	Summary of GAO Findings

		Uses of Funds

About 90 percent of the estimated $49 billion Recovery Act funding to be  provided to states and localities in fiscal year 2009 will be through health,  transportation and education programs. Within these categories, the three  largest programs are increased Medicaid Federal Medical Assistance  Percentage (FMAP) grant awards, funds for highway infrastructure  investment, and the State Fiscal Stabilization Fund (SFSF). The 16 states and the District have drawn down approximately $7.96  billion in increased FMAP grant awards for the period October 1, 2008,  through April 1, 2009. The increased FMAP is for state expenditures for  Medicaid services. The receipt of this increased FMAP may reduce the  state share for their Medicaid programs. States have reported using funds  made available as a result of the increased FMAP for a variety of purposes. Highway Infrastructure Investment

States are undertaking planning activities to identify projects, obtain  approval at the state and federal level, and move them to contracting and  implementation. Some state officials told us they were focusing on  construction and maintenance projects, such as road and bridge repairs. Before they can expend Recovery Act funds, states must reach agreement  with the Department of Transportation on the specific projects; as of April  16, 2009, two of the 16 states had agreements covering more than 50  percent of their states’ apportioned funds, and three states did not have  agreement on any projects. While a few, including Mississippi and Iowa  had already executed contracts, most of the 16 states were planning to  solicit bids in April or May. Thus, states generally had not yet expended  significant amounts of Recovery Act funds. State Fiscal Stabilization Fund

The states and the District must apply to the Department of Education for  SFSF funds. Education will award funds once it determines that an  application contains key assurances and information on how the state will  use the funds. As of April 20, applications from three states had met that  determination-South Dakota, and two of GAO’s sample states, California  and Illinois. The applications from other states are being developed and  submitted and have not yet been awarded. The states and the District  report that SFSF funds will be used to hire and retain teachers, reduce the  potential for layoffs, cover budget shortfalls, and restore funding cuts to  programs. Planning continues for the use of Recovery Act funds. State planning activities include appointing Recovery Czars, establishing  task forces and other entities, and developing public websites to solicit  input and publicize selected projects. Accountability Approaches  We found that the selected states and the District are taking various  approaches to ensure that internal controls are in place to manage risk up- front; they are assessing known risks and developing plans to address  those risks. State auditors are also planning their work including  conducting required single audits and testing compliance with federal  requirements. Plans to Evaluate Impact

An important objective of the Recovery Act is to preserve and create jobs  and promote economic recovery. Officials in nine of the 16 states and the  District expressed concern about determining jobs created and retained  under the Recovery Act, as well as methodologies that can be used for  estimation of each. Health, education, and transportation is estimated to account for  approximately 90 percent of fiscal year 2009 Recovery Act funding for  states and localities. In our sample of 16 states and the District, officials from 15 states and the  District indicated that they had drawn down increased FMAP grant  awards, totaling $7.96 billion for the period of October 1, 2008 through  April 1, 2009—47 percent of their increased FMAP grant awards. The increased FMAP available under the Recovery Act is for state  expenditures for Medicaid services. In our sample, individual states and the District reported that they would  use the funds to maintain their current level of Medicaid eligibility and  benefits, cover their increased Medicaid caseloads—which are primarily  populations that are sensitive to economic downturns, including children  and families, and to offset their state general fund deficits thereby avoiding  layoffs and other measures detrimental to economic recovery. Nine states and the District reported using these funds to maintain  benefits. State Fiscal Stabilization Fund

The Recovery Act provided $53.6 billion in appropriations for the State  Fiscal Stabilization Fund (SFSF) to be administered by the U.S.  Department of Education. States’ Actions to Plan for Use of Recovery Act Funds Include New and Existing Entities and Processes

All of the 16 selected states and the District reported taking action to plan  for and monitor the use of Recovery Act funding. Selected States’ and Localities’ Internal Controls and Safeguards to Manage and Mitigate the Risk of Mismanagement, Waste, Fraud, and Abuse of Recovery Act Funds

The selected states and the District are taking various approaches to  ensure that internal controls are in place to manage risk up-front, rather  than after problems develop and deficiencies are identified after the fact,  and have different capacities to manage and oversee the use of Recovery  Act funds. We Recommend: 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:  assess jobs created and retained from projects funded by the Recovery  Act;    determine the impact of Recovery Act spending when job creation is  indirect;  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. According to OMB, agencies must  immediately post guidance to the Recovery Act web site and inform to the  “maximum extent practical, a broad array of external stakeholders.” In  addition, since nearly half of the estimated spending programs in the  Recovery Act will be administered by non-federal entities, state officials  have suggested opportunities to improve communication in several areas.
Why GAO Did This Study

This testimony discusses GAO's work examining the uses and planning by selected states and localities for funds made available by the American Recovery and Reinvestment Act of 2009 (Recovery Act). The Recovery Act is estimated to cost about $787 billion over the next several years, of which about $280 billion will be administered through states and localities. Funds made available under the Recovery Act are being distributed to states, localities, and other entities and individuals through a combination of grants and direct assistance. As Congress may know, the stated purposes of the Recovery Act are to: (1) preserve and create jobs and promote economic recovery; (2) assist those most impacted by the recession; (3) provide investments needed to increase economic efficiency by spurring technological advances in science and health; (4) invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits; and (5) stabilize state and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases. As described in GAO's March testimony, 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. This statement today is based on our report being released today, Recovery Act: As Initial Implementation Unfolds in States and Localities, Continued Attention to Accountability Issues Is Essential, which is the first in a series of bimonthly reviews we will do on states' and localities' uses of Recovery Act funding and covers the actions taken under the Act through April 20, 2009. Our report and our other work related to the Recovery Act can be found on our new website called Following the Money: GAO's Oversight of the Recovery Act, which is accessible through GAO's home page at www.gao.gov . Like the report, this statement discusses (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 received.

What GAO Found

About 90 percent of the estimated $49 billion in Recovery Act funding to be provided to states and localities in FY2009 will be through health, transportation and education programs. Within these categories, the three largest programs are increased Medicaid Federal Medical Assistance Percentage (FMAP) grant awards, funds for highway infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). The funding notifications for Recovery Act funds for the 16 selected states and the District of Columbia (the District) have been approximately $24.2 billion for Medicaid FMAP on April 3, $26.7 billion for highways on March 2, and $32.6 billion for SFSF on April 2. Fifteen of the 16 states and the District have drawn down approximately $7.96 billion in increased FMAP grant awards for the period October 1, 2008 through April 1, 2009. The increased FMAP is for state expenditures for Medicaid services. The receipt of this increased FMAP may reduce the state share for their Medicaid programs. States have reported using funds made available as a result of the increased FMAP for a variety of purposes. For example, states and the District reported using these funds to maintain their current level of Medicaid eligibility and benefits, cover their increased Medicaid caseloads-which are primarily populations that are sensitive to economic downturns, including children and families, and to offset their state general fund deficits thereby avoiding layoffs and other measures detrimental to economic recovery. States are undertaking planning activities to identify projects, obtain approval at the state and federal level and move them to contracting and implementation. For the most part, states were focusing on construction and maintenance projects, such as road and bridge repairs. Before they can expend Recovery Act funds, states must reach agreement with the Department of Transportation on the specific projects; as of April 16, two of the 16 states had agreements covering more than 50 percent of their states' apportioned funds, and three states did not have agreement on any projects. While a few, including Mississippi and Iowa had already executed contracts, most of the 16 states were planning to solicit bids in April or May. Thus, states generally had not yet expended significant amounts of Recovery Act funds. The states and D.C. must apply to the Department of Education for SFSF funds. Education will award funds once it determines that an application contains key assurances and information on how the state will use the funds. As of April 20, applications from three states had met that determination- South Dakota, and two of GAO's sample states, California and Illinois. The applications from other states are being developed and submitted and have not yet been awarded. The states and the District report that SFSF funds will be used to hire and retain teachers, reduce the potential for layoffs, cover budget shortfalls, and restore funding cuts to programs. Planning continues for the use of Recovery Act funds. State activities indlude appointing Recovery Czars; establishing task forces and other entities, and developing public websites to solicit input and publicize selected projects. GAO found that the selected states and the District are taking various approaches to ensuring that internal controls manage risk up-front; they are assessing known risks and developing plans to address those risks. State auditors are also planning their work including conducting required single audits and testing compliance with federal requirements. Nearly half of the estimated spending programs in the Recovery Act will be administered by non-federal entities. State officials suggested opportunities to improve communication in several areas. Officials in nine of the 16 states and the District expressed concern about determining the jobs created and retained under the Recovery Act, as well as methodologies that can be used for estimation of each.