Lawmakers, watchdog question effects of stimulus

Federal agencies are doling out stimulus funds to states and localities at a faster rate than originally expected but some of those dollars are not being spent as the Obama administration intended, said the government's chief watchdog on Wednesday.

The third hearing of the House Oversight and Government Reform Committee on the implementation of the American Recovery and Reinvestment Act was the most contentious to date, with Republicans -- and some Democrats -- criticizing the administration for how stimulus funds are being spent.

As of the end of June, nearly $201 billion -- or approximately 26 percent -- of all Recovery Act funding has been obligated or distributed by the federal government, according to the Office of Management and Budget.

The government by June 19 had administered roughly $29 billion of the $201 billion to states and localities for fiscal 2009, a pace that is slightly ahead of early estimates, according to a new report by the Government Accountability Office. The government estimates that $49 billion will be distributed to states before the end of fiscal 2009 on Sept. 30, with most of that money slated for Medicaid relief, education or transportation infrastructure.

GAO found that Recovery Act funds generally have helped states stave off major service cuts, tax hikes and widespread layoffs.

States told GAO that because of the stimulus funding, they were able to preserve current Medicaid benefits and eligibility levels while school districts, such as New York City's, were able to maintain thousands of jobs that would likely have been cut if not for the Recovery Act.

"In the short term, the Recovery Act is helping the states deal with the fiscal crisis," said Gene Dodaro, acting comptroller general.

But critics pointed out that the stimulus was not intended to fill short-term budget gaps but to spur long-term investments.

"The purpose of the stimulus was putting the unemployed back to work," said Rep. Darrell Issa, R-Calif., the committee's ranking member. "So far the stimulus has failed to do that."

Pressure from the administration on recipients to spend Recovery Act funds quickly has created other conflicting objectives, GAO found.

For example, the Recovery Act requires states to give priority to projects that can be completed within three years and to those in economically distressed areas. But many states had designated certain shovel-ready projects for stimulus funds well before the Recovery Act was passed in February.

Transportation officials told GAO that while states should give priority to projects in hard-hit areas, they also must balance other requirements, including expedited completion and maximum job creation. Committee Chairman Edolphus Towns, D-N.Y., asked for a meeting with Transportation Secretary Ray LaHood to discuss the matter.

Lawmakers and state leaders agreed that the administration has been slow to provide guidance, forcing local officials to come up with ad hoc solutions on the fly.

"Congress and the administration should provide states flexibility to organize and plan after federal rules are finalized to ensure proper handling and priority-setting at the state level," said Pennsylvania Gov. Ed Rendell, a Democrat who has proposed a second stimulus just for infrastructure projects.

OMB released new guidance in June on how Recovery Act recipients should report spending and job creation figures to the government. While most agreed that the guidance is a significant step forward, the administration admitted that gaps remain.

The latest reporting guidance requires prime recipients and first-tier sub-recipients to report to a central data system. But subsequent sub-recipients -- for example when a state receives a grant, sub-contracts work to a city, and the city then sub-contracts work again to a company -- will be exempt from the requirements.

"Lurking beneath this required level of reporting could be a host of ethical issues, which will be hidden from public view because of this new guidance," according to a new analysis released on Tuesday by the Coalition for an Accountable Recovery, a group of good government and watchdog organizations.

OMB Deputy Director Robert Nabors testified that for about 95 percent of Recovery Act dollars subject to reporting requirements, data on prime recipients and sub-recipients will be captured.

"Part of OMB's job in determining the scope of reporting requirements is to help maintain an appropriate balance between gathering information and creating undue burden," Nabors said. "When adding specific data elements, it is critical to weigh the potential benefit of specific information against the burden that collecting it would place on recipients."

Some committee lawmakers also criticized the administration's claim that 150,000 jobs had been saved or created thus far as a result of Recovery Act funds.

Others at the hearing urged patience, and said the book on the Recovery Act is not closed yet.

"We should all take a deep breath," Rendell said, "and see how this all works out.