Recovery Act:

States' and Localities' Current and Planned Uses of Funds While Facing Fiscal Stresses

GAO-09-908T: Published: Sep 10, 2009. Publicly Released: Sep 10, 2009.

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Denise M. Fantone
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This testimony is based largely on GAO's July 8, 2009 report, in response to a mandate under the American Recovery and Reinvestment Act of 2009 (Recovery Act). This testimony provides selected updates, including the status of federal Recovery Act outlays. 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.

Across the United States, as of August 28, 2009, Treasury had outlayed about $45 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009. More than three quarters of the federal outlays have 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. All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $19.6 billion for October 1, 2008, through September 4, 2009, which amounted to almost 84 percent of such funds available to them. All states and the District experienced enrollment growth in this period. 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. As of September 1, the Department of Transportation (DOT) had obligated approximately $11 billion for almost 3,800 highway infrastructure and other eligible projects in the 16 states and the District and had reimbursed these 17 jurisdictions about $604 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. FHWA issued clarifying guidance to address our recommendation in August 2009. As of September 1, 2009, the District and 15 of the 16 states covered by our review had received approval from Education for their initial SFSF funding applications. Pennsylvania had submitted an application to Education, but it had not yet been approved. As of August 28, 2009, Education has made $21 billion in SFSF grants for Education available to the 15 states and the District--of which over $7.7 billion had been drawn down as of August 28, 2009. 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. 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. 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.

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