columbia to their LEAs, 
addressed fiscal issues such as the carryover limitation, and explained 
the process for obtaining a waiver. Education officials told us they 
hosted three conference calls with state Title I directors after 
releasing the guidance to answer questions from state officials. 
Education officials also told us they have made a number of 
presentations around the country on using Recovery Act Title I funds 
and have planned a meeting for state Title I directors for this July, 
by which time they hope to have released additional written guidance on 
waivers and allowable uses of Title I Recovery Act funds. 

In addition to guidance from Education, LEAs report receiving various 
forms of guidance from their state agencies on Title I Recovery Act 
funding. Figure 6 shows the number of states we visited in which local 
educational officials in at least one district we visited told us they 
had received particular forms of guidance. In particular, local 
education officials reported participating in webinars hosted by the 
state educational agency (officials in eight states), participating in 
meetings (officials in six states), receiving state-specific written 
guidance (officials in seven states), obtaining information from the 
state educational agency Web site (officials in six states), calling or 
e-mailing state officials (officials in four states), participating in 
training sessions provided by state officials (officials in two 
states), and participating in conference calls with state officials 
(officials in four states). In at least one LEA in nine of the states 
we visited, local officials did not mention receiving any guidance from 
the state.[Footnote 46] 

Figure 6: Officials in Districts We Visited Reported Receiving Guidance 
in Many Forms: 

[Refer to PDF for image: vertical bar graph] 

SEA guidance received: Webinars; 
Number of states: 8. 

SEA guidance received: Meetings; 
Number of states: 6. 

SEA guidance received: State specific written guidance; 
Number of states: 7. 

SEA guidance received: District did not report receiving state 
guidance; 
Number of states: 9. 

SEA guidance received: State Web site; 
Number of states: 6. 

SEA guidance received: Informal calls or e-mails; 
Number of states: 4. 

SEA guidance received: Training sessions; 
Number of states: 2. 

SEA guidance received: Conference calls; 
Number of states: 4. 

SEA guidance received: Conferences; 
Number of states: 3. 

SEA guidance received: Workshops; 
Number of states: 3. 

SEA guidance received: Other; 
Number of states: 4. 

Source: GAO analysis of site visit interviews. 

Note: Officials in many districts reported receiving more than one form 
of guidance from their state educational agency. 

[End of figure] 

Officials in one state and one district said that local officials are 
fearful of missteps with the funds. For example, officials in one LEA 
said they wanted more specific guidance on how the Title I Recovery Act 
funds can be spent in order to be sure they are doing things correctly. 
Given these examples and the fact that nearly half of officials in 
districts we visited reported wanting more guidance on allowable uses 
of Title I funds that meet the priorities of the Recovery Act, it seems 
likely that the lack of guidance may be slowing LEA's planning 
processes. 

When asked about guidance they would particularly like to receive, 
state education officials most frequently said they wanted more 
information regarding guidance on waivers (nine states), reporting 
requirements (five states), and how to define jobs created or saved 
(three states). Local officials most frequently said they wanted 
guidance on reporting requirements and on allowable uses of Title I 
funds that would be in accordance with the priorities of the Recovery 
Act. They also reported wanting more guidance on waivers, flexibility 
in spending, and the "supplement-supplant" provision.[Footnote 47] 

U.S. Department of Education Has Allocated Half of Recovery Act IDEA 
Funding, but States and Localities Have Drawn Down Few Funds, and Await 
Guidance on Reporting and Other Issues: 

The Recovery Act provided supplemental funding for programs authorized 
by Parts B and C of the Individuals with Disabilities Education Act 
(IDEA), the major federal statute that supports the provisions of early 
intervention and special education and related services for infants, 
toddlers, children, and youth with disabilities. Part B funds programs 
that ensure preschool and school-aged children with disabilities have 
access to a free and appropriate public education and Part C funds 
programs that provide early intervention and related services for 
infants and toddlers with disabilities--or at risk of developing a 
disability--and their families. IDEA formula grants and Recovery Act 
funds are allocated to states through 3 grants--Part B grants to states 
(for school-age children), Part B preschool grants (section 619), and 
Part C grants for infants and families. The U.S. Department of 
Education made the first half of states' Recovery Act IDEA allocations 
to state agencies on April 1, 2009. As of June 26, 2009, of the sixteen 
states and District of Columbia that we visited, only seven states had 
drawn down IDEA Recovery Act funds. In total, just over eight percent 
of allocated funds had been drawn down in these states.[Footnote 48]
(See table 9.) Most states that we visited are requiring LEAs to submit 
an application to receive the IDEA Part B Recovery Act funding. 
[Footnote 49] 

Table 9: IDEA, Parts B and C Recovery Act Allocations and Draw Downs 
for the 16 States and the District of Columbia: 

State: Arizona; 
Total State Allocation: $194,166,881; 
Funds made available to states as of April 1, 2009: $97,083,441; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: California; 
Total State Allocation: $1,321,205,578; 
Funds made available to states as of April 1, 2009: $660,602,789; 
Funds drawn down by states as of June 26: $241,541,985; 
Percentage of available funds drawn down by states: 37. 

State: Colorado; 
Total State Allocation: $160,962,162; 
Funds made available to states as of April 1, 2009: $80,481,081; 
Funds drawn down by states as of June 26: $50,066; 
Percentage of available funds drawn down by states: <1. 

State: DC; 
Total State Allocation: $18,842,253; 
Funds made available to states as of April 1, 2009: $9,421,127; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Florida; 
Total State Allocation: $670,040,593; 
Funds made available to states as of April 1, 2009: $335,020,297; 
Funds drawn down by states as of June 26: $38,138,170; 
Percentage of available funds drawn down by states: 11. 

State: Georgia; 
Total State Allocation: $338,853,225; 
Funds made available to states as of April 1, 2009: $169,426,613; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Illinois; 
Total State Allocation: $542,335,730; 
Funds made available to states as of April 1, 2009: $271,167,865; 
Funds drawn down by states as of June 26: $10,300,720; 
Percentage of available funds drawn down by states: <4. 

State: Iowa; 
Total State Allocation: $130,107,550; 
Funds made available to states as of April 1, 2009: $65,053,775; 
Funds drawn down by states as of June 26: $25,866,684; 
Percentage of available funds drawn down by states: 40. 

State: Massachusetts; 
Total State Allocation: $298,176,851; 
Funds made available to states as of April 1, 2009: $149,088,426; 
Funds drawn down by states as of June 26: $1,026,497; 
Percentage of available funds drawn down by states: <1. 

State: Michigan; 
Total State Allocation: $426,350,589; 
Funds made available to states as of April 1, 2009: $213,175,295; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Mississippi; 
Total State Allocation: $126,728,366; 
Funds made available to states as of April 1, 2009: $63,364,183; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: New Jersey; 
Total State Allocation: $383,296,050; 
Funds made available to states as of April 1, 2009: $191,648,025; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: New York; 
Total State Allocation: $817,897,473; 
Funds made available to states as of April 1, 2009: $408,948,737; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: North Carolina; 
Total State Allocation: $339,211,862; 
Funds made available to states as of April 1, 2009: $169,605,931; 
Funds drawn down by states as of June 26: $12,636,562; 
Percentage of available funds drawn down by states: 7. 

State: Ohio; 
Total State Allocation: $465,505,019; 
Funds made available to states as of April 1, 2009: $232,752,510; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Pennsylvania; 
Total State Allocation: $455,939,209; 
Funds made available to states as of April 1, 2009: $227,969,605; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Texas; 
Total State Allocation: $1,009,383,291; 
Funds made available to states as of April 1, 2009: $504,691,646; 
Funds drawn down by states as of June 26: 0; 
Percentage of available funds drawn down by states: 0. 

State: Total; 
Total State Allocation: $7,699,002,682; 
Funds made available to states as of April 1, 2009: $3,849,501,341; 
Funds drawn down by states as of June 26: $320,169,074; 
Percentage of available funds drawn down by states: 8.3. 

Source: Department of Education. 

[End of table] 

State and local officials report receiving general guidance from the 
U.S. Department of Education (Education) but additional clarifications 
are needed in key areas. In April 2009, Education released policy 
guidance describing principles and goals of IDEA Recovery Act funds, 
and written guidance with information on the timing of allocations of 
funds to states, indirect costs, waivers, and authorized uses of IDEA 
Recovery Act funds. According to Education officials, Education has 
also provided assistance and guidance to states and school districts in 
a variety of other ways, including conference calls with state agencies 
administering Parts B and C, presentations at conferences, and webinars 
on specific issues such as IDEA maintenance-of-effort requirements. 
While Education officials provided guidance with examples of allowable 
uses of Recovery Act IDEA funds on April 24, states and LEAs indicate 
the need for further guidance in this area. For example, several states 
and LEAs report needing clearer guidance on allowable uses, including 
construction costs, and Education officials said they have heard 
questions about allowable uses for buses for students with 
disabilities. Education officials said that they are working on a more 
detailed document on innovative strategies for increasing student 
academic achievement and avoiding funding commitments that will be 
unsustainable after the Recovery Act funding expires. Several states 
reported offering various forms of guidance to LEAs, including holding 
webinars, direct communication, and providing written guidance on 
potential uses of Recovery Act IDEA funding. 

At the time of our site visits neither Education nor the U.S. Office of 
Management and Budget (OMB) had issued final guidance on Recovery Act 
reporting.[Footnote 50] Many state officials told us that it will be 
difficult to plan how they will report the impact of Recovery Act 
funding until they receive further guidance from OMB or Education. 
Education is planning to supplement the guidance OMB provides, to help 
state agencies report the proper data. In particular, Education 
officials noted that draft OMB guidance on recipient reporting would 
require some additional Education guidance to clarify issues for 
recipients of formula grants, such as the IDEA grants. 

Various state and local officials had concerns about whether their LEAs 
would be able to exercise the flexibility allowed under IDEA Part B's 
maintenance-of-effort requirements. Generally, in any fiscal year that 
an LEA's IDEA, Part B section 611 or grants to states allocation 
exceeds the amount the LEA received in the previous year, the LEA may 
reduce its local spending on disabled students by up to 50 percent of 
the amount of the increase, as long as the LEA (1) uses those freed-up 
funds for activities that could be supported under the Elementary and 
Secondary Education Act of 1965, (2) meets the requirements of the 
IDEA, including the performance targets in its state's performance 
plan, and (3) can provide a free appropriate public education. 
Pennsylvania officials said that this rule has been a source of 
confusion for LEAs in their state, and state officials said they have 
discussed it in great detail in webinars, conferences, and other 
communication with LEAs. Education officials said that in developing 
Education's guidelines, in addition to reviewing and interpreting the 
statutes, they have met with state and local educational agencies and 
interest groups who have raised concerns. Education officials told us 
that some interest groups have asked them to reconsider the requirement 
that LEAs meet requirements of the IDEA, including performance targets 
in state performance plans in order to qualify for the MOE flexibility, 
but agency officials believe this requirement was statutorily mandated. 
Another concern involves LEAs that have been determined to have 
significant disproportionality based on race and ethnicity,[Footnote 
51] because these districts are required to set aside 15 percent of 
their total IDEA, Part B funds, including Recovery Act IDEA, Part B 
funds, for comprehensive early intervention services. This limits their 
ability to exercise MOE flexibility. According to Education officials, 
interest groups have asked Education to reconsider its interpretation 
of this IDEA provision. 

States and LEAs plan to spend IDEA Part B Recovery Act funding for a 
variety of services and initiatives. Most LEAs planned to offer 
professional development activities and several noted that such 
activities could avoid unsustainable funding commitments after Recovery 
Act funds expire. LEA officials in the District of Columbia and 
Philadelphia said that their goal with their IDEA Part B Recovery Act 
expenditures is to expand their districts' ability to serve more 
students with disabilities, which would mean that the LEAs would 
receive IDEA funds for serving students with disabilities who are 
currently served by going to schools outside the LEAs. Other examples 
of areas in which LEAs plan to spend Recovery Act funds include: 
acquiring and improving the use of assistive technologies; improving 
transitions for students with disabilities, from preschool to K-12, and 
from school to jobs; and increasing capacity to collect and utilize 
data. 

States may use IDEA, Part C Recovery Act funds for any allowable 
purpose under IDEA, Part C, including the direct provision of early 
intervention services to infants and toddlers with disabilities and 
their families, and implementing a statewide, comprehensive, 
coordinated, multidisciplinary, interagency system to provide early 
intervention services.[Footnote 52] At the time of our interview, 
Illinois Department of Human Services officials said that the 
department had already received and expended its initial allocation of 
IDEA, Part C Recovery Act funds and that the funds had been used to 
avert a 7 to 8 percent cut in its caseload. Pennsylvania officials plan 
to spend most of the state's IDEA, Part C Recovery Act funds on basic 
services, but they also plan to spend $1 million in IDEA, Part C 
Recovery Act funds for an early childhood integrated data system. In 
Arizona, officials told us that these services are provided by entities 
that contract with the Arizona Department of Economic Security (DES). 
DES officials maintain that these IDEA Part C Recovery Act funds will 
be used to address funding shortfalls created by an increasing caseload 
without a commensurate increase in base federal or state funding for 
Part C services. In Colorado, state officials said that the IDEA Part C 
Recovery Act 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. 

States and Localities Are Using Recovery Act Funds in an Effort to 
Provide Summer Employment Activities to Greater Numbers of Youth: 

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 WIA 
Youth program is administered by the Department of Labor (Labor), and 
funds are distributed to states based on 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 53] the conferees stated they were particularly 
interested in states using these funds to create summer employment 
opportunities for youth. While the WIA Youth program requires a summer 
employment component to be included in its year-round program, Labor 
has issued guidance indicating that local areas have the program design 
flexibility to implement stand-alone summer youth employment activities 
with Recovery Act funds.[Footnote 54] 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. Labor has also encouraged states and local 
areas to develop work experiences that introduce youth to opportunities 
in "green" educational and career pathways. Work experience may be 
provided at public sector, private sector, or nonprofit work sites. The 
work sites must meet safety guidelines, as well as federal and state 
wage laws.[Footnote 55] 

States Have Allocated Recovery Act WIA Youth Funds to Local Workforce 
Areas: 

For this report, we focused on the WIA Youth program in 13 of our 16 
states (all except Arizona, Colorado, and Iowa)[Footnote 56] and the 
District of Columbia (District). The 13 states and the District 
received nearly two-thirds of the Recovery Act WIA Youth funds allotted 
by Labor. In turn, the 13 states have allocated at least 85 percent of 
these funds to their local workforce areas, as shown in table 
10.[Footnote 57] As allowed, the 13 states generally reserved 15 
percent of the Recovery Act WIA Youth funds for statewide uses, 
although Florida and New Jersey instead allocated their entire 
allotments to local workforce areas. 

Table 10: Allocations of Recovery Act WIA Youth Funds for 13 States and 
the District, as of June 30, 2009 (Dollars in millions): 

State: California; 
Allotment from Department of Labor: $186.6; 
Amount state allocated to local areas: $158.6; 
Percentage of allotment to local areas: 85. 

State: District of Columbia; 
Allotment from Department of Labor: $4.0; 
Amount state allocated to local areas: Not applicable; 
Percentage of allotment to local areas: Not applicable. 

State: Florida; 
Allotment from Department of Labor: $42.9; 
Amount state allocated to local areas: $42.9; 
Percentage of allotment to local areas: 100. 

State: Georgia; 
Allotment from Department of Labor: $31.4; 
Amount state allocated to local areas: $26.7; 
Percentage of allotment to local areas: 85. 

State: Illinois; 
Allotment from Department of Labor: $62.2; 
Amount state allocated to local areas: $52.9; 
Percentage of allotment to local areas: 85. 

State: Massachusetts; 
Allotment from Department of Labor: $24.8; 
Amount state allocated to local areas: $21.1; 
Percentage of allotment to local areas: 85. 

State: Michigan; 
Allotment from Department of Labor: $73.9; 
Amount state allocated to local areas: $62.9; 
Percentage of allotment to local areas: 85. 

State: Mississippi; 
Allotment from Department of Labor: $18.7; 
Amount state allocated to local areas: $15.9; 
Percentage of allotment to local areas: 85. 

State: New Jersey; 
Allotment from Department of Labor: 20.8; 
Amount state allocated to local areas: 20.8; 
Percentage of allotment to local areas: 100. 

State: New York; 
Allotment from Department of Labor: $71.5; 
Amount state allocated to local areas: $60.8; 
Percentage of allotment to local areas: 85. 

State: North Carolina; 
Allotment from Department of Labor: $25.1; 
Amount state allocated to local areas: $21.3; 
Percentage of allotment to local areas: 85. 

State: Ohio; 
Allotment from Department of Labor: $56.2; 
Amount state allocated to local areas: $47.7; 
Percentage of allotment to local areas: 85. 

State: Pennsylvania[A]; 
Allotment from Department of Labor: $40.6; 
Amount state allocated to local areas: $34.6; 
Percentage of allotment to local areas: 85. 

State: Texas; 
Allotment from Department of Labor: $82.0; 
Amount state allocated to local areas: $69.7; 
Percentage of allotment to local areas: 85. 

State: Total; 
Allotment from Department of Labor: $740.7; 
Amount state allocated to local areas: $635.9; 
Percentage of allotment to local areas: [Empty]. 

Source: Department of Labor and state workforce agencies. 

[A] In Pennsylvania, only 40 percent of the allocation is available for 
the local areas to spend before July 1; Pennsylvania officials expect 
the balance to be available on or after July 1, when they expect the 
state to enact its budget. 

[End of table] 

As of June 25, 2009, about 6 percent of Recovery Act WIA Youth funds 
had been drawn down nationwide, according to Department of Labor data. 
Draw downs represent cash transactions: funds drawn down by states and 
localities to pay their bills.[Footnote 58] Among the 13 states and the 
District of Columbia, the percent drawn down generally ranged from zero 
for the District to 10 percent for Ohio. However, one state-- 
Mississippi--had drawn down 39 percent of its funds. Draw downs do not 
provide a complete picture of the extent to which states and localities 
have used Recovery Act WIA Youth funds to provide services since 
payment for services can occur after funds are obligated and services 
are provided. The Department of Labor receives quarterly reports from 
states on their WIA Youth expenditures for services that have been 
provided, but there is a time lag before these data become available. 
For example, states' reports for the quarter ending June 30 are due to 
Labor 45 days after the end of the quarter, or August 15, and Labor 
then reviews the data before releasing them. 

States Plan to Use Funds to Provide More Youth with Summer Employment 
Activities: 

Consistent with congressional intent that a substantial portion of 
these funds be used for summer youth employment activities, our states 
generally plan to use these funds to increase the number of youth 
served through summer activities. For example, Michigan anticipates 
serving about 25,000 youth in the summer of 2009, compared with about 
4,000 youth served with WIA funds in the summer of 2008. Illinois plans 
to spend about $50 million of its $62 million Recovery Act Youth 
allotment on youth employment activities in the summer of 2009 and has 
set a target of serving about 15,000 youth through these activities. 
Texas set a target of spending 60 percent of Recovery Act WIA Youth 
funds allocated to local areas on summer employment activities and 
serving about 14,400 youth in the summer of 2009 (compared with 918 
youth actually served in the summer of 2008 with WIA funds). In 
contrast to these states, the District plans to use its Recovery Act 
WIA Youth funds on its year-round WIA Youth program. District officials 
told us that, before receiving the Recovery Act funds, they had already 
allocated $45 million for the district's locally funded 2009 summer 
youth employment program, which they said is the second-largest summer 
youth employment program in the nation, serving about 23,000 youth. 

Several states, including Massachusetts, Ohio, Pennsylvania, and Texas, 
have required their local workforce areas to spend from 50 percent to 
70 percent of their Recovery Act WIA Youth funds by September or 
October 2009. For example, Ohio requires local areas to spend at least 
70 percent of these funds by October 31, 2009, and 90 percent of funds 
by January 31, 2010, or risk having funds recaptured by the state. 
Massachusetts requires local areas to spend at least 60 percent of 
their funds by September 30, 2009. 

Local Flexibility Is Evident in the Different Approaches Planned for 
Providing Services to Youth This Summer: 

States and local areas we visited varied in the approaches they planned 
to use in providing summer youth employment activities.[Footnote 59] 
While public sector work sites were frequently mentioned, so, too, were 
private sector and nonprofit organizations. Across the spectrum of work 
sites, work activities ranged widely. Local areas were varied in the 
role that academic and occupational skills training is playing in the 
summer activities and in the extent to which contracted providers will 
administer the summer activities. 

Type of work experience: Planned work sites for the Recovery Act-funded 
summer youth activities varied widely across the local areas we visited 
and included public sector, private sector, and nonprofit 
organizations. Most local areas expected at least some public sector 
jobs, and in some areas the majority of the work sites are expected to 
be in the public sector. These sites often included local government 
offices; public parks, recreation centers, and camps; and public 
schools and community colleges, public libraries, and animal shelters. 
Local areas in several states were planning to place youth in private 
sector work sites, as well, including supermarkets, pharmacies, health 
care institutions, and private learning centers. Officials in two local 
areas we visited expected the majority of their work sites to be in the 
private sector. In addition, at least one local area in nearly all of 
the states we visited expects to make use of nonprofit work sites, 
including community action agencies, boys and girls clubs, and the 
YMCA. Across the different types of work sites, the specific work 
activities planned for the youth ranged from clerical work, grounds 
keeping, animal care, and kitchen support to customer service and 
serving as camp counselors or radiology technicians' assistants. 

Labor encouraged states to develop work experiences in "green" jobs, 
and officials reported that green jobs were available in nearly all 
local areas we visited. The jobs they cited included landscape 
maintenance, recycling, and green construction, and an automotive fuel 
technology project at a university, as well as jobs in energy 
efficiency and weatherization. However, officials told us they were not 
always clear what constituted a green job. For example, officials in 
Pennsylvania's South Central local area questioned whether a youth 
working in a plastics factory that makes parts for a windmill is 
working in a "green" job. Labor has provided some discussion of green 
jobs in its guidance letters to states on Recovery Act funds. For 
example, Labor's March 18, 2009, guidance letter highlights areas 
within the energy efficiency and renewable energy industries that will 
receive large Recovery Act investments, such as energy-efficiency home 
retrofitting and biofuel development, and also provides examples of 
occupations that could be impacted by "green" technologies, including 
power plant operators, electrical engineers, and roofers and 
construction managers.[Footnote 60] Labor officials told us that their 
reporting requirements for Recovery Act funds do not include any 
tracking of green jobs. 

Role of academic and occupational skills training: While not all local 
areas had completed their plans for the summer activities at the time 
of our review, in about half of the states at least some local areas 
were planning to provide academic or occupational skills training along 
with work experience. For example, Buffalo, New York, plans several 
projects that will combine green jobs with academic training, as well 
as weatherization and construction skills. In one such program, youth 
will work to earn their General Equivalency Diplomas (GED) while also 
learning "green" construction skills. Participants will earn $7.25 an 
hour for their work experience and $3 an hour while working on their 
GEDs. Another of Buffalo's projects will help youth who are at-risk of 
dropping out of school by providing them with an opportunity to recover 
the high school credits they need for graduation while also taking part 
in work experience. 

Even when local areas are focusing most of their efforts on work 
experience, many are also planning to provide work readiness training 
as part of an initial orientation to the summer activities, but the 
nature of the work readiness training varied widely. In Mercer County, 
New Jersey, for example, youth will be given a short workshop on 
interviewing skills prior to a job fair. In addition to employment, 
youth age 14 to 17 will receive 21 hours of job readiness training, and 
those age 18 to 24 will receive 28 hours of job readiness training. In 
another New Jersey example, youth in Camden County will receive 8 hours 
of life skills training using a standard curriculum, followed by 
financial literacy training based on curricula developed for youth by 
the Federal Deposit Insurance Corporation. Other local areas we visited 
also plan to provide financial literacy training as part of their 
orientation. Ohio's Franklin and Montgomery Counties, for example, have 
arranged for a local bank to help participating youth set up bank 
accounts, into which their paychecks will be automatically deposited. 
Youth will receive debit cards to access the account and will receive 
basic financial counseling. 

Administration of summer employment activities: Many local areas are 
using contracted providers to operate key aspects of the WIA summer 
youth employment activities, such as recruiting youth and work sites 
and administering payroll. In some cases, officials report they have 
been able to extend existing contracts with their WIA year-round 
program service providers to cover the stand-alone summer employment 
activities. In other cases, they have conducted new competitions, in 
part, because they needed additional contractors to cover the expansion 
of services. All thirteen of our states applied for and received a 
waiver from Labor relating to procurement requirements for youth summer 
employment providers. The waivers allow local areas to expand existing 
competitively procured contracts or conduct an expedited, limited 
competition to select service providers. Labor approved 10 of these 
waivers in April or May 2009, and the other 3 in June 2009. 

While using contracted providers to operate the program was more 
common, in a few states at least some local areas were operating the 
entire program in-house. In New Jersey, for example, the local areas we 
visited are relying mostly on internal staff to carry out program 
responsibilities; however, one area plans to use contracted providers 
for some specific roles. In Ohio, two of the four local areas we 
visited had decided to operate the program in-house. Officials in one 
of the local areas in Ohio told us they made the decision for two 
reasons--they wanted to be able to exercise greater control over the 
program and they were seeking to avert staff layoffs due to funding 
cuts in other programs. 

States and Local Areas Experienced Multiple Challenges in Quickly 
Implementing Summer Youth Employment Activities: 

State and local officials reported challenges in implementing their 
stand-alone summer youth employment activities that generally reflected 
three key themes--tight time frames for implementing the program, lack 
of staffing capacity to meet the expanding needs, and difficulty in 
determining and documenting youth eligibility. 

Tight time frames: Many state and local officials commented that the 
biggest challenge in implementing the program was the limited time 
frame they had for making the program operational. Once the Recovery 
Act was passed, states and local areas had only about 4 months to get 
their new summer youth employment activities up and running--a process 
that officials told us would normally begin many months earlier. And 
local areas often lacked recent experience in operating such a stand- 
alone program. In implementing the year-round service requirements of 
WIA (in which summer employment is a component rather than a stand- 
alone program), many states and local areas had greatly reduced their 
summer youth employment programs and no longer offered a stand-alone 
summer program--or they had found other funding sources, such as state, 
local, or foundation funds, to cover it. Unlike WIA, its predecessor, 
the Job Training Partnership Act, required local areas to provide a 
stand-alone summer youth employment program. The local areas we 
reviewed represented a mix of experiences. Those without recent 
experience had to build the program from the ground up. These areas had 
to quickly confront many basic decisions--how to structure the program, 
how to recruit work sites and participants, whether to use contracted 
providers (and for what functions) or whether to administer the program 
in house. Other areas, however, had well-developed summer youth 
employment programs. These areas already had some of these basic 
structures in place, but often still found it challenging to quickly 
expand their existing programs. 

Staffing capacity: Across the local areas we visited, many officials 
told us staff were challenged to address the needs of the growing 
number of youth they needed to serve. In some cases, states had been 
downsizing or did not have the flexibility to hire additional staff due 
to hiring freezes and budget cuts. For example, Essex County, New 
Jersey, operating with two full-time staff, said the inability to hire 
additional staff posed challenges for recruiting youth and monitoring 
the program. In the local areas we visited in Ohio, the expected 
increases in enrollments were leaving local areas' staff stretched 
thin. To address this challenge, some counties were reassigning 
employees from other programs to work on WIA summer youth employment 
activities. One county had arranged for additional staff to monitor the 
summer program by using a temporary placement agency. Similarly, 
Chicago officials said that, despite having had experience in 
implementing a stand-alone summer program, they found implementing the 
WIA summer youth employment activities challenging because, in order to 
adequately ramp up their programs and prepare for implementation, they 
had to borrow staff from other sections who do not typically work on 
the WIA Youth program. 

Determining and documenting youth eligibility: Several states and local 
areas commented that it was challenging to determine youth applicants' 
eligibility and to obtain supporting documentation, especially for the 
increased number of youth they are planning to serve. New Jersey 
officials told us that the youth targeted for the program generally 
have difficulty providing the kinds of documents required in order to 
prove WIA Youth program eligibility. For example, to determine that 
youth meet the eligibility requirements, local officials in New Jersey 
require documentation that includes public assistance identification 
cards to support total household income, birth certificates for proof 
of citizenship, Social Security numbers, and documentation of selective 
service registration for males age 18 and over. Officials in a few 
states also expressed concern that the income eligibility standards 
were more restrictive than for other programs, particularly those 
operated using state funds, and that the standards may be excluding a 
significant number of youth who need the services. For example, 
officials in Philadelphia reported that some of their youth applicants 
whose parents had recently lost their jobs were not eligible for the 
program because eligibility was based on income earned during the 
period just prior to dislocation. 

States Plan to Use Various Procedures to Monitor Local Areas' Summer 
Youth Activities: 

With regard to program oversight, all 13 of our states and the District 
reported they had the capacity to track and report on Recovery Act 
funded WIA Youth expenditures separately from those not funded by the 
Recovery Act. The states also reported plans to use a variety of 
procedures to monitor local areas' summer youth employment activities, 
such as risk assessments, on-site monitoring, and periodic meetings 
with local program directors. For example, Ohio state officials sent a 
survey to the local workforce areas in May 2009 to help identify local 
areas with greater risk due to factors such as critical timing issues, 
larger program scope, or substantial changes from past programs, and 
the state planned to initially focus its attention on these local 
areas. Massachusetts state officials said they planned to conduct on- 
site visits to each local workforce area at least twice during the 
summer and that the state's monitoring efforts would include file 
reviews of information pertaining to topics such as eligibility, 
standard operating procedures, contracts, statements of work, and 
subrecipient monitoring. Michigan state officials said they planned to 
hold monthly meetings with all local program directors to encourage the 
reporting of consistent information and that their on-site monitoring 
would focus especially on private sector components of the program, 
such as private sector worksites. 

Department of Labor officials said that they have efforts underway to 
understand the experiences of those operating summer youth activities 
through regular interaction with state and local service providers, 
monitoring, identifying any issues, and providing assistance to address 
the issues. For example, they said that Labor's regional offices have 
begun visiting local areas to monitor and gather information and will 
be visiting about two areas in each of their states this summer. 
Beginning the week of June 29, each of the six regional offices will 
begin providing weekly narrative reports on the Recovery Act summer 
youth employment activities from at least two local areas each week. 

Measuring the Effects of the Summer Youth Activities Will Focus Largely 
on Work Readiness Improvements: 

To assess the effects of the summer youth employment activities, states 
will be required to report a work readiness attainment rate--defined as 
the percentage of participants in summer employment who attain a work 
readiness skill goal. Under Department of Labor guidelines, states and 
local areas are permitted to determine the specific assessment tools 
and the methodology they use to determine improvements in work 
readiness, but it must be measured at the beginning and completion of 
the summer experience. Not all areas had finalized their plans for 
assessing work readiness at the time of our visits but were considering 
various pre-and post-test options. For example, officials in 
Mississippi plan to do a written pre-and post-test but will also assess 
youth at the midpoint through an interview with an employment adviser. 
All three areas we visited in Florida plan to supplement the pre-and 
post-tests with feedback from businesses and work site supervisors. 

To monitor and report on progress made in implementing the program, 
Labor has instituted new reporting requirements on youth participating 
in Recovery Act-funded activities. Under WIA, states have been required 
to report quarterly to Labor on aggregate counts of youth participants, 
activities, and outcomes. However, since these reports are not 
submitted in time for Labor to comply with Recovery Act requirements to 
make information readily available to the public, states will be 
required, beginning on July 15, to submit a supplemental monthly report 
on youth. In this supplemental report, states will submit aggregate 
counts of all Recovery Act youth participants, including the 
characteristics of participants, the number of participants in summer 
employment, services received, attainment of a work readiness skill, 
and completion of summer youth employment. 

In addition to Labor's reporting requirements, a few states were 
developing plans for additional assessments of the program. Georgia 
officials, for example, reported that they are considering tracking 
whether youth return to school or obtain full-time employment after the 
summer program is over. Similarly, officials in Illinois are currently 
designing a tracking system that will allow them to assess the long- 
term impacts of the program, including job placement and job retention 
of participants. 

Many Public Housing Agencies Have Obligated, but Few have Drawn Down, 
Recovery Act Funds: 

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. HUD allocated Capital Fund 
formula dollars to public housing agencies shortly after passage of the 
Recovery Act and, after entering into agreements with over 3,100 public 
housing agencies, obligated these funds to public housing agencies on 
March 18, 2009.[Footnote 61] Although HUD has allocated and obligated 
almost $3 billion in formula capital grants to 3,123 public housing 
agencies,[Footnote 62] and 1,483 agencies have begun obligating 
relatively less, little funding has been drawn down by housing 
agencies.[Footnote 63] Specifically, as of June 20, 2009, $466 million, 
or 16 percent, of the funds allocated by HUD to the housing agencies 
has actually been obligated by the housing agencies, and $32 million, 
or 1.1 percent, has been drawn down (see figure 7). 

Figure 7: Percent of Public Housing Capital Fund Formula Grants 
Allocated by HUD that Have Been Obligated and Drawn Down Nationwide, as 
of June 20, 2009: 

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

Funds obligated by HUD: 99.9% ($2,982 million); 
Funds obligated by public housing agencies: 15.6% ($466 million); 
Funds drawn down by public housing agencies: 1.1% ($32 million). 

Number of public housing agencies: 
Entering into agreements for funds: 3,123; 
Obligating funds: 1,483; 
Drawing down funds: 721. 

Source: GAO analysis of HUD data. 

[End of figure] 

For this report, we visited 47 public housing agencies in the 16 states 
and the District of Columbia, which had received formula grant awards 
totaling $531 million. These housing agencies have identified projects 
and are just beginning to obligate and draw down Recovery Act funds for 
project expenses. As of June 20, 2009, these public housing agencies 
had obligated almost $66 million, or about 12 percent of their $531 
million allocation, and had drawn down $2.6 million, or 0.5 percent of 
the $531 million. Thirty of the 47 agencies had obligated funds 
(including 3 small agencies and 1 medium agency that had obligated 100 
percent of their funds), indicating that contracts had been awarded and 
signed and that work was beginning, of which 20 had drawn down funds 
(see figure 8). 

Figure 8: Percent of Public Housing Capital Fund Formula Grants 
Allocated by HUD that Have Been Obligated and Drawn Down by 47 Public 
Housing Agencies Visited by GAO, as of June 20, 2009: 

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

Funds obligated by HUD: 100% ($531,001,215); 
Funds obligated by public housing agencies: 12.4% ($65,938,547); 
Funds drawn down by public housing agencies: 0.5% ($2,556,708). 

Number of public housing agencies: 
Entering into agreements for funds: 47; 
Obligating funds: 30; 
Drawing down funds: 20. 

Source: GAO analysis of HUD data. 

[End of figure] 

Several of the 17 public housing agencies we spoke to that had neither 
obligated nor drawn down any funds stated that they had not done so 
because they were awaiting approval from HUD on their plans for using 
Recovery Act funds, or they were still soliciting bids and finalizing 
contracts. Others were developing project plans or completing 
environmental reviews. In addition, some public housing agency 
officials stated that their status as a "troubled performer"--based on 
HUD's Public Housing Assessment System (PHAS)[Footnote 64]--meant they 
faced more oversight and monitoring from HUD, which was preventing them 
from obligating the Recovery Act funds as quickly as they would like. 
However, many of these 17 agencies expected to begin awarding 
contracts, obligating funds, and working on projects by July 2009. This 
timeline is in line with HUD headquarters officials' expectations that 
activity involving obligating Recovery Act funds will increase 
substantially during the next quarter (July to September 2009). 

Planned Use of Recovery Act Funds by Housing Agencies: 

For the 47 housing agencies that we visited, officials indicated that 
they were planning to use their Recovery Act funds for various types of 
activities, ranging from parking lot repaving to complete 
rehabilitation of multi-unit structures. Among the most common Recovery 
Act project types mentioned by public housing agency officials were 
roof and window replacements; heating, ventilation, and air 
conditioning (HVAC) system upgrades or replacements; and interior 
rehabilitation work, such as kitchen or bathroom renovations and 
flooring or carpet replacements. For example, Athens Housing Authority 
in Georgia plans to replace water heaters and kitchen cabinets at 23 
scattered sites (see figure 9). According to the public housing 
agencies we visited, more than 15,000 units will be rehabilitated, 
including more than 1,500 vacant units. 

Figure 9: Unit That 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] 

Relatively small-scale projects were already underway or had been 
completed, such as the 10 bathroom remodels and 105 window replacements 
that Ferris Housing Authority in Texas had finished. In contrast, some 
major projects requiring planning and design work had yet to begin. In 
fact, some public housing agencies avoided large, complex projects 
because they believed the projects would take too long. However, some 
of the large public housing agencies are funding major activities, such 
as demolishing a public housing structure, constructing new structures, 
or completely renovating hundreds of units across many properties. For 
example, Philadelphia Housing Authority plans to spend over $29 million 
to rehabilitate 300 vacant units at various sites--one of which is 
shown in figure 10--and another $14.6 million to completely reconfigure 
a 71-unit mid-rise building into a 53-unit building with new community 
spaces, elevators, and energy-efficient electrical and mechanical 
systems. Cuyahoga Metropolitan Housing Authority in Ohio is using $12 
million of Recovery Act funds to pay for part of a $65 million 
redevelopment initiative that involves demolishing existing structures 
and building new structures. HUD has informed housing agencies that 
they may use the Recovery Act funds for demolition and construction of 
new units, provided that they can meet the Act's obligation and 
expenditure deadlines. 

Figure 10: Philadelphia, Pennsylvania, Plans to Rehabilitate Vacant 
Units at Scattered Sites: 

[Refer to PDF for image: photograph] 

Source: Philadelphia Housing Authority. 

[End of figure] 

Prioritization: The Recovery Act requires public housing agencies to 
give priority to projects involving the rehabilitation of vacant units, 
projects already underway or on the agency's latest 5-year plan, and 
projects that could be awarded based on bids within 120 days of the 
Recovery Act funds becoming available. Public housing agency officials 
we spoke to generally prioritized projects that were on their 5-year 
plan, that could be initiated quickly, and that were, in their 
judgment, the most critical projects to be completed. 

Only a few of the largest public housing agencies we visited stated 
that they had relatively large numbers of vacant units they were going 
to rehabilitate. More than 1,200 of the over 1,500 vacant units that 
agencies we visited had slated for rehabilitation using Recovery Act 
funds were identified by just five public housing agencies: Chicago 
Housing Authority, Philadelphia Housing Authority, San Francisco 
Housing Authority, Cuyahoga Metropolitan Housing Authority in Ohio, and 
Newark Housing Authority. However, for some agencies facing relatively 
few vacancies, rehabilitating vacant units was not the highest priority 
in selecting projects. Instead, they focused on meeting other Recovery 
Act priorities, such as selecting projects already underway or 
selecting projects for which contracts could be awarded within 120 
days. 

An additional priority for public housing agencies in selecting 
projects was finding ways to improve energy efficiency in their 
buildings. Some are seeking to accomplish this by making exterior 
improvements, such as replacing roofs, siding, or windows, while others 
will be replacing appliances or HVAC equipment with more energy- 
efficient models. For example, Rahway Housing Authority in New Jersey 
is in the process of replacing siding on some of its buildings to 
increase the energy efficiency (see figure 11). Another example of an 
exterior improvement is from the District of Columbia Housing 
Authority. Agency officials told us they used Recovery Act funds to 
install solar panels on top of one of the residential buildings as part 
of its effort to "green retrofit" all the housing units in the complex. 
These panels will help heat water for the building. 

Figure 11: Siding in the process of completion using Rahway Housing 
Authority's Recovery Act funds: 

[Refer to PDF for image: photograph] 

Source: GAO. 

[End of figure] 

Barriers and Challenges: Public housing agency officials noted a few 
barriers and challenges they had confronted or anticipated related to 
Recovery Act funds and projects, but in most cases no single concern 
was widely shared among the officials with whom we spoke. In a few 
cases, public housing agencies mentioned that they had experienced 
delays in accessing their funds in HUD's Electronic Line of Credit 
Control System (ELOCCS) due to problems with or confusion about the 
requirement to obtain a Data Universal Numbering System (DUNS) number 
and to register in the Central Contractor Registration (CCR) system. 
For example, two housing agencies had trouble registering because their 
actual location (city or county) was different from the information 
associated with the DUNS number in the system. However, once agencies 
were properly registered, they did not anticipate any problems using 
the system. According to HUD officials, registering in the CCR has been 
a substantial problem nationwide, despite efforts by HUD to communicate 
these requirements to public housing agencies. HUD officials estimated 
that about 380 public housing agencies (out of approximately 3,100) had 
not properly registered in CCR and were therefore unable to obligate or 
draw down Recovery Act funds as of June 15, 2009. HUD officials are 
working with these agencies to resolve the problems as quickly as 
possible. 

Another challenge raised by public housing agency officials and HUD 
officials was the "Buy American" provision of the Recovery Act. Several 
officials noted that depending on how this provision was interpreted, 
it could pose a barrier to getting contracts in place and completing 
projects. For example, HUD officials noted that agencies may have 
difficulty in finding an adequate selection of goods and materials for 
improving energy efficiency that meet the "Buy American" requirement 
and are competitively priced. For other public housing agencies, 
however, this provision was not a concern. For example, two agencies 
stated they had revised their procurement policy to include "Buy 
American" requirements, while another agency required its contractors 
to certify the materials they use are American-made. 

An additional potential challenge that some officials had identified 
involved the requirements HUD had placed on agencies in order to use 
Recovery Act funds for administration. HUD's guidance states that 
public housing agencies may use 10 percent of their grant funds for 
administration but that agencies can only draw down 10 percent of each 
invoice submitted for administration. In addition, one public housing 
agency official stated that he expected the documentation requirements 
for drawing down these funds would require so much extra work that he 
believed it would be better to use non-Recovery Act funds to cover all 
administration expenses and devote his agency's entire Recovery Act 
award to the identified projects. HUD officials stated that these 
requirements were intended to provide public housing agencies with an 
incentive to use Recovery Act funds immediately on projects that would 
create jobs. 

Troubled housing agencies may also experience delays in obligating and 
expending Recovery Act funds. Some officials from public housing 
agencies that HUD has identified as troubled performers in PHAS stated 
that additional requirements placed on them by HUD had hindered these 
agencies' ability to obligate and expend funds as quickly as they 
believe necessary. At one public housing agency, officials stated that 
they were designated as troubled because of the physical condition of 
their housing units and that they were in need of the Recovery Act 
funding to address these deficiencies. HUD has identified 172 housing 
agencies as troubled under PHAS that will be subject to increased 
monitoring for the Recovery Act. These 172 troubled housing agencies 
have obligated and expended Recovery Act funds at a slower rate than 
the overall group of housing agencies receiving Recovery Act funding. 
Specifically, troubled performing public housing agencies were 
allocated nearly $186 million of Recovery Act funding, and as of June 
20, 2009, 61 (35.5 percent) of these housing agencies had obligated 
$15.1 million (8 percent) and 22 (13 percent) of these housing agencies 
had drawn down almost $926,000 (0.5 percent). Overall housing agencies 
have obligated and expended funds at about double this rate. 

One reason for these delays is the additional monitoring required by 
HUD for housing agencies that are designated as troubled performers 
under PHAS. HUD has informed these troubled public housing agencies 
that for Recovery Act purposes they would receive increased monitoring 
and placed them in either a high, medium, or low-risk category. Of 
these 172 troubled housing agencies, 106 (61.6 percent) were considered 
low-risk troubled, 53 (30.8 percent) were considered medium-risk 
troubled, and the remaining 13 (7.6 percent) were considered high-risk 
troubled. HUD has established and is implementing a strategy for 
monitoring these troubled housing agencies that have received Recovery 
Act funds. HUD stated to us that they have disseminated this strategy 
to its field offices and it is currently being administered to the 172 
troubled housing agencies. For example, according to HUD, all 172 
troubled public housing agencies--regardless of risk category--have 
been placed on a "zero threshold" status and therefore cannot draw down 
Recovery Act funds without HUD Field Office approval. HUD stated to us 
that the ability to place housing agencies on "zero threshold" has 
always been available, and has been used for housing agencies that have 
had problems obligating and expending their Capital Fund grants 
appropriately. However, HUD has stated that housing agencies that are 
troubled will be subject to additional monitoring and oversight as 
deemed necessary to ensure proper uses of Recovery Act funds.[Footnote 
65] Specifically, HUD Field Offices notified troubled housing agencies 
that prior to obligation of Recovery Act funding, all award documents 
(i.e., solicitations, contracts, or board resolutions, where 
applicable) must be submitted to their respective Field Office for 
review. Further, housing agencies that HUD considers to be high-risk 
troubled are to be assigned to a HUD designated team that will provide 
additional monitoring, oversight and technical assistance. HUD further 
stated that the effect of any increased requirements on obligating 
Recovery Act funds should be short-lived since Recovery Act funds must 
be obligated within one year, and much of the funds should be obligated 
in the next few months. 

The officials with whom we spoke generally did not anticipate that they 
would face internal challenges with meeting the accelerated obligation 
and expenditure requirements under the Recovery Act. Several cited the 
large backlogs of projects that were ready to begin in welcoming the 
additional funds. In Ohio, Columbus Metropolitan Housing Authority 
officials stated that they began preparing projects in December 2008 in 
anticipation of the Recovery Act's passage. Two of the larger agencies, 
Tampa Housing Authority and the District of Columbia Housing Authority, 
stated that they had in place "job order contracting," which 
establishes long-term contracts with several contractors for a variety 
of routine construction projects, and they had found that this strategy 
aided in their ability to award contracts quickly and begin projects. 
Similarly, housing agency officials we interviewed generally did not 
expect to encounter any challenges meeting the Davis-Bacon local 
prevailing wage requirements because they were used to complying with 
Davis-Bacon. 

Most Agencies Expect Few Monitoring Problems, and HUD Systems Can 
Monitor Controls And Safeguards Over Recovery Act Funds: 

For public housing agencies, the responsibility for establishing and 
maintaining internal controls rests with each housing agency and is 
typically not part of the state's overall system of internal controls 
that is discussed in other parts of the report. GAO visited 47 housing 
agencies in the 16 states plus the District of Columbia to discuss what 
internal controls were in place to track the appropriate use of 
Recovery Act funds. The housing agencies stated that they did not 
anticipate internal control problems as a result of receiving Recovery 
Act funds because they would use their existing accounting systems to 
track the use of these funds. They noted that they have experience with 
tracking funding--including Capital Fund grants awarded prior to the 
Recovery Act--and would simply add specific funding codes to their 
system to track the use of the Recovery Act funds. 

Many housing agencies are subject to the Single Audit requirements that 
have been discussed in this report. Single Audits provide federal 
agencies with information on the use of federal funds, internal control 
deficiencies, and compliance with federal program requirements. In 
addition, the HUD Inspector General (HUD OIG) conducts audits of 
individual housing agencies. Although we did not systematically review 
audit reports for those housing agencies we visited and they did not 
anticipate problems with monitoring Recovery Act funds, it is important 
to note that both single audits and HUD OIG's audits have identified 
instances of internal control deficiencies and noncompliance with HUD 
programs--including the Capital Fund grants provided prior to the 
Recovery Act. In our June 2009 report, we reported that housing agency 
audits do report findings of inappropriate use and mismanagement of 
public housing funds, including problems with accounting, 
documentation, and internal controls.[Footnote 66] That report 
recommended that HUD better leverage the information in housing agency 
audits to identify emerging issues, and evaluate its overall monitoring 
and oversight processes. In addition to implementing its strategy for 
monitoring troubled housing agencies, HUD stated to us that they are in 
the process of developing a strategy to monitor non-troubled housing 
agencies' use of Recovery Act funds. 

Public Housing Agencies Are Taking Steps to Measure the Impact of 
Recovery Act Funds: 

Preserving existing jobs, stimulating job creation, and promoting 
economic recovery are among the Recovery Act's key objectives. Public 
housing agencies are taking steps to measure the extent to which 
Recovery Act funds are achieving these objectives, though agencies are 
waiting for guidance from HUD. As recipients of Recovery Act funds, 
public housing agencies are expected to track and report on jobs 
created and jobs retained through projects funded by the agency. Most 
public housing agencies told us they plan to collect payroll data from 
contractors, existing project management systems, or Davis-Bacon wage 
reports to calculate the number of jobs created and retained. Some of 
the public housing agencies told us they would include job-measurement 
requirements in bid specifications, so that prospective contractors 
would be aware that they would have to measure jobs if they won the 
bid. Other agencies said they plan to employ agency employees or public 
housing residents--whose jobs could be easily counted--on projects 
funded by the Recovery Act. While some public housing agencies viewed 
calculating jobs created or retained as straightforward, others 
expressed concerns about the number of work hours defining jobs created 
or retained. One agency reported that they had hired a third-party firm 
to provide tracking and reporting services related to the Recovery Act. 
The firm will provide analyses of construction-related items and 
contractor payroll records to satisfy the requirement to report on jobs 
created and retained with Recovery Act funding. Three public housing 
agencies reported they have not yet made plans to track the effects of 
Recovery Act funds. 

Public housing agencies are also taking steps to report on another 
Recovery Act objective--promoting energy conservation measures. Public 
housing agencies are selecting projects that they expect will reduce 
energy costs, support energy efficiency, and decrease usage of 
electricity and water. For example, one public housing agency plans to 
replace older appliances with newer, more energy-efficient models. 
Another agency plans to replace all light bulbs with energy-efficient 
bulbs. To measure the impact of these projects, several public housing 
agencies plan to compare utility bills over time to assess the amount 
of dollar savings realized. One public housing agency official told us 
that she plans to read the electric meters in the public housing 
development to determine the change in energy usage. 

Public housing agencies also plan to track a number of other 
performance measures. Many public housing agencies told us they 
regularly track the budget control, timeliness, and quality of work of 
projects they fund and that they plan to continue tracking these 
measures with Recovery Act-funded projects. In addition, some public 
housing agencies monitor the number of contracts they have with 
minority-and women-owned businesses, and they expect to be able to use 
Recovery Act-funded projects to continue to meet their goals of 
contracting with such entities. Lastly, public housing agencies 
anticipate that they may see improvement in other measures--such as 
tenant satisfaction, occupancy rates, crime rates, and employment among 
residents--as a result of the projects funded through Recovery Act 
funds. For example, one public housing agency official hoped that a new 
community center in one development will lead to less apartment 
turnover, less maintenance expense, lower crime, more efficient use of 
utilities, and more cooperation with residents. 

Public housing agencies reported that they have not received guidance 
from HUD on how to measure jobs created and retained. Most public 
housing agency officials told us they would like guidance on how to 
accomplish this objective. In the absence of centralized guidance, 
public housing agencies are following individual strategies to track 
and report on jobs. OMB's June 2009 guidance provided this centralized 
guidance.[Footnote 67] 

Quarterly reporting to HUD is another requirement of the Recovery Act. 
A number of public housing agencies thought that meeting the quarterly 
reporting requirement could be accomplished because they are already 
reporting to HUD on a quarterly basis for other programs, such as HOPE 
VI. Some agencies, however, told us they had neither heard of the 
quarterly reporting requirement nor received guidance about what was to 
be included. However, since OMB issued new guidance in June 2009, HUD 
officials said they are finalizing work on designing and developing a 
Recovery Act Management and Performance System for reporting jobs 
created and other effects of the Recovery Act. OMB is also working on a 
system it plans to have available by October 10, 2009. OMB's June 2009 
guidance clarified the reporting requirements for recipients and sub-
recipients. 

The Edward Byrne Memorial Justice Assistance Grant (JAG) 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 corrections and domestic 
violence programs.[Footnote 68] The JAG program was established in law 
in 2006 to, among other things, provide state and local agencies with 
the flexibility to prioritize and place justice funds where they are 
most needed to prevent and control crime based on local needs and 
conditions.[Footnote 69] JAG funds can be used to support a range of 
activities in seven broad program areas, including law enforcement; 
prosecution and courts; crime prevention and education; corrections; 
drug treatment and enforcement; program planning, evaluation, and 
technology improvement; and crime victim and witness programs. Within 
these areas, JAG funds can be used for state and local initiatives, 
training, personnel, equipment, supplies, contractual support, 
research, and information systems for criminal justice. 

The procedure for allocating JAG funds is based on a statutory formula 
of population and violent crime statistics, in combination with a 
minimum allocation to ensure that each state and territory receives 
some funding.[Footnote 70] 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--a variable pass-
through requirement--to local governments within the state.[Footnote 
71] For Recovery Act JAG funds, the percentage share that states are 
required to pass through to local governments varies across the 16 
states and the District of Columbia (District) in our review, ranging 
from 36.52 percent (Massachusetts) to 100 percent (District). Further, 
states may use up to 10 percent of their state award to cover costs 
associated with administering JAG funds. The remaining 40 percent of 
funds is awarded directly by BJA to eligible units of local government 
within the state.[Footnote 72] Although allocations for JAG funding are 
determined by formula, state and local governments must apply to BJA to 
receive JAG funding. 

Table 11 shows BJA's Recovery Act JAG state allocations and variable 
pass-through percentages for the 16 states and the District, as well as 
BJA's Recovery Act JAG allocations to localities within the 16 states 
and the District and total Recovery Act JAG allocations. 

Table 11: Recovery Act Edward Byrne Memorial Justice Assistance Grant 
Program's State Allocations and Pass-Through Percentages, Local 
Allocations and Total Allocations for 16 States and the District: 

State: Arizona; 
Recovery Act JAG state allocation: $25,306,956; 
Recovery Act JAG state variable pass through percentage: 61.86%; 
Recovery Act JAG local allocation: $16,659,310; 
Recovery Act total allocation: $41,966,266. 

State: California; 
Recovery Act JAG state allocation: $135,641,945; 
Recovery Act JAG state variable pass through percentage: 67.34; 
Recovery Act JAG local allocation: $89,712,677; 
Recovery Act total allocation: $225,354,622. 

State: Colorado; 
Recovery Act JAG state allocation: $18,323,383; 
Recovery Act JAG state variable pass through percentage: 59.56; 
Recovery Act JAG local allocation: $11,534,788; 
Recovery Act total allocation: $29,858,171. 

State: District of Columbia; 
Recovery Act JAG state allocation: $11,741,539; 
Recovery Act JAG state variable pass through percentage: 100; 
Recovery Act JAG local allocation: N/A[A]; 
Recovery Act total allocation: $11,741,539. 

State: Florida; 
Recovery Act JAG state allocation: $81,537,096; 
Recovery Act JAG state variable pass through percentage: 64.85; 
Recovery Act JAG local allocation: $53,582,326; 
Recovery Act total allocation: $135,119,422. 

State: Georgia; 
Recovery Act JAG state allocation: $36,210,659; 
Recovery Act JAG state variable pass through percentage: 59.56; 
Recovery Act JAG local allocation: $22,835,094; 
Recovery Act total allocation: $59,045,753. 

State: Illinois; 
Recovery Act JAG state allocation: $50,198,081; 
Recovery Act JAG state variable pass through percentage: 65.51; 
Recovery Act JAG local allocation: $33,465,389; 
Recovery Act total allocation: $83,663,470. 

State: Iowa; 
Recovery Act JAG state allocation: $11,777,401; 
Recovery Act JAG state variable pass through percentage: 48.19; 
Recovery Act JAG local allocation: $6,925,317; 
Recovery Act total allocation: $18,702,718. 

State: Massachusetts; 
Recovery Act JAG state allocation: $25,044,649; 
Recovery Act JAG state variable pass through percentage: 36.52; 
Recovery Act JAG local allocation: $15,749,229; 
Recovery Act total allocation: $40,793,878. 

State: Michigan; 
Recovery Act JAG state allocation: $41,198,830; 
Recovery Act JAG state variable pass through percentage: 57.83; 
Recovery Act JAG local allocation: $25,807,514; 
Recovery Act total allocation: $67,006,344. 

State: Mississippi; 
Recovery Act JAG state allocation: $11,199,389; 
Recovery Act JAG state variable pass through percentage: 56.93; 
Recovery Act JAG local allocation: $7,194,656; 
Recovery Act total allocation: $18,394,045. 

State: New Jersey; 
Recovery Act JAG state allocation: $29,754,315; 
Recovery Act JAG state variable pass through percentage: 59.23; 
Recovery Act JAG local allocation: $17,994,820; 
Recovery Act total allocation: $47,749,135. 

State: New York; 
Recovery Act JAG state allocation: $67,280,689; 
Recovery Act JAG state variable pass through percentage: 65.16; 
Recovery Act JAG local allocation: $43,311,580; 
Recovery Act total allocation: $110,592,269. 

State: North Carolina; 
Recovery Act JAG state allocation: $34,491,558; 
Recovery Act JAG state variable pass through percentage: 42.41; 
Recovery Act JAG local allocation: $21,853,798; 
Recovery Act total allocation: $56,345,356. 

State: Ohio; 
Recovery Act JAG state allocation: $38,048,939; 
Recovery Act JAG state variable pass through percentage: 64.06; 
Recovery Act JAG local allocation: $23,596,436; 
Recovery Act total allocation: $61,645,375. 

State: Pennsylvania; 
Recovery Act JAG state allocation: $45,453,997; 
Recovery Act JAG state variable pass through percentage: 56.04; 
Recovery Act JAG local allocation: $26,918,846; 
Recovery Act total allocation: $72,372,843. 

State: Texas; 
Recovery Act JAG state allocation: $90,295,773; 
Recovery Act JAG state variable pass through percentage: 60.42; 
Recovery Act JAG local allocation: $57,234,982; 
Recovery Act total allocation: $147,530,755. 

Source: Bureau of Justice Assistance data. 

[A] For the District of Columbia, all JAG funds are awarded directly to 
the District. 

[End of table] 

Federal funding for JAG has fluctuated significantly in recent years. 
From fiscal years 2007 through 2008, federal JAG appropriations were 
reduced by about 68 percent, from about $525 million to about $170 
million. The Recovery Act provides $2 billion in JAG funds nationwide 
for state and local governments (see table 12). 

Table 12: Allocation of Edward Byrne Memorial Justice Assistance Grants 
for 16 States and the District for Fiscal Years 2007 and 2008, as well 
as a Result of the Recovery Act: 

State: Arizona; 
Fiscal year 2007: $9,138,401; 
Fiscal year 2008: $3,079,906; 
Recovery Act: $41,966,266. 

State: California; 
Fiscal year 2007: $52,556,190; 
Fiscal year 2008: $17,115,576; 
Recovery Act: $225,354,622. 

State: Colorado; 
Fiscal year 2007: $6,588,179; 
Fiscal year 2008: $2,224,265; 
Recovery Act: $29,858,171. 

State: District of Columbia; 
Fiscal year 2007: $2,647,465; 
Fiscal year 2008: $872,084; 
Recovery Act: $11,741,539. 

State: Florida; 
Fiscal year 2007: $30,272,528; 
Fiscal year 2008: $10,054,495; 
Recovery Act: $135,119,422. 

State: Georgia; 
Fiscal year 2007: $12,699,080; 
Fiscal year 2008: $4,297,073; 
Recovery Act: $59,045,753. 

State: Illinois; 
Fiscal year 2007: $19,302,761; 
Fiscal year 2008: $6,326,515; 
Recovery Act: $83,663,470. 

State: Iowa; 
Fiscal year 2007: $4,226,284; 
Fiscal year 2008: $1,396,960; 
Recovery Act: $18,702,718. 

State: Massachusetts; 
Fiscal year 2007: $9,476,365; 
Fiscal year 2008: $3,093,460; 
Recovery Act: $40,793,878. 

State: Michigan; 
Fiscal year 2007: $15,098,595; 
Fiscal year 2008: $5,024,283; 
Recovery Act: $67,006,344. 

State: Mississippi; 
Fiscal year 2007: $4,262,895; 
Fiscal year 2008: $1,386,088; 
Recovery Act: $18,394,045. 

State: New Jersey; 
Fiscal year 2007: $11,207,725; 
Fiscal year 2008: $3,661,286; 
Recovery Act: $47,749,135. 

State: New York; 
Fiscal year 2007: $25,894,653; 
Fiscal year 2008: $8,415,640; 
Recovery Act: $110,592,269. 

State: North Carolina; 
Fiscal year 2007: $12,293,577; 
Fiscal year 2008: $4,126,580; 
Recovery Act: $56,345,356. 

State: Ohio; 
Fiscal year 2007: $14,130,523; 
Fiscal year 2008: $4,666,868; 
Recovery Act: $61,645,375. 

State: Pennsylvania; 
Fiscal year 2007: $16,420,810; 
Fiscal year 2008: $5,467,997; 
Recovery Act: $72,372,843. 

State: Texas; 
Fiscal year 2007: $33,159,568; 
Fiscal year 2008: $10,992,438; 
Recovery Act: $147,530,755. 

State: Total; 
Fiscal year 2007: $279,375,599; 
Fiscal year 2008: $92,201,514; 
Recovery Act: $1,227,881,961. 

Source: Bureau of Justice Assistance data. 

[End of table] 

Office of Justice Programs Has Plans to Oversee, Monitor, and Measure 
Results Achieved by Recovery Act JAG Funds: 

Using many of its existing grant award and oversight processes and 
procedures, BJA and the Office of Justice Programs (OJP)--which 
oversees BJA and establishes minimum standards for grant monitoring-- 
have reported plans and taken steps to oversee, measure, and monitor 
Recovery Act JAG funds. For example, as part of BJA's review of 
applications for JAG funding, BJA reviewed states' grant funding 
history with OJP to identify any outstanding audit deficiencies, such 
as delinquent financial and programmatic reports regarding OJP funding. 
If any such deficiencies were identified, they were highlighted in the 
states' award letter from BJA for Recovery Act JAG funding as special 
conditions requiring resolution by the state. According to BJA, 4 of 
the 16 states and the District in our review had at least one special 
condition requiring resolution that prohibited them from obligating or 
expending funds until the specific issues were resolved. As of June 30, 
2009, 3 of these states and the District had resolved the issues and 
had received written approval from BJA releasing the funds. OJP is 
working with the remaining state to resolve the issues to release the 
special conditions. 

With respect to monitoring grants once they are awarded, OJP's plans 
include, among others, taking steps to track Recovery Act funds and 
assessing the performance of projects funded by these grants. For 
example, OJP's financial system allows it to track grantees' use of 
funds by program and project code, where project codes align with a 
grantee's program areas. As of June 30, 2009, project codes have been 
developed for the JAG program for Recovery Act funds. In addition, OJP 
plans to conduct programmatic, administrative, and financial monitoring 
of its Recovery Act grantees.[Footnote 73] This monitoring, among other 
activities, includes ongoing reviews of grantee compliance with program 
guidelines, as well as on-site monitoring of grantee performance. OJP 
has reported plans to conduct on-site monitoring of no less than 30 
percent of open, active Recovery Act grant funding. Further, the Office 
of Audit, Assessment, and Management, within OJP, plans to collaborate 
with BJA to update monitoring procedures.[Footnote 74] For example, the 
office plans to develop guidance that focuses on monitoring Recovery 
Act grants by July 31, 2009. In addition, this office plans to complete 
quarterly reports on grantee data, such as reporting compliance with 
requirements to submit performance measure data and how grantees are 
obligating funds, to identify grantees not complying with reporting 
requirements or program guidelines to enable timely follow-up with 
grantees to correct such deficiencies. In addition to other available 
courses, OJP plans to develop Web-accessible training for grantees, 
which are to cover topics such as Recovery Act reporting requirements, 
writing grant applications, and an orientation for new grantees. OJP 
also reported that it facilitated training sessions in the spring of 
2009 for its employees on topics such as grant fraud detection and how 
to create grant award packages, and it has plans to facilitate training 
on monitoring Recovery Act grantees during fiscal year 2009. 

In addition to two performance measures on the number of jobs created 
and preserved that are to be collected under the Recovery Act, BJA 
requires JAG grantees to report on additional performance measures for 
the specific activities that apply to the programs being funded through 
the Recovery Act. As of June 30, 2009, OJP has updated JAG program 
performance measures for grants awarded with Recovery Act funds. For 
example, if JAG Recovery funds are used to support a drug treatment 
program, the grantee would be required to report on the number of 
participants who completed the program, among other measures. BJA 
requires that these reports be submitted by grant recipients within 30 
days after the end of each quarter. OJP has also developed an online 
performance measurement tool for JAG grantees to use to report these 
data, which it anticipates JAG fund recipients can begin to use to 
report on updated measures in July 2009. 

BJA Has Approved State-Level Recovery Act JAG Awards for the District 
of Columbia and All States in Our Review, and Eight States Have 
Obligated Funds: 

As of June 30, 2009, all 16 states and the District in our review have 
received their state award letter from BJA. Further, as of that date, 8 
states reported having obligated a share of these funds:[Footnote 75] 

* Arizona (about $23.1 million obligated, or about 91 percent of its 
state award), 

* Colorado (about $13,700 obligated, or about .08 percent of its state 
award), 

* Florida (about $8,300 obligated, or about .01 percent of its state 
award), 

* Illinois (about $12.4 million obligated, or about 25 percent of its 
state award), 

* Massachusetts (about $12.7 million obligated, or about 51 percent of 
its state award), 

* Michigan (about $41.2 million obligated, or 100 percent of its state 
award), 

* Mississippi (about $57,000 obligated, or about 0.5 percent of its 
state award), and: 

* Texas (about $4.6 million obligated, or about 5 percent of its state 
award). 

The remaining 8 states and the District reported that no state Recovery 
Act JAG funds had yet been obligated.[Footnote 76] 

According to officials from the states' administering agencies (SAA), 
who are responsible for, among other things, administering and setting 
priorities for the use of JAG funds for the state, they are in various 
stages of finalizing how these funds will be used--primarily the 
portion that is to be passed through to local entities, or 
subrecipients.[Footnote 77] Specifically: 

* Four states are early in the request for proposal (RFP) process for 
local entities to apply for state pass-through funds. For example, 
Mississippi and New Jersey are developing their RFPs, while 
Pennsylvania and Illinois are beginning to collect proposals. New 
Jersey officials stated they are in the process of developing RFPs for 
local jurisdictions while Mississippi officials similarly stated they 
plan to have a final RFP done in time to make awards by August 1, 2009. 
Pennsylvania issued its RFP on June 18, 2009, and plans to collect 
proposals from local entities until July 24, 2009, while Illinois 
officials stated they plan to begin soliciting applications from local 
law enforcement agencies in the first part of July 2009 and plan to 
notify applicants of funding recommendations in early August 2009. 

* Eight states--Colorado, Florida, Georgia, Iowa, Massachusetts, New 
York, Ohio, and Texas--and the District of Columbia have received 
applications or letters of intent submitted by local entities for pass- 
through funding and are in the process of reviewing and in some cases 
also approving them. For example, according to Colorado officials, the 
state received 193 applications and is reviewing them for allowable 
costs, budgets, and a description of how the funds are to help create 
or retain jobs, among other items. Staff are also ranking the 
applications in preparation for their presentation and scoring by the 
state's JAG board in early July 2009. In Massachusetts, an official 
noted the state is in different stages of reviewing and finalizing 
agreements with state agencies that are to receive a share of JAG funds 
and, for some funds, are awaiting final processing through the state 
comptroller. In Ohio, officials stated they are performing compliance 
reviews on the more than 500 applications received for JAG funding and 
plan to notify subrecipients of their awards by July 31, 2009. 

* Three states have selected potential projects for funding and are 
awaiting final governing body approval. For example, according to state 
officials in California, the Legislature must approve the planning 
document for how JAG funds are to be used in the state in order for 
funds to be allocated to local agencies, and this approval has not yet 
occurred as of June 30, 2009. In North Carolina, the SAA has selected 
85 eligible projects for JAG funding and is awaiting approval by the 
governor to proceed with allocating those funds. Similarly, in 
Michigan, an official stated that recommendations for grant awards have 
been sent to the Governor's office for final approval and that 
contracts are to have a July 1, 2009, start date. 

* One state has finalized and approved a list of projects to receive 
the state's JAG award. Specifically, Arizona has selected and approved 
36 projects that are to receive state Recovery Act JAG funds, and 
subrecipients are to have those funds available on July 1, 2009. 

However, all 16 states and the District of Columbia have reported uses 
for their state Recovery Act JAG awards that are consistent with their 
states' priorities and allowable uses of those funds, as determined by 
BJA. Table 13 shows planned uses of these funds for the 16 states and 
the District. 

Table 13: Planned Use of Recovery Act JAG Funds for 16 States and the 
District: 

State: Arizona; 
Examples of planned use of JAG funding: To supplement current state law 
enforcement and criminal justice efforts in areas such as drug 
forensics, drug and gang prosecution, rural law enforcement, and 
information sharing. 

State: California; 
Examples of planned use of JAG funding: To support local drug reduction 
efforts and concentrate on the widespread apprehension, prosecution, 
adjudication, detention, and rehabilitation of offenders by enabling 
law enforcement agencies to create and retain between 275 and 300 
positions over the next 4 years. 

State: Colorado; 
Examples of planned use of JAG funding: To support initiatives such as 
the purchase of basic law enforcement equipment and supplies, 
information sharing, the establishment of specialized courts addressing 
substance abuse and mental health, and drug treatment and enforcement. 

State: District of Columbia; 
Examples of planned use of JAG funding: To support programs focused on 
prisoners, criminal and juvenile justice research, and court diversion 
services for at-risk youth. 

State: Florida; 
Examples of planned use of JAG funding: To expand existing drug court 
programs, provide detention and treatment services for youth, purchase 
radio equipment upgrades for the Department of Corrections, and 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. 

State: Georgia; 
Examples of planned use of JAG funding: To support positions at state 
agencies with criminal justice missions and fund assistance for victims 
of crime, among other things. 

State: Illinois; 
Examples of planned use of JAG funding: To support areas including 
programs that pursue violent and predatory criminals, efforts that 
focus on prosecuting violent and predatory criminals and drug 
offenders, juvenile and adult re-entry programs, programs that enhance 
jail or correctional facility security and safety, and programs that 
combat and disrupt criminal drug networks and provide substance abuse 
treatment. 

State: Iowa; 
Examples of planned use of JAG funding: To support a broad range of 
activities to prevent and control crime and improve the criminal 
justice system, with an emphasis on violent crime, drug offenses and 
serious offenders. 

State: Massachusetts; 
Examples of planned use of JAG funding: To supplement current state 
public safety programs, retain jobs, and support core services. 
Additional funds are to support local police departments adversely 
affected by local budget conditions and a summer jobs program targeted 
to at-risk youth. 

State: Michigan; 
Examples of planned use of JAG funding: To continue planned technology 
enhancements, provide prescription drug abuse awareness programs, and 
add courts focusing on crime areas, including domestic violence. 

State: Mississippi; 
Examples of planned use of JAG funding: To fund programs for juvenile 
justice, as well as local drug treatment and enforcement through adult, 
family, and juvenile drug courts, as well as crime laboratory 
enhancements. 

State: New Jersey; 
Examples of planned use of JAG funding: To support the state in funding 
new and existing programs for state and local law enforcement agencies 
in enforcement (intelligence-led, data-driven policing), prevention 
(decreasing youth involvement in crime), and re-entry of released 
prisoners into communities (reducing recidivism). 

State: New York; 
Examples of planned use of JAG funding: To expand personnel and 
services in connection with recent drug law reform legislation, as well 
as to provide transitional jobs and permanent job placement services 
for the formerly incarcerated. 

State: North Carolina; 
Examples of planned use of JAG funding: To support criminal justice 
improvement and crime victims' services. Criminal justice improvement 
funding priorities include overtime requests to ensure that departments 
can maintain full coverage and requests for equipment, such as weapons, 
uniforms, and communications devices; sexual assault and domestic 
violence services; child abuse and neglect services; law enforcement, 
prosecutors' office and court officials; underserved crime victims' 
services; and supervised visitation centers. 

State: Ohio; 
Examples of planned use of JAG funding: To fund initiatives that 
support the state's nine purpose areas: law enforcement, prevention and 
education, corrections and community corrections, prosecution, court 
and victims' services, research, evaluation, technology improvement, 
and law enforcement programs. 

State: Pennsylvania; 
Examples of planned use of JAG funding: To fund initiatives such as 
criminal records improvement, law enforcement, public awareness of 
victim compensation and services, assistance with local criminal 
justice strategic planning, gun violence reduction, mental health 
initiatives, and training. 

State: Texas; 
Examples of planned use of JAG funding: To increase programs that 
divert juveniles away from criminal activities and toward productive 
lifestyles, reduce crime and enhance resources for prosecution of 
offenders, and support solutions for restoring victims of crime, 
reintegrating offenders into the community, and reducing the potential 
for recidivism. 

Sources: Bureau of Justice Assistance, states, and the District of 
Columbia. 

[End of table] 

BJA Has Started to Make Recovery Act JAG Awards to Localities: 

BJA is in the process of reviewing and processing applications from 
local governments for Recovery Act JAG funding. The solicitation for 
this funding was closed on June 17, 2009. As of June 30, 2009, BJA has 
awarded about 44 percent of allocated funds to local governments within 
the 16 states (see table 14).[Footnote 78] BJA officials stated they 
intend to award all of these local JAG funds by September 30, 2009. 

Table 14: Recovery Act Edward Byrne Memorial Justice Assistance Grants 
Awarded by the Bureau of Justice Assistance to Localities in 16 States 
and the District: 

State: Arizona; 
Recovery Act JAG local awards made[A]: $865,559; 
Total Recovery Act JAG local allocation: $16,659,310; 
Percentage awarded[A]: 5.2. 

State: California; 
Recovery Act JAG local awards made[A]: $29,324,123; 
Total Recovery Act JAG local allocation: $89,712,677; 
Percentage awarded[A]: 32.7. 

State: Colorado; 
Recovery Act JAG local awards made[A]: $8,474,100; 
Total Recovery Act JAG local allocation: $11,534,788; 
Percentage awarded[A]: 73.5. 

State: District of Columbia[B]; 
Recovery Act JAG local awards made[A]: N/A; 
Total Recovery Act JAG local allocation: N/A; 
Percentage awarded[A]: N/A. 

State: Florida; 
Recovery Act JAG local awards made[A]: $8,813,275; 
Total Recovery Act JAG local allocation: $53,582,326; 
Percentage awarded[A]: 16.4. 

State: Georgia; 
Recovery Act JAG local awards made[A]: $15,445,135; 
Total Recovery Act JAG local allocation: $22,835,094; 
Percentage awarded[A]: 67.6. 

State: Illinois; 
Recovery Act JAG local awards made[A]: $29,986,076; 
Total Recovery Act JAG local allocation: $33,465,389; 
Percentage awarded[A]: 89.6. 

State: Iowa; 
Recovery Act JAG local awards made[A]: $3,347,457; 
Total Recovery Act JAG local allocation: $6,925,317; 
Percentage awarded[A]: 48.3. 

State: Massachusetts; 
Recovery Act JAG local awards made[A]: $6,877,332; 
Total Recovery Act JAG local allocation: $15,749,229; 
Percentage awarded[A]: 43.7. 

State: Michigan; 
Recovery Act JAG local awards made[A]: $18,246,124; 
Total Recovery Act JAG local allocation: $25,807,514; 
Percentage awarded[A]: 70.7. 

State: Mississippi; 
Recovery Act JAG local awards made[A]: $203,873; 
Total Recovery Act JAG local allocation: $7,194,656; 
Percentage awarded[A]: 2.8. 

State: New Jersey; 
Recovery Act JAG local awards made[A]: $979,950; 
Total Recovery Act JAG local allocation: $17,994,820; 
Percentage awarded[A]: 5.4. 

State: New York; 
Recovery Act JAG local awards made[A]: $39,621,699; 
Total Recovery Act JAG local allocation: $43,311,580; 
Percentage awarded[A]: 91.5. 

State: North Carolina; 
Recovery Act JAG local awards made[A]: $9,329,683; 
Total Recovery Act JAG local allocation: $21,853,798; 
Percentage awarded[A]: 42.7. 

State: Ohio; 
Recovery Act JAG local awards made[A]: $20,079,913; 
Total Recovery Act JAG local allocation: $23,596,436; 
Percentage awarded[A]: 85.1. 

State: Pennsylvania; 
Recovery Act JAG local awards made[A]: $412,080; 
Total Recovery Act JAG local allocation: $26,918,846; 
Percentage awarded[A]: 1.5. 

State: Texas; 
Recovery Act JAG local awards made[A]: $14,439,818; 
Total Recovery Act JAG local allocation: $57,234,982; 
Percentage awarded[A]: 25.2. 

State: Total; 
Recovery Act JAG local awards made[A]: $206,446,197; 
Total Recovery Act JAG local allocation: $474,376,762; 
Percentage awarded[A]: 43.5. 

Source: GAO analysis of Bureau of Justice Assistance data. 

[A] As of June 30, 2009. 

[B] All JAG funds are awarded directly to the District of Columbia, 
thus, no local funds are allocated. 

[End of table] 

State Administering Agencies Cited Challenges to Meeting Recovery Act 
Reporting Requirements: 

While Recovery Act JAG funds are calculated and administered using the 
same rules and structure of the existing JAG program, the Recovery Act 
introduces some new requirements for recipients. For example, 
recipients are required to track performance measures on the number of 
jobs created and preserved as a result of Recovery Act funds and must 
report certain financial and programmatic information--such as the 
amount of Recovery Act funds expended or obligated and an evaluation of 
the project's completion status--to the Recovery Act central reporting 
Web site 10 days after the end of each quarter. 

Officials from several of the 17 state administering agencies we 
visited noted concerns about subrecipients' ability to meet the act's 
reporting requirements for determining the number of jobs created and 
preserved, and the majority noted challenges to meeting the 10-day 
deadline for submitting quarterly reports on Recovery Act data. For 
example, state officials noted the need for additional guidance on how 
to determine whether JAG funds are contributing to job creation or job 
preservation. Specifically, officials in three states raised questions 
about how, if at all, grantees were to measure jobs that may be 
indirectly related to JAG fund expenditures. For example, if a grantee 
purchased three new police cruisers, how might it determine how many 
secondary jobs were retained or created at the car manufacturer. On 
June 22, 2009, the Office of Management and Budget (OMB) issued 
guidance on, among other things, how to report on job creation 
performance measures, which included clarification that recipients 
should not attempt to report on the employment impact on material 
suppliers and central service providers (i.e., indirect jobs) that may 
be related to Recovery Act supported activities.[Footnote 79] 

Further, officials from the majority of states shared concerns over the 
Recovery Act requirement that recipients submit reports within 10 days 
of the end of each quarter. In previous years, JAG award recipients 
were required to provide programmatic reports to BJA on an annual 
basis--rather than on a quarterly basis, as required by the Recovery 
Act. Specifically, state officials were concerned that subrecipients 
would not be able to meet that deadline or that they may do so at the 
risk of quality and accuracy of reporting. For example, officials in 
North Carolina stated they were concerned about programs, specifically 
first-time subrecipients from nonprofit and faith-based organizations, 
not being prepared for compliance responsibilities, due to limitations 
in the numbers and experience of staff that are to complete the 
reports. Officials stated that many of the subrecipients' offices do 
not have the resources to prepare detailed reporting documents. 
Officials in Iowa expressed similar concerns about the 10-day reporting 
requirement and noted that some potential recipients--small law 
enforcement agencies with five or fewer officers or staff--may not 
apply for Recovery Act funds if they believe the reporting requirements 
are burdensome relative to the amount of JAG funds they might receive. 
Alternatively, officials noted that some recipients may choose to apply 
for funds and then spend them quickly because the reporting requirement 
ends after the funds have been expended, reported on, and the grant 
closed. Officials stated they are concerned about the accuracy of the 
information the administering agencies are to receive if the data are 
reported so quickly. For example, officials in Michigan noted that to 
meet performance measurement reporting on time, subrecipients are to 
submit reports within 5 days of the end of the quarter to allow time 
for the state administering agency to prepare and submit these reports. 
Officials in North Carolina noted that with an increased number of 
localities receiving the awards compared with previous years, 
compliance with tracking and consolidating reporting requirements is 
expected to be more difficult. BJA officials stated they recognized 
these concerns and agreed that states may face challenges should they 
have hundreds of subrecipients for pass-through funds. 

To help facilitate subrecipients in meeting the reporting requirements, 
officials in many of the states and the District described plans to 
prepare entities for reporting, such as conducting training, 
implementing Web-based reporting, and clarifying the requirements with 
potential subrecipients. For instance, officials in North Carolina 
stated they plan to sponsor workshops to provide additional information 
about the Recovery Act reporting requirements to potential 
subrecipients. Officials in Illinois stated that while they had some 
concerns about timely reporting, they plan to require subrecipients to 
report on a monthly basis to the SAA, conduct training for 
subrecipients, and transition to an electronic system to facilitate 
tracking and reporting of funds. 

The District of Columbia and States Reported Plans to Use Existing 
Processes to Safeguard the Use of JAG Funds: 

The District of Columbia and states in our review reported they plan to 
use existing grants management processes to ensure that subrecipients 
are using JAG funds in accordance with BJA and Recovery Act 
requirements, as can be seen in the following examples: 

* Arizona SAA officials reported that as an established process they 
used a peer-reviewed, risk-based scoring matrix to select subrecipients 
that considered, among other things, the applicant's most recent Single 
Audit results, plans for evaluating the impact resulting from the use 
of such funds, and funding history with the SAA including any past 
compliance issues. Once grants are awarded, SAA officials stated that 
they have a compliance team of six staff that are to perform ongoing 
financial and programmatic compliance reviews to ensure that 
subrecipients comply with grant guidance. For example, program 
compliance staff are to review subrecipients' monthly and quarterly 
financial reports and identify any areas of concern, such as if funds 
are expended too slowly or too quickly, if there are questionable 
expenses, or if monthly and quarterly reports do not agree. Financial 
compliance staff are to also perform annual on-site visits that include 
financial audits in addition to internal controls inspections of, among 
other things, the accounting system and key financial documentation. 
Officials estimated that the workload is likely to double as a result 
of receiving additional funds through the Recovery Act and 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. 

* District of Columbia SAA officials reported that they have 
established programmatic and financial procedures for separately 
tracking and reporting on all federal grant funding programs. The SAA 
requires subrecipients to provide detailed, separate monthly or 
quarterly financial reports on their federal funding that includes 
supporting documentation on all expenses. These financial reports and 
reimbursement requests are tracked separately by the SAA in a grants 
management database as well as through the District's financial system; 
additionally, the Office of the Chief Financial Officer is responsible 
for completing separate financial reports on each federal grant and for 
drawing down funds in line with grant expenditures. 

* New Jersey SAA officials reported that they plan to monitor the use 
of JAG funds in several ways. First, the SAA plans to track 
expenditures through a separate code in its accounting system for 
Recovery Act funds, as required by the state and federal government. 
Second, the SAA plans to educate subrecipients on how to comply with 
funding rules by holding postaward conferences with subrecipients prior 
to the receipt of funds. Subsequently, subrecipients are to be required 
to submit monthly financial and programmatic reports to the SAA. 
Internally, the SAA plans to use existing program and fiscal analysts 
to track spending and compliance with financial and programmatic 
requirements. Officials said that they are exploring ways to increase 
the number of staff monitoring subrecipients, but because New Jersey is 
under a hiring freeze, any increase in staff to conduct this monitoring 
would likely come as a result of reassignments from other agencies or 
offices. Finally, SAA officials noted that an audit by the Office of 
the State Auditor should provide another layer of review regarding the 
use of JAG Recovery Act funds. 

* Texas SAA officials report that they plan to monitor performance and 
financial aspects of awarded funds to ensure that funds are used for 
authorized purposes. Also, the SAA, in coordination with the Office of 
the Governor's Financial Services Division, plans to able to account 
for, track, and report on federal funds resulting from the Recovery Act 
separately from other fund sources. According to the SAA officials, 
this will allow each award to be directly tied to accounting codes to 
give the Governor's office the ability to account for, track, and 
report separately on these funds. Texas also contracts with the Public 
Policy Research Institute at Texas A&M University to maintain a Web- 
based data collection system that can retrieve and analyze program 
performance data, and the state plans to continue to do so to support 
Recovery Act reporting requirements. 

DOE's Weatherization Assistance Program: 

The Recovery Act appropriated $5 billion over a 3-year period for the 
Weatherization Assistance Program, which the U.S. Department of Energy 
(DOE) administers through each of the states, the District of Columbia 
(District), and seven territories and Indian tribes. According to DOE, 
during the past 32 years, the program has assisted more than 6.2 
million low-income families to reduce their utility bills by making 
long-term energy-efficiency improvements to homes. For example, by 
installing insulation, sealing leaks around doors and windows, or 
modernizing heating equipment, the weatherization program allows these 
households to spend their money on more pressing family needs. The 
Recovery Act appropriation represents a significant increase for a 
program that has received about $225 million per year in recent years. 

DOE Has Provided the States with Initial Funds, but Most States Report 
Using Little if Any of the These Funds: 

In response to the Recovery Act, DOE announced on March 12, 2009, that 
the 50 states, the District, and seven U.S. territories and Indian 
tribes are eligible to receive weatherization formula grants.[Footnote 
80] Each of the 16 states and the District in our review submitted an 
initial grant application. As shown in table 15, DOE then provided each 
with an initial 10 percent of its formula funds with the stipulation 
that the funds could be used only for such start-up activities as 
preparing a state weatherization plan, hiring and training staff, and 
purchasing needed equipment but could not be used for the production of 
weatherized homes. Subsequently, on June 9, 2009, DOE lifted this 
prohibition for local agencies that have previously provided services 
and are included in a state's plan, in response to states' concern that 
their local agencies were ready to begin weatherization activities but 
lacked funding. 

Table 15: DOE's Allocation of the Recovery Act's Weatherization Funds 
for 16 States and the District: 

State: Arizona; 
Total allocation: $57,023,278[A]; 
Initial allocation: $5,702,328; 
Date received: April 10, 2009. 

State: California; 
Total allocation: $185,811,061; 
Initial allocation: $18,581,106; 
Date received: April 10, 2009. 

State: Colorado; 
Total allocation: $79,531,213; 
Initial allocation: $7,953,121; 
Date received: April 1, 2009. 

State: District of Columbia; 
Total allocation: $8,089,022; 
Initial allocation: $808,902; 
Date received: March 30, 2009. 

State: Florida; 
Total allocation: $175,984,474; 
Initial allocation: $17,598,447; 
Date received: April 10, 2009. 

State: Georgia; 
Total allocation: $124,756,312; 
Initial allocation: $12,475,631; 
Date received: April 20, 2009. 

State: Illinois; 
Total allocation: $242,526,619; 
Initial allocation: $24,252,662; 
Date received: April 1, 2009. 

State: Iowa; 
Total allocation: $80,834,411; 
Initial allocation: $8,083,441; 
Date received: March 27, 2009. 

State: Massachusetts; 
Total allocation: $122,077,457; 
Initial allocation: $12,207,746; 
Date received: April 3, 2009. 

State: Michigan; 
Total allocation: $243,398,975; 
Initial allocation: $24,339,898; 
Date received: March 27, 2009. 

State: Mississippi; 
Total allocation: $49,421,193; 
Initial allocation: $4,942,119; 
Date received: April 3, 2009. 

State: New Jersey; 
Total allocation: $118,821,296; 
Initial allocation: $11,882,130; 
Date received: April 7, 2009. 

State: New York; 
Total allocation: $394,686,513; 
Initial allocation: $39,468,651; 
Date received: April 13, 2009. 

State: North Carolina; 
Total allocation: $131,954,536; 
Initial allocation: $13,195,454; 
Date received: April 1, 2009. 

State: Ohio; 
Total allocation: $266,781,409; 
Initial allocation: $26,678,141; 
Date received: March 27, 2009. 

State: Pennsylvania; 
Total allocation: $252,793,062; 
Initial allocation: $25,279,306; 
Date received: March 27, 2009. 

State: Texas; 
Total allocation: $326,975,732; 
Initial allocation: $32,697,573; 
Date received: April 10, 2009. 

Source: DOE. 

Notes: DOE allocated the Recovery Act's weatherization funds among the 
eligible states, territories, and Indian tribes using (1) a fixed, base 
allocation and (2) a formula allocation for the remaining funds that is 
based on each state's low-income households, climate conditions, and 
expenditures by low-income households on residential energy. 

[A] DOE allocated an additional $6 million to the Navajo Indian tribal 
areas in Arizona. 

[End of table] 

Most of the states reported that they have used little if any of the 
initial 10 percent allocation of Recovery Act funds.[Footnote 81] In 
fact, some state weatherization agencies have not received any of their 
DOE allocation because the funds are being held at the state level. For 
example, Georgia has not spent the 10 percent allocation because the 
action plan required by the governor is still under review. In 
Pennsylvania, the funds must be appropriated through the state budget 
process, and the budget has not yet been approved. Other states decided 
not to use the funds until July 1, 2009 for a variety of reasons. 
Illinois waited until July 1 to begin spending the weatherization funds 
because of DOE's initial guidance that funds could not be used for 
weatherization production activities. Massachusetts did not spend any 
of the initial allocation until the beginning of the state's fiscal 
year on July 1. Furthermore, as of June 30, 2009, Florida reports 
obligating $113,000 of its $17.6 million initial allocation for start- 
up activities, such as hiring and training staff. 

DOE Is Reviewing State Plans and Providing the Next 40 Percent of 
Weatherization Funds: 

All of the states in our review submitted state weatherization plans to 
DOE by May 12, 2009. State officials told us that DOE's funding 
announcement and e-mail messages had provided them with the guidance 
needed to complete their weatherization plans, which outline the 
states' plans for using the weatherization funds and for monitoring and 
measuring performance, among other things. DOE's goal is to approve 80 
percent of all state weatherization plans by the end of July 2009. DOE 
is providing the next 40 percent of weatherization funds to a state 
once the weatherization plan is approved. 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. 

As shown in table 16, as of June 30, 2009, DOE had approved the state 
weatherization plans for Arizona, California, Florida, Georgia, 
Illinois, Mississippi, New York, North Carolina, Ohio, and the 
District, enabling them to receive the next 40 percent of their funds. 
[Footnote 82] Most states expect DOE approval of their plans by mid-
July. However, the timing of DOE's approval could be an issue for some 
states. For example, Colorado officials in the Governor's Energy Office 
expressed concern about the timing of DOE's approval because their plan 
is designed to begin on July 1, the beginning of the state's fiscal 
year. DOE's June 9 revised guidance provided the states with some 
additional flexibility for using the initial 10 percent of funds. DOE's 
continued communication with the states on the timing of the approval 
of state plans will be important in minimizing possible disruptions of 
states' efforts to implement their weatherization programs. 

Table 16: DOE's Approval of State Plans and Second Allocation of the 
Recovery Act's Weatherization Funds for 16 States and the District: 

State: Arizona; 
Date state plan was submitted (2009): April 28; 
Date state plan was approved (2009): June 8; 
Second allocation of funds: $22,809,311. 

State: California; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 18; 
Second allocation of funds: 74,324,424. 

State: Colorado; 
Date state plan was submitted (2009): May 8; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: District of Columbia; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 18; 
Second allocation of funds: 3,235,609. 

State: Florida; 
Date state plan was submitted (2009): May 11; 
Date state plan was approved (2009): June 18; 
Second allocation of funds: 70,393,790. 

State: Georgia; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 26; 
Second allocation of funds: 49,,902,525. 

State: Illinois; 
Date state plan was submitted (2009): May 1; 
Date state plan was approved (2009): June 26; 
Second allocation of funds: 97,010,648. 

State: Iowa; 
Date state plan was submitted (2009): May 11; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: Massachusetts; 
Date state plan was submitted (2009): May 11; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: Michigan; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: Mississippi; 
Date state plan was submitted (2009): May 11; 
Date state plan was approved (2009): June 8; 
Second allocation of funds: 19,768,477. 

State: New Jersey; 
Date state plan was submitted (2009): May 11; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: New York; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 26; 
Second allocation of funds: 157,874,605. 

State: North Carolina; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 18; 
Second allocation of funds: 52,781,814. 

State: Ohio; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): June 18; 
Second allocation of funds: 106,712,564. 

State: Pennsylvania; 
Date state plan was submitted (2009): May 12; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

State: Texas; 
Date state plan was submitted (2009): May 6; 
Date state plan was approved (2009): [A]; 
Second allocation of funds: [A]. 

Source: DOE. 

[A] DOE has not yet approved the state's weatherization plan. 

[End of table] 

In addition, officials in nine of the states in our review expressed 
concern that the Recovery Act requires that weatherization contractors 
and subcontractors pay their laborers and mechanics at the locally 
prevailing wage rates, as determined by the U.S. Secretary of Labor. 
Because prior DOE weatherization funding did not have this requirement, 
questions have been raised about how the requirement should be 
implemented. For example, it creates the possibility that workers could 
be paid at different wage rates for the same work, depending on the 
source of funds. Pennsylvania officials noted that local community 
action agencies may have difficulty tracking the number of hours worked 
by employees who perform tasks at both prevailing and nonprevailing 
wage rates. We will continue to monitor the implementation of this 
requirement. 

States' Proposed Plans for Using Weatherization Funds Vary: 

As shown in table 17, each of the states in our review has provided its 
plans for using its Recovery Act weatherization allocation by breaking 
expenditures into program operations, administration, training and 
technical assistance, and other activities. All of the states propose 
to spend at least 50 percent of their allocation on program operations, 
ranging from 53 percent in California to 90 percent in Massachusetts. 
According to DOE, variances among the states in the percentage of funds 
devoted to program operations reflect different levels of maturity in, 
for example, providing the infrastructure needed to achieve the 
administration's overall goal of weatherizing 1 million houses per 
year. 

Table 17: States' Proposed Funding Plans for Using the Recovery Act's 
Weatherization Funds: 

State: Arizona; 
Total allocation: $57,023,278; 
Program operations: $41,251,602; 
Administration[A]: $5,702,328; 
Training and technical assistance[B]: $10,003,042; 
Other[C]: $66,306. 

State: California; 
Total allocation: $185,811,061; 
Program operations: $98,215,497; 
Administration[A]: $18,581,106; 
Training and technical assistance[B]: $32,515,292; 
Other[C]: $36,499,166. 

State: Colorado; 
Total allocation: $79,531,213; 
Program operations: $58,103,432; 
Administration[A]: $6,445,791; 
Training and technical assistance[B]: $4,916,481; 
Other[C]: $10,065,509. 

State: District of Columbia; 
Total allocation: $8,089,022; 
Program operations: $5,098,516; 
Administration[A]: $808,902; 
Training and technical assistance[B]: $1,454,968; 
Other[C]: $726,636. 

State: Florida; 
Total allocation: $175,984,474; 
Program operations: $124,008,695; 
Administration[A]: $17,598,448; 
Training and technical assistance[B]: $29,917,361; 
Other[C]: $4,379,970. 

State: Georgia; 
Total allocation: $124,756,312; 
Program operations: $88,509,632; 
Administration[A]: $10,291,150; 
Training and technical assistance[B]: $21,844,809; 
Other[C]: $4,110,721. 

State: Illinois; 
Total allocation: $242,526,619; 
Program operations: $174,946,540; 
Administration[A]: $24,252,660; 
Training and technical assistance[B]: $42,427,419; 
Other[C]: $900,000. 

State: Iowa; 
Total allocation: $80,834,411; 
Program operations: $46,865,882; 
Administration[A]: $8,083,441; 
Training and technical assistance[B]: $11,168,618; 
Other[C]: $14,716,470. 

State: Massachusetts; 
Total allocation: $122,077,457; 
Program operations: $110,019,000; 
Administration[A]: $9,073,981; 
Training and technical assistance[B]: $2,517,906; 
Other[C]: $466,570. 

State: Michigan; 
Total allocation: $243,398,975; 
Program operations: $195,159,247; 
Administration[A]: $17,305,253; 
Training and technical assistance[B]: $11,129,275; 
Other[C]: $19,805,200. 

State: Mississippi; 
Total allocation: $49,421,193; 
Program operations: $33,579,102; 
Administration[A]: $4,471,060; 
Training and technical assistance[B]: $8,678,559; 
Other[C]: $2,692,472. 

State: New Jersey; 
Total allocation: $118,821,296; 
Program operations: $89,354,321; 
Administration[A]: $10,806,268; 
Training and technical assistance[B]: $9,308,242; 
Other[C]: $9,352,465. 

State: New York; 
Total allocation: $394,686,513; 
Program operations: $247,560,920; 
Administration[A]: $39,468,652; 
Training and technical assistance[B]: $69,020,266; 
Other[C]: $38,636,675. 

State: North Carolina; 
Total allocation: $131,954,536; 
Program operations: $108,851,700; 
Administration[A]: 0; 
Training and technical assistance[B]: $23,102,836; 
Other[C]: 0. 

State: Ohio; 
Total allocation: $266,781,409; 
Program operations: $209,167,751; 
Administration[A]: $21,280,186; 
Training and technical assistance[B]: $7,737,330; 
Other[C]: $28,596,142. 

State: Pennsylvania; 
Total allocation: $252,793,062; 
Program operations: $192,936,342; 
Administration[A]: $21,729,647; 
Training and technical assistance[B]: $20,000,000; 
Other[C]: $18,127,073. 

State: Texas; 
Total allocation: $326,975,732; 
Program operations: $218,701,202; 
Administration[A]: $30,833,844; 
Training and technical assistance[B]: $21,253,423; 
Other[C]: $56,187,263. 

Source: State weatherization plans. 

Notes: This table is based on the DOE funding announcement's activity 
categories. Some states categorized these amounts in their state 
weatherization plans differently than the way they are presented in 
this table because of variances in how their categories were defined. 

[A] Administrative expenses cannot exceed 10 percent of a state's 
allocation. 

[B] Training and technical assistance expenses cannot exceed 20 percent 
of a state's allocation. 

[C] Includes vehicles, equipment, health and safety, liability 
insurance, and financial audits, among other things. 

[End of table] 

State Weatherization Plans Focus on Units Weatherized as a Measure of 
Impact: 

DOE's funding announcement directs the states to report on the number 
of housing units weatherized, the resulting energy savings, and the 
number of jobs created. Table 18 shows the number of housing units that 
states expect to weatherize using Recovery Act funds, according to 
states' weatherization plans. While many of the weatherization plans 
estimate expected energy savings, they do not use a consistent unit of 
measurement or time frame. Few of the states' weatherization plans 
present an estimate of the expected jobs created. DOE officials told us 
that OMB will issue additional guidance to the states regarding a 
consistent methodology for making this calculation. 

Table 18: Number of Housing Units Expected to Be Weatherized Using 
Recovery Act Funds: 

State: Arizona; 
Housing units expected to be weatherized: 6,409. 

State: California; 
Housing units expected to be weatherized: 50,330. 

State: Colorado; 
Housing units expected to be weatherized: 16,280. 

State: District of Columbia; 
Housing units expected to be weatherized: 784. 

State: Florida; 
Housing units expected to be weatherized: 19,000. 

State: Georgia; 
Housing units expected to be weatherized: 13,617. 

State: Iowa; 
Housing units expected to be weatherized: 7,196. 

State: Illinois; 
Housing units expected to be weatherized: 27,181. 

State: Massachusetts; 
Housing units expected to be weatherized: 16,926. 

State: Michigan; 
Housing units expected to be weatherized: 32,000. 

State: Mississippi; 
Housing units expected to be weatherized: 5,467. 

State: New Jersey; 
Housing units expected to be weatherized: 13,381. 

State: New York; 
Housing units expected to be weatherized: 45,000. 

State: North Carolina; 
Housing units expected to be weatherized: 23,500. 

State: Ohio; 
Housing units expected to be weatherized: 32,179. 

State: Pennsylvania; 
Housing units expected to be weatherized: 29,700. 

State: Texas; 
Housing units expected to be weatherized: 33,740. 

Sources: State weatherization plans and, for Michigan and North 
Carolina, interviews with state officials. 

[End of table] 

Recovery Act Funding Helped States Address Budget Challenges: 

The Office of Management and Budget estimates that, in addition to the 
existing federal grants to states and territories, federal obligations 
of Recovery Act funds for states and territories will be about $149 
billion in federal fiscal year 2009. Federal grants represented the 
second-largest share of funding for state and local governments in 2008 
(about 20 percent or $388 billion). As shown in figure 12, state and 
local tax receipts constituted the largest share of funding for state 
and local governments in 2008 (about 68 percent or $1.3 trillion). 

Figure 12: State and Local Government Current Receipts, Fiscal Year 
2008 (Dollars in billions): 

[Refer to PDF for image: pie-chart] 

Taxes: 68% ($1,318.6): 
* Sales: 33% ($436.3); 
* Property: 31% ($404.6); 
* Personal income: 25% ($333.4); 
* Other taxes: 7% ($96.7); 
* Corporate income: 4% ($47.6); 
Federal grant-in-aid: 20% ($388.3); 
Other receipts: 12% ($228.3). 

Source: GAO analysis of Bureau of Economic Analysis data. 

Note: Other receipts include contributions for government social 
insurance, income receipts on assets such as interest receipts or 
rents, transfer receipts from businesses and persons, and surpluses 
from government enterprises. 

[End of figure] 

State revenue continued to decline and states used Recovery Act funding 
to reduce some of their planned budget cuts and tax increases to close 
current and anticipated budget shortfalls for fiscal years 2009 and 
2010.[Footnote 83] Of the 16 states and the District, 15 estimate 
fiscal year 2009 general fund revenue collections will be less than in 
the previous fiscal year.[Footnote 84] For example, in Georgia, 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). In 
Michigan, fiscal year 2008-2009 revenue collections are estimated to be 
$1.9 billion--or 20.6 percent--less than fiscal year 2007-2008 
collections, putting current revenue estimates below 1971 levels, when 
adjusted for inflation. The 2 remaining states --Iowa and North 
Carolina--had revenues that were lower than projected. As shown in 
figure 13, data from the Bureau of Economic Analysis (BEA) also 
indicate that the rate of state and local revenue growth has generally 
declined since the second quarter of 2005, and the rate of growth has 
been negative in the fourth quarter of 2008 and the first quarter of 
2009.[Footnote 85] 

Figure 13: Year-Over-Year Change in State and Local Government Current 
Tax Receipts: 

[Refer to PDF for image: line graph] 

Year: 2001, Q1; 
Percentage change: 4.4. 

Year: 2001, Q2; 
Percentage change: 4.4. 

Year: 2001, Q3; 
Percentage change: 0.5. 

Year: 2001, Q4; 
Percentage change: 0.8. 

Year: 2002, Q1; 
Percentage change: -1. 

Year: 2002, Q2; 
Percentage change: -2.3. 

Year: 2002, Q3; 
Percentage change: 4.5. 

Year: 2002, Q4; 
Percentage change: 4.7. 

Year: 2003, Q1; 
Percentage change: 4.3. 

Year: 2003, Q2; 
Percentage change: 4.4. 

Year: 2003, Q3; 
Percentage change: 5.8. 

Year: 2003, Q4; 
Percentage change: 7.2. 

Year: 2004, Q1; 
Percentage change: 8.6. 

Year: 2004, Q2; 
Percentage change: 9.2. 

Year: 2004, Q3; 
Percentage change: 7.4. 

Year: 2004, Q4; 
Percentage change: 8.3. 

Year: 2005, Q1; 
Percentage change: 9.8. 

Year: 2005, Q2; 
Percentage change: 10.5. 

Year: 2005, Q3; 
Percentage change: 9.4. 

Year: 2005, Q4; 
Percentage change: 8.6. 

Year: 2006, Q1; 
Percentage change: 7.9. 

Year: 2006, Q2; 
Percentage change: 8. 

Year: 2006, Q3; 
Percentage change: 6.6. 

Year: 2006, Q4; 
Percentage change: 5.1. 

Year: 2007, Q1; 
Percentage change: 5.3. 

Year: 2007, Q2; 
Percentage change: 5.2. 

Year: 2007, Q3; 
Percentage change: 4.9. 

Year: 2007, Q4; 
Percentage change: 4.6. 

Year: 2008, Q1; 
Percentage change: 2.4. 

Year: 2008, Q2; 
Percentage change: 2.4. 

Year: 2008, Q3; 
Percentage change: 1.9. 

Year: 2008, Q4; 
Percentage change: -2.3. 

Year: 2000, Q1; 
Percentage change: -4.3. 

Source: GAO analysis of BEA data. 

[End of figure] 

Officials in most of the selected states and the District expect these 
revenue trends to contribute to budget gaps (estimated revenues less 
than estimated disbursements) anticipated for future fiscal years. All 
of the 16 states and the District forecasted budget gaps in state 
fiscal year 2009-2010 before budget actions were taken. New York's 
enacted budget for fiscal year 2009-2010 closed what state officials 
described as the largest budget gap ever faced by the state. The 
combined New York current services budget gaps totaled $2.2 billion in 
fiscal year 2008-2009 and $17.9 billion in 2009-2010 before the state 
instituted corrective budget actions and received Recovery Act funding. 
In California, the governor projects a $24.3 billion budget gap in 
fiscal years 2008-2009 and 2009-2010, created in large part by lower 
revenue estimates.[Footnote 86] Florida, which recently passed a $66.5 
billion budget for the state's 2009-2010 fiscal year, faced what 
officials estimated as a $4.8 billion gap in general funds before 
corrective budget actions were taken. 

States Combined Use of Recovery Act Funds with Budget Actions to 
Maintain Balance and Close Budget Gaps: 

Consistent with one of the purposes of the act, states' use of Recovery 
Act funds to stabilize their budgets helped them minimize and avoid 
reductions in services as well as tax increases. States took a number 
of actions to balance their budgets in fiscal year 2009-2010, including 
staff layoffs, furloughs, and program cuts. The use of Recovery Act 
funds affected the size and scope of some states' budgeting decisions, 
and many of the selected states reported they would have had to make 
further cuts to services and programs without the receipt of Recovery 
Act funds. For example, California, Colorado, Georgia, Illinois, 
Massachusetts, Michigan, New York, and Pennsylvania budget officials 
all stated that current or future budget cuts would have been deeper 
without the receipt of Recovery Act funds. 

Recovery Act funds helped cushion the impact of states' planned budget 
actions but officials also cautioned that current revenue estimates 
indicate that additional state actions will be needed to balance future-
year budgets. Future actions to stabilize state budgets will require 
continued awareness of the maintenance-of-effort (MOE) requirements for 
some federal programs funded by the Recovery Act. For example, 
Massachusetts officials expressed concerns regarding MOE requirements 
attached to federal programs, including those funded through the 
Recovery Act, as future across-the-board spending reductions could pose 
challenges for maintaining spending levels in these programs. State 
officials said that MOE requirements that require maintaining spending 
levels based upon prior-year fixed dollar amounts will pose more of a 
challenge than upholding spending levels based upon a percentage of 
program spending relative to total state budget expenditures. 

States' current uses of Recovery Act funds helped fund and maintain 
staffing for existing programs. In Arizona, state budget officials said 
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 benefit levels, and 
prevent some contract delays and reductions that otherwise would have 
occurred. Similarly, officials in Mississippi plan to use Recovery Act 
funds to help Mississippi stabilize its budget and support local 
governments, particularly school districts. For example, officials at 
the two local education agencies and three institutions of higher 
education we visited told us that they plan to use Recovery Act funds 
to avoid layoffs and hire new staff. Officials in the District told us 
that because they knew the Recovery Act funds were coming while they 
were developing the fiscal year 2010 budget, they did not have to 
create a budget scenario in which additional actions, such as 
furloughs, were necessary to fill the anticipated revenue gap. 
Similarly, Colorado officials also knew early on that Recovery Act 
funds were coming--particularly the increased federal share of 
Medicaid--thereby making state funds that would have been used to pay 
the state share of Medicaid available for avoiding certain budget 
actions including additional furloughs. In New Jersey, although budget 
officials anticipated receiving Recovery Act funds before the state 
finalized its 2010 budget, this did not preclude the state from 
including personnel actions such as furloughs and wage freezes to aid 
in closing the projected budget gap. In Iowa, for the fiscal year 2009 
budget, Recovery Act funding allowed state agencies to avoid program 
cuts as well as mandatory layoffs and furloughs. 

In addition to these budget actions, some states also reported 
accelerating their use of Recovery Act funds to stabilize deteriorating 
budgets. For example, in Georgia, lower-than-expected revenue numbers 
caused the state to use more Recovery Act funds in state fiscal year 
2009 than it had anticipated using. In Massachusetts, state officials 
said that accelerating their use of Recovery Act and state rainy-day 
funds was the most viable solution to balance their budget. 
Massachusetts officials reported that the state had hoped to leave a 
sizable amount of its State Fiscal Stabilization Fund (SFSF) allocation 
available for 2011 but changed its planned approach because of its 
deteriorating fiscal condition. Using more of these funds in the 2008-
2009 state fiscal year may make it more difficult for the state to 
balance its budget after Recovery Act funds are no longer available. 
California's dire fiscal condition prompted the state to accelerate the 
use of its Recovery Act funds, along with the use of a number of 
additional measures to reduce the state's 2008-2009 budget gap. 

Many states, such as Colorado, Florida, Georgia, Iowa, New Jersey, and 
North Carolina, also reported tapping into their reserve or rainy-day 
funds in order to balance their budgets. In most cases, the receipt of 
Recovery Act funds did not prevent the selected states from tapping 
into their reserve funds, but a few states reported that without the 
receipt of Recovery Act funds, withdrawals from reserve funds would 
have been greater.[Footnote 87] Officials from Georgia stated that 
although they have already used reserve funds to balance their fiscal 
year 2009 and 2010 budgets, they may use additional reserve funds if, 
at the end of fiscal year 2009, revenues are lower than the most recent 
projections. In contrast, New York officials stated they were able to 
avoid tapping into the state's reserve funds due to the funds made 
available as a result of the increased Medicaid FMAP funds provided by 
the Recovery Act. 

Approaches to Developing Exit Strategies for End of Recovery Act 
Funding Influenced by Nature of State Budget Processes: 

States' approaches to developing exit strategies for the use of 
Recovery Act funds reflect the balanced-budget requirements in place 
for all of our selected states and the District. Budget officials 
referred to the temporary nature of the funds and fiscal challenges 
expected to extend beyond the timing of funds provided by the Recovery 
Act. Officials discussed a desire to avoid what they referred to as the 
"cliff effect" associated with the dates when Recovery Act funding ends 
for various federal programs. 

Budget officials in some of the selected states are preparing for the 
end of Recovery Act funding by using funds for nonrecurring 
expenditures and hiring limited-term positions to avoid creating long-
term liabilities. Representatives of the Texas Governor's office also 
told us that their office has advised state agencies that much of the 
funding is temporary. The Texas Legislature provided similar guidance 
in the conference committee report for the appropriations bill 
directing state agencies to "give priority to expenditures that do not 
recur beyond the 2010-2011 biennium."[Footnote 88] In Ohio, budget 
officials remain focused on budgeting for the coming biennia (2010-
2011), but key legislators have queried state officials during budget 
deliberations about their plans for the next biennia (2012-2013), when 
federal Recovery Act funding is no longer available. 

A few states reported that although they are developing preliminary 
plans for the phasing out of Recovery Act funds, further planning has 
been delayed until revenue and expenditure projections are finalized. 
For example, while Georgia's Governor has encouraged state agencies to 
spend funds judiciously and take into consideration that the funding is 
temporary, the state 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. 

Some states are in the process of developing exit strategies aligned 
with planning for broader fiscal challenges. In North Carolina, the 
state's recovery office hired a temporary staff person to look at some 
of the factors that may have caused the state's economic slowdown, as 
well as to help plan for an exit strategy after Recovery Act funds end. 
Officials in Illinois also said that they plan to convene a working 
group to assess state agencies' level of preparedness for the end of 
Recovery Act funding. They have issued guidance to state agencies 
regarding the use of the funds and have directed agencies to submit 
hiring plans containing provisions that mitigate the risk of layoffs, 
such as hiring temporary employees and contractors. 

States Have Implemented Various Internal Control Programs: However, 
Single Audit Guidance and Reporting Does Not Adequately Address 
Recovery Act Risk: 

Given that Recovery Act funds are to be distributed quickly, effective 
internal controls over use of funds are critical to help ensure 
effective and efficient use of resources, compliance with laws and 
regulations, and in achieving accountability over Recovery Act 
programs. Internal controls include management and program policies, 
procedures, and guidance that help ensure effective and efficient use 
of resources; compliance with laws and regulations; prevention and 
detection of fraud, waste, and abuse; and the reliability of financial 
reporting. Management is responsible for the design and implementation 
of internal controls and the states in our review have a range of 
approaches for implementing their internal controls. 

Some states have internal control requirements in their state statutes, 
while others have undertaken internal control programs as management 
initiatives. In our sample, seven states--California, Colorado, 
Florida, Michigan, Mississippi, New York, and North Carolina-
-noted they have statutory requirements for internal control programs 
and activities. The other nine states--Arizona, Georgia, Illinois, 
Iowa, Massachusetts, New Jersey, Ohio, Pennsylvania, and Texas--noted 
they have undertaken various internal control programs. In addition, 
the District of Columbia has taken limited actions related to its 
internal control program. An effective internal control program helps 
in managing change to cope with shifting environments and evolving 
demands and priorities, as the Recovery Act entails. Internal controls 
need to be continually assessed and evaluated by management as programs 
change and entities strive to improve operational processes. 

Risk assessment and monitoring are key elements of internal controls, 
and the states and the District in our review have undertaken a variety 
of actions in the area of risk assessment. Risk assessment involves 
performing comprehensive reviews and analyses of program operations to 
determine if internal and external risks exist and to evaluate the 
nature and extent of risks identified. Approaches to risk analysis can 
vary across organizations because of differences in missions and the 
methodologies used to qualitatively and quantitatively assign risk 
levels. Monitoring activities include the systemic process of reviewing 
the effectiveness of the operation of the internal control system. 
These activities are conducted by management, oversight entities, and 
internal and external auditors. Monitoring enables stakeholders to 
determine whether the internal control system continues to operate 
effectively over time. It also improves the organization's overall 
effectiveness and efficiency by providing timely evidence of changes 
that have occurred, or might need to occur, in the way the internal 
control system addresses evolving or changing risks. Monitoring also 
provides information and feedback to the risk assessment process. 

In California, the Office of State Audits and Evaluations (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 is using two primary approaches to assessing internal 
controls at agencies receiving Recovery Act funds--Financial Integrity 
and State Manager's Accountability Act of 1983 (FISMA) reviews (an 
existing internal control assessment tool) and readiness reviews (a new 
internal control assessment tool).[Footnote 89] Both the FISMA reviews 
and the readiness reviews rely primarily on information that is self-
certified by agency officials. 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. 

The state of Colorado enacted the State Department Financial 
Responsibility and Accountability Act in 1988, which requires each 
principal department of the state's executive department to institute 
and maintain systems of internal accounting and administrative control--
including an effective process of internal review and for making 
adjustments for changing conditions.[Footnote 90] The act also requires 
the head of each principal department to annually state in writing 
whether the department's systems of internal accounting and control 
either do or do not fully comply with the act's requirements.[Footnote 
91] While 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. The 
Controller's office is developing an internal control toolkit that will 
provide state departments with 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. 

Florida law also places the responsibility for internal controls on 
state agencies. A Florida statute requires the agencies to establish 
and maintain management systems and controls that promote and encourage 
compliance; economic, efficient, and effective operations; reliability 
of records and reports; and safeguarding of assets.[Footnote 92] 
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. Annually, the Florida 
Department of Financial Services' obtains representation letters from 
agency heads 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. 
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. 

New York State also enacted into law internal control requirements. The 
law requires, among other things, that each agency establish and 
maintain a system of internal controls and a review program, designate 
an internal control officer, and periodically evaluate the need for an 
internal audit function in each agency.[Footnote 93] In addition, to 
fulfill the requirements of the New York State Government 
Accountability, Audit and Internal Control Act (New York Internal 
Control Act), the Office of the State Comptroller is responsible for 
developing the Standards for Internal Control in New York State 
Government.[Footnote 94] The Internal Control Act requires that the 
State Division of the Budget (DOB) periodically (1) issue a list of 
agencies covered by the act, and (2) issue a list of agencies required 
to have an internal audit function. Beyond these two statutory 
requirements, DOB has also taken administrative steps to facilitate and 
support the goals of the Internal Control Act through the issuance of 
additional guidance and the annual internal control certification 
requirement. Based on DOB's Governmental Internal Control and Internal 
Audit Requirements manual,[Footnote 95] the system of internal control 
should be developed using the Committee of Sponsoring Organizations of 
the Treadway Commission (COSO) conceptual framework and should 
incorporate COSO's five basic components of internal control.[Footnote 
96] 

North Carolina has enacted the State Governmental Accountability and 
Internal Control Act, requiring the Office of the State Controller to 
establish statewide internal control standards.[Footnote 97] The Office 
of the State Controller is implementing a statewide internal control 
program called EAGLE (Enhancing Accountability in Government through 
Leadership and Education). The purpose was not only to establish 
adequate internal control, but also to increase fiscal accountability 
within state government. North Carolina is using a phased approached to 
implement the EAGLE program. In Phase I, state agencies and state 
universities are required to perform an annual assessment of internal 
control over financial reporting. This risk assessment is seen as a 
benefit to the agencies as it identifies risks and compensating 
controls that reduce the possibility of material misstatements of 
financial reports and misappropriation of assets, as well as 
opportunities to increase efficiency and control effectiveness in 
business processes and operations. In January 2008, the State 
Controller requested each agency to appoint an Internal Control Officer 
to lead the agency's risk assessment team and monitor the agency's 
compliance with EAGLE requirements. Phase II of the program will be 
"efficiency of operations" and Phase III will be "compliance with laws 
and regulations." 

In accordance with Mississippi's statutory requirement to maintain 
continuous internal audit over the activities of each state agency, 
Mississippi has implemented a program of internal control.[Footnote 98] 
First, Mississippi has required each state agency to certify in writing 
that it has conducted an evaluation of internal controls and that the 
findings of the evaluation provide reasonable assurance that the assets 
of the agency have been preserved, duties have been segregated by 
function, and transactions are executed in accordance with laws of the 
state of Mississippi. As part of maintaining appropriate controls, the 
Department of Finance and Administration directed all state agency 
executive and finance directors to: 

* conduct a comprehensive review of their agency's internal control 
structure to determine if it is functioning properly and in accordance 
with the agency's internal control plan; 

* determine whether the internal control structure has been updated to 
address operational or procedural changes made during the period under 
review to processes, program areas, or functions; 

* identify internal control weaknesses; 

* initiate actions to ensure that control weaknesses discovered during 
the period under review, and in prior periods, have been adequately 
addressed; and: 

* give immediate attention to all internal control related findings and 
recommendations reported by auditors during the year. 

Second, in addition to the certification required of all state 
agencies, the Department of Finance and Administration is requiring 
another certification of agencies receiving Recovery Act funds. 
Agencies must certify that they accept responsibility for spending the 
funds as responsibly and effectively as possible while maintaining the 
appropriate controls and reporting mechanisms to ensure accountability 
and transparency in compliance with the Recovery Act. The 
certifications also include an agency's guarantee that program risks 
are, or will be, identified and that the agency has, or will, implement 
internal controls sufficient to mitigate the risk of waste, fraud, and 
abuse. Finally, the Department of Finance and Administration 
established an internal control unit that is reviewing agency letters 
of certification and expects to weigh all agencies internal control 
assessments, as well as the findings and corrective action plans noted 
by the State Auditor in the 2007 and 2008 Mississippi Single Audit 
Report, to decide which agencies receiving Recovery Act funds should 
initially be the focus of the unit's monitoring activities. 

Although not based on a statutory requirement, Georgia is taking steps 
to monitor and safeguard Recovery Act funds at the state and program 
level. Georgia has established a Recovery Act Accountability and 
Transparency Support Team comprising representatives from the Office of 
Planning and Budget, State Accounting Office, and Department of 
Administrative Services (the department responsible for procurement). 
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 State Accounting Office developed the 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. The State Accounting Office plans to use the results to 
target its audit efforts. 

Ohio has made strides in refining its internal control process to 
accommodate the Recovery Act funds. The state Office of Budget and 
Management issued guidance on risk assessment in March 2009 
highlighting the significance of risk mitigation strategies that all 
state agencies should have in place to ensure management controls are 
operating effectively to identify and prevent wasteful spending and 
minimize waste, fraud, and abuse. The new Office of Internal Audit is 
working with state agencies to develop and evaluate these risk 
assessments. Based on these agency risk assessments, the Office of 
Internal Audit is developing an oversight strategy that it will present 
to the Audit Committee on June 30, 2009. 

Although the District of Columbia (District) government and agencies 
have internal controls, the controls are not consolidated into a 
citywide internal control program, and past reports have identified 
numerous weaknesses in the District's internal controls. The District's 
Office of Inspector General (OIG) has issued reports that identified 
weaknesses in the District's internal controls and made several 
recommendations to improve internal controls. One report recommends 
that the Chief Financial Officer (CFO), in conjunction with the City 
Administrator, issue citywide guidance requiring managers to establish, 
assess, correct, and report on internal controls and that these 
requirements should be reflected in personnel performance 
plans.[Footnote 99] In addition, the fiscal year 2007 Single Audit 
report for the District of Columbia identified 89 material weaknesses 
in internal controls over both financial reporting and compliance with 
requirements applicable to major federal programs. The Single Audit 
report identified material weaknesses in compliance with requirements 
applicable to major federal programs, including Medicaid's FMAP, ESEA 
Title I Education grants, and Workforce Investment Act programs, all of 
which are receiving Recovery Act funds. The findings were significant 
enough to result in a qualified opinion for that section of the report. 
In September 2008, the Office of the Chief Financial Officer (OCFO) 
contracted with an independent accounting firm to identify areas with 
internal control problems and deficiencies in the office. The review 
may help direct OCFO in developing an internal control program. The 
assessments will not be available until the end of 2009. When the firm 
has completed its OCFO assessment, it will expand its review to 
District agencies. 

Challenges Exist in Tracking Recovery Act Funds: 

States and localities receiving Recovery Act funds directly from 
federal agencies are responsible for tracking and reporting on those 
Recovery Act funds.[Footnote 100] An effective internal control program 
is critical to preparing reliable financial statements and other 
financial reports. OMB has issued guidance to the states and localities 
that provides for separate identification "tagging" of Recovery Act 
funds, so that specific reports can be created and transactions can be 
specifically identified as Recovery Act funds.[Footnote 101] The flow 
of federal funds to the states varies by programs. As we have 
previously reported, the grant programs generally have different 
objectives and strategies that are reflected in their application, 
selection, monitoring, and reporting processes. Multiple federal 
entities are involved in grants administration; the grantor agencies 
have varied grants management processes; the grantee groups are 
diverse; and grants themselves vary substantially in their types, 
purposes, and administrative requirements.[Footnote 102] The federal 
grant system is highly fragmented.[Footnote 103] 

Several states and the District of Columbia have created unique codes 
for their financial systems in order to tag the Recovery Act funds. 
District of Columbia's Office of Finance and Treasury (OFT) has 
established a bank account exclusively for depositing Recovery Act 
funds. Most states plan to use their current financial system to track 
and report on Recovery Act funds, but various challenges exist. For 
instance, since the state of Arizona is decentralized, the recording 
and tracking responsibility lies with the state agencies that have 
different accounting systems. The state agencies will need to 
periodically transfer accounting data from the agencies' systems to the 
state's system. Georgia is segregating funds through a set of Recovery 
Act fund sources in the state's financial accounting system. Georgia's 
State Accounting Office issued guidance on Recovery Act accounting that 
states those 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. 

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 its 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 all 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 federal 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 they will apply existing controls and oversight processes that 
they currently apply to other program funds to oversee Recovery Act 
funds. 

Officials from the Texas State Comptroller's Office repeated their 
concern in May 2009 that the federal government was not identifying 
Recovery Act funds separately from other federal funds disbursed to the 
state. Absent this identification, the Comptroller relies on state 
agencies to distinguish between the two types of federal funds. Texas 
officials cited federal fund transfers to the Texas Workforce 
Commission and the Texas Health and Human Services Commission as 
examples of this fund identification problem. Absent separate coding 
from the U.S. Department of the Treasury, the Texas officials said the 
state relies on the state agencies to inform the State Comptroller's 
office on what portion of federal funds are Recovery Act funds. The 
Texas officials commented that it would be helpful if the federal 
government put in place the coding structure to identify Recovery Act 
funds separately from other federal funds--as they believe the Recovery 
Act requires--before Recovery Act funds are disbursed to Texas. State 
agency officials told us they do not share the Comptroller's concern 
because they are able to distinguish between their normal federal funds 
and Recovery Act funds when initiating fund transfers. 

The District of Columbia has also experienced a challenge. District of 
Columbia's Office of Finance and Treasury (OFT) has established a bank 
account exclusively for depositing Recovery Act funds. Agencies are 
notified by OFT when Recovery Act funds are received in the bank 
account. All Recovery Act revenue received will be tracked by OFT in a 
separate database. When Recovery Act funds are ready to be distributed 
from federal agencies to District agencies, Recovery Act grant funding 
notifications are sent directly to the District agencies. When an 
agency receives a grant funding notification, it is the agency's 
responsibility to report the receipt to the Office of Budget and 
Planning (OBP). OBP provides weekly reports of grant funding 
notifications that are reconciled by the agencies. OBP stated there is 
a disparity of grant information caused by the process and is working 
on a solution. 

Mississippi is undergoing changes to most of the state's central 
accounting and reporting systems. The Department of Finance and 
Administration (DFA) is making changes to the Statewide Automated 
Accounting System (SAAS), which tracks purchasing, accounts payables, 
revenues, and accounts receivable and includes Mississippi's general 
ledger. The use of reporting categories does not allow DFA to currently 
tie individual obligations or expenditures to the contract for which 
they were incurred. However, DFA is in the process of making 
modifications to the state central accounting system that will allow 
the system to do so. Once completed, these changes will provide greater 
transparency of Recovery Act fund usage. For example, the changes will 
allow the public to view online Recovery Act contracts and expenditures 
for specific contracts. In addition, the changes will add further 
system controls, such as the ability to deny the obligation of funds 
until state agencies have posted the contract that supports the 
obligation. 

Single Audit Guidance and Reporting Does Not Adequately Address 
Recovery Act Risks: 

In addition to being an important accountability mechanism, the results 
of audits can provide valuable information for management's risk 
assessment and monitoring processes. The Single Audit report, prepared 
to meet the requirements of the Single Audit Act,[Footnote 104] as 
amended (Single Audit Act), is a source of information on internal 
control and compliance findings and the underlying causes and risks. 
The report is prepared in accordance with OMB's implementing guidance 
in OMB Circular No. A-133, Audits of States, Local Governments, and Non-
Profit Organizations,[Footnote 105] which provides guidance to auditors 
on selecting federal programs for audit and the related internal 
control and compliance audit procedures to be performed. A Single Audit 
report includes the auditor's schedule of findings and questioned 
costs, internal control and compliance deficiencies, and the auditee's 
corrective action plans and a summary of prior audit findings that 
includes planned and completed corrective actions. The Single Audit Act 
requires that a nonfederal entity subject to the act transmit its 
reporting package to a federal clearinghouse designated by OMB 9 months 
after the end of the period audited. 

In our April 2009 report, we reported that the guidance and criteria in 
OMB Circular No. A-133 do not adequately address the substantial added 
risks posed by the new Recovery Act funding. Such risks may result from 
(1) new government programs, (2) the sudden increase in funds or 
programs that are new to the recipient entity, and (3) the expectation 
that some programs and projects will be delivered faster so as to 
inject funds into the economy. With some adjustment, the Single Audit 
could be an effective oversight tool for Recovery Act programs, 
addressing risks associated with all three of these factors. 

Our April report included recommendations that OMB adjust the current 
audit process to: 

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

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

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

Since April, OMB has taken several steps in response to our 
recommendations. However, those actions do not sufficiently address the 
risks leading to our recommendations. In OMB's view, it is limited in 
its options to address our concerns due to specific requirements set 
forth in the Single Audit Act. The Single Audit Act charges OMB with, 
among other things, prescribing the risk-based criteria auditors use to 
select federal programs to include for Single Audit compliance and 
internal controls testing. To focus auditor risk assessments on 
Recovery Act-funded programs and to provide guidance on internal 
control reviews for Recovery Act programs, OMB is working within the 
framework defined by existing mechanisms--Circular No. A-133 and the 
Compliance Supplement. In this context, OMB has made limited 
adjustments to its Single Audit guidance and is planning to issue 
additional guidance. Following is the status of OMB's actions related 
to our April recommendations. 

Focusing Auditors' Program Risk Assessments on Programs with Recovery 
Act Funding: 

In our April report, we recommended that OMB focus the risk assessment 
auditors use to select programs to test for compliance with 2009 
federal program requirements on Recovery Act funding. On May 26, OMB 
made available the 2009 edition of the Circular A-133 Compliance 
Supplement. The new Compliance Supplement includes the following, which 
is intended to focus auditor risk assessment on Recovery Act funding: 

* A requirement that auditors specifically ask auditees about and be 
alert to expenditure of funds provided by the Recovery Act. 

* An appendix that highlights some areas of the Recovery Act impacting 
single audits. The appendix adds a requirement that large programs and 
program clusters with Recovery Act funding cannot be assessed as low 
risk for the purposes of program selection without clear documentation 
of the reasons that the expenditures of Recovery Act awards are low 
risk for the program. The appendix also states that recipients are to 
separately identify expenditures for Recovery Act programs on the 
Schedule of Expenditures of Federal Awards. It also notes that 
compliance requirements unique to Recovery Act-funded programs are not 
included in the Compliance Supplement and advises auditors to review 
award documents, check the OMB Web site for addenda to the supplement, 
and use the existing Compliance Supplement framework as guidance to 
identify material Recovery Act compliance requirements. 

OMB has not yet identified program groupings critical to auditors' 
selection of programs to be audited for compliance with program 
requirements. As we reported in April 2009, the current approach 
prescribed by OMB Circular No. A-133 relies heavily on the amount of 
federal expenditures in a program during a fiscal year and whether 
findings were reported in the previous period to determine whether 
detailed compliance testing is required for that year. In some cases, 
OMB requires that auditors group closely related programs that share 
common compliance requirements and consider them as one program when 
selecting programs for testing. OMB specifically identifies these 
groups of programs, called "clusters," in the Compliance Supplement. 
OMB has noted that many of the Recovery Act awards will share common 
compliance requirements with existing programs and that the Compliance 
Supplement cluster list will be updated to include Recovery Act 
programs. OMB is currently considering ways to cluster programs for 
Single Audit selection in ways that would make it more likely that 
Recovery Act programs would be selected and, therefore, be subjected to 
internal control and compliance testing, but the dollar formulas would 
not change under this plan. This approach may not provide sufficient 
assurance that smaller, but nonetheless significant, Recovery Act- 
funded programs would be selected for audit. OMB plans to issue the new 
cluster information by mid-July 2009. 

In addition, the 2009 Compliance Supplement to OMB's Circular No. A-133 
does not yet provide specific auditor guidance for new programs funded 
by the Recovery Act or for new compliance requirements specific to 
Recovery Act funding within existing programs, that may be selected as 
major programs for audit. For instance, there is currently no program-
specific audit guidance included in the Compliance Supplement on the 
new State Fiscal Stabilization Fund programs, significant programs 
administered by the Department of Education to support education and 
other government services, with federal funds already flowing to the 
states. OMB acknowledges that additional guidance is called for and is 
in the process of drafting such guidance. OMB plans to issue an 
addendum to the Compliance Supplement that would address some Recovery 
Act-related compliance requirements by mid-July 2009. 

Early Review of the Design of Internal Controls over Recovery Act-
Funded Programs before Significant Expenditures in 2010: 

In our April 2009 report, we recommended that OMB adjust the current 
Single Audit process to provide for review of the design of internal 
controls during 2009 over programs to receive Recovery Act funding, 
before significant expenditures in 2010. 

To provide additional focus on internal control reviews, OMB has 
drafted guidance that indicates the importance of such reviews and 
encourages auditors to communicate weaknesses to management early in 
the audit process but does not add requirements for auditors to take 
these steps. Because OMB is choosing to address this recommendation 
through the existing audit framework, it has not changed the reporting 
time frames and therefore does not address our concern that internal 
controls over Recovery Act programs should be reviewed before 
significant funding is expended. OMB plans to finalize and issue the 
guidance by mid-July 2009. In addition, the guidance to be provided by 
OMB will be limited to those programs selected by the auditor as "major 
programs" under the current approach for selecting programs for audit, 
which may not adequately consider Recovery Act program risks. Finally, 
if this internal control work is done within the current Single Audit 
framework and reporting timelines, the auditor evaluation of internal 
control and related reporting will occur too late--after significant 
levels of federal expenditures have already occurred. 

Providing Relief Related to Low-Risk Programs to Balance Expected 
Increased Workload: 

In our April 2009 report, we recommended that the Director of OMB 
evaluate options for providing relief related to audit requirements for 
low-risk programs to balance new audit responsibilities associated with 
the Recovery Act. While OMB has noted the increased responsibilities 
falling on those responsible for performing Single Audits, to date it 
has not issued any proposals and does not have plans to address this 
recommendation. 

A recent survey conducted by the staff of the National State Auditors 
Association (NSAA) [Footnote 106] highlighted the need for relief to 
overburdened state audit organizations. Survey participants were asked 
whether they were experiencing cuts in staffing and to comment on the 
effects of these cuts on their ability to perform effective audits. 
Thirty-two state audit organizations that indicated in an earlier 
survey that their responsibilities included Single Audit had responded 
to the survey as of June 24. Of the 32 respondents, 17 indicated that 
staff had been cut by 5 percent or more. Eight respondents are 
anticipating that staff will be required to take unpaid leave in fiscal 
year 2010. 

OMB officials told us they are considering reducing auditor workload by 
decreasing the number of risk assessments of smaller federal programs. 
Auditors conduct these risk assessments as part of the planning process 
to identify which federal programs will be subject to detailed internal 
control and compliance testing. GAO believes that this step in itself 
will not provide sufficient relief to balance the additional audit 
requirements for Recovery Act programs. 

OMB officials have expressed reluctance to revise OMB Circular No. A-
133 or to propose revisions to the Single Audit Act to provide auditor 
relief or to provide additional flexibility to allow auditors to have 
more control over the selection of programs tested for internal control 
and compliance. They stated that to do so would take considerable time 
and could not be accomplished in time to have adequate coverage of 
Recovery Act funds. In addition, federal inspectors general have 
expressed concern about reducing audit coverage of existing programs. 
However, without action now, audit coverage of Recovery Act programs 
will not be sufficient to address Recovery Act risks, and the audit 
reporting that does occur will be after significant Recovery Act funds 
have already been expended. 

Congress is currently considering a bill, H.R. 2182, that could provide 
some financial relief to auditors lacking the staff capacity necessary 
to handle the increased audit responsibilities associated with the 
Recovery Act.[Footnote 107] H.R. 2182 would amend the Recovery Act to 
provide for enhanced state and local oversight of activities conducted 
pursuant to the Recovery Act. As passed by the House, H.R. 2182 would 
allow state and local governments to set aside 0.5 percent of Recovery 
Act funds, in addition to funds already allocated to administrative 
expenditures, to conduct planning and oversight to prevent and detect 
waste, fraud, and abuse. 

Single Audit Reporting Will Not Facilitate Timely Reporting of Recovery 
Program Findings and Risks: 

The Single Audit reporting deadline is too late to provide audit 
results in time for the audited entity to take action on deficiencies 
noted in Recovery Act programs. The Single Audit Act requires that 
recipients submit their Single Audit reports to the federal government 
no later than 9 months after the end of the period being 
audited.[Footnote 108] As a result an audited entity may not receive 
feedback needed to correct an identified internal control or compliance 
weakness until the latter part of the subsequent fiscal year. For 
example, states that have a fiscal year end of June 30 have a reporting 
deadline of March 31, which leaves program management only 3 months to 
take corrective action on any audit findings before the end of the 
subsequent fiscal year. For Recovery Act programs, significant 
expenditure of funds could occur during the period prior to the audit 
report being issued. 

The timing problem is exacerbated by the extensions to the 9-month 
deadline that are routinely granted by the awarding agencies, 
consistent with OMB guidance. For example, 13 of the 17 states in our 
review have a June 30 fiscal year end. We found that 7 of these 13 
states requested and received extensions for their March 31, 2009, 
submission requirement of their fiscal year 2008 reporting 
package.[Footnote 109] Three of the requests for extensions were from 
auditors, and the remaining requests were from the audited entities. 
Table 19 below lists the seven states, the extension date requested, 
and the reason for the extension. 

Table 19: Single Audit Extensions for June 30, 2008, Fiscal Year End: 

State: Arizona; 
Extension date requested: June 30, 2009; 
Total number of months between year-end and audit reporting: 12; 
Extension reason per Health and Human Services Inspector General: Delay 
in completion of Comprehensive Annual Financial Report (CAFR). 

State: California; 
Extension date requested: June 30, 2009; 
Total number of months between year-end and audit reporting: 12; 
Extension reason per Health and Human Services Inspector General: The 
state has not yet completed its GAAP-basis financial statements and 
does not anticipate completing them in time for the auditor to finish 
the audit work by the reporting deadline. 

State: Illinois; 
Extension date requested: June 30, 2009; 
Total number of months between year-end and audit reporting: 12; 
Extension reason per Health and Human Services Inspector General: (1) 
The status of completing the audit process, (2) the first year of 
several parties participating electronically in filing the reporting 
package with the Federal Audit Clearinghouse, and (3) the state is not 
anticipating the release of its fiscal year 2008 CAFR until March 31, 
2009, which is the Single Audit report due date. 

State: Mississippi; 
Extension date requested: April 30, 2009; 
Total number of months between year-end and audit reporting: 10; 
Extension reason per Health and Human Services Inspector General: (1) 
Dealing with the current economic recovery emphasis which is requiring 
additional work on management of the various agencies included in the 
Single Audit report and (2) allowing the needed time for agencies to 
respond to audit findings as well as the Summary Schedule of Prior 
Audit Findings. 

State: New Jersey; 
Extension date requested: August 31, 2009; 
Total number of months between year-end and audit reporting: 14; 
Extension reason per Health and Human Services Inspector General: The 
extension is needed because of a delay experienced in processing the 
necessary contract extension with the audit firm. 

State: Ohio; 
Extension date requested: December 31, 2009; 
Total number of months between year-end and audit reporting: 18; 
Extension reason per Health and Human Services Inspector General: The 
programming required for creation of the CAFR financial statements and 
the late issuance of agencies and component units separately issued 
reports has delayed the state's fiscal year 2008 financial statements 
preparation. 

State: Pennsylvania; 
Extension date requested: June 30, 2009; 
Total number of months between year-end and audit reporting: 12; 
Extension reason per Health and Human Services Inspector General: (1) 
Delay in the issuance of the commonwealth's CAFR, (2) implementation of 
several new auditing standards and (3) changes in audit documentation 
and additional testing of systems changes in various federal programs. 

Source: GAO analysis of Health and Human Services information. 

[End of table] 

The Health and Human Services Office of Inspector General (HHS OIG) is 
the cognizant agency for most of the states, including all of the 
states selected for our review under the Recovery Act. According to an 
HHS OIG official, states contact HHS requesting and providing a reason 
for an extension of their report submission; the HHS IG has had a 
practice of routinely granting the requested extensions. The HHS OIG 
noted that the IG has no means to enforce compliance with the reporting 
time frames. The program office of the federal agency issuing the 
federal awards, not the cognizant IG, has the authority at the federal 
level to impose sanctions when the state or local government has not 
complied with the audit requirement.[Footnote 110] According to an HHS 
OIG official, beginning in May 2009, the HHS IG adopted a policy of no 
longer approving requests for extensions of the due dates for Single 
Audit reporting package submissions. OMB officials have stated they 
plan to eliminate allowing extensions of the reporting package but have 
not issued any official guidance or memorandums to the agencies, OIGs, 
or federal award recipients. 

In order to realize the Single Audit's full potential as an effective 
Recovery Act oversight tool, OMB needs to take additional action to 
focus auditors' efforts on areas that can provide the most efficient, 
and most timely, results. OMB has taken some first steps, and has plans 
to issue additional guidance. As federal funding of Recovery Act 
programs accelerates in the next few months, we are particularly 
concerned that the Single Audit process may not provide the timely 
accountability and focus needed to assist recipients in making 
necessary adjustments to internal controls, so that they achieve 
sufficient strength and capacity to provide assurances that the money 
is being spent as effectively as possible to meet program objectives. 

Legislative changes may be necessary to make certain changes to the 
Single Audit requirements to address the new risks brought on by 
Recovery Act funding if OMB concludes that it is unable to take the 
necessary steps under the current framework to adequately address 
accountability for the Recovery Act programs and related risks and to 
provide for more timely reporting, especially in the area of internal 
controls. Given that the scope of Single Audit workloads will increase, 
consideration should be given to determining what funds can be used to 
support Single Audit efforts related to Recovery Act programs, 
including whether legislative changes are needed to specifically direct 
resources to cover incremental audit costs related to Recovery Act 
programs. 

Efforts to Assess Impact of Recovery Act Spending: 

Under the Recovery Act, direct recipients of Recovery Act funds, 
including states and localities, are expected to report quarterly on a 
number of measures, including the use of funds and an estimate of the 
number of jobs created and the number of jobs retained. The jobs 
created and jobs retained are part of the "recipient reports" required 
under section 1512(c) of the Recovery Act and will be submitted by 
recipients starting in October 2009. In addition to this statutory 
requirement to report on jobs, the Office of Management and Budget 
(OMB) has directed federal agencies to collect other performance 
information from entities that receive funding. To the extent possible, 
OMB's guidance also requires agencies to instruct recipients to collect 
and report performance information that is consistent with the agency's 
program performance measures.[Footnote 111] This is intended to allow 
an assessment of what OMB describes as the marginal performance impact 
of Recovery Act requirements. 

In general, states are adapting information systems, issuing guidance, 
and beginning to collect data on jobs created and jobs retained, but 
questions remain about how to count jobs and measure performance under 
Recovery Act-funded programs. For example, many state education 
officials told us it has been difficult to plan how they will report 
the impact of Recovery Act funding until they receive further guidance 
from OMB or the Department of Education. Education is planning to 
supplement the guidance OMB provided to help state agencies report the 
proper data. In particular, Education officials noted that draft OMB 
guidance on recipient reporting would require some additional Education 
guidance to clarify issues for recipients of formula grants, such as 
the IDEA grants. OMB's latest guidance on recipient reporting addresses 
some of these concerns. 

OMB's June 22, 2009, Guidance Provides More Detail on the Recipient 
Reporting Process, Clarifies Some Requirements, and Establishes a 
Central Reporting Framework: 

In response to requests for more guidance on the recipient reporting 
process and required data, OMB, after soliciting responses from an 
array of stakeholders, issued additional implementing guidance for 
recipient reporting on June 22, 2009.[Footnote 112] As discussed in our 
April 2009 report and echoed in this report, state and local officials 
had questions and concerns about the recipient reporting requirements 
contained in the Recovery Act. For example, officials had expressed 
some confusion about how to count less than full-time jobs and indirect 
jobs. Over the last several months OMB met regularly with state and 
local officials, federal agencies, and others to gather input on the 
reporting requirements and implementation guidance. OMB also worked 
with the Recovery Accountability and Transparency Board to design a 
nationwide data collection system that will reduce information 
reporting burdens on recipients by simplifying reporting instructions 
and providing a user-friendly mechanism for submitting required data; 
OMB will be testing this system in July. This latest guidance attempts 
to address these concerns through additional details and clarification 
of previous guidance. 

Guidance on Job Creation and Job Retention: 

In its June 22 guidance, OMB endeavors to (1) dispel some of the 
confusion related to reporting on jobs created and retained versus the 
macroeconomic impact of the Recovery Act, (2) clarify which recipients 
of Recovery Act funds are required to report under the act, and (3) 
provide additional detail on how to calculate jobs created and 
retained. The new guidance articulates once again that under the 
Recovery Act, there are two distinct types of job reports. First, the 
Council of Economic Advisers (CEA), in consultation with OMB and the 
Department of the Treasury, is required to submit quarterly reports to 
Congress that detail the impact of programs funded through the Recovery 
Act on employment, economic growth, and other key economic indicators. 
In order to fulfill this mandate, CEA has developed macroeconomic 
methodologies to estimate employment effects for both the national and 
state levels. These macro-level employment estimates will attempt to 
capture the full employment impact of the Recovery Act. OMB and federal 
agencies will coordinate with CEA on these quarterly reports and other 
questions regarding macro-level jobs estimates. 

The second type of job report is part of the "recipient reports" 
required under section 1512 of the Recovery Act. Specifically, section 
1512(c)(3)(D) requires recipients of Recovery Act funds to report an 
estimate of the direct jobs created or retained by the Recovery Act 
project or activity. These reporting requirements apply only to 
nonfederal recipients of funding, including all entities receiving 
Recovery Act funds directly from the federal government such as state 
and local governments, private companies, educational institutions, 
nonprofits, and other private organizations. However, the recipient 
reporting requirement only covers a defined subset of the Recovery 
Act's funding. OMB's guidance, consistent with the statutory language 
in the Recovery Act, states that these reporting requirements apply to 
recipients who receive funding through discretionary appropriations, 
not recipients receiving funds through entitlement programs, such as 
Medicaid, or tax programs. Recipient reporting also does not apply to 
individuals.[Footnote 113] These reports are to provide information on 
direct job creation and retention, and OMB expects they will be useful 
in the overall estimation and evaluation of the employment effects of 
the Recovery Act, such as the employment reporting undertaken by CEA. 

The OMB guidance also clarifies that recipients of Recovery Act funds 
are required to report only on jobs directly created or retained by 
Recovery Act-funded projects, activities, and contracts. Recipients are 
not expected to report on the employment impact on materials suppliers 
("indirect" jobs) or on the local community ("induced" jobs). According 
to OMB, recipients are to report only direct jobs because they may not 
have sufficient insight or consistent methodologies for reporting 
indirect or induced jobs. OMB notes this broader view of the overall 
employment impact of the Recovery Act will be covered in the estimates 
generated by CEA using a macro-economic approach. According to CEA, it 
will consider the direct jobs created and retained reported by 
recipients to supplement its analysis.[Footnote 114] 

The new OMB guidance also provides additional instruction on how to 
estimate the number of jobs created and retained by Recovery Act 
funding. The guidance explains that the number of jobs created or 
retained should be expressed as "full-time equivalents" (FTE), which is 
calculated as total hours worked in jobs funded by the Recovery Act 
divided by the number of hours in a full-time schedule, as defined by 
the recipient. This calculation is designed to increase consistency in 
reported data by converting part-time and temporary jobs into FTE-jobs. 
By doing so, it seeks to avoid overstating the number of jobs that 
could occur through other methods or reporting of part-time, partial- 
time, or nonpermanent jobs. 

The new guidance restates from earlier guidance the definitions of jobs 
created and jobs retained. According to OMB guidance, a job created is 
a new position created and filled or an existing unfilled position that 
is filled as a result of the Recovery Act; a job retained is an 
existing position that would have been eliminated were it not for 
Recovery Act funding. A job cannot be counted as both created and 
retained, and only compensated employment in the United States should 
be counted. 

OMB's guidance for reporting on job creation aims to shed light on the 
immediate uses of Recovery Act funding; however, reports from 
recipients of Recovery Act funds must be interpreted with care. For 
example, accurate, consistent reports will only reflect a portion of 
the likely impact of the Recovery Act on national employment, since 
Recovery Act resources are also made available directly through tax 
cuts and benefit payments. 

Recipient Data Reporting Model: 

Some of the questions and concerns raised by state and local officials 
about the recipient reporting requirements centered on the reporting 
logistics and information technology requirements. For example, 
California and District of Columbia officials said they were awaiting 
final guidance on the data standards before finalizing their reporting 
approaches. Officials from several states said they modified, or are 
assessing whether they can modify, existing reporting systems for 
Recovery Act reporting. The new OMB guidance should answer many of 
these questions as it describes in detail the reporting model to be 
used for recipient reporting. The information reported by all prime 
recipients (and subrecipients to which the prime recipient has 
delegated reporting responsibility)[Footnote 115] will be submitted 
through [hyperlink, http://www.federalreporting.gov], an online Web 
portal designed to collect all Recovery Act recipient reports. All 
recipient reports will be made available on [hyperlink, 
http://www.recovery.gov] and, as appropriate, on individual federal 
agency recovery Web sites. 

The guidance also provides documentation of the data model for 
recipient reporting that includes a reporting template, a data 
dictionary, and an Extensible Markup Language (XML) schema for 
electronic data submissions.[Footnote 116] The reporting template is a 
simple spreadsheet table that enables manual data entry and collection 
of recipient reporting information in a familiar spreadsheet format. 
The data dictionary describes the data elements specifically required 
for recipient reporting under the Recovery Act. 

Our initial assessment of the technical specifications and framework of 
the recipient reporting model suggests that this is a reasonable 
approach. The pilot testing scheduled for July will provide additional 
information about potential technical and reporting challenges. It is 
likely that there will be challenges associated with data quality, 
including timeliness and completeness of submissions as well as the 
technical ability of some recipients to develop solutions (including 
processes and procedures) for capturing, tracking, and submitting the 
required data on a consistent basis. We will continue to monitor and 
assess OMB's recipient reporting model and July pilot test. 

OMB Requires Agencies to Measure Program Performance beyond Jobs 
Created and Retained: 

OMB guidance described recipient reporting requirements under the 
Recovery Act's section 1512 as the minimum that must be collected, 
leaving it to federal agencies to determine additional information that 
would be required for oversight of individual programs. OMB has 
instructed federal agencies to develop formal documented plans for how 
Recovery Act funds will be used and managed that are consistent with 
sound program management principles.[Footnote 117] According to the 
guidance, agencies must describe how they are coordinating broad 
Recovery Act efforts toward successful implementation and monitoring of 
performance and results in a comprehensive "agency plan." Officials 
from some states indicated they would use existing program indicators 
and, in some cases, build on these indicators to measure performance. 
Officials also expressed a desire for additional guidance from federal 
agencies on what performance measures to use. 

As instructed by OMB, each Recovery Act federal agency plan must 
describe the program's Recovery Act objectives and relationships with 
corresponding goals and objectives through ongoing agency programs and 
activities. OMB states that expected public benefits should demonstrate 
cost-effectiveness and be clearly stated in concise, clear, and plain 
language targeted to an audience with no in-depth knowledge of the 
program. Furthermore, OMB guidance states that, to the extent possible, 
Recovery Act goals should be expressed in the same terms as programs' 
goals in federal departmental strategic plans,[Footnote 118] and 
agencies should instruct recipients to collect and report performance 
information to the extent possible as part of their quarterly 
submissions. The objective is to use existing measures to allow the 
public to see the marginal performance impact of Recovery Act 
investments. Some state program officials have said that they do plan 
to use existing program performance measures. For example, public 
housing agencies told us they regularly track the budget control, 
timeliness, and quality of work of projects they fund and that they 
plan to continue using these measures with Recovery Act-funded 
projects. Some other performance measures public housing agencies 
typically track include tenant satisfaction, occupancy rates, crime 
rates, and employment among residents. 

Some states are issuing guidance and modifying their information 
systems to capture and report on jobs created and retained, but many 
state and local officials expressed concern about the lack of clear 
guidance on what other program or impact measures are required for 
evaluating the impact of Recovery Act funding. Some federal agencies 
have issued such additional guidance, but others have not. For example, 
the Department of Transportation (DOT) through the Federal Highway 
Administration (FHWA) has provided guidance specifying the data to be 
reported when complying with the requirements in section 1201(c) of 
division A of the Recovery Act, which stipulates, among other 
requirements, that each highway infrastructure grant recipient submit 
periodic reports on the use of the funds. For example, California state 
transportation officials said that contractors will be required to 
report on the number of workers and payroll amounts on a monthly basis 
to the California Department of Transportation. The state office will 
then provide the data to the FHWA California division office, which 
will provide it to FHWA headquarters. DOT said that grantees will not 
be expected to estimate employment data other than the direct on-site 
jobs and noted that the reporting to FHWA is in addition to the 
recipient reporting to OMB. DOT economists in coordination with CEA 
plan to compute the number of indirect jobs and induced jobs using 
direct on-site job data provided by the state transportation 
departments. 

OMB guidance also states that federal agencies must have a process in 
place for senior managers to regularly review the progress and 
performance of major programs. To achieve this objective, OMB has 
encouraged federal agencies to leverage their existing Senior 
Management Councils[Footnote 119] to oversee Recovery Act performance. 
OMB states that the councils should review Recovery Act reporting and 
performance across each agency; establish and oversee development and 
implementation of agency guidance to identify and mitigate risk; and 
ensure the correction of weaknesses relating to the Recovery Act. 
According to OMB, the councils should analyze findings and results from 
quarterly or monthly performance reviews, coordinated by the agency's 
Performance Improvement Officer, to help determine the highest-risk 
program areas and ensure corrective actions are implemented. 

OMB's Recipient Reporting Implementing Guidance Addresses Some 
Concerns, but Additional Instruction on Reporting May Be Needed: 

OMB's new guidance on the implementation of recipient reporting should 
be helpful in addressing answers to many of the questions and concerns 
raised by state and local program officials. However, a number of the 
issues were covered in previous guidance, and some concerns remain. For 
example, the counting of part-time employment was covered to some 
extent in previous guidance but continued to be mentioned by officials 
in some states. Overall, state and local officials were clearly aware 
of the requirements to report on jobs created and jobs retained, but 
questions persist on how to do this. For example, public housing 
agencies reported they have not received guidance from HUD on how to 
measure jobs created and retained or other performance measures. Most 
public housing agency officials told us they would like guidance on how 
to accomplish these objectives. Similarly, Education officials noted 
that draft OMB guidance on recipient reporting would require some 
additional Education guidance to clarify issues for recipients of 
formula grants, such as special education IDEA grants. 

In sum, federal agencies may need to do a better job of communicating 
the OMB guidance in a timely manner to their state counterparts and, as 
appropriate, issue clarifying guidance on required performance 
measurement. In particular, while any additional guidance for 
recipients must be in accordance with OMB guidance, OMB could work with 
federal agencies to provide program-specific examples about how to 
count jobs created and jobs retained. This would be especially helpful 
for programs that have not previously tracked and reported such 
metrics, such as with public housing and special education grants. 
Other channels to educate state and local program officials on the 
reporting requirements could be considered, including Web-or telephone- 
based information sessions or other forums. 

Concluding Observations and Recommendations: 

Since enactment of the Recovery Act[Footnote 120] in February 2009, OMB 
has issued three sets of guidance--on February 18, April 3 and, most 
recently, June 22, 2009[Footnote 121] --to announce spending and 
performance reporting requirements to assist prime recipients and 
subrecipients of federal Recovery Act funds to comply with these 
requirements. OMB has reached out to Congress, federal, state, and 
local government officials, grant and contract recipients, and the 
accountability community to get a broad perspective on what is needed 
to meet the high expectations set by Congress and the administration. 
Further, according to OMB's June guidance, OMB has worked with the 
Recovery Accountability and Transparency Board to deploy a nationwide 
data collection system at [hyperlink, http://www.federalreporting.gov]. 

As work proceeds on the implementation of the Recovery Act, OMB and the 
cognizant federal agencies have opportunities to build on the early 
efforts by continuing to address several important issues. 

These issues can be placed broadly into three categories, which have 
been revised from our last report to better reflect evolving events 
since April: (1) accountability and transparency requirements, (2) 
reporting on impact, (3) communications and guidance.[Footnote 122] 

Accountability and Transparency Requirements: 

Recipients of Recovery Act funding face a number of implementation 
challenges in this area. The act includes new programs and significant 
increases in funds out of normal cycles and processes. There is an 
expectation that many programs and projects will be delivered faster so 
as to inject funds into the economy, and the administration has 
indicated its intent to assure transparency and accountability over the 
use of Recovery Act funds. Issues regarding the Single Audit process 
and administrative support and oversight are important. 

Single Audit: The Single Audit process needs adjustments to provide 
appropriate risk-based focus and the necessary level of accountability 
over Recovery Act programs in a timely manner. 

In our April 2009 report, we reported that the guidance and criteria in 
OMB Circular No. A-133 do not adequately address the substantial added 
risks posed by the new Recovery Act funding. Such risks may result from 
(1) new government programs, (2) the sudden increase in funds or 
programs that are new to the recipient entity, and (3) the expectation 
that some programs and projects will be delivered faster so as to 
inject funds into the economy. With some adjustment, the Single Audit 
could be an effective oversight tool for Recovery Act programs because 
it can address risks associated with all three of these factors. 

April report recommendations: Our April report included recommendations 
that OMB adjust the current audit process to focus the risk assessment 
auditors use to select programs to test for compliance with 2009 
federal program requirements on Recovery Act funding; provide for 
review of the design of internal controls during 2009 over programs to 
receive Recovery Act funding, before significant expenditures in 2010; 
and evaluate options for providing relief related to audit requirements 
for low-risk programs to balance new audit responsibilities associated 
with the Recovery Act. 

Status of April report recommendations: OMB has taken some actions and 
has other planned actions to help focus the program selection risk 
assessment on Recovery Act programs and to provide guidance on 
auditors' reviews of internal controls for those programs. However, we 
remain concerned that OMB's planned actions would not achieve the level 
of accountability needed to effectively respond to Recovery Act risks 
and does not provide for timely reporting on internal controls for 
Recovery Act programs. Therefore, we are re-emphasizing our previous 
recommendations in this area. 

To help auditors with single audit responsibilities meet the increased 
demands imposed on them by Recovery Act funding, we recommend that the 
Director of OMB take the following four actions: 

* Develop requirements for reporting on internal controls during 2009 
before significant Recovery Act expenditures occur as well as ongoing 
reporting after the initial report. 

* Provide more focus on Recovery Act programs through the Single Audit 
to help ensure that smaller programs with high risk have audit coverage 
in the area of internal controls and compliance. 

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

* To the extent that options for auditor relief are not provided, 
develop mechanisms to help fund the additional Single Audit costs and 
efforts for auditing Recovery Act programs. 

Administrative Support and Oversight: States have been concerned about 
the burden imposed by new requirements, increased accounting and 
management workloads, and strains on information systems and staff 
capacity at a time when they are under severe budgetary stress. 

April report recommendation: In our April report, we recommended that 
the Director of OMB clarify what Recovery Act funds can be used to 
support state efforts to ensure accountability and oversight, 
especially in light of enhanced oversight and coordination 
requirements. 

Status of April report recommendation: On May 11, 2009, OMB released a 
memorandum[Footnote 123] clarifying how state grantees could recover 
administrative costs of Recovery Act activities. 

Matter for Congressional Consideration: 

Because a significant portion of Recovery Act expenditures will be in 
the form of federal grants and awards, the Single Audit process could 
be used as a key accountability tool over these funds. However, the 
Single Audit Act, enacted in 1984 and most recently amended in 1996, 
did not contemplate the risks associated with the current environment 
where large amounts of federal awards are being expended quickly 
through new programs, greatly expanded programs, and existing programs. 
The current Single Audit process is largely driven by the amount of 
federal funds expended by a recipient in order to determine which 
federal programs are subject to compliance and internal control 
testing. Not only does this model potentially miss smaller programs 
with high risk, but it also relies on audit reporting 9 months after 
the end of a grantee's fiscal year--far too late to pre-emptively 
correct deficiencies and weaknesses before significant expenditures of 
federal funds. Congress is considering a legislative proposal in this 
area and could address the following issues: 

* To the extent that appropriate adjustments to the Single Audit 
process are not accomplished under the current Single Audit structure, 
Congress should consider amending the Single Audit Act or enacting new 
legislation that provides for more timely internal control reporting, 
as well as audit coverage for smaller Recovery Act programs with high 
risk. 

* To the extent that additional audit coverage is needed to achieve 
accountability over Recovery Act programs, Congress should consider 
mechanisms to provide additional resources to support those charged 
with carrying out the Single Audit Act and related audits. 

Reporting on Impact: 

Under the Recovery Act, responsibility for reporting on jobs created 
and retained falls to nonfederal recipients of Recovery Act funds. As 
such, states and localities have a critical role in identifying the 
degree to which Recovery Act goals are achieved. 

Performance reporting is broader than the jobs reporting required under 
section 1512 of the Recovery Act. OMB guidance requires that agencies 
collect and report performance information consistent with the agency's 
program performance measures. As described earlier in this report, some 
agencies have imposed additional performance measures on projects or 
activities funded through the Recovery Act. 

April report recommendation: In our April report, we recommended that 
given questions raised by many state and local officials about how best 
to determine both direct and indirect jobs created and retained under 
the Recovery Act, the Director of OMB should continue OMB's efforts to 
identify appropriate methodologies that can be used to (1) assess jobs 
created and retained from projects funded by the Recovery Act; (2) 
determine the impact of Recovery Act spending when job creation is 
indirect; (3) identify those types of programs, projects, or activities 
that in the past have demonstrated substantial job creation or are 
considered likely to do so in the future and consider whether the 
approaches taken to estimate jobs created and jobs retained in these 
cases can be replicated or adapted to other programs. 

Status of April report recommendation: OMB has been meeting on a 
regular basis with state and local officials, federal agencies, and 
others to gather input on reporting requirements and implementation 
guidance and has worked with the Recovery Accountability and 
Transparency Board on a nationwide data collection system. On June 22, 
OMB issued additional implementation guidance on recipient reporting of 
jobs created and retained. This guidance is responsive to much of what 
we said in our April report. It states that there are two different 
types of jobs reports under the Recovery Act and clarifies that 
recipient reports are to cover only direct jobs created or retained. 
"Indirect" jobs (employment impact on suppliers) and "induced" jobs 
(employment impact on communities) will be covered in Council of 
Economic Advisers (CEA) quarterly reports on employment, economic 
growth, and other key economic indicators. Consistent with the 
statutory language of the act, OMB's guidance states that these 
recipient reporting requirements apply to recipients who receive 
funding through discretionary appropriations, not to those receiving 
funds through either entitlement or tax programs. These reporting 
requirements also do not apply to individuals. It clarifies that the 
prime recipient and not the subrecipient is responsible for reporting 
section 1512 information on jobs created or retained to the federal 
government. The June 2009 guidance also provides detailed instructions 
on how to calculate and report jobs as full-time equivalents (FTE). It 
also describes in detail the data model and reporting system to be used 
for the required recipient reporting on jobs. 

The guidance provided for reporting job creation aims to shed light on 
the immediate uses of Recovery Act funding and is reasonable in that 
context. It will be important, however, to interpret the recipient 
reports with care. As noted in the guidance, these reports are only one 
of the two distinct types of reports seeking to describe the jobs 
impact of the Recovery Act. CEA's quarterly reports will cover the 
impact on employment, economic growth, and other key economic 
indicators. Further, the recipient reports will not reflect the impact 
of resources made available through tax provisions or entitlement 
programs.[Footnote 124] 

Recipients are required to report no later than 10 days after the end 
of the calendar quarter. The first of these reports is due on October 
10, 2009. After prime recipients and federal agencies perform data 
quality checks, detailed recipient reports are to be made available to 
the public no later than 30 days after the end of the quarter. Initial 
summary statistics will be available on [hyperlink, 
http://www.recovery.gov]. The guidance explicitly does not mandate a 
specific methodology for conducting quality reviews. Rather, federal 
agencies are directed to coordinate the application of definitions of 
material omission and significant reporting error to "ensure 
consistency" in the conduct of data quality reviews. Although 
recipients and federal agency reviewers are required to perform data 
quality checks, none are required to certify or approve data for 
publication. It is unclear how any issues identified under data quality 
reviews would be resolved and how frequently data quality problems 
would have been identified in the reviews. GAO will continue to monitor 
this data quality and recipient reporting requirements. 

Our recommendations: To increase consistency in recipient reporting or 
jobs created and retained, the Director of OMB should work with federal 
agencies to have them provide program-specific examples of the 
application of OMB's guidance on recipient reporting of jobs created 
and retained. This would be especially helpful for programs that have 
not previously tracked and reported such metrics. 

Because performance reporting is broader than the jobs reporting 
required by section 1512, the Director of OMB should also work with 
federal agencies--perhaps through the Senior Management Councils--to 
clarify what new or existing program performance measures--in addition 
to jobs created and retained--that recipients should collect and report 
in order to demonstrate the impact of Recovery Act funding. 

In addition to providing these additional types of program-specific 
examples of guidance, the Director of OMB should work with federal 
agencies to use other channels to educate state and local program 
officials on reporting requirements, such as Web-or telephone-based 
information sessions or other forums. 

Communications and Guidance: 

Financial funding and program guidance: State officials expressed 
concerns regarding communication on the release of Recovery Act funds 
and their inability to determine when to expect federal agency program 
guidance. Once funds are released there is no easily accessible, real- 
time procedure for ensuring that appropriate officials in states and 
localities are notified. Because half of the estimated spending 
programs in the Recovery Act will be administered by nonfederal 
entities, states wish to be notified when funds are made available to 
them for their use as well as when funding is received by other 
recipients within their state that are not state agencies. 

OMB does not have a master timeline for issuing federal agency 
guidance. OMB's preferred approach is to issue guidance incrementally. 
This approach potentially produces a more timely response and allows 
for mid-course corrections; however, this approach also creates 
uncertainty among state and local recipients responsible for 
implementing programs. We continue to believe that OMB can strike a 
better balance between developing timely and responsive guidance and 
providing a long range time line that gives some structure to state and 
localities' planning efforts. We appreciate that the timeline will 
almost certainty be modified over time as new issues emerge that 
require additional guidance and clarification. 

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

Status of April recommendation: OMB has made important progress in the 
type and level of information provided in its reports on Recovery.gov. 
Nonetheless, OMB has additional opportunities to more fully address the 
recommendations we made in April. By providing a standard format across 
disparate programs, OMB has improved its Funding Notification reports, 
making it easier for the public to track when funds become available. 
Agencies update their Funding Notification reports for each program 
individually whenever they make funds available. Both reports are 
available on [hyperlink, http://www.recovery.gov]. OMB has taken the 
additional step of disaggregating financial information, i.e., federal 
obligations and outlays by Recovery Act programs and by state in its 
Weekly Financial Activity Report. 

Our recommendation: The Director of OMB should continue to develop and 
implement an approach that provides easily accessible, real-time 
notification to (1) prime recipients in states and localities when 
funds are made available for their use, and (2) states--where the state 
is not the primary recipient of funds but has a statewide interest in 
this information. In addition, OMB should provide a long range time 
line for the release of federal guidance for the benefit of nonfederal 
recipients responsible for implementing Recovery Act programs. 

Recipient financial tracking and reporting guidance: In addition to 
employment related reporting, OMB's guidance calls for the tracking of 
funds by the prime recipient, recipient vendors, and subrecipients 
receiving payments. OMB's guidance also allows that a "prime recipients 
may delegate certain reporting requirements to subrecipients." Either 
the prime or sub-recipient must report the D-U-N-S number (or an 
acceptable alternative) for any vendor or sub-recipient receiving 
payments greater than $25 thousand. In addition, the prime recipient 
must report what was purchased and the amount, and a total number and 
amount for sub-awards of less than $25 thousand. By reporting the DUNS 
number, OMB guidance provides a way to identify subrecipients by 
project, but this alone does not ensure data quality. 

The approach to tracking funds is generally consistent with the Federal 
Funding Accountability and Transparency Act (FFATA). Like the Recovery 
Act, the FFATA requires a publicly available Web site--[hyperlink, 
http://www.USAspending.gov]--to report financial information about 
entities awarded federal funds. Yet, significant questions have been 
raised about the reliability of the data on USAspending.gov, primarily 
because what is reported by the prime recipients is dependent on the 
unknown data quality and reporting capabilities of their subrecipients. 

For example, earlier this year, more than 2 years after passage of 
FFATA, the Congressional Research Service (CRS) questioned the 
reliability of the data on USAspending.gov. We share CRS's concerns 
associated with USAspending.gov, including incomplete, inaccurate, and 
other data quality problems. More broadly, these concerns also pertain 
to recipient financial reporting in accordance with the Recovery Act 
and its federal reporting vehicle, [hyperlink, 
http://www.FederalReporting.gov], currently under development. 

Our recommendation: To strengthen the effort to track the use of funds, 
the Director of OMB should (1) clarify what constitutes appropriate 
quality control and reconciliation by prime recipients, especially for 
subrecipient data, and (2) specify who should best provide formal 
certification and approval of the data reported. 

Agency-specific guidance: DOT and FHWA have yet to provide clear 
guidance regarding how states are to implement the Recovery Act 
requirement that economically distressed areas (EDA) are to receive 
priority in the selection of highway projects for funding. We found 
substantial variation both in how states identified areas in economic 
distress and how they prioritized project selection for these areas. As 
a result, it is not clear whether areas most in need are receiving 
priority in the selection of highway infrastructure projects, as 
Congress intended. While it is true that states have discretion in 
selecting and prioritizing projects, it is also important that this 
goal of the Recovery Act be met. 

Our recommendation: To ensure states meet Congress's direction to give 
areas with the greatest need priority in project selection, the 
Secretary of Transportation should develop clear guidance on 
identifying and giving priority to economically distressed areas that 
are in accordance with the requirements of the Recovery Act and the 
Public Works and Economic Development Act of 1965, as amended, and more 
consistent procedures for the Federal Highway Administration to use in 
reviewing and approving states' criteria. 

Agency Comments and Our Evaluation: 

We received comments on a draft of this report from the Office of 
Management and Budget (OMB) and the U.S. Department of Transportation 
(DOT) on our report recommendations. 

Office of Management and Budget: 

OMB concurs with the overall objectives of GAO's recommendations made 
to OMB in this report. OMB offered clarifications regarding the area of 
Single Audit and did not concur with some of GAO's conclusions related 
to communications. What follows summarizes OMB's comments and our 
responses. 

Single Audit Act: 

OMB agreed with the overall objectives of GAO's recommendations and 
offered clarifications regarding the areas of Single Audit. OMB also 
noted it believes that the new requirements for more rigorous internal 
control reviews will yield important short-term benefits and the steps 
taken by state and local recipients to immediately initiate controls 
will withstand increased scrutiny later in the process. 

OMB commented that it has already taken and is planning actions to 
focus program selection risk assessment on Recovery Act programs and to 
increase the rigor of state/local internal controls on Recovery Act 
activities. However, our report points out that OMB has not yet 
completed critical guidance in these areas. Unless OMB plans to change 
the risk assessment process conducted for federal programs under 
Circular A-133, smaller, but significantly risky programs under the 
Recovery Act may not receive adequate attention and scrutiny under the 
Single Audit process. 

OMB acknowledged that acceleration of internal control reviews could 
cause more work for state auditors, for which OMB and Congress should 
explore potential options for relief. This is consistent with the 
recommendations we make in this report. OMB also noted that our draft 
report did not offer a specific recommendation for achieving 
acceleration of internal control reporting. Because there are various 
ways to achieve the objective of early reporting on internal controls, 
we initially chose not to prescribe a specific method; however, such 
accelerated reporting could be achieved in various ways. For instance, 
OMB could require specific internal control certifications from federal 
award recipients meeting certain criteria as of a specified date, such 
as December 31, 2009, before significant Recovery Act expenditures 
occur. Those certifications could then be reviewed by the auditor as 
part of the regular single audit process. Alternatively, or in 
addition, OMB could require that the internal control portion of the 
single audit be completed early, with a report submitted 60 days after 
the recipient's year end. We look forward to continuing our dialog with 
OMB on various options available to achieve the objective of early 
reporting on internal controls. We will also continue to review OMB's 
guidance in the area of single audits as such guidance is being 
developed. 

Communications: 

OMB has made important progress relative to some communications. In 
particular, we agree with OMB's statements that it requires agencies to 
post guidance and funding information to agency Recovery Act websites, 
disseminates guidance broadly, and seeks out and responds to 
stakeholder input. In addition, OMB is planning a series of interactive 
forums to offer training and information to Recovery Act recipients on 
the process and mechanics of recipient reporting and they could also 
serve as a vehicle for additional communication. Moving forward and 
building on the progress it has made, OMB can take the following 
additional steps related to funding notification and guidance. 

First, OMB should require direct notification to key state officials 
when funds become available within a state. OMB has improved Funding 
Notification reports by providing a standard format across disparate 
programs, making it easier for the public to track when funds become 
available. However, it does not provide an easily accessible, real-time 
notification of when funds are available. OMB recognized the shared 
responsibilities of federal agencies and states in its April 3, 2009 
guidance when it noted that federal agencies should expect states to 
assign a responsible office to oversee data collection to ensure 
quality, completeness, and timeliness of data submissions for recipient 
reporting. In return, states have expressed a need to know when funds 
flow into the state regardless of which level of government or 
governmental entity within the state receives the funding so that they 
can meet the accountability objectives of the Recovery Act. We continue 
to recommend more direct notification to (1) prime recipients in states 
and localities when funds are made available for their use, and (2) 
states-where the state is not the primary recipient of funds but has a 
statewide interest in this information. 

Second, OMB should provide a long range time line for the release of 
federal guidance. In an attempt to be responsive to emerging issues and 
questions from the recipient community, OMB's preferred approach is to 
issue guidance incrementally. This approach potentially produces a more 
timely response and allows for mid-course corrections; however, this 
approach also creates uncertainty among state and local recipients. 
State and local officials expressed concerns that this incremental 
approach hinders their efforts to plan and administer Recovery Act 
programs. As a result, we continue to believe OMB can strike a better 
balance between developing timely and responsive guidance and providing 
some degree of a longer range time line so that states and localities 
can better anticipate which programs will be affected and when new 
guidance is likely to be issued. OMB's consideration of a master 
schedule and its acknowledgement of the extraordinary proliferation of 
program guidance in response to Recovery Act requirements seem to 
support a more structured approach. We appreciate that a longer range 
time line would need to be flexible so that OMB could also continue to 
issue guidance and clarifications in a timely manner as new issues and 
questions emerge. 

OMB also offered suggestions for several technical clarifications which 
we have made when appropriate. 

U.S. Department of Transportation: 

DOT generally agreed to consider the recommendation that it develop 
clear guidance on identifying and giving priority to economically 
distressed areas and more consistent procedures for reviewing and 
approving states' criteria. As discussed in the highways section of 
this report, in commenting on a draft of this report, DOT agreed that 
states must give priority to projects located in economically 
distressed areas (EDAs), but said that states must balance all the 
Recovery Act project selection criteria when selecting projects 
including giving preference to activities that can be started and 
completed expeditiously, using funds in a manner that maximizes job 
creation and economic benefit, and other factors. While we agree with 
DOT that there is no absolute primacy of EDA projects in the sense that 
they must always be started first, the specific directives in the act 
that apply to highway infrastructure are that priority is to be given 
to projects that can be completed in 3 years, and are located in EDAs. 
DOT also stated that the basic approach used by selected states to 
apply alternative criteria is consistent with the Public Works and 
Economic Development Act and its implementing regulations on EDAs 
because it makes use of flexibilities provided by the Public Works Act 
to more accurately reflect changing economic conditions. However the 
result of DOT's interpretation would be to allow states to prioritize 
projects based on criteria that are not mentioned in the highway 
infrastructure investment portion of the Recovery or the Public Works 
Acts without the involvement of the Secretary or Department of 
Commerce. We plan to continue to monitor states' implementation of the 
EDA requirements and interagency coordination at the federal level in 
future reports. 

We are sending copies of this report to the Office of Management and 
Budget and the Department of Transportation, as well as sections of the 
report to officials of the 16 states and the District covered in our 
review. The report will also be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

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

Signed by: 

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

List of Committees: 

The Honorable Nancy Pelosi:
Speaker of the House of Representatives: 

The Honorable Robert C. Byrd:
President Pro Tempore of the Senate: 

The Honorable Harry Reid:
Majority Leader:
United States Senate: 

The Honorable Mitch McConnell:
Republican Leader:
United States Senate: 

The Honorable Steny Hoyer:
Majority Leader:
House of Representatives: 

The Honorable John Boehner:
Minority Leader:
House of Representatives: 

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

The Honorable Dave Obey:
Chairman:
The Honorable Jerry Lewis:
Ranking Member:
Committee on Appropriations:
House of Representatives: 

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

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

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This appendix describes our objectives, scope, and methodology (OSM) 
for this second report on our bimonthly reviews on the Recovery Act. A 
detailed description of the criteria used to select the core group of 
16 states and the District of Columbia (District) and programs we 
reviewed is found in appendix I of our April 2009 Recovery Act 
bimonthly report.[Footnote 125] 

Objectives and Scope: 

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

Our teams visited the 16 selected states, the District, and a non- 
probability sample of 178 localities during May and June 2009.[Footnote 
126] As described in our previous Recovery Act report's OSM, our teams 
met again with a variety of state and local officials from executive- 
level and program offices. During discussions with state and local 
officials, teams used a series of program review and semistructured 
interview guides that addressed state plans for management, tracking, 
and reporting of Recovery Act funds and activities. We also reviewed 
state constitutions, statutes, legislative proposals, and other state 
legal materials for this report. Where attributed, we relied on state 
officials and other state sources for description and interpretation of 
state legal materials. Appendix II details the states and localities 
visited by GAO. Criteria used to select localities within our selected 
states follow. 

States' and Localities' Uses of Recovery Act Funds: 

Using criteria described in our last bimonthly report, we selected the 
following streams of Recovery Act funding flowing to states and 
localities for review during this report: increased Medicaid Federal 
Medical Assistance Percentage (FMAP) grant awards; the Federal-Aid 
Highway Surface Transportation Program; the State Fiscal Stabilization 
Fund (SFSF); Title I, Part A of the Elementary and Secondary Education 
Act of 1965 (ESEA); Parts B and C of the Individuals with Disabilities 
Education Act (IDEA); the Workforce Investment Act (WIA) Youth program; 
the Public Housing Capital Fund; Edward Byrne Memorial Justice 
Assistance Grant (JAG) Program, and the Weatherization Assistance 
Program. Together, these nine programs are estimated to account for 
approximately 87 percent of federal Recovery Act outlays to states and 
localities in fiscal year 2009. We also reviewed how Recovery Act funds 
are being used by states to stabilize their budgets. In addition, we 
analyzed www.recovery.gov data on federal spending. 

Medicaid Federal Medical Assistance Percentage: 

For the FMAP grant awards, we again relied on our web-based inquiry, 
asking the 16 states and the District to update information they had 
previously provided to us on enrollment, expenditures, and changes to 
their Medicaid programs and to report their plans to use state funds 
made available as a result of the increased FMAP. We also reviewed 
states' Single Audit results for 2007 and, where available, for 2008, 
to identify material weaknesses related to the Medicaid programs in the 
16 states and the District. In interviews with Medicaid officials from 
all the sample states and the District, we obtained additional 
information regarding states' efforts to comply with the provisions of 
the Recovery Act, as well as states' responses to material weaknesses 
identified in their Single Audits. We spoke with individuals from the 
Centers for Medicare & Medicaid Services (CMS) regarding their 
oversight and guidance to states, their FMAP grant awards, and funds 
drawn down by states. 

Federal-Aid Highway Surface Transportation Program: 

For highway infrastructure investment, we reviewed status reports and 
guidance to the states and discussed these with the U.S. Department of 
Transportation (DOT) and Federal Highway Administration (FHWA) 
officials. We obtained data from FHWA on obligations and reimbursements 
for the Recovery Act's highway infrastructure funds nationally and for 
each of our selected states. We selected two projects in every state 
that were furthest along--for example, projects under construction or 
out for bid. In selecting projects, we attempted to select a mix of 
projects, including projects that were in and outside of economically 
distressed areas; projects administered by the state and locally 
administered projects; projects in urban and rural areas; and projects 
requiring various amounts of funding--both large and small. To obtain 
information on the impact certain requirements associated with highway 
funding were having on states, we selected three states--New Jersey, 
Arizona, and Mississippi--because we did not include these states in 
the scope of our previous report on this issue and because they have 
varying environmental planning and labor environments.[Footnote 127] 
For example, according to the Council on Environmental Quality, New 
Jersey has a state environmental planning law similar to the National 
Environmental Policy Act (NEPA), while Arizona and Mississippi do not, 
and, according to the Bureau of Labor Statistics, in 2008, union 
membership in New Jersey was 18.3 percent, while 8.8 percent of Arizona 
and 5.3 percent of Mississippi workers were union members. 

SFSF, ESEA Title I, and IDEA: 

To understand how the U.S. Department of Education is implementing the 
SFSF, ESEA Title I, and IDEA under the Recovery Act, we reviewed 
relevant laws, guidance, and communications to the states and 
interviewed Education officials. Our review of related documents and 
interviews with federal agency officials focused on determining and 
clarifying how states, school districts, and public institutions of 
higher education would be expected to implement various provisions of 
the SFSF. Also, to understand the baseline data being used to 
demonstrate states' status related to the assurances states must make 
about education reform in their SFSF applications, we interviewed 
Education officials about the data being used and officials at 
organizations such as Achieve and the Data Quality Campaign, which 
develop and assess the data. 

We visited at least two school districts in each state covered by our 
review to learn the districts' plans for Recovery Act funds received 
for SFSF, ESEA Title I, and IDEA. For our visits to school districts, 
in each state, we selected from school districts that were among the 
top 10 recipients of Recovery Act funds for the ESEA Title I program 
and, when possible, included school districts with a high number of 
schools in improvement and school districts in locales other than large 
cities. For our visits to public institutions of higher education 
(IHE), we visited IHEs in Ohio and North Carolina and the six states-- 
California, Florida, Georgia, Illinois, Mississippi, and New York--that 
had received approval of their applications for State Fiscal 
Stabilization Funds from Education by the time of our initial site 
visits in May 2009. For each state, we selected among the largest, in 
terms of enrollment, public IHEs in the state that would be receiving 
SFSF funds, including universities and community colleges. In 3 states, 
we also visited some public historically black colleges and 
universities. 

WIA Youth Program: 

We reviewed the Recovery Act-funded WIA Youth program in 13 of our 16 
states (all except Arizona, Colorado, and Iowa)[Footnote 128] and the 
District. We focused on state and local efforts to provide summer youth 
employment activities. To learn about the status of implementation, the 
use and oversight of funds, and the challenges faced, we interviewed 
workforce development officials in all 13 states and at least two local 
areas in each state--for a total of 34 local areas--and the District. 
We also reviewed relevant documents obtained from state and local 
officials. In addition, we obtained and analyzed data from the 
Department of Labor on the amount of Recovery Act WIA Youth funds 
allotted to, and drawn down by states, and reviewed Labor's guidance to 
states and local areas on Recovery Act funds. 

Public Housing Capital Fund: 

For Public Housing, we obtained data from HUD's Electronic Line of 
Credit and Control System on the amount of Recovery Act funds that have 
been obligated and/or drawn down by each housing agency in the country, 
as of June 20, 2009. To determine how housing agencies were using or 
planning to use these funds, we selected a sample of 47 agencies in our 
sample of 16 states and the District. At the selected agencies we 
interviewed housing agency officials and conducted site visits of 
ongoing or planned Recovery Act projects. GAO selected these locations 
to obtain a mix of large, medium, and small housing agencies, housing 
agencies designated as troubled performers by HUD, those to which HUD 
allocated significant amounts of Recovery Act funding, and housing 
agencies that had drawn down funds at the time of our selection. We 
also interviewed HUD Headquarters officials in the District to 
understand their procedures for monitoring housing agency use of 
Recovery Act Funds. 

JAG Program: 

For our review of the JAG program, we reviewed relevant laws, federal 
guidance, and states' grant applications and award letters; interviewed 
officials with the Department of Justice's Office of Justice Programs 
and Bureau of Justice Assistance; and interviewed officials from state 
administering agencies that oversee the JAG program in their state. We 
spoke with and reviewed documentation from Department of Justice 
officials on the agency's coordination with, guidance to, and oversight 
of grant recipients. We interviewed state officials and reviewed 
relevant state documentation to determine and clarify states' plans for 
using JAG funds awarded to the state and their progress in using and 
overseeing those funds. We did not review JAG 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. 

Weatherization Assistance Program: 

For the Weatherization Assistance Program, we reviewed relevant laws, 
regulations, and federal guidance and interviewed Department of Energy 
officials who administer the program at the federal level. We also 
coordinated activities with officials from the department's Office of 
Inspector General. In addition, we conducted semistructured interviews 
with officials in the states' energy agencies that administer the 
weatherization program. We collected data about each state's total 
allocation for weatherization through the Recovery Act, as well as the 
initial allocation already sent to the states. We asked DOE officials 
about their timetable for reviewing state energy plans and when they 
would provide the next allocation to the states. Finally, we reviewed 
the state weatherization plans to determine how each state intends to 
allocate their funds and the outcomes they expect. 

State Budget Stabilization: 

To better understand how states and the District are using Recovery Act 
funds to stabilize government budgets, we reviewed enacted and proposed 
state budgets and revenue estimates for state fiscal years 2008-2009 
and 2009-2010. In addition, we reviewed reports and analysis regarding 
state fiscal conditions. We interviewed state budget officials to 
determine how states are using Recovery Act funds to avoid reductions 
in essential services or tax increases and developing exit strategies 
to plan for the end of Recovery Act funding. We also consulted with 
researchers and associations representing state officials to better 
understand states' current fiscal conditions. 

Assessing States' and Localities' Safeguards and Internal Controls: 

To determine how states and localities are tracking the receipt of and 
use of Recovery Act funds, the state and District teams asked cognizant 
officials to describe the accounting systems and conventions being used 
to execute transactions and to monitor and report on Recovery Act 
expenditures. To determine the current internal control structure in 
states and the District, we asked cognizant officials to describe and 
provide relevant documentation about their current internal control 
program, including risk assessment and monitoring. In addition, to 
assist in the planning of the audit work, we provided the state and 
District teams, as well as certain program teams, with available fiscal 
year 2008 Single Audit summary information. Single Audit information 
was obtained from the Federal Audit Clearinghouse (FAC) Single Audit 
data collection forms and the Single Audit reports. We discussed with 
relevant OMB officials the Single Audit reports and guidance. We also 
analyzed how OMB was addressing the recommendations related to the 
Single Audit in the April 2009 Recovery Act report. We also asked 
auditors to address how they were monitoring and overseeing the 
Recovery Act. 

Efforts to Assess Impact of Recovery Act Spending: 

To understand the reporting requirements on the impact of the Recovery 
Act, we reviewed the guidance issued by OMB on February 18, April 3, 
and June 22, 2009, as well as selective federal agency guidance related 
to grants and to states and localities. We also interviewed selected 
state, District, and local officials to understand their views of 
agency and OMB guidance for reporting on implementation of the Recovery 
Act, as well as about their plans to provide assessment data required 
by Section 1512. 

Data and Data Reliability: 

We collected funding data from www.recovery.gov and federal agencies 
administering Recovery Act programs for the purpose of providing 
background information. We used funding data from www.recovery.gov -- 
which is overseen by the Recovery Accountability and Transparency 
Board--because it is the official source for Recovery Act spending. We 
collected data on states' and localities' plans, uses, and tracking of 
Recovery Act funds during interviews and follow-up meetings with state 
and local officials. In addition, we used data collected from state and 
local officials to report the amount of Recovery Act funding received 
by states and localities thus far. Based on a preliminary and limited 
examination of this information, we consider these data sufficiently 
reliable with attribution to official sources for the purposes of 
providing background information on Recovery Act funding for this 
report. Our sample of selected states and localities is not a random 
selection and therefore cannot be generalized to the total population 
of state and local governments. 

We conducted this performance audit from April 21, 2009, to July 2, 
2009, in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Office of Management and Budget: 

Executive Office Of The President: 
Office Of Management And Budget: 
Office Of Federal Financial Management: 
Washington, D.C. 20503: 

June 30, 2009: 

Mr. J, Chris Mihm: 
Managing Director, Strategic Issues: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Mihm: 

Thank you for the opportunity to review the Government Accountability 
Office (GAO) draft report entitled, States' and Localities' Current and 
Planned Uses of Funds While Pacing fiscal Stresses, (GAO-09-829). We 
appreciate the critical role that GAO plays in reviewing Recovery Act 
implementation, and believe your ongoing analysis and input is helping 
to facilitate the accountability and transparency objectives of the 
Act. 

Your note of June 26, 2009, transmitting the above referenced draft 
report requested OMB staff comments by the next business day. To meet 
this request, we have clone our best to complete an initial review. 
Based on this review, OMB concurs with the overall objectives of GAO's 
recommendations in the report. However, we offer the following 
clarifications for your consideration in the areas of Single Audit and 
communications. 

Single Audit As your draft report notes, OMB has already taken, and is 
planning, actions to focus program selection risk assessment on 
Recovery Act programs and to increase the rigor of state/local internal 
controls on recovery activities. GAO further recommends that OMB 
establish new requirements that result in auditor assessment of 
internal controls "before significant Recovery Act expenditures occur." 
Although GAO offers no specific recommendation for achieving 
acceleration of internal control audit activities, GAO does recognize 
that such a requirement wit] impose administrative burdens on the state 
auditor community for which OMB and Congress should explore potential 
options for relief OMB concurs that acceleration of internal control 
reviews will add administrative burden to state auditors, Of note, OMB 
believes such changes in audit procedures will also impact the 
resources of state and local programs working to address other 
administrative challenges associated with Recovery Act implementation. 
OMB believes that the new requirements for more rigorous internal 
control reviews that arc being put in place will yield important short-
tern benefits as state and local recipients take steps to immediately 
initiate controls that will withstand increased audit scrutiny later in 
the process. With these clarifications noted, OMB concurs with GAO's 
recommendation to pursue alternatives for accelerating audit 
activities. 

Communications. OMB does not concur with GAO's conclusion that OMB has 
not responded to recommendations related to communications. OMB has 
taken numerous steps to advance effective communication of the 
availability of program-specific guidance and funding. Specifically, 
OMB guidance requires Federal agencies to post all program specific 
guidance on agency recovery websites, disseminate such guidance to a 
broad range of external stakeholders, respond promptly to stakeholder 
input, and engage (as appropriate) with stakeholders (luring the 
development of such guidance. OMB has explored the possibility of 
developing a master schedule of program-specific guidance. however, we 
have discovered that the proliferation of program guidance is more 
often driven by emerging issues and questions from the recipient 
community. We believe a schedule would imply a stringency in the timing 
for the release a f agency guidance and technical assistance that we do 
not believe is consistent with a preferred approach e f a continuous 
flow of guidance from agencies in response to ongoing feedback and 
queries From stakeholders. 

With respect to communication on funding, OMB guidance contains 
rigorous reporting requirements for agencies to post communications on 
agency recovery websites on available funding for recipients. 
Furthermore, websites such as Grants.gov and FedBizopps.gov provide 
special views of recovery-funded opportunities. GAO indicates that "the 
current structure of [agency recovery reporting] does not provide a 
mechanism for state and local governments raid their citizens to 
readily view the total extent of Recovery Act funds flowing through 
governmental and non-governmental entities in each state." OMB requests 
farther clarification from GAO on the nature and type of communication 
that would effectively supplement current information on recovery 
funding, which currently include detailed and frequent reports on: 

* recovery award availability (which where knowable, is disaggregated by
location); 
* obligations and outlays by programs and state; 
* obligations by recipient as reported on USAspending.gov; 
* required information that primary recipients will report beginning in
October that will track funds provided to sub-recipients and vendors. 

Of note, OMB is working with the Recovery Board to run a series of 
interactive forums in late July with recipients all over the country to 
offer training and information on Recovery Act reporting requirements. 
These forums are part of a larger, coordinated outreach and 
communication plan to ensure a consistent flow of information between 
the Federal government and all relevant stakeholders on Recovery Act 
implementation efforts. 

Over the next several days, we will complete a more thorough review of 
the draft report and will further consult on the contents of the report 
with Federal agencies and the Recovery Act Accountability and 
Transparency Board. 

OMB looks forward to working with GAO to further the accountability and 
transparency objectives of the Act and to define the best path forward 
on GAO's specific recommendations to OMB. Again, we appreciate the 
opportunity to comment on the draft report, including additional 
technical suggestions that will provide in the near inure. 

If you have any questions, please feel free to contact me at 202-395-
3993. 

Sincerely, 

Signed by: 

Daniel Werfel: 
Deputy Controller: 

[End of section] 

Appendix III: Localities: 

Table 20: Local School Districts and Postsecondary Institutions Visited 
by GAO: 

State: Arizona; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Phoenix Elementary School District No.1; 
Phoenix Union High School District No. 210; 
Mesa Unified School District No. 4; 
Tucson Unified School District No. 1; 
Imagine Charter Elementary at Desert West Inc.; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: California; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Los Angeles Unified School District; 
San Bernardino City Unified School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
California State University; 
University of California. 

State: Colorado; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Denver County School District 1; 
Jefferson County School District R-1; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: District of Columbia; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
District of Columbia Public Schools; 
Friendship Public Charter School; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: Florida; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Hillsborough County Local Education Agency; 
Miami-Dade County Public Schools; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
University of South Florida; 
Hillsborough Community College; 
Florida A&M University. 

State: Georgia; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Atlanta Public Schools; 
Richmond County School System; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
University of Georgia; 
Georgia Perimeter College. 

State: Illinois; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Chicago Public Schools; 
Waukegan Public School District 60; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
University of Illinois; 
College of DuPage. 

State: Iowa; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Des Moines Independent Community School District; 
Ottumwa Community School District; 
Waterloo Community School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: Massachusetts; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Boston Public Schools; 
Lawrence Public Schools; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: Michigan; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Detroit Public Schools; 
Lansing Public School District; 
Grand Rapids Public Schools; 
Flint Community Schools; 
School District of the City of Saginaw; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: Mississippi; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Holmes County School District; 
Jackson Public School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
University of Mississippi; 
Jackson State University; 
Northwest Mississippi Community College. 

State: New Jersey; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Newark Public Schools; 
Camden City Public Schools; 
Trenton Public Schools; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: New York; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
New York City Department of Education; 
Rochester City School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
State University of New York/Hudson Valley Community College; 
City University of New York/Borough of Manhattan Community College. 

State: North Carolina; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Charlotte-Mecklenburg School District; 
Robeson School District; 
Sugar Creek Charter School; 
The Roger Bacon Academy; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
Cape Fear Community College; 
University of North Carolina-Charlotte; 
Fayetteville State University. 

State: Ohio; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Cleveland Municipal School District; 
Youngstown City School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: 
Cuyahoga Community College; 
University of Akron. 

State: Pennsylvania; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Philadelphia School District; 
Harrisburg School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

State: Texas; 
Local school districts: Title I-LEA, IDEA, State Fiscal Stabilization 
Fund: 
Houston Independent School District; 
Fort Worth Independent School District; 
Postsecondary Institutions: State Fiscal Stabilization Fund: [Empty]. 

Source: GAO. 

[End of table] 

Table 21: Public Housing Authorities Visited by GAO: 

State: Arizona; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
City of Phoenix Housing Department; 
Housing Authority of Maricopa County; 
City of Glendale Community Housing Division; 
Pinal County Housing Authority; 
Housing and Community Development Department of the City of Tucson. 

State: California; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Area Housing Authority of the County of Ventura; 
Sacramento Housing and Redevelopment Agency; 
San Francisco Housing Authority. 

State: Colorado; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Housing Authority of the City and County of Denver; 
Holyoke Housing Authority; 
Housing Authority of the Town of Kersey. 

State: District of Columbia; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
District of Columbia Housing Authority. 

State: Florida; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Venice Housing Authority; 
Tallahassee Housing Authority; 
Tampa Housing Authority. 

State: Georgia; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Atlanta Housing Authority; 
Athens Housing Authority. 

State: Illinois; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Chicago Housing Authority; 
Housing Authority for LaSalle County. 

State: Iowa; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Des Moines Municipal Housing Agency; 
Evansdale Municipal Housing Authority; 
North Iowa Regional Housing Authority; 
Ottumwa Housing Authority. 

State: Massachusetts; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Revere Housing Authority; 
Boston Housing Authority. 

State: Michigan; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Detroit Housing Commission; 
Lansing Housing Commission; 
Flint Housing Commission. 

State: Mississippi; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Mississippi Regional Housing Authority No. VIII (Gulfport); 
Picayune Housing Authority. 

State: New Jersey; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Newark Housing Authority; 
Trenton Housing Authority; 
Housing Authority of Plainfield; 
Rahway Housing Authority. 

State: New York; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Binghamton Public Housing Authority; 
Glen Cove Public Housing Authority; 
Buffalo Municipal Housing Authority. 

State: North Carolina; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Housing Authority of the City of Charlotte; 
Beaufort Public Housing Authority. 

State: Ohio; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Columbus Metropolitan Housing Authority; 
Cuyahoga Metropolitan Housing Authority; 
London Metropolitan Housing Authority. 

State: Pennsylvania; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
Harrisburg Housing Authority; 
Philadelphia Housing Authority. 

State: Texas; 
Public Housing Authority: Public Housing Capital Fund Formula Grants: 
San Antonio Housing Authority; 
Ferris Housing Authority. 

Source: GAO. 

[End of table] 

Table 22: Location of Highway Projects visited by GAO: 

State: California; 
Highway project location: 
City of Seaside (Monterey County); 
Solano County. 

State: Colorado; 
Highway project location: 
Denver Chaffee County. 

State: Florida; 
Highway project location: 
Hillsborough County; 
Citrus County; 
Hernando County; 
Pasco County. 

State: Georgia; 
Highway project location: 
Gwinnett County; 
Henry County. 

State: Illinois; 
Highway project location: 
Cook County (1 project); 
Grundy County (1 project). 

State: Iowa; 
Highway project location: 
Mason City to Floyd County Line; 
Decatur County Line north to US 34 in Clarke County (southbound lane). 

State: Massachusetts; 
Highway project location: 
Adams County Swansea County. 

State: Michigan; 
Highway project location: 
Allegan County Flint County. 

State: Mississippi; 
Highway project location: 
Laurel (Jones County); 
Meridian (Lauderdale County). 

State: New York; 
Highway project location: 
Albany County; 
Herkimer County. 

State: North Carolina; 
Highway project location: 
Hertford County; 
Johnston County; 
Forsyth County; 
Stokes County. 

State: Ohio; 
Highway project location: 
Cuyahoga County; 
Hancock County. 

State: Pennsylvania; 
Highway project location: 
Bedford County; 
Chester County. 

State: Texas; 
Highway project location: 
Dallas County; 
Tarrant County; 
Uvalde County. 

Source: GAO. 

[End of table] 

Table 23: Summer Youth Programs Visited by GAO: 

State: California; 
Summer youth programs: Workforce Investment Act: 
City and County of San Francisco Office of Economic and Workforce 
Development; 
City of Los Angeles-Workforce Investment Board and Community 
Development Department. 

State: Florida; 
Summer youth programs: Workforce Investment Act: 
Tampa Bay Workforce Alliance; 
Broward County Workforce One; 
South Florida Workforce. 

State: Georgia; 
Summer youth programs: Workforce Investment Act: 
Atlanta Regional Workforce Board; 
Richmond-Burke Job Training Authority, Inc. 

State: Illinois; 
Summer youth programs: Workforce Investment Act: 
Chicago Workforce Investment Board; 
Grundy Livingston Kankakee Workforce Investment Board. 

State: Massachusetts; 
Summer youth programs: Workforce Investment Act: 
Merrimack Valley Workforce Investment Board; 
Central Massachusetts Regional Employment Board. 

State: Michigan; 
Summer youth programs: Workforce Investment Act: 
Detroit Workforce Development Department; 
Capital Area Michigan Works. 

State: Mississippi; 
Summer youth programs: Workforce Investment Act: 
Delta Workforce Investment Area; 
Mississippi Partnership Workforce Investment Area; 
Southcentral Mississippi Works Workforce Investment Area; 
Twin Districts Workforce Investment Area. 

State: New Jersey; 
Summer youth programs: Workforce Investment Act: 
Camden County Workforce Investment Board; 
Essex County Workforce Investment Board; 
Mercer County Workforce Investment Board; 
Newark Workforce Investment Board. 

State: New York; 
Summer youth programs: Workforce Investment Act: 
Buffalo and Erie Country Workforce Investment Board, Inc. 
New York City Workforce Investment Board; 
Herkimer-Madison-Oneida Workforce Investment Board. 

State: North Carolina; 
Summer youth programs: Workforce Investment Act: 
Charlotte-Mecklenburg Workforce Development Board; 
Cape Fear Workforce Development Board. 

State: Ohio; 
Summer youth programs: Workforce Investment Act: 
Central Ohio Workforce Investment Corporation; 
Licking County Job and Family Services; 
Licking/Knox Goodwill Industries Inc. 
Montgomery County Department of Job and Family Services; 
Union County Job and Family Services. 

State: Pennsylvania; 
Summer youth programs: Workforce Investment Act: 
South Central Pennsylvania Workforce Investment Board-Harrisburg; 
Philadelphia Workforce Investment Board. 

State: Texas; 
Summer youth programs: Workforce Investment Act: 
Gulf Coast Workforce Development Board; 
North Central Workforce Development Board. 

Source: GAO. 

[End of table] 

Table 24: Weatherization Programs Visited by GAO: 

State: North Carolina; 
Weatherization: 
Resources for Seniors (Raleigh); 
New Hanover County Community Action. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

[End of section] 

GAO Contacts: 

J. Chris Mihm, Managing Director for Strategic Issues, (202) 512-6806 
or mihmj@gao.gov: 

For issues related to WIA, SFSF, and other education programs: Cynthia 
M. Fagnoni, Managing Director of Education, Workforce, and Income 
Security, (202) 512-7215 or fagnonic@gao.gov: 

For issues related to Medicaid and FMAP programs: Dr. Marjorie Kanof, 
Managing Director of Health Care, (202) 512-7114 or kanofm@gao.gov: 

For issues related to highways and other transportation programs: 
Katherine A. Siggerud, Managing Director of Physical Infrastructure, 
(202) 512-2834 or siggerudk@gao.gov: 

For issues related to energy and weatherization: Patricia Dalton, 
Managing Director of Natural Resources and Environment, (202) 512-3841 
or daltonp@gao.gov: 

For issues related to the Edward Byrne Memorial Justice Assistance 
Grant Program: Cathleen A. Berrick, Managing Director of Homeland 
Security and Justice, (202)-512-3404 or berrickc@gao.gov: 

For issues related to public housing: Richard J. Hillman, Managing 
Director of Financial Markets and Community Investment, (202) 512-9073 
or hillmanr@gao.gov: 

For issues related to internal controls and Single Audits: Jeanette M. 
Franzel, Managing Director of Financial Management and Assurance, (202) 
512-9471 or franzelj@gao.gov: 

For issues related to contracting and procurement: Paul L. Francis, 
Managing Director of Acquisition Sourcing Management, (202) 512-2811 or 
francisp@gao.gov: 

Staff Acknowledgments: 

The following staff contributed to this report: Stanley Czerwinski, 
Denise Fantone, Susan Irving, and Yvonne Jones, (Directors); Thomas 
James, James McTigue, and Michelle Sager, (Assistant Directors); and 
Allison Abrams, David Alexander, Judith Ambrose, Peter Anderson, Lydia 
Araya, Thomas Beall, Sandra Beattie, Jessica Botsford, Karen Burke, 
Richard Cambosos, Ralph Campbell Jr., Virginia Chanley, Tina Cheng, 
Marcus Corbin, Sarah Cornetto, Robert Cramer, Michael Derr, Helen 
Desaulniers, Kevin Dooley, Holly Dye, Abe Dymond, Doreen Feldman, Alice 
Feldesman, Michele Fejfar, Shannon Finnegan, Alexander Galuten, Ellen 
Grady, Victoria Green, Brandon Haller, Anita Hamilton, Geoffrey 
Hamilton, Jackie Hamilton, Tracy Harris, Barbara Hills, David Hooper, 
Bert Japikse, Stuart Kaufman, Karen Keegan, Nancy Kingsbury, Judith 
Kordahl, Hannah Laufe, Armetha Liles, John McGrail, Sarah McGrath, Jean 
McSween, Donna Miller, Kevin Milne, Marc Molino, Susan Offutt, Sarah 
Prendergast, Brenda Rabinowitz, Carl Ramirez, James Rebbe, Audrey Ruge, 
Sidney Schwartz, Jena Sinkfield, John Smale Jr., Michael Springer, 
George Stalcup, Jonathan Stehle, Andrew J. Stephens, Gloria Sutton, 
Barbara Timmerman, Crystal Wesco, Michelle Woods, and Kimberly Young. 

[End of section] 

Program Contributors: 

The names of GAO staff contributing to information contained in the 
sections on the selected program are as follows: 

* Edward Byrne Memorial Justice Assistance Grant Program: 
Mary Catherine Hult, Eileen Larence, and Margaret Vo. 

* Education--SFSF, IDEA, Title I: 
Cornelia Ashby, Sandra Baxter, Amy Buck, Bryon Gordon, Sonya Harmeyer, 
Susan Lawless, Beth Morrison, Kathy Peyman, Michelle Verbrugge, and 
Charlie Willson. 

* Medicaid: 
Susan T. Anthony, Ted Burik, Julianne Flowers, JoAnn Martinez, Vic 
Miller, and Carolyn Yocom. 

* Public Housing: 
Don Brown, Nina Horowitz, May Lee, John Lord, Paul Schmidt, and Matt 
Scire. 

* Safeguarding/Single Audit: 
Devin Barnas, Marcia Buchanan, James Healy, Eric Holbrook, Kim 
McGatlin, Susan Ragland, and Doris Yanger. 

* State Budget Stabilization: 
Sandra Beattie, Stanley Czerwinski, Shannon Finnegan, Sarah 
Prendergast, Michelle Sager, and Michelle Woods. 

* Transportation/highway programs: 
Steve Cohen, Heather Halliwell, Greg Hanna, and Les Locke. 

* Weatherization: 
Ric Cheston, Mark Gaffigan, Stuart Ryba and Jason Trentacoste. 

* WIA Youth Program: 
Dianne Blank, Laura Heald, and Andy Sherrill. 

[End of section] 

Contributors to the Selected States and the District Appendixes: 

The names of GAO staff contributing to the selected states and the 
District appendixes are as follows: 

Arizona: 
Lisa Brownson, Aisha Cabrer, Steve Calvo, Charles Jeszeck, Eileen 
Larence, Alberto Leff, Jeff Schmerling, Margaret Vo, and Ann Walker. 

California: 
Paul Aussendorf, Linda Calbom, Joonho Choi, Michelle Everett, Chad 
Gorman, Richard Griswold, Bonnie Hall, Don Hunts, Delwen Jones, Al 
Larpenteur, Susan Lawless, Brooke Leary Heather MacLeod, Jeff 
Schmerling, Eddie Uyekawa, and Randy Williamson. 

Colorado: 
Paul Begnaud, Steve Gaty, Kathy Hale, Susan Iott, Jennifer Leone, Brian 
Lepore, Robin Nazarro, Tony Padilla, Ellen Phelps Ranen, Lesley Rinner, 
and Mary Welch. 

District of Columbia: 
Shawn Arbogast, Sunny Chang, Marisol Cruz, Nagla'a El-Hodiri, James 
Healy, John Hansen, William O. Jenkins, Jr., Linda Miller, Justin 
Monroe, Ellen Phelps Ranen, Melissa Schermerhorn, Maria Strudwick, and 
Carolyn Yocom. 

Florida: 
Fannie Bivins, Susan Compton, Patrick Dibattista, Carmen Harris, Anna 
Kelly, Kevin Kumanga, Zina Merritt, Jennifer McDonald, Frank Minore, 
Vernette Shaw, Andy Sherrill, Cherie' Starck, and Robyn Trotter. 

Georgia: 
Alicia Puente Cackley, Steve Carter, Emily Chalmers, Chase Cook, 
Stephanie Gaines, Nadine Garrick, Erica Harrison, Marc Molino, Daniel 
Newman, Terri Rivera Russell, Paige Smith, David Shoemaker, and Robyn 
Trotter. 

Illinois: 
Leslie Aronovitz, Cynthia Bascetta, Rick Calhoon, Dean Campbell, 
Katherine Iritani, Dave Lehrer, Rosemary Torres Lerma, Tarek 
Mahmassani, Lisa Reynolds, Paul Schmidt. 

Iowa: 
Tom Cook, James Cooksey, Dan Egan, Christine Frye, Belva Martin, 
Marietta Mayfield, Ronald Maxon, Mark Ryan, Lisa Shames and Carol 
Herrnstadt Shulman. 

Massachusetts: 
Stanley Czerwinski, Ramona L. Burton, Nancy J. Donovan, Kathleen M. 
Drennan, Denise de Bellerive Hunter, Carol Patey, Salvatore F. Sorbello 
Jr., and Robert Yetvin. 

Michigan: 
Manuel Buentello, Leland Cogliani, Jeff Isaacs, Henry Malone, Revae 
Moran, Robert Owens, Anthony Patterson, Susan Ragland, and Mark Ward. 

Mississippi: 
David Adams, Marshall Hamlett, Barbara Haynes, John K. Needham, Mike 
O'Neill, Norman J. Rabkin, Kathleen Peyman, Carrie Rogers, and Erin 
Stockdale. 

New Jersey: 
Gene Aloise, Tahra Nichols, Diana Glod, Greg Hanna, Joah Iannotta, 
Kieran McCarthy, Tarunkant Mithani, Vincent Morello, Nitin Rao, Raymond 
Sendejas, Cheri Truett, David Wise, and Nancy Zearfoss. 

New York: 
Peter Anderson, Jeremiah Donoghue, Colin Fallon, Susan Fleming, Dave 
Maurer, Summer Pachman, Frank Puttallaz, Jeremy Rothberger, Barbara 
Shields, Ronald Stouffer, and Cheri Truett. 

North Carolina: 
Cornelia Ashby, Carleen Bennett, Bonnie Derby, Terrell Dorn, Bryon 
Gordon, Leslie Locke, Stephanie Moriarty, Anthony Patterson, and Scott 
Spicer. 

Ohio: 
Matthew Drerup, Cynthia M. Fagnoni, Laura Jezewski, Bill J. Keller, 
Sanford Reigle, David C. Trimble, Myra Watts-Butler, Lindsay Welter; 
Charles Wilson, and Doris Yanger. 

Pennsylvania: 
Mark Gaffigan, Phil Herr, Richard Jorgenson, Richard Mayfield, Andrea 
E. Richardson, MaryLynn Sergent, George A. Taylor, Jr., Laurie F. 
Thurber, and Lindsay Welter. 

Texas: 
Anthony Adesina, Carol Anderson-Guthrie, Fred Berry, Ron Berteotti, 
Camille Chaires, Sharhonda Deloach, Wendy Dye, K. Eric Essig, Michael 
O'Neill, Daniel Silva, and Lorelei St. James. 

[End of table] 

[End of section] 

Footnotes: 

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

[2] The estimated budget gaps are reported by associations representing 
state officials. See The National Governors Association and the 
National Association of State Budget Officers, The Fiscal Survey of 
States (Washington, D.C., June 2009). 

[3] Recovery Act, div. A, title IX, §901. 

[4] 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). 

[5] The states we are following as part of our analysis are Arizona, 
California, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, 
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, 
Pennsylvania, and Texas. 

[6] This total includes two entities in the District of Columbia that 
received direct federal funding that was not passed through the 
District government. 

[7] For this report, GAO reviewed states' and localities' use of 
Recovery Act funds for (1) the Medicaid Federal Medical Assistance 
Percentage (FMAP), (2) the State Fiscal Stabilization Fund (SFSF), (3) 
the Federal-Aid Highway Surface Transportation Program, (4) the Public 
Housing Capital Fund, (5) Title I, Part A of the Elementary and 
Secondary Education Act of 1965 (ESEA); (6) Parts B and C of the 
Individuals with Disabilities Education Act (IDEA); (7) the 
Weatherization Assistance Program; (8) the Edward Byrne Memorial 
Justice Assistance Grant (JAG) Program; and (9) the Workforce 
Investment Act (WIA) Youth Program. 

[8] The Web site [hyperlink, http://www.recovery.gov] is mandated by 
the Recovery Act to foster greater accountability and transparency in 
the use of the act's funds. The Web site is required to include plans 
from federal agencies; information on federal awards of formula grants 
and awards of competitive grants; and information on federal 
allocations for mandatory and other entitlement programs by state, 
county, or other appropriate geographical unit. The Web site is 
maintained by the Recovery Accountability and Transparency Board. 

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

[10] The percentage increase is based on actual state enrollment data 
for October 2007 to April 2009 and projected enrollment data for May 
2009, with the exception of New York, which provided projected 
enrollment data for March, April and May 2009. Three states--Florida, 
Georgia, and Mississippi--did not provide projected enrollment data for 
May 2009. We estimated enrollment for these states for May 2009 to 
determine the total change in enrollment for October 2007 to May 2009. 

[11] Colorado was the only state in GAO's sample of states that had not 
drawn down increased FMAP funds as of GAO's first report in April 2009. 
However, the state completed its first draw down of funds on April 30, 
2009. 

[12] 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). 

[13] 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). 

[14] See Recovery Act, div. B, title V, §5001(f)(3). 

[15] 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. 

[16] A state is not eligible for certain elements of increased FMAP if 
any amounts attributable directly or indirectly to them are deposited 
or credited into a state reserve or rainy day fund. Recovery Act, div. 
B, title V, §5001(f)(3). 

[17] Our review focused on the 2007 Single Audits because it is the 
most recent year for which single audits were completed for all our 
states and the District. However, as of June 10, 2009, 2008 Single 
Audits were available for eight states. For more information about the 
material weaknesses identified in the Single Audits for 2007 and 2008, 
refer to the individual state appendixes. 

[18] 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. 

[19] 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. 

[20] GAO, Highway Bridge Program: Clearer Goals and Performance 
Measures Needed for a More Focused and Sustainable Program, [hyperlink, 
http://www.gao.gov/products/GAO-08-1043] (Washington, D.C.: Sept. 10, 
2008). 

[21] Recovery Act, div. A, title XII, 123 Stat. 115, 206. 

[22] Id. 

[23] According to these criteria, to qualify as an EDA, the area must 
(1) have a per capita income of 80 percent or less of the national 
average; (2) have an unemployment rate that is, for the most recent 24- 
month period for which data are available, at least 1 percent greater 
than the national average unemployment rate; or (3) be an area the 
Secretary of Commerce determines has experienced or is about to 
experience a special need arising from actual or threatened severe 
unemployment or economic adjustment problems resulting from severe 
short-term or long-term changes in economic conditions (42 U.S.C. § 
3161(a)). Eligibility must be supported using the most recent federal 
data available or, in the absence of recent federal data, by the most 
recent data available through the government of the state in which the 
area is located. Federal data that may be used include data reported by 
the Bureau of Economic Analysis, the Bureau of Labor Statistics, the 
Census Bureau, the Bureau of Indian Affairs, or any other federal 
source determined by the Secretary of Commerce to be appropriate (42 
U.S.C. § 3161(c)). 

[24] Recovery Act, div. A, title XII, § 1201. 

[25] The state based its EDA classification on (1) whether the 2008 
year-end unemployment rate was at or above the statewide average, (2) 
whether the change in the unemployment rate between 2007 and 2008 was 
at or above the statewide average, or (3) whether the number of 
unemployed persons for 2008 had grown by 500 or more. 

[26] Illinois's criteria resulted in 21 counties being classified as 
EDAs that were not so classified by FHWA and 8 counties not being 
classified as EDAs that were so classified by FHWA, for a net 
difference of 13 counties. The map tool that FHWA developed to help 
states identify which projects are located in EDAs is based on the 
criteria in the Public Works Act. 

[27] The federal share under the existing federal-aid highway program 
is generally 80 percent and the matching requirement for states is 
usually 20 percent. In 2004, we reported that in 2002, states and 
localities contributed 54 percent of the nation's capital investment in 
highways, while the federal government contributed 46 percent (in 2001 
dollars). 

[28] GAO, Federal-Aid Highways: Trends, Effect on State Spending, and 
Options for Future Program Design, [hyperlink, 
http://www.gao.gov/products/GAO-04-802] (Washington, D.C.: Aug. 31, 
2004). 

[29] GAO, Physical Infrastructure: Challenges and Investment Options 
for the Nation's Infrastructure, [hyperlink, 
http://www.gao.gov/products/GAO-08-763T] (Washington, D.C.: May 8, 
2008). 

[30] We reported on the impact of federal requirements in December 2008 
(see [hyperlink, http://www.gao.gov/products/GAO-09-36]). We selected 
these three states because we did not include these states in the scope 
of our previous report and because these states have varying 
environmental planning and labor environments. For example, New Jersey 
has a state environmental planning law, while the other states do not, 
and, according to the Bureau of Labor Statistics, in 2008, union 
membership in New Jersey was 18.3 percent, while 8.8 percent of Arizona 
and 5.3 percent of Mississippi workers were union members. 

[31] Schools identified for corrective action have missed academic 
targets for 4 consecutive years and schools implementing restructuring 
have missed academic targets for 6 consecutive years. 

[32] This was phase I funding. A state will receive the remaining 
allotment of its SFSF allocation in phase II after Education approves 
the state's comprehensive plan for making progress with respect to the 
four education reform assurances. Education anticipates that phase II 
funds will be awarded by September 30, 2009. 

[33] DQC is a national collaborative effort involving more than 50 
organizations working to encourage and support state policymakers to 
improve the availability and use of high-quality education data to 
improve student achievement. NCEA, a nonprofit organization owned by 
ACT Inc.--a company that develops and markets assessments--focuses on 
raising student achievement based on a higher college and career 
readiness standards. Achieve, created in 1996 by the nation's governors 
and corporate leaders, is an independent, bipartisan, nonprofit 
education reform organization focused on raising academic standards and 
graduation requirements, improving assessments, and strengthening 
accountability. 

[34] GAO visited at least two LEAs per state and in the District of 
Columbia that were among the top ten LEAs in the state, or the District 
of Columbia, in terms of Title I appropriations, and that had schools 
in improvement status. 

[35] During our review, we met with IHEs and state officials 
responsible for IHE oversight in 8 states--California, Florida, 
Georgia, Illinois, Mississippi, New York, North Carolina, and Ohio. Of 
the 16 states covered by our review, 6 had received approval from 
Education for phase I SFSF funding as of May 8, 2009. 

[36] The Recovery Act also makes $3 billion in school improvement funds 
available under Title I. 

[37] LEAs must obligate at least 85 percent of their Recovery Act ESEA 
Title I, Part A funds by September 30, 2010, unless granted a waiver, 
and must grant all of their funds by September 30, 2011--provisions 
referred to as carryover limitations. 

[38] Education provided examples of allowable uses such as teacher 
training, using longitudinal data systems to improve achievement, and 
providing high-quality online courseware in mathematics and science for 
secondary school students. 

[39] U.S. Department of Education, Final Audit Report ED-OIG/A09H0020, 
California Department of Education Advances of Federal Funding to Local 
Educational Areas (Washington, D.C., March 2009). The department's IG 
noted, among other findings, that California does not have an adequate 
system in place to ensure that LEAs comply with the federal cash 
management rules requiring LEAs to remit on a timely basis interest 
earned on cash advances for any amounts exceeding $100. The IG 
estimated that statewide, LEAs earned about $11 million in interest on 
Title I cash balances and found that most LEAs the IG reviewed did not 
calculate and remit their interest earnings. 

[40] Georgia did not set a specific application deadline, but once 
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. 

[41] California granted initial funding eligibility to all LEAs that 
had elected to receive Title I, Part A funds in school year 2008-2009 
and asked LEAs to finalize their eligibility by applying for Title I 
funds in school year 2009-2010. 

[42] GAO visited at least 2 LEAs in each of the 16 States and the 
District of Columbia. We selected LEAs based on the size of their Title 
I allocations and the number of schools in improvement in the district. 
The above analysis is based on 42 LEAs we visited. 

[43] 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. 

[44] Generally, States are required to demonstrate "maintenance of 
effort" by showing that either their combined fiscal effort per student 
or the aggregate expenditures within the state with respect to the 
provision of free public education for the preceding fiscal year were 
not less than 90 percent of such combined fiscal effort or aggregate 
expenditures for the second preceding fiscal year. 

[45] Under ESEA Title I, supplemental educational services must be 
available to students in schools that have not met state targets for 
increasing student achievement (adequate yearly progress) for 3 or more 
years. Districts with schools in improvement are required to provide an 
amount no less than 20 percent of their Title I, Part A allocations for 
supplemental educational services and public school transportation. The 
term supplemental educational services means tutoring and other 
supplemental academic enrichment services that are in addition to 
instruction provided during the school day, are specifically designed 
to increase the academic achievement of eligible students as measured 
by the state's assessment system, and enable these children to attain 
proficiency in meeting state academic achievement standards. 

[46] This does not necessarily mean that no guidance was received. The 
official could have known about state guidance and not mentioned it in 
our interview or not been aware of guidance that had been provided. 

[47] LEAs must use federal funds to supplement state and local funds 
and cannot use federal funds to supplant state or local spending. 

[48] 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, funding that represents 50 percent of the total IDEA funding 
provided in the Recovery Act for each jurisdiction. 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. 

[49] For the IDEA Part B Recovery Act funds, for each state covered by 
our review, GAO visited at least two LEAs that were among the top ten 
LEAs in the state in terms of Title I appropriations and that had 
schools in improvement status. In the District of Columbia, GAO visited 
the District of Columbia Public Schools and a charter school company. 

[50] In response to requests for more guidance on the recipient 
reporting process and required data, OMB issued additional implementing 
guidance for recipient reporting on June 22, 2009. 

[51] States are required to collect and examine data to determine if 
LEAs have significant disproportionality based on race and ethnicity in 
the identification of children as children with disabilities, the 
placement in particular education settings of such children, and the 
incidence, duration, and type of disciplinary actions. 

[52] IDEA, Part C provides funds to each state lead agency designated 
by the governor. The state lead agency can be a state educational 
agency, but it can also be another state agency. For example, in 
Colorado and Illinois, the Part C lead agency is the state's Department 
of Human Services, and in Ohio, the Part C lead agency is the state 
Department of Health. 

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

[54] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). 

[55] 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. 

[56] We did not include these three states in our review due to 
workload considerations. 

[57] In Pennsylvania, only 40 percent of the allocation is available 
for the local areas to spend before July 1; Pennsylvania officials 
expect the balance to be available on or after July 1, when they expect 
the state to enact its budget. 

[58] These are cash draw downs from the Department of Health and Human 
Services' Payment Management System. Under the procedures for using 
these funds, funds are to be drawn down no more than 3 days in advance 
of paying bills. 

[59] We visited from two to four local workforce areas in each of our 
states. 

[60] Department of Labor, Training and Employment Guidance Letter No. 
14-08 (Mar. 18, 2009). This guidance also makes reference to the $750 
million in separate Recovery Act funds made available to Labor to award 
competitive grants for training and placing workers in the energy 
efficiency, renewable energy, and other industries and indicates that 
about $500 million of this funding will be used for activities that 
prepare individuals for careers in industries as defined in the Green 
Jobs Act of 2007. 

[61] HUD is also required to award $1 billion to public housing 
agencies based on competition for priority investments, including 
investments that leverage private sector funding/financing for 
renovations and energy conservation retrofit investments. HUD expects 
to begin awarding competitive bids in July or August 2009. 

[62] HUD allocated Capital Fund formula dollars from the Recovery Act 
to 11 additional public housing agencies, but these housing agencies 
chose not to accept Recovery Act funding, no longer had eligible public 
housing projects that could utilize the funds, or had not yet entered 
into an agreement with HUD for the funds. As a result, these funds have 
not been obligated by HUD. 

[63] When housing agencies sign contracts for Capital Fund projects, 
they report obligations of these funds in HUD's Electronic Line of 
Credit and Control System (ELOCCS). As invoices are submitted for 
actual work done, these funds are drawn from ELOCCS and expended in 
payment of invoices. 

[64] HUD developed PHAS to evaluate the overall condition of housing 
agencies and to 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. 

[65] The Recovery Act provided HUD the authority to decide whether to 
provide troubled housing agencies Recovery Act funds. Although HUD 
determined that troubled housing agencies have a need for Recovery Act 
funding, it acknowledged that troubled housing agencies would require 
increased monitoring and oversight in order to meet the Recovery Act 
requirements. 

[66] GAO, Public Housing: HUD's Oversight of Housing Agencies Should 
Focus More on Inappropriate Use of Program Funds, [hyperlink, 
http://www.gao.gov/products/GAO-09-33] (Washington, D.C.: Jun. 11, 
2009). 

[67] After soliciting responses from a broad array of stakeholders, OMB 
issued additional implementing guidance for recipient reporting on June 
22, 2009. See, OMB Memorandum, M-09-21, Implementing Guidance for the 
Reports on Use of Funds Pursuant to the American Recovery and 
Reinvestment Act of 2009. 

[68] State awards are provided to all states, the District of Columbia, 
Guam, American Samoa, the Commonwealth of Puerto Rico, the Virgin 
Islands, and the Northern Mariana Islands. 

[69] As part of the Violence Against Women and Department of Justice 
Reauthorization Act of 2005 (Pub. L. No. 109-162, 119 Stat. 2960 
(2006)), the JAG program was established by, in general, blending the 
previous Byrne Grant and Local Law Enforcement Block Grant programs. 

[70] DOJ's Bureau of Justice Statistics calculates a minimum base 
allocation for each state and territory, which, based on the statutory 
JAG formula, can be enhanced by (1) the state's share of the national 
population and (2) the state's share of the country's Part 1 violent 
crime statistics. Part 1 violent crime statistics are computed as a 3- 
year average using figures published in the FBI's annual Crime in the 
United States and include murder, nonnegligent manslaughter, forcible 
rape, robbery, and aggravated assault. 

[71] This amount is calculated by the Census Bureau for the Bureau of 
Justice Statistics and is based on each state's criminal justice 
expenditures. 

[72] For JAG program purposes, a unit of local government is a town, 
township, village, parish, city, county, or other general purpose 
political subdivision of a state; any law enforcement district or 
judicial enforcement district that is established under applicable 
state law and has authority to, in a manner independent of other state 
entities, establish a budget and impose taxes; or a federally 
recognized Indian tribe or Alaskan Native organization that performs 
law enforcement functions as determined by the Secretary of the 
Interior. For the JAG Recovery program, local governments were not 
eligible for direct awards from BJA if they did not submit at least 3 
years of crime data to the FBI for the most recent 10-year period (1998-
2007) or if their level of crime did not meet a certain threshold to be 
eligible. 

[73] During programmatic monitoring, grant managers are to assess the 
performance of grant programs by addressing the content and substance 
of a program. Administrative monitoring addresses compliance with grant 
terms and grantee reporting and documentation requirements, and 
financial monitoring reviews expenditures compared to an approved 
budget. 

[74] The Office of Audit, Assessment, and Management serves as the 
central source for grant management policy and procedures and oversees 
the programmatic monitoring activities within OJP. In addition, this 
office ensures financial grant compliance and auditing of OJP's 
internal controls to prevent waste, fraud, and abuse; and conducts 
programmatic assessments of Department of Justice grant programs. 

[75] Texas officials provided information on state Recovery Act JAG 
funds obligated as of June 25, 2009. Colorado and Massachusetts 
officials provided information on state Recovery Act JAG funds 
obligated as of June 26, 2009. 

[76] Georgia officials provided information on state Recovery Act JAG 
funds obligated as of June 25, 2009. 

[77] State administering agencies are also responsible for coordinating 
JAG funds among state and local initiatives, monitoring subrecipients' 
compliance with JAG requirements, and submitting financial and 
programmatic reports to BJA. 

[78] For the District of Columbia, all JAG funds are awarded directly 
to the District. 

[79] 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. 

[80] Our discussion on weatherization is primarily limited to the 16 
states and the District of Columbia that are the focus of this report. 

[81] States also have the fiscal year 2009 appropriation and prior year 
balances available. 

[82] DOE has also approved state weatherization plans for Delaware, 
Kansas, Maryland, Montana, Nebraska, Nevada, North Dakota, Oregon, 
South Carolina, South Dakota, Utah, and West Virginia. 

[83] According to the National Association of State Budget Officers 
(NASBO), most states have balanced-budget requirements for general 
funds, which may include requirements such as (1) requiring governors 
to submit a balanced budget, (2) mandating that their legislatures pass 
a balanced budget, (3) directing governors to sign a balanced budget, 
or (4) requiring governors to execute a balanced budget. According to 
NASBO, all of the states we visited have balanced-budget requirements. 
(In its report, NASBO did not provide information on the District of 
Columbia's balanced budget requirements.) See NASBO, Budget Processes 
in the States (Washington, D.C.: Summer 2008). 

[84] Michigan--along with the District of Columbia--has a fiscal year 
that begins October 1. New York's fiscal year begins April 1, and the 
fiscal year for Texas begins on September 1. All other states we 
visited have fiscal years beginning July 1. 

[85] Recent reports provide additional details regarding revenue 
declines beyond our selected states. For example, see The National 
Governors Association and the National Association of State Budget 
Officers, The Fiscal Survey of States (Washington, D.C., June 2009); 
National Conference of State Legislatures, Budget Update: April 2009 
(Washington, D.C., April 2009); Lucy Dadayan and Donald J. Boyd, The 
Nelson A. Rockefeller Institute of Government, April is the Cruelest 
Month: Personal Income Tax Revenues Portend Deepening Trouble for Many 
States (Albany, N.Y., June 18, 2009). 

[86] This projected shortfall is after the California Governor and 
Legislature addressed a $42 billion budget gap in February 2009 in the 
general fund. As of June 30, the California Legislature had not passed 
legislation for the Governor to sign that would resolve the state's 
budget deficit. The May 2009 budget revision indicates that revenues 
and transfers in fiscal years 2008-2009 and 2009-2010 total 
approximately $178 billion. 

[87] According to NASBO, the selected states have varying legal 
requirements regarding contributions to and withdrawals from various 
types of reserve funds. 

[88] Texas Legislature, Conference Committee Report for S.B. No. 1 
General Appropriations Bill, Special Provisions for American Recovery 
and Reinvestment Act, section 7. 

[89] West's Ann. Cal. Gov't Code Sec. 13400 et seq. 

[90] Colo. Rev. Stat. § 24-17-102 (2008). 

[91] Colo. Rev. Stat. § 24-17-103 (2008). 

[92] Fla. Stat. § 215.86. 

[93] N.Y. Exec. § 950-953. 

[94] Standards for Internal Control in New York State Government, 
revised October 2007. 

[95] Budget Policy and Reporting Manual, Governmental Internal Control 
and Internal Audit Requirements, B-350. 

[96] The five basic components of internal controls are control 
environment, risk assessment, control activities, information and 
communication, and monitoring. 

[97] N.C.G. St. Ann. ch. 143D. 

[98] Miss. Code Ann. sec. 7-7-3(6). 

[99] District of Columbia, Audit of the Department of Parks and 
Recreation's Oversight of Capital Projects, OIG No. 06-1-08HA (May 
2008). 

[100] Recovery Act, div. A, title XV, § 1512. 

[101] OMB memoranda, M-09-10, Initial Implementing Guidance for the 
American Recovery and Reinvestment Act of 2009 (Feb. 18, 2009); and M- 
09-15, Updated Implementing Guidance for the American Recovery and 
Reinvestment Act of 2009 (Apr. 3, 2009). 

[102] GAO, Grants Management: Additional Actions Needed to Streamline 
and Simplify Process, [hyperlink, 
http://www.gao.gov/products/GAO-05-335] (Washington, D.C.: Apr. 18, 
2005). 

[103] GAO, Federal Assistance: Grant System Continues to Be Highly 
Fragmented, [hyperlink, http://www.gao.gov/products/GAO-03-718T] 
(Washington, D.C.: Apr. 29, 2003). 

[104] The Single Audit Act requires states, local governments, and 
nonprofit organizations expending more than $500,000 in federal awards 
in a year to obtain an audit in accordance with requirements set forth 
in the act. A Single Audit consists of (1) an audit and opinions on the 
fair presentation of the financial statements and the Schedule of 
Expenditures of Federal Awards; (2) gaining an understanding of and 
testing internal control over financial reporting and the entity's 
compliance with laws, regulations, and contract or grant provisions 
that have a direct and material effect on certain federal programs 
(i.e., the program requirements); and (3) an audit and an opinion on 
compliance with applicable program requirements for certain federal 
programs. 

[105] The auditor identifies the applicable federal programs, including 
"major programs," based on risk criteria, including minimum dollar 
thresholds, set out in the Single Audit Act and OMB Circular No. A-133. 
Guidance on identifying compliance requirements for most large federal 
programs is set out in the Compliance Supplement to OMB Circular No. A- 
133. OMB has 14 requirements that generally are to be tested for each 
major federal program to opine on compliance and report on significant 
deficiencies in internal control over compliance with each applicable 
compliance requirement. 

[106] NSAA's mission is to unite state auditors by encouraging and 
providing opportunities for the free exchange of information and ideas 
between auditors on the state, federal, and local levels. 

[107] H.R. 2182, 11th Cong. (2009). H.R. 2182 passed in the House of 
Representatives on May 19, 2009, but, as of June 29, 2009, had not 
passed the Senate. 

[108] Single Audit Act Section 7502(b)(2). The guidance provides that 
under certain conditions, Single Audit auditees may be audited 
biennially instead of annually. For entities that are audited 
biennially, it is longer before internal control and compliance 
weaknesses are identified and remediate. 

[109] Department of Health and Human Services is the cognizant agency 
for the 16 states and District of Columbia that are included in our 
review. According to OMB Circular No. A-133 §.400(a)(2), if an entity 
needs an extension for submission of their Single Audit report, the 
cognizant agency must consider auditee requests for extension to the 
report submission due date. 

[110] OMB Circular No. A-133 provides that federal agencies can use 
sanctions, including withholding a percentage of federal awards until 
the audit is completed satisfactorily, withholding or disallowing 
federal costs, suspending federal awards until an audit is conducted, 
or terminating the federal award. 

[111] OMB Memorandum M-09-15, Updated Implementing Guidance for the 
American Recovery and Reinvestment Act of 2009 (Apr. 3, 2009). This 
guidance supplements, amends, and clarifies the initial guidance issued 
by OMB on February 18, 2009. 

[112] See, OMB memoranda, 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). 

[113] Recovery Act, div. A, title XV, § 1512(b)(1)(A). 

[114] Executive Office of the President, Council of Economic Advisers, 
Estimates of Job Creation From the American Recovery and Reinvestment 
Act of 2009 (May 2009). 

[115] Subrecipients are nonfederal entities awarded Recovery Act 
funding through a legal instrument from the prime recipient to support 
the performance of any portion of the substantive project or program 
for which the prime recipient received the Recovery Act funding. 

[116] XML is a language to describe structured data. 

[117] OMB Memorandum M-09-15, Updated Implementing Guidance for the 
American Recovery and Reinvestment Act of 2009 (Apr. 3, 2009). 

[118] Such plans are required by the Government Performance and Results 
Act of 1993. 5 U.S.C. § 306. 

[119] According to OMB guidance, rather than establishing a new 
council, agencies are encouraged to leverage their existing Senior 
Management Councils to oversee Recovery Act performance across the 
agency, including risk management. The Senior Management Council should 
be composed of the Chief Financial Officer, Senior Procurement 
Executive, Chief Human Capital Officer, Chief Information Officer, 
Performance Improvement Officer, and managers of programmatic offices. 
The agency's Senior Accountable Official should also participate and 
assume a leadership role. Agencies should also consider having their 
Office of General Counsel and Office of Inspector General serve in 
advisory roles on the Senior Management Council. 

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

[121] OMB Memorandum M-09-15, Updated Implementing Guidance for the 
American Recovery and Reinvestment Act of 2009 (Apr. 3, 2009). This 
guidance supplements, amends, and clarifies the initial guidance issued 
by OMB on February 18, 2009. OMB memorandum, M-09-21, Implementing 
Guidance for the Reports on Use of Funds Pursuant to the American 
Recovery and Reinvestment Act of 2009 (June 22, 2009). 

[122] The three categories identified in GAO's April report are (1) 
accountability and transparency requirements, (2) administrative 
support and oversight, and (3) communications. For additional details, 
see 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). 

[123] OMB memorandum, M-09-18, Payments to State Grantees for 
Administrative Costs of Recovery Act Activities (May 11, 2009). 

[124] Consistent with GAO's past work showing that tax expenditures 
receive less scrutiny than outlay programs (e.g., GAO, Government 
Performance and Accountability: Tax Expenditures Represent a 
Substantial Federal Commitment and Need to Be Reexamined, [hyperlink, 
http://www.gao.gov/products/GAO-05-690] (Washington, D.C.: Sept. 23, 
2005), we have begun work to determine the level of transparency and 
oversight that will be provided for the Recovery Act tax provisions. 
Administration officials are formulating plans for what information 
will be collected, analyzed, and reported for the tax provisions. See 
also: GAO, American Recovery and Reinvestment Act: GAO's Role in 
Helping to Ensure Accountability and Transparency, [hyperlink, 
http://www.gao.gov/products/GAO-09-453T] (Washington, D.C.: Mar. 5. 
2009). 

[125] 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). 

[126] States selected for our longitudinal analysis are Arizona, 
California, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, 
Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, 
Pennsylvania, and Texas. 

[127] GAO, Federal-Aid Highways: Federal Requirements for Highways May 
Influence Funding Decisions and Create Challenges, but Benefits and 
Costs Are Not Tracked, [hyperlink, 
http://www.gao.gov/products/GAO-09-36] (Washington, D.C.: Dec. 12, 
2008). 

[128] We did not include these three states in our review due to 
workload considerations. 

[End of section] 

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