July 2009

Addressing State and Local Fiscal Challenges Through the American

Recovery and Reinvestment Act

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State and Local Governments in the U.S. Federal System

• 89,527 state and local governments

• State and local employment represented approximately 14 percent of total U.S. employment in 2007

• State and local government operating and capital expenditures totaled more than $2 trillion in 2007

• State and local expenditures represented approximately 12 percent of GDP in 2007

• States and localities received more than $430 billion in federal grant funds in 2007 and about $500 billion in 2009

• State and local governments collected $1.3 trillion in tax receipts in 2007

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State and Local Governments Face Increasing Fiscal Challenges

-6

-4

-2

0

2

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055

Percent of GDP

Operating Surplus/Deficit Fall 2008

Source: Historical data from National Income and Product Accounts. Historical data from 1980 – 2007, Sept. 2008 & January, 2009 GAO projections from 2008 – 2050 using many CBO projections and assumptions, particularly for next 10 years.

Operating Surplus/Deficit Jan 2009

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The American Recovery and Reinvestment Act of 2009 (Recovery Act)

• Has several provisions that may mitigate the fiscal difficulties that state and local governments are facing

• Provides about $787 billion in spending and tax provisions:

• More than $580 billion in additional spending

• More than $280 billion in grants to states (including grants that go through states to individuals)

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Purposes of the Recovery Act

1. To preserve and create jobs and promote economic recovery.

2. To assist those most impacted by the recession.3. To provide investments needed to increase economic

efficiency by spurring technological advances in science and health.

4. To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits.

5. To stabilize state and local government budgets, in order to minimize and avoid reductions in essential services.

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GAO’s State and Local Reporting Strategy

• Recovery Act requires GAO to “conduct bimonthly reviews and prepare reports on such reviews on the use by selected States and localities of funds made available in this Act.”

• Strategy• Longitudinal study of 16 states and the District of Columbia• Selection criteria based on the stated purposes of the Recovery

Act• Additional states added as other events dictate, including

ongoing GAO work• Localities sampled within selected states • GAO senior executives to coordinate with each selected state

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American Recovery & Reinvestment Act

1. Arizona2. California3. Colorado4. Florida5. Georgia6. Illinois7. Iowa8. Massachusetts9. Michigan10. Mississippi11. New Jersey12. New York13. North Carolina14. Ohio15. Pennsylvania16. Texas17. Washington, D.C.

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Reporting Objectives

1. States’ and localities’ use of funds

2. States’ and localities’ up-front safeguards and ongoing monitoring, audits, and evaluations

3. States’ and localities’ plans to evaluate the impact of funds

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Projected versus Actual Federal Outlays to States and Localities under the

Recovery Act

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016

Dollars (in billiions)

Actualfederaloutlaysas of

June 19,2009$28.8

Fiscal year

Source: GAO analysis of data from CBO, Recovery.gov and Federal Funds Information for States.

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87 Percent of Estimated Fiscal Year 2009 Federal Recovery Act Outlays to States and Localities Are in

the Nine Programs Reviewed by GAO

Source: GAO analysis of data from CBO and Federal Funds Information for States.

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GAO Recommendations

• Accountability and Transparency• Leverage Single Audit as an effective oversight tool

Move to earlier reporting on internal controls Focus on Recovery Act programs Give relief for low-risk programs Fund more timely, effective Single Audits

• Reporting on Impact• Provide examples of reporting on jobs created and retained• Clarify new or existing program performance measures

• Communications and Guidance • Clarify data quality and reconciliation requirements • Specify data certification and approval requirements • Ensure more direct communication on funds flowing to each state

Source: GAO.

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GAO Recovery Act Information

• July 2009 Bi-Monthly Report: GAO-09-829

Recovery Act: As Initial Implementation Unfolds in

States and Localities, Continued Attention to Accountability Issues Is Essential

• GAO Recovery Act website: http://www.gao.gov/recovery