States Vexed by Stimulus Challenges

The enormity and complexity of the federal stimulus program are weighing heavily on cash-strapped states that are required to keep track of numerous deadlines and reports for the $49 billion of recovery dollars already starting to flow into states for this year.

In some cases, with key deadlines looming, budget shortfalls have forced states to furlough the very people needed to prevent fraud and waste of the federal windfall.

“At the state level, people are being laid off,” said Jill Satran, Washington Gov. Chris Gregoire’s (D) executive policy adviser, who is responsible for monitoring the state’s stimulus money. “We don’t have the resources to make sure we have all the systems in place and all the procedures are being followed … We are struggling.”

Arizona, Florida, New Jersey, North Carolina and Michigan are among other states where budget cuts could threaten proper oversight of the $275 billion stimulus dollars heading to states, according to a recent 303-page report from the General Accountability Office (GAO), the watchdog arm of Congress that is monitoring 16 states’ efforts to use the stimulus money.

“It’s not an option to fail to provide oversight,” said Tom Evslin, who heads up Vermont’s stimulus program for Gov. Jim Douglas (R). “The question is what else might get starved while you are doing it?”

More than a third of the $787 billion federal economic stimulus package that President Obama signed into law 73 days ago goes to or through states. Most of those stimulus funds – some $108 billion – arrives in fiscal 2010, which begins Oct. 1 for the federal government.

Stimulus money is going first to states’ health care and education programs to help forestall cuts in those programs and avoid layoffs of teachers and police officers.”The first $1 billion in Medicaid (stimulus) money we got went immediately to patch [budget] holes,” said Don Winstead, whom Florida Gov. Charlie Crist (R) appointed as the state’s stimulus “czar.”

Winstead joined Evslin of Vermont, Satran of Washington state and several other state recovery officials in Washington, D.C., at an April 29 meeting hosted by the National Governors Association to review stimulus issues with the Obama administration and federal agencies. All three talked with Stateline.org during a break. Click here to read more what state recovery officials told Stateline.org in the interview.

States are desperate for help from the Obama administration on how to meet the law’s numerous oversight requirements in spending stimulus dollars.

“The last thing you need is duplicative or unnecessary or burdensome requirements,” said Ron Naples, who was appointed by Pennsylvania Gov. Ed Rendell (D) as the stimulus’ chief accountability officer and who also attended the meeting. “We’d much rather spend our time getting it right than chasing our tail reporting to everyone,” Naples told Stateline.org.

State officials and the GAO have urged Congress to lean on the Obama administration to allow states to use some of the stimulus money on tracking and managing the spending. The stimulus law set aside $250 million for federal agencies to monitor how the money is spent but did not designate similar funds for states.

The White House has obliged and will release this month details on that and other issues important to states. In an April 23 letter, Vice President Joe Biden promised states more guidance by early May that would provide “new flexibilities for states” to cover the costs of administering the funds, for standardizing how to count job creation and for tracking the federal dollars that pass through states to localities, among other things.

The guidance can’t come fast enough as numerous deadlines await states, including a May 12 deadline for applying for energy and weatherization grants. States receiving transportation funding must make their first report on program spending May 18. And starting July 10, states have to begin providing financial information to www.Recovery.gov , the federal Web site detailing how the stimulus money is being spent. “The idea of trying to track deadlines has been a major part of all our jobs,” said Satran of Washington.

During an April 23 hearing on Capitol Hill, U.S. Sen. Claire McCaskill, a Missouri Democrat and former state auditor, predicted some programs will be overwhelmed with federal dollars and unsure how to spend them. McCaskill pointed in particular to a weatherization program in her state that typically gets $6 million to help low-income families weatherize their homes, but now will get $125 million in stimulus money. Any abuse in one area, such as the weatherization program, “will indict the entire stimulus” package, McCaskill said.

States say they are doing all they can to avoid mismanagement, but say the vastness of the stimulus package may not be fully understood. “There is a perception that there is one pot of money or a couple pots of money,” Winstead of Florida said. “This is many, many, many pots of money all with their own unique requirements and framework.”

The biggest pot of money being distributed to states focuses on health care. About two-thirds of the $49 billion in stimulus dollars that states get during fiscal 2009 will be used to fund Medicaid, the joint state-federal health insurance program for the poor and disabled. Medicaid rolls in some states are surging as people lose their jobs and consequently their private health insurance.

Winstead said that Florida has received $5 billion in Medicaid and other federal stimulus funds for teachers and police, but said the state is facing a $6 billion deficit, so the state still will have to cut programs or raise taxes to have a balanced budget.

Federal infrastructure stimulus dollars are in the pipeline, but are being disbursed more slowly. Only two of the 16 states that GAO studied – Iowa and Mississippi – had contracts for transportation-related stimulus projects even though $6.4 billion in stimulus money already has been approved. But the package was designed so that investments in highways, high-speed rail, broadband technologies and clean water and energy efficiency would come later.

By fiscal 2012, transportation and energy projects will make up about two-thirds of the approximately $23 billion in stimulus funds states and localities will have for that year, according to the GAO.

In the meantime, states are frantically trying to meet all the stimulus requirements. “This whole thing has been a train moving down the tracks and trying to hang on and at the same time trying to make sure you don’t run out of fuel and at the same time trying to change the tires,” Naples of Pennsylvania said. “There are a lot of moving parts.”