The  first phase—$32.6 billion—represents about two-thirds of the SFSF. Health,  education, and transportation is estimated to account for approximately  90 percent of fiscal year 2009 Recovery Act funding for states and  localities. States’ and Localities’ Use of and Plans for Recovery Act Funds Focus on Purposes of the Act and States’ Fiscal Stresses

Officials in the 16 selected states and the District indicated they have used  certain Recovery Act funds and continue planning for the use of additional  funds they have not yet received. States’ planning actions include appointing Recovery Czars;  establishing task forces and other entities, and developing public web sites  to solicit input and publicize selected projects. 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. 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. States are undertaking planning activities to identify projects, obtain  approval at the state and federal level and move them to contracting and  implementation. As of April 16, 2009, the U.S Department of Transportation reported that  nationally $6.4 billion of the $26.6 billion in Recovery Act highway  infrastructure investment funding provided to the states had been  obligated – meaning Transportation and the states had reached  agreements on projects worth this amount. In most states we visited, while they had not yet expended significant  funds, they were planning to solicit bids in April or May. A few states had already executed contracts. State Fiscal Stabilization Fund

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. States  have undertaken various other activities to monitor Recovery Act funds,  including Arizona’s budget director meeting with the heads of programs  potentially receiving Recovery Act funds to gauge each programs’  preparedness; Arizona’s Comptroller conducting a survey to inventory  current internal controls at state agencies to help ensure controls are in  place to limit the risk of fraud, waste, abuse and mismanagement of  Recovery Act funds; California’s Governor appointing the state’s first  Inspector General specifically to oversee Recovery Act funds as they are  disbursed in the state; Massachusetts’ legislature creating the Joint  Committee on federal Recovery Act Oversight with the goals of ensuring  compliance with federal regulations and reviewing current state laws,  regulations and policies to ensure they allow access to Recovery Act funds  and streamline the processes to quickly stimulate the economy; and Texas  State Auditor’s Office plans to hire 10 additional staff. Officials in 9 of the 16 states and the District expressed concern about the  definitions of jobs retained and jobs created under the Recovery Act, as  well as methodologies that can be used for estimation of each. 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. As a result, our objectives for this report were to  describe (1) selected states’ and localities’ uses of and planning for  Recovery Act funds, (2) 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. These states and D.C.  contain about 65 percent of the U.S. population and are estimated to  receive about two-thirds of the intergovernmental grant funds available  through the Recovery Act. The programs we selected were streams of Recovery Act funding flowing  to states and localities through increased Medicaid Federal Medical  Assistance Percentage (FMAP) grant awards, funding for highway  infrastructure investment, and the State Fiscal Stabilization Fund (SFSF). For example, the Medicaid program is on the GAO high risk  list. Bids will close on April 24, 2009. However, the receipt of  this increased FMAP may reduce the funds that the state must use for their  Medicaid programs, and states have reported using these available funds  for a variety of purposes. 7). These projects include activities such as road construction and road maintenance. The increased FMAP available under theRecovery Act is for state expenditures for Medicaid services.
Why GAO Did This Study

The American Recovery and Reinvestment Act of 2009 (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. The Recovery Act requires GAO to do bimonthly reviews of the use of funds by selected states and localities. In this first report, GAO describes selected states' and localities' (1) uses of and planning of Recovery Act funds, (2) accountability approaches, and (3) plans to evaluate the impact of funds received. GAO's work is focused on 16 states and the District of Columbia--representing about 65 percent of the U.S. population and two-thirds of the intergovernmental federal assistance available through the Recovery Act. GAO collected documents from and interviewed state and local officials, including Governors, "Recovery Czars," State Auditors, Controllers, and Treasurers. GAO also reviewed guidance from the Office of Management and Budget (OMB) and other federal agencies.

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.