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. 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. 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. 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. As of June 25, 2009, $15.9 billion of the funds had been  obligated 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. Almost half of Recovery Act highway obligations have been for pavement  improvements. 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. 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. 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. Officials in one state and one district said that local officials are fearful of  missteps with the funds. 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. 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. 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. 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. The first of these reports is due on October 10, 2009. 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. 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. 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.
Why GAO Did This Study

This report, the second in response to a mandate under the American Recovery and Reinvestment Act of 2009 (Recovery Act), 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. GAO's work for this 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 relevant program officials at the Centers for Medicare and Medicaid Services (CMS), and the U.S. Departments of Education, Energy, Housing and Urban Development (HUD), Justice, Labor, and Transportation (DOT).

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. 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, 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. 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 had 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 that they would use SFSF funds to maintain current levels of education funding, particularly for retaining staff and current education programs. They also said that SFSF funds would help offset state budget cuts. 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 the number of jobs retained. The first of these reports is due in October 2009. OMB--in consultation with a broad range of stakeholders--issued additional implementing guidance for recipient reporting on June 22, 2009, that clarifies some requirements and establishes a central reporting framework.