[Senate Hearing 111-978]
[From the U.S. Government Publishing Office]
S. Hrg. 111-978
STIMULUS OVERSIGHT--2009
=======================================================================
HEARINGS
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
----------
MARCH 5, 2009
FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR RECOVERY AND
REINVESTMENT SPENDING
APRIL 2, 2009
RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A BOLD OVERSIGHT
STRATEGY
APRIL 7, 2009
THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE ECONOMIC
STIMULUS WORK FOR CONNECTICUT
FIELD HEARING IN HARTFORD, CONNECTICUT
APRIL 23, 2009
FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING
SEPTEMBER 10, 2009
FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, TRANSPARENCY, AND
FRAUD PREVENTION
----------
Available via the World Wide Web: http://www.fdsys.gov/
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
STIMULUS OVERSIGHT--2009
S. Hrg. 111-978
STIMULUS OVERSIGHT--2009
=======================================================================
HEARINGS
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 5, 2009
FOLLOW THE MONEY: TRANSPARENCY AND ACCOUNTABILITY FOR RECOVERY AND
REINVESTMENT SPENDING
APRIL 2, 2009
RECOVERY AND REINVESTMENT SPENDING: IMPLEMENTING A BOLD OVERSIGHT
STRATEGY
APRIL 7, 2009
THE AMERICAN RECOVERY AND REINVESTMENT ACT: MAKING THE ECONOMIC
STIMULUS WORK FOR CONNECTICUT
FIELD HEARING IN HARTFORD, CONNECTICUT
APRIL 23, 2009
FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING
SEPTEMBER 10, 2009
FOLLOW THE MONEY: AN UPDATE ON STIMULUS SPENDING, TRANSPARENCY, AND
FRAUD PREVENTION
__________
Available via the World Wide Web: http://www.fdsys.gov/
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
49-638 WASHINGTON : 2011
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado
Michael L. Alexander, Staff Director
Troy H. Cribb, Counsel
Holly A. Idelson, Counsel
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Amanda Wood, Minority Director of Governmental Affairs
Lisa M. Nieman, Minority Counsel
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk and GPO Detailee
Laura W. Kilbride, Hearing Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Lieberman............................... 1, 39, 67, 95, 131
Senator Collins..................................... 4, 41, 97, 133
Senator Burris.................................... 18, 52, 114, 154
Senator Voinovich............................................ 20
Senator Tester........................................ 23, 123, 151
Senator McCaskill................................. 26, 54, 121, 161
Senator Coburn............................................. 64, 156
Senator McCain............................................ 111, 159
Senator Carper............................................ 118, 164
Prepared statements:
Senator Lieberman.......................... 175, 224, 243, 277, 657
Senator Collins................................. 178, 227, 280, 659
Senator Voinovich............................................ 180
Senator Coburn............................................... 229
Senator Bennet............................................... 281
WITNESSES
Thursday, March 5, 2009
Hon. Robert L. Nabors II, Deputy Director, Office of Management
and Budget..................................................... 5
Gene L. Dodaro, Acting Comptroller General, U.S. Government
Accountability Office.......................................... 8
Hon. Phyllis K. Fong, Inspector General, U.S. Department of
Agriculture; Chair, Council of Inspectors General on Integrity
and Efficiency................................................. 11
APPENDIX
Dr. Allan V. Burman, President, Jefferson Solutions, Division of
Jefferson Consulting Group, LLC, prepared statement............ 217
Responses to questions for the Record from:
Mr. Nabors................................................... 222
Thursday, April 2, 2009
Hon. Robert L. Nabors II, Deputy Director, Office of Management
and Budget..................................................... 42
Hon. Earl E. Devaney, Chairman, Recovery Accountability and
Transparency Board............................................. 45
APPENDIX
Responses to questions for the Record from:
Mr. Nabors................................................... 239
Tuesday, April 7, 2009
Hon. Robert L. Genuario, Secretary, Office of Policy and
Management, State of Connecticut............................... 71
John P. Yrchik, Ph.D., Executive Director, Connecticut Education
Association.................................................... 75
Stephen A. Frayne, Senior Vice President, Health Policy,
Connecticut Hospital Association............................... 79
Sharon D. Langer, Senior Policy Fellow, Connecticut Voices for
Children....................................................... 84
APPENDIX
Documents submitted for the Record by Senator Lieberman.......... 246
Elliot C. Nelson, Chairman, Bristol Democratic Town Committee,
prepared statement............................................. 276
Thursday, April 23, 2009
Gene L. Dodaro, Acting Comptroller General, U.S. Government
Accountability Office.......................................... 98
Raymond C. Scheppach, Ph.D., Executive Director, National
Governors Association.......................................... 101
Carolyn M. Coleman, Director, Federal Relations, National League
of Cities...................................................... 104
APPENDIX
Letter from Vice President Biden to Senators Lieberman and
Collins, dated April 23, 2009.................................. 283
Charts submitted for the Record by Mr. Dodaro.................... 326
GAO Report to Congressional Committees, ``Recovery Act, As
Initial Implementation Unfolds in States and Localities,
Continued Attention to Accountability Issues Is Essential,''
GAO-09-580), April 2009........................................ 350
Responses to questions for the Record from:
Mr. Dodaro................................................... 652
Thursday, September 10, 2009
Hon. Robert L. Nabors II, Deputy Director, Office of Management
and Budget..................................................... 135
Hon. Jon D. Leibowitz, Chairman, Federal Trade Commission........ 138
Hon. Earl E. Devaney, Chairman, Rocovery Accountability and
Transparency Board............................................. 141
J. Christopher Mihm, Managing Director, Strategic Issues, U.S.
Government Accountability Office............................... 144
APPENDIX
Documents submitted for the Record by Senator Collins............ 661
Scott D. Hammond, Deputy Assistant Attorney General, Antitrust
Division, U.S. Department of Justice, prepared statement....... 742
Responses to questions for the Record from:
Mr. Nabors................................................... 754
Mr. Devancy.................................................. 763
Alphabetical List of Witnesses
Coleman, Carolyn M.:
Testimony.................................................... 104
Prepared statement with attachments.......................... 337
Devaney, Hon. Earl E.:
Testimony.................................................. 45, 141
Prepared statements....................................... 235, 686
Dodaro, Gene L.:
Testimony.................................................... 8, 98
Prepared statements....................................... 185, 286
Fong, Hon. Phyllis K.:
Testimony.................................................... 11
Prepared statement........................................... 200
Frayne, Stephen A.:
Testimony.................................................... 79
Prepared statement........................................... 267
Genuario, Hon. Robert L.:
Testimony.................................................... 71
Prepared statement........................................... 252
Langer, Sharon D.:
Testimony.................................................... 84
Prepared statement........................................... 273
Leibowitz, Hon. Jon D.:
Testimony.................................................... 138
Prepared statement with attachments.......................... 669
Mihm, J. Christopher:
Testimony.................................................... 144
Prepared statement........................................... 691
Nabors, Hon. Robert L. II:
Testimony................................................5, 42, 135
Prepared statements.................................. 181, 230, 663
Scheppach, Raymond C., Ph.D.:
Testimony.................................................... 101
Prepared statement........................................... 328
Yrchik, John P., Ph.D.:
Testimony.................................................... 75
Prepared statement........................................... 256
FOLLOW THE MONEY: TRANSPARENCY AND
ACCOUNTABILITY FOR RECOVERY
AND REINVESTMENT SPENDING
----------
THURSDAY, MARCH 5, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Joseph I.
Lieberman, Chairman of the Committee, presiding.
Present: Senators Lieberman, Pryor, McCaskill, Tester,
Burris, Collins, McCain, and Voinovich.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. Good morning, and welcome to today's
hearing, which we have titled ``Follow the Money''--not just
``Show me the money,'' but ``Follow the Money: Transparency and
Accountability for Recovery and Reinvestment Spending.'' In
other words, what are we going to do to make sure that the $787
billion--or at least the $501 billion that we judge will go to
spending as opposed to tax reduction, is spent wisely? And how
will the Federal Government account for all the money that will
be spent over the next 2 years as part of the American Recovery
and Reinvestment Act of 2009 (ARRA or Recovery Act)?
It is our Committee's responsibility under our traditional
Governmental Affairs role to study ``the efficiency, economy,
and effectiveness of all agencies and departments of the
Government.'' We take this responsibility seriously, and we
intend to ensure that measures are put in place to prevent cost
overruns, provide strict oversight of contractor performance,
and ensure that grant conditions are met and that fraud is
promptly prosecuted in all aspects of the stimulus spending,
which is truly unprecedented in the amount of money that
Congress has appropriated and in the speed with which we have
asked our government to spend it.
I want to thank our witnesses for being here: Robert
Nabors, the Deputy Director at the Office of Management and
Budget (OMB), whose boss Peter Orszag has told us, will be the
man whose hands will be on the stimulus program; Gene Dodaro,
the Acting Comptroller General at the Government Accountability
Office (GAO); and Phyllis K. Fong, Inspector General at the
Department of Agriculture (USDA), but here particularly in her
role as Chairman of the Council of the Inspectors General on
Integrity and Efficiency. That is a great title, and you have
earned it.
I thank you all for being here today. Each of you have a
critical role to play in ensuring that these stimulus funds are
spent not just quickly to help our economy, but effectively to
protect our taxpayers.
History can be our guide in this. It was actually 76 years
ago yesterday that President Franklin Delano Roosevelt began
his famed first 100 days with his first inaugural address to a
Nation then mired in the Great Depression. Unemployment was
around 25 percent, so as bad as things are and as worried as
the American people are about their futures, as we all are, it
was a lot worse then.
In his address, President Roosevelt told an anxious Nation,
``Our greatest primary task is to put people to work. This is
no unsolvable problem if we face it wisely and courageously. It
can be accomplished in part by direct recruiting by the
government itself, treating the task as we would treat the
emergency of a war, but at the same time, through this
employment, accomplishing greatly needed projects to stimulate
and reorganize the use of our natural resources.'' And that, of
course, fits quite perfectly the aim that I think most Members
of Congress who voted for the stimulus bill had in our minds.
Ultimately, the New Deal put 8 million Americans back to
work and accomplished a lot. Six hundred and fifty thousand
miles of road were built. That was an enormous boost to
commerce in our country. The Bonneville and Grand Coulee Dams
were built that brought electricity into rural homes. Airports,
like LaGuardia in New York City, were built, and they became
the hubs of a new modern transportation infrastructure. And, of
course, thousands of other public buildings and parks were
constructed, many of which we still use today.
By the end of President Roosevelt's first term, the
unemployment rate had been cut by more than half, and may we be
blessed to see a similar cut at the end of President Obama's
first term.
The American Recovery and Reinvestment Act is similarly
ambitious, seeking to save or create 4 million jobs by putting
Americans to work in traditional infrastructure projects like
roads, bridges, and buildings, but also by laying the
groundwork for a 21st Century economy with investments in clean
and renewable energy, high-speed rail, computerized health care
records, and expanded broadband access--an information highway
across the Nation.
History also shows that the New Deal gives us reason for
some caution as we embark on this massive public spending
stimulus program, because the fact is that not all the New Deal
projects left the grand legacies like those I mentioned a
moment ago. For instance, in the Nation's capital, 100 people
were hired as part of that stimulus program to scare pigeons.
Well, I do not think we need that today, but others may
disagree. In New York, people were put to work as fire hydrant
decorators. The Federal Government funded a study of the
production and efficiency of safety pins.
As I say this, I miss Senator Coburn. I feel that he should
be here. [Laughter.]
So frequent were these dubious projects that the word
``boondoggle'' was born to describe any job or program that
wasted money and produced trivial results. In fact, so common
was the use of this word that President Roosevelt felt obliged
to rebut it. He said in one speech, ``If we can boondoggle
ourselves out of this Depression, that word is going to be
enshrined in the hearts of the American people for years to
come.''
But that is not the way it has worked out, really, although
we look back at the New Deal programs that got us out of the
Depression with great appreciation. Today, there are still
boondoggles, and we all know and disdain them. While we
understand that our economy needs a real jolt urgently, we want
to make sure that every dollar of the $500 billion that the
Recovery Act targets for spending on projects and programs will
be used to restart the economy with hopefully not a penny lost,
wasted, or stolen.
Again, we understand that speed is important, but we simply
cannot repeat the kind of mistakes we have made in other hasty
spending projects, such as in Iraq reconstruction or in the
aftermath of Hurricane Katrina.
I will say this, and I suppose I am patting Congress and
also the Administration on the back: In the American Recovery
Act, otherwise known as the stimulus bill, there is some very
good language and good provisions to put us in a position to
protect the taxpayers in the spending of this money.
First, the legislation includes about $250 million in new
funding for our inspectors general (IGs), who, incidentally,
report to our Committee, to hire experienced auditors and
investigators and to oversee stimulus spending. I would like to
hear this morning about whatever proactive measures are being
put together by the IGs to ensure with these new personnel that
the stimulus money is spent properly.
Second, the legislation, of course, creates the Recovery
Accountability and Transparency Board. President Obama recently
chose Earl Devaney, the Inspector General of the Interior
Department, to head this board. It will also contain at least
10 other inspectors general from departments and agencies that
have jurisdiction over the recovery projects. The board is
meant to ensure coordinated and comprehensive oversight of
stimulus spending and provide regular reports to Congress and
the public. Mr. Devaney is just finding his way through this
new responsibility, and we thought it would be premature to
have him here this morning. But we look forward to having him
testify before the Committee at a hearing quite soon.
Third, the Recovery Act adds protection for whistleblowers
who work for State and local governments or for private
contractors who generally have no Federal protection against
retaliation if they disclose waste or fraud in the spending of
these stimulus funds. Of course, some of the most significant
information we get about waste and fraud comes from people
right in the middle of the system, and they deserve
whistleblower protection at all levels.
Fourth, a special Web site called ``Recovery.gov'' will
provide transparency for posting information about spending on
these projects.
We want to work closely with the Obama Administration to
make sure we have the manpower and systems in place to do the
job right and safeguard the public investments. Waste or fraud
in the spending of the $500 billion of stimulus funds will only
further erode the American people's confidence in their
government just when they and we need them to have that
confidence most. That is why our Committee is giving notice
with this hearing this morning that we intend to very closely
and aggressively monitor spending of stimulus money ourselves
and also, if I can put it this way, to oversee those who are
given the responsibility by the law to also oversee the
stimulus spending, including the three distinguished witnesses
we have before us this morning.
Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman.
Over the past year and a half, we have witnessed the
collapse of the housing market, the unraveling of our Nation's
financial institutions, and the evaporation of trillions of
dollars in the stock market and in people's retirement
accounts. The financial crisis that started on Wall Street has
become a crisis on Main Street in every community in America.
Nearly 600,000 Americans lost their jobs in the month of
January alone, bringing the total number lost since the end of
last summer to 2.5 million. The Nation's unemployment rate is
the highest it has been in more than 16 years.
That is why the stimulus bill that we passed a few weeks
ago is so critical. The economic stimulus package contains
robust infrastructure spending, significant funding for State
aid, tax relief for low- and middle-income families, and tax
incentives for small businesses. It is projected to save or
create an estimated 3.5 million jobs.
The investments in this bill should help to turn our
economy around, but to be successful, these stimulus funds have
to be spent effectively and with transparency and
accountability. They simply cannot be lost to waste, fraud, and
mismanagement. As the Chairman has pointed out, if they are,
not only will it retard the economic recovery, but it will
further depress people's confidence at a time when confidence
is needed.
If these funds are not awarded in a timely, transparent,
and appropriate manner, the impact of the economic stimulus
package will be blunted, and the results, whether for new jobs,
better roads and schools, or other critical investments, will
fall far short of our expectations. When there is a lack of
accountability in Federal funds aimed at stabilizing the
economy, goals are not accomplished, and public support
evaporates. And, of course, we have only to look at the
spending of the Targeted Asset Relief Program (TARP) money to
see a cautionary tale.
To avoid the tremendous oversight flaws of the TARP and
help to prevent similar abuse in the allocation of stimulus
funds, Congress included strong safeguards in the bill. These
protections will help to ensure aggressive oversight, enhance
transparency, and accountability for taxpayer dollars. The law
includes millions of dollars in additional funding for the
agency inspectors general and the GAO, and creates a new
Recovery Act Accountability and Transparency Board to
coordinate these activities.
I believe one of the most important safeguards is the
creation of a new Web site, Recovery.gov, which will allow the
public to access information on how the stimulus money is being
spent. From my perspective, the more eyes looking at this
spending, the better.
Ensuring that the funds are spent properly also requires an
efficient and effective acquisition workforce to develop and
monitor the stimulus contracts. Federal contract purchases now
exceed $532 billion a year, yet the Federal Government entered
the 21st Century with 22 percent fewer Federal civilian
acquisition personnel than it had at the start of the 1990s. So
what we are going to have is the challenge of a downsized,
shrinking acquisition workforce, which is already overwhelmed,
coping with an influx of billions of additional dollars. That
is an issue I am going to be raising with our witnesses today.
As one of the witnesses who submitted testimony for the
record--Allan Burman, a former head of the Office of Federal
Procurement Policy--has pointed out, this problem also extends
to State and local levels. There is a real question of whether
State and local governments are prepared to effectively handle
this influx of money and to ensure that competitive processes
are followed.
We have learned painful lessons from the Iraq
reconstruction and Hurricane Katrina-related contracts that a
lack of planning can produce egregious examples of waste and
open the door to outright fraud.
Today's hearing will allow us to examine the
Administration's plans to safeguard the taxpayers' interests in
the economic stimulus plan's effectiveness and efficiency. Our
government has an obligation to make sure that these funds are
spent wisely to get people back to work, to relieve hardship,
and to turn our economy around. America's families, struggling
with the economic downturn, deserve no less. Right now I
believe that they are hopeful, but they are also skeptical, of
whether we can spend this much needed money wisely.
Thank you, Mr. Chairman.
Chairman Lieberman. Thanks, Senator Collins. I agree with
you on both counts, that the American people, including my
constituents that I've talked to at home, really were pleased
that we passed the stimulus program. They know they need it.
But they are worried about whether we are going to spend it
effectively. And that is why I am so glad the three of you are
here.
Robert L. Nabors, Deputy Director, Office of Management and
Budget, welcome, and we look forward to your testimony now.
TESTIMONY OF HON. ROBERT L. NABORS II,\1\ DEPUTY DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
Mr. Nabors. Thank you, sir. Chairman Lieberman, Ranking
Member Collins, distinguished Members of the Committee, thank
you very much for inviting me to testify.
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\1\ The prepared statement of Mr. Nabors appears in the Appendix on
page 181.
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We are in a deep recession, which threatens to be more
severe than any depression since the Great Depression. More
than 3.5 million jobs have been lost over the past 13 months,
more than at any time since World War II. And the gross
domestic product (GDP) declined at an annual rate of 6.2
percent in the fourth quarter of last year--the highest rate in
over 25 years. Each community and sector of our economy has
been affected, and that is why the President signed the
Recovery Act, which is intended to provide relief to millions
of struggling families, jump-start our economy, create or save
more than 3.5 million jobs over the next 2 years, and steer our
Nation out of this economic circumstance that we find ourselves
in.
Passing the Act was an important step towards immediate
recovery and the restoration of long-term fiscal stability. But
for the Recovery Act to be effective, funds need to be spent
both wisely and quickly. Allow me to say a few words about the
work we are doing to accomplish both of these objectives.
First, for the Recovery Act to have the desired effect,
funds must reach recipients quickly. Since the Act was signed,
the Administration has been working quickly to channel funding
into our struggling economy. Already, more than $15 billion of
Medicaid grant awards have been allocated, covering the first
two quarters of fiscal year 2009. In addition, $10 billion has
been allocated to create green jobs, revive housing markets
with high rates of foreclosure, and curb homelessness. New
funds for unemployment insurance and food stamps, grants to
hire more police officers and for workforce development, block
grants to States and localities, dam and levee funding, and
formula funding for highways and other transit construction
have been allocated or will be this month. We are doing our
part to expedite this process by working to make our
application processes and guidance as clear as possible so that
funds reach the hands of those who need them, as quickly as
possible. But we need the help of our State and local partners
to ensure that Recovery Act funding makes its way into the
economy. States cannot let Recovery Act funds sit in ``rainy
day'' accounts, and Recovery Act funds should not be used to
reimburse programs for previous expenses.
Second, it is essential that funds be spent wisely at all
levels of government and in a way that maintains the confidence
of the public. The President understands the magnitude of the
government's responsibility in managing the taxpayers' dollars.
This is precisely why the Recovery Act was designed to ensure
unprecedented levels of transparency and accountability, and
why the Administration has moved swiftly to implement both the
leadership and internal processes necessary to oversee this
massive effort.
In terms of leadership, the President designated Vice
President Joseph Biden as the Administration's point person to
coordinate the Federal response on the Recovery Act. He has
also named Earl Devaney, the Inspector General of the
Department of the Interior, as the head of the recovery
oversight board.
On process, the day the Recovery Act was signed, the
Administration launched Recovery.gov, a Web site that will
empower citizens to hold the government accountable by
reporting where recovery dollars are going and how the money is
going to be spent. The response has been dramatic. Recovery.gov
received 3,000 hits per second the moment it was launched, and
it has received over 150 million hits since February 17, 2009.
As funds make their way to projects, we anticipate that the Web
site will be a valuable resource for tracking their use.
In this very early phase of Recovery Act implementation, we
are focusing on ensuring that Federal agencies tasked with
managing recovery money are executing their mandates well. OMB
has transmitted detailed guidance to all of the agencies on how
to manage Recovery Act dollars in a way that will promote
transparency and efficiency. The guidance calls on agencies to
go beyond standard operating procedures and to recognize the
unusual nature of recovery funds. Agencies are required to
ensure that recovery money is distinguished from other funding
in their financial systems, grant and contract writing systems,
and reporting systems. For example, within their financial
systems, agencies are generally required to set up unique
treasury appropriation fund symbols for all Recovery Act
funding.
We have emphasized the extraordinary responsibility that
falls on all government workers to prove to the American people
that we are spending their dollars well. To inform citizens
how, when, and where recovery dollars are being spent, the
guidance presents new, tight reporting deadlines. This week,
agencies began submitting weekly reports that provide a
breakdown of funding, noteworthy actions to date, and major
planned activities. By no later than May 1, 2009, we have asked
that they submit both an ``Agency Recovery Plan'' and a
separate ``Recovery Program Plan'' for each program named in
the Act.
Within OMB, we closely monitor milestones, obstacles, and
other significant issues pertaining to the implementation of
agency recovery plans on a daily basis, as well as the use of
specific funds. We are working to ensure that matters of
significance are appropriately brought to the attention of
senior Administration officials in a timely fashion so that
they can be resolved before problems arise.
However, the Administration cannot achieve the goals of
unprecedented transparency and accountability without help from
Congress, State, and local governments. All levels of
government share responsibly for rooting out error and waste
and ensuring that only the most worthy projects receive
precious recovery dollars. These projects should meet high
standards of economic value and equally high standards when
judged by the public for fairness and impartiality.
No one should doubt the importance of the Recovery Act in
creating jobs, restoring public confidence in our economy, and
putting our Nation back on track. Nor should anyone doubt the
importance of implementing this Act as efficiently,
transparently, and effectively as possible.
Our success going forward with implementation of the
Recovery Act is in large part going to be determined by the
tens of thousands of Federal, State, and local officials who
will be monitoring this funding on a daily basis. In my work at
OMB, I have been very fortunate to have a team of very
competent career employees who have been meeting with me on an
almost daily basis, and I would like to take this opportunity
just to recognize their hard work so far. There are four of
them here with me today: Danny Werfel, David Bortnick, Leslie
Field, and Dustin Brown. These four individuals, plus the other
individuals back at OMB, should be a model across the Federal
Government and across all levels of government in terms of the
amount of dedication that they have shown in terms of making
sure that this money is spent wisely.
Thank you very much.
Chairman Lieberman. Thanks, Mr. Nabors, and we join you in
thanking the people behind you who have helped to put us where
we are.
Before we go to Mr. Dodaro, that is a stunning number for
hits on the Recovery.gov Web site. That was 150 million.
Mr. Nabors. Yes, sir.
Chairman Lieberman. And that's in basically 2\1/2\ weeks--
less, actually, since the bill was signed.
Mr. Nabors. Yes, sir.
Chairman Lieberman. Do you have any analysis of what people
are looking at? Do you have any sense of who they are?
Mr. Nabors. We are in the process of doing that type of
evaluation, but from what we can tell, at least initially,
these are people across the country who just want to see how
their money is being spent.
Chairman Lieberman. Yes. That is actually thrilling. Or
maybe it is intimidating for those who are going to oversee the
spending. [Laughter.]
Anyway, that is great to hear.
Gene Dodaro is the Acting Comptroller General, U.S.
Government Accountability Office. Thanks for being back here.
TESTIMONY OF GENE L. DODARO,\1\ ACTING COMPTROLLER GENERAL,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Dodaro. Thank you very much, Mr. Chairman, Senator
Collins, Members of the Committee. I am very pleased to be here
today to assist you in your oversight of the American Recovery
and Reinvestment Act by explaining GAO's plans to meet our
responsibilities under the legislation, and also to discuss how
we are coordinating with the rest of the oversight entities
that are charged with various responsibilities.
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\1\ The prepared statement of Mr. Dodaro appears in the Appendix on
page 185.
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The Act gives GAO a range of responsibilities and tasks.
They include recurring responsibilities to report and do
reviews on a bi-monthly basis on the use of the funds by
selected States and localities across the country. We also are
charged with reviewing recipient reports, which are required to
be filed on a quarterly basis, with particular attention to
their reporting of the number of jobs preserved or created.
We also are asked to look at a number of targeted areas:
Education incentive grants in particular; the expansion of
trade adjustment assistance that is provided; and also efforts
by the Small Business Administration to increase lending to
small businesses and increase the liquidity in the secondary
market for those loans. And we are also tasked with some long-
range studies. One includes looking at the impact of downturns
on States over the past few decades and trying to develop
recommendations going forward for how the Federal Government
can assist States, particularly in the health area, in the
Medicaid program, in future economic downturns.
One of the large-scale responsibilities we have is to
implement this bi-monthly review of selected States and
localities, and we are moving forward in doing that. We have
selected 16 States based on expected amounts of money flowing
to the States and localities: Population figures, poverty
figures, and unemployment rate projections. We are going to
track these 16 States, the District of Columbia, and localities
over the next 2 to 3 years to have a longitudinal study and
analysis of how they have used the money and what the impact
has been in achieving the purposes of the Act in these States
and localities. These States are expected to receive over two-
thirds of the Recovery Act spending, so we believe this will be
a really good study and present a national picture.
Now, we are also going to be reviewing the recipient
reports filed by all 50 States so that we have information on
them, so we will be tracking the activity there. We also will
have our Forensic and Special Investigations Unit, which has
testified before this Committee several times, do a risk
assessment of some of the programs and areas where we would
want to do targeted reviews. So just because we will not be in
the other 34 States does not mean that we will not do some
reviews in targeted areas in those States going forward.
We are in the process of selecting the localities within
those jurisdictions going forward, and we will apprise the
Committee of the localities that we are selecting within those
16 States.
Now, because a lot of the Federal money will be flowing
from the Federal departments and agencies that are under the
purview of the inspectors general, who are also going to the
States and localities, it is important for us to coordinate our
activities with the inspectors general. Soon after the Act was
passed, I contacted Ms. Fong, and she and I co-hosted a meeting
that involved IGs or their representatives from 17 departments
and agencies to begin coordinating our activities. In addition,
GAO teams are meeting with each individual inspector general's
office to coordinate our activities as they relate to the
States and localities going forward.
I have also talked to Mr. Devaney, and I made sure that he
understood that we were committed to coordinate with him as he
gets the Recovery Board up and running. That will be an
important coordination step for us as well.
Similarly, we are doing outreach to the State audit and
local audit communities. Through the National Association of
State Auditors, Treasurers, and Comptrollers, we arranged a
conference call that included representatives from 46 State
offices, either the State auditors or their representatives,
and we had a similar conference call with local auditors across
the country. When we first enter the States and localities, we
will be working with these State and local auditors because
they understand their localities, and we will be coordinating
with them, as well as through the governors' and mayors'
offices and their designated representatives.
We also have begun coordination efforts with OMB. Soon
after the Act was passed, a number of State officials wrote to
Director Peter Orszag and myself about establishing a working
group to work on some of the reporting requirements that were
in the law. I talked to Mr. Orszag, and we have begun working
with the States and localities on that.
Now, there is one other issue we have brought to OMB's
attention and Treasury's attention. As you mentioned, Mr.
Chairman, while there is about $500 billion on the expenditure
side, there are also a number of tax provisions that eventually
people will want to know whether or not they achieve their
objectives. For example, there are recovery bonds. As well as
special provisions for depreciation and for creating jobs
during this period of time.
Our experience has been at GAO, unless the Internal Revenue
Service (IRS) makes a determination up front to collect
specific information about the reporting of these tax credits
and tax provisions, it will be impossible to determine their
effect. OMB and Treasury have responded well to this outreach
by GAO, and we are going to be working with them. They are
beginning to think about what information should be collected
on the tax provisions so that the provisions can be properly
evaluated as to whether they achieved their objectives. I think
this is very important so that at the end of the period, we
will be able to have a comprehensive analysis of the entire
Recovery and Reinvestment Act and whether it achieved its
purposes.
Also, this early attention up front is really the governing
principle and will provide lessons learned about how to prevent
fraud, waste, abuse, and mismanagement in these programs. I
have listed in our testimony some of the lessons learned
documents that GAO has produced in the fraud area: Contract
management and competition are essential here; having qualified
people, as has been pointed out, is also essential, and I would
be happy to talk about that more; and grant management going
forward. There are a lot of best practices that are available
to the Federal departments and agencies, and I included them in
my statement so that they are available at the State and local
level as well. We will be meeting with those officials when we
enter the States going forward.
So, in summary, I think it is important to have this early
outreach. I am pleased to see some of the discussion in the OMB
guidance so far. The inspectors general are also outreaching to
State and local officials, I think. I am encouraged by that as
well. We are going to be doing the same thing at the State and
local levels when we enter the 16 States and the District of
Columbia going forward.
In closing, I would just say that GAO welcomes the
opportunity to help the Congress ensure adequate oversight over
this funding. We are committed to meeting our responsibilities
on time and in a professional, thorough manner.
Thank you for the opportunity to be here today, and I would
be happy to answer questions at the appropriate time. Thank
you.
Chairman Lieberman. Thank you, Mr. Dodaro. I find your
opening statement to be impressive and encouraging. You have
done a lot in a short period of time. You have been proactive,
and I appreciate that you are coordinating with the other
agencies involved here, both the inspectors general and OMB
particularly. I will have questions for you afterward, but
thanks for your testimony.
Phyllis Fong, as I said at the outset, is the IG at the
Department of Agriculture and Chairman of the Council of IGs.
Thank you so much for being here this morning.
TESTIMONY OF HON. PHYLLIS K. FONG,\1\ INSPECTOR GENERAL, U.S.
DEPARTMENT OF AGRICULTURE; CHAIR, COUNCIL OF INSPECTORS GENERAL
ON INTEGRITY AND EFFICIENCY
Ms. Fong. Thank you, Mr. Chairman, Senator Collins, and
distinguished Members of this Committee. I am very pleased to
be here today to talk about the activities of the IG community.
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\1\ The prepared statement of Ms. Fong appears in the Appendix on
page 200.
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I just want to start out by thanking you and the Members of
your Committee and staff for the opportunity to work with you
all as the Recovery Act was making its way through Congress.
There were a number of provisions that directly affect the IGs,
and you have been very helpful in terms of addressing our
concerns at an early stage. I want to express our appreciation
for all of that.
Chairman Lieberman. You are quite welcome.
Ms. Fong. This morning I want to talk briefly about how the
Recovery Act impacts IGs and our responsibilities under the Act
and how we are approaching our new responsibilities in a very
concrete way.
First off, the Recovery Act gives IGs responsibilities in
three areas. We have increased responsibilities for overseeing
stimulus expenditures within our agencies. We are now
participating on the oversight board, as has been mentioned.
And we also have a new responsibility regarding investigations
of whistleblower complaints.
With respect to the first area, oversight of agency
stimulus programs, we in the community are giving a high
priority to this activity. We understand the funds need to be
moved out very quickly to address the problems in the economy.
We also understand that when funds move out quickly, there is a
risk of internal controls not being as strong as they could be.
And we understand the need to be proactive.
I want to assure all of you that my colleagues in the
community are very aware of the need to be proactive and that
all of us are engaged in activities right now to do that. We
are also working very closely with GAO and OMB, as has been
mentioned by my distinguished colleagues here at the table.
With respect to the oversight board, there were concerns
that have been expressed as to whether or not the independence
of IGs will be impacted by the creation of this new Recovery
Board. I think early on in the process, those concerns were
articulated very publicly and in a very articulate way. And we
in the community were also concerned initially. But I will say
that I appreciate the Committee's help in addressing our
concerns, and at this time we do not believe that our
independence will be adversely impacted for a number of
reasons.
We note that the board's members are now all IGs, and so we
would bring to that board our unique perspective and our
sensitivity to the need for independence.
We also note that the chairman is Mr. Devaney, who is a
longstanding IG, well regarded in the community, and we know
that we can work with him.
And last, but perhaps most important of all, the Act itself
provides that the IGs will have the final say as to whether or
not we initiate audits or investigations or stop audits or
investigations. And so I anticipate that we will be able to
forge a very productive working relationship with the board as
we move forward, and that we should be able to address any
issues that come up.
With respect to whistleblower complaints--you raised that
as a new area of responsibility for us--we are very mindful of
the fact that whistleblowers deserve protection and are
certainly a wonderful source of information for all of us. The
Recovery Act gives us, as IGs, some new responsibilities to
investigate complaints of reprisal from whistleblowers who are
employees of State and local government or non-Federal
employers, recipients of stimulus money. This is clearly a new
responsibility for us. It is a little early to tell what kinds
of issues will arise in terms of our taking on this
responsibility. But we are gearing up to do it. We all
understand what we need to do, and we will keep the Committee
apprised of our progress on this.
Turning to activities that we as IGs have started to
undertake to address our responsibilities now, as you
mentioned, Mr. Chairman, last fall you passed legislation
creating the Council of IGs. We are now up and running. We are
an organization of 67 Federal IGs and other senior members of
the Administration. One of our main missions is to ensure
coordinated approaches to issues that have governmentwide
impact. Stimulus oversight would certainly be one of them.
When the Recovery Act was enacted, the Council of IGs
decided that we needed to start taking some proactive measures
to plan for our oversight activities. And so we put together a
working group of the 23 IGs who are receiving dedicated
stimulus oversight money, and we have started to share among
ourselves best practices for moving forward. We have held some
meetings. We have met with GAO. We have talked with Mr.
Devaney. And we have started to move out. I want to just
highlight for you some of the concrete measures that we are
taking now in the community to address funding before the money
moves out.
Let me just say that we surveyed the community, and of the
22 IGs who responded, all of them are engaged in proactive
measures. These measures range from participating in our agency
steering groups and work groups; to identifying unimplemented
audit recommendations pertaining to programs that are getting
stimulus money and working with our agencies to get those audit
recommendations implemented now; to conducting pre-award audits
of recipients; and also conducting real-time audits of systems
with our agencies; to reviewing agency spending plans for
internal controls; to conducting fraud awareness briefings of
our departments' employees to make sure that they are aware of
red flags that could occur; and to sharing best practices
information both among the community members as well as with
our departments and agencies.
There are many best practices that we are providing our
agency program officials with and saying, look, when you issue
grants, these are things that you should be doing right up
front.
Probably the key theme that is coming out of the community
at this point in terms of proactive work is that there is an
essential need for good communication and collaboration with
agency program officials. That, in many ways, is really the key
to making sure that all of these things get implemented in an
effective way.
We also are as a community implementing a number of longer-
term measures to provide oversight to stimulus spending, and as
you might expect, those would cover a wide range of activities,
including sampling of recipients who are receiving funds to
make sure that the programs are really operating the way they
should be; looking at databases, data analysis; verifying
agency data as it is reported to Recovery.gov; handling
investigations of fraud; and dealing with whistleblower
complaints--all of the risk-based kinds of activities that IGs
traditionally do.
The main theme there, of course, is that we as IGs will be
looking in our departments to determine which programs are at
the most risk or are most vulnerable depending on the money
flow and other internal control issues, and then directing our
resources to those issues as a priority matter.
Finally, all of my colleagues have indicated that they
anticipate challenges in terms of how we meet our oversight
responsibilities, and these challenges can range from the very
basic challenge of hiring up and recruiting quickly--with our
new stimulus oversight funds, we need to recruit more people;
that takes some time and effort--to balancing our normal
oversight work with other mandated work, and addressing our
stimulus responsibilities in a way that we can handle all of
the things that we need to do, and do them responsibly.
We also anticipate some issues with respect to data
matching. There may be ways to facilitate that process so that
we can really identify fraud across agency lines. And I think
that is an area for real exploration with the Congress as we
move forward.
So in closing I want to say that we are here to do our
part. We recognize the need to move out quickly. We are moving
out quickly. We look forward to working with you as you
identify issues for us to look at.
Thank you very much.
Chairman Lieberman. Thank you, Ms. Fong. Another
encouraging report.
We will do 7-minute rounds of questioning. Let me pick up
on the end of your testimony because the stimulus bill does
give $250 million in additional funding for inspectors and
auditors by the IGs. Do you have any sense of how many people
that you need to hire or will want to hire pursuant to that
appropriation?
Ms. Fong. Well, the appropriation funds are made to each of
the 23 IGs, and they vary in amount. I will say some IGs are
getting at the low end of the spectrum perhaps $1 million or $2
million.
Chairman Lieberman. Which is for the 2 years.
Ms. Fong. Exactly, for a short period.
Chairman Lieberman. Right.
Ms. Fong. And then at the higher end, there are some of us
who are getting $22 million or $42 million.
I can speak for myself. At USDA, we are getting about $22
million. We are looking to hire between 20 and 30 auditors and
10 and 20 investigators. We need some human resource assistance
as well in order to staff up and to track our money. And we
have already started our recruitment process. It does take some
time and effort to do that.
Chairman Lieberman. Yes. So you are beginning basically
with the personnel that you have.
Ms. Fong. Exactly right. And so what we find that we are
doing is reallocating our audit and investigative resources,
taking them off of work that is of lower priority and putting
them on our stimulus work.
Chairman Lieberman. Right. Mr. Dodaro, GAO received $25
million, how are you going to use that money?
Mr. Dodaro. We plan to hire up to about a hundred people.
Now, the strategy that we have taken here is that we have a lot
of former GAO people who have left the workforce, for example,
to raise a family. So we have reached out to a lot of people
who have left as well as retired GAO employees. We have already
identified 65 people who are interested in returning to GAO.
Some of them we have actually brought back.
The advantage of this is the money that we have is only
available until September 2010, so that you do not want to hire
a large permanent number of people.
Chairman Lieberman. Right.
Mr. Dodaro. So we plan to fill about half, if not a little
bit more of that, with people who have left GAO--and the other
advantage is these are people that have already been trained by
GAO. They can hit the ground running once we bring them back.
This is also something the acquisition community ought to be
thinking about doing to help themselves meet this need. But we
are doing that, and we also have advertisements out that we
have posted for additional help.
Chairman Lieberman. Good.
Mr. Dodaro. In the meantime, we are reallocating
experienced people to get this up and running. It is important
when we go into the States to have experienced people there.
Chairman Lieberman. That is a great idea, a great way to do
it.
Mr. Nabors, let me talk a little bit about the pace of
getting this money out there because obviously the speed of it
is very important. We are trying to fill, as the President has
said over and over again, this gap in demand that economists
say may be $1 trillion a year for the next couple of years that
is not coming from the private sector.
What are our goals at this point? Let me start with this
baseline question. As I recall in the debate here, in the
Senate stimulus bill we raised the percentage of money that
would be spent in the first 2 years, understanding that in
nobody's vision of this could we spend it all within the 2
years. And as I recall, we were close to about 80 percent in
the first 2 years of the full stimulus money that would be
spent.
Mr. Nabors. As I remember it, the Congressional Budget
Office (CBO) estimated that the House bill would spend
approximately 60 to 65 percent of the funds within the first 18
months.
Chairman Lieberman. That is right.
Mr. Nabors. And that the Senate bill would spend somewhere
between 75 and 80 percent of those funds within the first 18
months.
Chairman Lieberman. Right. That was my recollection, too.
So what are your goals from OMB about how much of this money
you hope to have out in the economy--and we are talking about
the spending side; I am going to get to the taxes in a minute--
in the first year?
Mr. Nabors. I do not know that we actually have a
particular goal in mind for a dollar amount that would go out
in the first year. I think that what we are focused on,
especially right now, is making sure that we have a planning
process in place so that we are not just throwing money out the
door, that we are taking the money that Congress has given us,
and we are putting it into those areas that have the highest
bang for the buck. And what you will see, especially in the
next couple of months, are pretty significant and expedited
planning processes within each of the agencies to lay the
groundwork so that going into the future we have a baseline by
which we can determine how money should be spent, and so that
we can expedite that money going into the future.
Chairman Lieberman. Am I correct that on the Recovery.gov
Web site you are going to be regularly reporting how much money
you have spent of this bill?
Mr. Nabors. Yes, sir. We will be reporting not just the
allocation of the funding, but the spending of the funding as
it actually goes out.
Chairman Lieberman. We are going to obviously keep in touch
on this, but I would be interested, as you go on, to know what
your goals are for how much of the money you hope to get out in
the first year.
Let me ask about the tax cuts now, the ``Make Work Pay''
tax cuts, the reduction of the payroll tax. How soon will
taxpayers see that so that they will have a little more money
which we hope they will spend?
Mr. Nabors. I would want to defer to the Treasury
Department, but I believe that they are planning to make that
available on an expedited basis.
Chairman Lieberman. OK. Let me go to a different part of
this. This goes to fraud. I have two questions.
US-CERT, which is the U.S. Computer Emergency Readiness
Team in the Department of Homeland Security, over which we have
oversight responsibility, recently reported that it received a
bogus e-mail from scammers offering economic stimulus payments
in an attempt to steal personal information from those who
respond. I wonder if you had heard about that and what you
think can be done to warn the public about fraud related to the
stimulus package.
Mr. Nabors. I have not heard about that. That causes me
great concern, and I would want to go back and talk to--we have
a daily conversation with each of the Cabinet agencies, and I
think that this is the type of thing that we bring up to make
sure that we have a common way of addressing these types of
problems. Obviously, this needs to be dealt with quickly and
forcefully to ensure that private information is not stolen.
Chairman Lieberman. Let me ask a final question, because my
time is running out, and I will come back on fraud.
The President asked the Vice President to oversee this, so
what is the organization chart? Because we have a lot of people
involved. We have OMB, we have GAO, we have the IGs, we have
the new Recovery Board with Mr. Devaney. Does the reporting all
go up to the Vice President?
Mr. Nabors. Well, the way I would view this is that I think
it is important that the recovery oversight board and the IGs
continue to be thought of as independent. I do not believe that
they are actually reporting to the Vice President. They are
reporting to the Congress; they are reporting to the American
people; they are reporting to the Secretaries. And they are
continuing to play the oversight role that Congress has
identified for them.
Within the Executive Branch, in terms of the management of
the activities and programs, we thought it was important that,
to the maximum extent possible, we were coordinated, that
agencies were using best practices, that agencies were sharing
information about things like contract practices and hiring
practices. And the center point for that is the Vice President.
The Vice President is the one that calls us all together.
In terms of OMB's role, OMB will continue to play the role
that it has traditionally played in both the management and
budgetary functions.
Chairman Lieberman. And you have special responsibility
there for OMB, as I understand.
Mr. Nabors. Well, the President has asked each agency to
designate a single point of contact to ensure that there is
clear accountability within each agency. Within OMB, I have
been designated as the point of contact.
Chairman Lieberman. All right. That is very helpful. So the
Vice President and OMB are basically overseeing the
implementation of the stimulus, carrying out of the stimulus
act, and the IGs and GAO with the board are doing independent
oversight to make sure that the money is being spent
efficiently and without fraud.
Mr. Nabors. And in a perfect world, the two pieces are not
stovepiped.
Chairman Lieberman. Right.
Mr. Nabors. From our perspective, trying to weed out waste,
fraud, and abuse before it actually occurs is incredibly
important. It is great to catch the bad guys later, but
ensuring that the bad guys do not get the money in the first
place is incredibly important, and that is why we have had the
initial conversations with GAO, Mr. Devaney, and the IGs ahead
of time.
Chairman Lieberman. Good. Mr. Dodaro, I know you want to
say something, but I have a lot of Committee Members here, and
I am over my time limit. So I am going to yield to Senator
Collins.
Senator Collins. Thank you.
Mr. Nabors, following up on the statement that you have
just made, there is a tension between spending the stimulus
money quickly and ensuring that safeguards to protect against
fraud and waste are not suspended. When the government has
attempted to distribute funds quickly in the past, we have seen
corners cut and protections suspended that have led to
widespread fraud. The best example which this Committee
uncovered was almost $1 billion in improper and in some cases
fraudulent payments that were made to applicants for assistance
in the wake of Hurricane Katrina.
What is OMB doing to ensure that proper controls remain in
place despite the need to disburse the stimulus money quickly?
What we found in the wake of Hurricane Katrina is that the
Federal Emergency Management Agency (FEMA), in an attempt to
get the money out to the victims of the storm quickly,
suspended all of the internal controls that would have caught
applicants that had applied twice, that did not qualify for
funding, and in some cases did not live at the addresses that
they claimed. That led to literally $1 billion in improper
payments. How are you going to prevent that this time?
Mr. Nabors. Well, I think that there are three things that
we are focused on doing. The first, OMB sent out very detailed
guidance to the agencies, almost 60 pages worth of guidance,
and rather than suspending the normal controls, we actually
used the opportunity of sending out the guidance to remind
people of the controls that are in place and to remind them of
the fact that those controls are in place for a reason--to
protect the taxpayers. So as we put out more and more guidance
those are the types of things that you will see. Rather than
suspending the controls, we are actually reminding people not
to suspend the controls.
The second thing is transparency. Both through Recovery.gov
and through reporting mechanisms to Congress and to others, we
are ensuring unprecedented transparency from the very beginning
of the recovery efforts to make sure that we are not in the
position 3 months from now where we are asking questions about
where the money went.
The third thing that we are doing is we are putting in
place very strong planning and reporting processes where the
agencies are not just being asked to put out money, but we are
asking them to stop for just a brief period of time and think
about what are the most effective actions that they could take.
And in some instances, those plans will be submitted to the
Congress for consultation. In other areas, we will be having
informal consultations with the Congress. But I think the more
people who can be involved in the types of conversations that
we need to have about how the money is going out and where the
money is going out, that will help.
And I think the final thing that I would point to is
accountability. By putting this information on its web page, on
Recovery.gov, by identifying a single point in each agency, we
are essentially saying--and I am speaking for myself as one of
those people--I am responsible for the actions that OMB take.
And when Congress has a problem, when the American people have
a problem with actions that have been taken, I am the one that
is going to be accountable for that. And I think that
combination of activities will help to get at the issues that
you have raised.
Senator Collins. Thank you.
Mr. Dodaro, the large omnibus appropriations bill that is
now before the Senate contains substantial funding increases
for many of the same agencies and programs that already are
receiving huge funding increases in the stimulus bill. I think
it is extremely unfortunate that the omnibus bill has not been
revised to take into account the recently appropriated funds in
the stimulus bill. That is particularly true for agencies such
as the National Endowment for the Arts, the Census, AmeriCorps,
and the Department of Agriculture computer upgrades.
Does GAO have concerns that this additional funding, which
may well be duplicative and may exceed the entire budget of the
agency the year before, will increase the difficulty of
ensuring that the funds are spent carefully and well?
Mr. Dodaro. We have not been asked to address that issue,
so we really have not done the type of analysis to make the
comparisons that you cite, Senator Collins. So I am really not
in a position to comment on the omnibus as it relates to your
questions--we have been focused on the Recovery Act.
But I would say that to the extent to which there can be
some flexibilities built into the money that would be
beneficial--most of that money is to complete the funding for
this fiscal year that we are currently in. The continuing
resolution expires March 6, 2009, and I know that because GAO
is one of the entities under the continuing resolution. But I
would say--and this relates to the Recovery Act as well as the
omnibus--that I think there ought to be some flexibility to
maybe shift some of the time frames for when the money is spent
to allow for the type of examination that you are talking
about, even if we are talking about some of the balancing
between spending quickly and spending wisely. And I think there
are some provisions in the bill that if States do not spend
money, certain money like in the transportation area, within
120 days, that money gets reallocated to other States.
So I think this is something that needs to be monitored
carefully, and there ought to be some flexibility built in to
make sure that when those two choices are there, ``wisely'' is
equal weight to ``quickly.''
Senator Collins. Thank you. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks, Senator Collins.
We will now go to Members of the Committee. I appreciate
the attendance. We do so, as is our custom, in order of
appearance. For the information of the Members, the list I have
is Senators Burris, Voinovich, Tester, McCain, and McCaskill.
Senator Burris.
OPENING STATEMENT OF SENATOR BURRIS
Senator Burris. Thank you, Mr. Chairman, and I would like
to thank the panel.
Because, as you know, I am an old State auditor, State
comptroller, and a member of the National Association of State
Auditors, Comptrollers, and Treasurers (NASACT). I am glad to
see that you are involving the NASACT in that, Mr. Dodaro. That
is a great organization for dealing with what we can do on the
State level.
But, every day I receive calls in my office from
constituents wanting more information on the Recovery Act and
how those dollars are going to be spent. And after reading your
testimony last night, I have a better idea how it will be
disbursed and also great confidence in the transparency,
accountability, and the oversight provisions. OMB, GAO, and the
IGs, such as Ms. Fong, you set the bar very high. I just hope
and pray that we will be able to execute on that bar that we
have set.
I wonder if you, Mr. Nabors, could just give me a walk-
through example. If you send to our Department of
Transportation (DOT) in the State of Illinois, let us say, $2
billion for construction or for highway programs, I know how
the money flows in the regular program. What is different now
with the Recovery Act funds that are going to come in as
opposed to the other funds that will be coming in for our
highway construction, for example?
Mr. Nabors. Well, I will answer that in two ways. In one
way, there is not a lot that is different. It is coming through
the same programs to the same people. In a separate way,
though, there has been a higher level of scrutiny that has been
placed on Recovery Act funds than had been placed on normally
appropriated funds. Within the Executive Branch, we have
created separate Treasury accounts for Recovery Act money to
better allow us to track how that specific amount of money is
being followed. And I think that in terms of the types of
conversations that you will hear from the President and from
other members of the Administration, I think that you should
expect to hear a greater desire about how those funds are going
to be spent.
Normally, the transportation money, for example, goes to
the States, and the States have a great deal of flexibility as
to how they spend that money. I think that you will hear the
Administration talking about not just getting the money out but
recommendations and suggestions on how that money can be most
effectively spent.
Senator Burris. Now, will there be some type of extra sign-
off on these particular funds in any way? Or would that
procedure still be the same?
Mr. Nabors. There are special reporting procedures and
certification procedures that are set out in the Act, which we
are working with the governors and the State and local
officials to clarify. But, yes, there are special sign-off
procedures related to making that money available.
Senator Burris. Perhaps Ms. Fong or Mr. Dodaro can answer
this question, but will we be able to track that once those
sign-offs are done? Will there be any up-front assessments in
the State agencies or the cities or the municipalities where
these funds will end up? Let us say it is a water project that
is under the Recovery Act. Will there be any advance looking at
that project by any of our governmental agencies, or will that
all be certified by the local, State, or municipality that
received those funds?
Mr. Dodaro. For the States and localities that we will be
visiting, Senator Burris, we will be looking at that process
that they use to make those decisions. Now, it would be
inappropriate for us to insert ourselves as independent
auditors before the management makes the decisions. But once
those decisions are made that will be something that we will be
reviewing. We will also be talking to the State auditors and
the local auditors about their work with regard to those
issues. But that will be our goal in tracking the uses of the
funds going forward.
Senator Burris. I am trying to get at the fraud or abuse of
the funds, whether or not that project really was a worthy
recovery type of project. And in hindsight, let us say we spent
$15 million on that sewer treatment plant and it was really
determined that this was something that was probably not needed
by the municipality, will we run into something like that, or
is that what you will give some type of report on after it is
done?
Mr. Dodaro. Well, we will try to track that real-time as
those decisions are made. I think the other really unique
feature of this whole thing is that from my understanding, once
these projects are awarded, they are to be posted on Web sites
by the States and localities so that they would be visible to a
lot of people. We can look at the justifications that are
there. I think it is a potentially very good development that
this level of transparency will be there, and I think that is a
unique aspect of this.
On some of these issues, you will be able to perhaps look
at the justification and raise some questions. On the other
hand, it may be a management prerogative or a decision for
which discretion is given to the State and local officials, and
we will have to take all those things into account.
Senator Burris. Perhaps this is the most important question
in this hearing today. How can the Committee and the Congress
as a whole aid in your efforts to implement the Recovery Act?
The onus is on all of us to work together and get this done
right. So what can we do to make sure that you all were able to
implement it? Mr. Nabors, I think that would fall in your
bailiwick, right?
Mr. Nabors. Well, I think that the most important thing
that Congress can do is hold these types of hearings, hold us
accountable, make us bring the facts to light so that you have
the opportunity to do what Congress does, which is to both
legislate and provide oversight of Executive Branch activities.
I think that we will be most successful when all of the
information about what we are doing is public, and only when we
do that will the public regain confidence in its government.
Mr. Dodaro. I would just add to that, that I agree the
oversight by the Congress is pivotal here, I would encourage
the Congress to conduct oversight of the individual departments
and agencies and really let the departments and agencies know
that the Congress is very interested and concerned about what
they are doing.
Senator Burris. Because we cannot make any mistakes here.
This is our last shot at the public coming down on us.
Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator Burris. Senator
Voinovich.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. Thank you, Mr. Chairman.
I have never seen such anxiety in this country as I do
today. We need to restore people's faith in the future, restore
our credit markets, restore our housing values, deal with the
human needs that are there that we are experiencing and will be
experiencing, and last but not least, create jobs. We are
looking for something to happen relatively fast to kind of turn
this thing around so people are starting to say we have a
future, start spending some money, and we are moving in the
other direction.
We have a human capital crisis--Mr. Dodaro, in many of the
agencies. I am really pleased to hear what you are doing. You
have some flexibilities, I think, to hire back annuitants in
your department. Ms. Fong, does the inspector general have
similar authority?
Ms. Fong. We cannot do it directly. We need to get waivers
of the dual compensation provisions from the Office of
Personnel Management (OPM).
Senator Voinovich. Go back to OPM and get it.
Ms. Fong. Exactly.
Senator Voinovich. Mr. Nabors, you are talking about your
great people back in your shop. How many people are you going
to have to hire so you can do the job that you traditionally do
at OMB and take care of all these things that you just talked
to us about? I am concerned about that. I am also concerned
about the use of the flexibilities. If you have looked, Mr.
Nabors--and I suspect that you have--at what agencies are going
to need additional people? What kinds of people are they going
to need? Do we have the flexibilities to bring these people on
in a timely manner?
It is the human capital part of this, I think, that is
really important.
Second is how fast you get the money out on the street, and
you mentioned the States are involved. I think you will find
around the country that you have State legislators that are
involved right now deciding who is going to get the money and
how is it going to be put out on the street. And I think unless
you, on the national level, through OMB, or through other
agencies, basically say to folks, look, get it on the street--
and they have 18 months. But we really need to move very
quickly to get the job done.
I would like all of your comments about where are we with
human capital. Do we have the flexibilities? What are we doing
to reach out to the States? Mr. Dodaro, you said you are going
to 16 States. What are they doing to get the money out on the
street? How do you push the governors? How do you get a letter
to the legislators saying, hey, we gave you a bunch of money
and we expect you to start to move it.
I would like your comments about those two areas.
Mr. Dodaro. I will go first. On the human capital crisis
situation, I think you are exactly right, Senator Voinovich. My
suggestion would be--and the OMB guidance talks about the
flexibilities for the acquisition workforce--that they do have
the ability to bring back retired annuitants and experienced
people. So I would hope that the agencies exercise that
flexibility.
However, I do believe that in this type of emergency
situation, OPM ought to consider some blanket authority or
waiver to allow more flexibility to----
Senator Voinovich. Mr. Nabors, have you talked to OPM about
that? Have you done an inventory of all the departments and
what they are going to need?
Mr. Nabors. We have started our conversation with OPM, and
we are looking at the authority that currently exists, things
like rehiring annuitants, using direct hire authority, and
veteran's preference. What we are trying to do is to come up
with the universe of authorities that exist right now, see how
successful we can be using those authorities, and then go from
there to what additional authorities might be necessary.
Mr. Dodaro. Because this is one area that I had suggested
back in the Year 2000 (Y2K) computing crisis, and they gave a
blanket authority because a lot of the COBOL planners had
retired that wrote the original code and they brought them
back. So I think this is very effective.
If each agency has to go individually to OPM to get the
authority, it is going to take too long for this period of
time. So I am encouraged to hear that they are outreaching. So
I would say that would be issue No. 1, because those people can
come back right away. They are not concerned about the time
frames here. It fits within the ability to be able to do that.
So I would say that is very important.
We will be working with the States. We expect to be in the
States this month. We will be talking to them about their
processes.
Senator Voinovich. Mr. Nabors, are you aware of what is
going on out there?
Mr. Nabors. In the States?
Senator Voinovich. Yes.
Mr. Nabors. Yes, I get calls from mayors and governors just
about every day.
Senator Voinovich. It is just the whole issue of
prioritization. In Ohio, we have $2.7 billion worth of highway
projects that are shovel-ready, but we only have $1 billion
available in stimulus funds. The question is which billion do
you select. Or sewer and water, Ohio will receive $247 million,
but we have a $6 billion need. By the time they figure it out,
it could be too late.
Mr. Nabors. While trying to be respectful of State and
local processes as they make decisions about which projects
need to go forward, we are emphasizing in all of our
conversations that the money does need to be spent. In certain
instances, Congress has actually written in requirements that
if you do not spend the money, Congress will take it back and
reallocate it.
That has both a plus and a minus. One of the fears that I
have is that incentives like that may lead to some questionable
projects being funded simply to make sure that the money does
not go back. But we will continue to work through the processes
with the flexibilities that we have.
Senator Voinovich. If it was not for the money they got
there, a lot of them would be in terrible shape. So I think we
have a little hammer on them.
We have all kinds of reports. We have reports that OMB is
going to, every 2 weeks, ask people for reports, or every week?
Then you have the inspector general. Then you have Mr. Dodaro
doing his thing. This group, that group, and everything else.
[Laughter.]
I am just wondering, is everybody going to be doing the
reports? Who is going to be doing the work?
Mr. Dodaro. Right. Well, I can speak at this from a couple
different perspectives. First, like the TARP program, where we
have to report every 60 days, we have these bi-monthly reviews.
We will be able to meet our requirements. We will be doing the
audit work. We will be out in the field. The unique perspective
that we will bring is looking at the State and local sector
across all the Federal programs and the flow of funds. So our
reporting under this particular act will be unique in that
respect, and we will have people out doing all the audit work.
I am not concerned about that, Senator, really.
Senator Voinovich. Mr. Nabors, you ought to do an inventory
of how many reports everybody is going to have to do.
Mr. Nabors. A lot.
Senator Voinovich. And find out, does this make sense,
because particularly in the first 6 months with people getting
started, finding out how to do things, and then they are
filling out all these reports. Do they want us to do this or
are they more interested in the reports?
Mr. Nabors. Well, I think what I would offer at this moment
in time is that what we are doing is unprecedented, and I think
we appreciate the amount of attention that people are paying to
oversight at this moment in time. We will get better at this as
we go through, and we will come up with streamlined procedures,
best practices that our first weekly reports were due this
week. I think we have 23 out of the 25 agencies that have
reported, which is fantastic. As we get better at these
reports, hopefully it will be less of a burden on the agencies.
Ms. Fong. May I offer a comment on the reporting? Just from
the IG perspective, we are looking to not spend a lot of time
putting together our formal, traditional audit reports, but to
actually get in there and give agencies our advice and our
recommendations in as quick a fashion as possible. So you will
see fewer traditional IG reports, but hopefully you will see
more advice and helpful recommendations coming out.
Senator Voinovich. Great.
Chairman Lieberman. Thanks, Senator Voinovich. And you are
right. We reacted in this emergency with an unprecedented
spending program and a pressure to spend it quickly. But we are
all concerned, as the public is, that there is a risk it can be
spent inefficiently and even fraudulently. So we create these
layers of oversight, but then we have to make sure that the
layers are well and efficiently implemented. That is part of
what we want to do by regular public hearings, and I know it is
what the three of you want to do as well. Thank you.
Senator Tester.
OPENING STATEMENT OF SENATOR TESTER
Senator Tester. Thank you, Mr. Chairman. I want to thank
the folks for testifying today.
I think each of you, maybe with the exception of Mr.
Nabors, talked about reaching full staffing and hiring a bunch
of people. When do you think full staffing will be achieved,
Ms. Fong?
Ms. Fong. Well, we are aiming to have most of our staff on
board by the end of the fiscal year, and that is reality. Now,
we will be looking to try and get some waivers through OPM on
the re-employed annuitant issue, and that will allow us to
bring people on much faster. So if we can get that done, we
will be able to do it sooner.
Senator Tester. Mr. Dodaro.
Mr. Dodaro. By the end of the fiscal year.
Senator Tester. Are you doing any oversight right now? I
mean, the money is just starting to flow out at this point in
time, which is commendable. I commend the President for that.
Is there any oversight going on right now of expenditures?
Mr. Dodaro. Well, since our focus is on the State and local
level, we will be in the States. We have not been to the States
yet, or localities. We will be there this month. We needed to
wait until they received the money and made some decisions on
how they were going to use it. We did not want to show up
prematurely.
Senator Tester. No.
Mr. Dodaro. For reasons that we talked about.
Senator Tester. Right.
Mr. Dodaro. But we are going to be there this month, and
our first report is due next month.
Senator Tester. Ms. Fong.
Ms. Fong. Yes, I can speak from my experience at USDA. We
are actually issuing audit reports this month on a couple of
programs that are receiving stimulus funding, in particular,
the broadband program. And there will be some very specific
recommendations to those managers.
Senator Tester. Along those lines, as things unfold here,
how much are you depending on the States for their oversight
functions?
Mr. Dodaro. Well, as I mentioned, I have talked to State
auditors and local auditors, so what we are going to do is see
what they are doing.
Senator Tester. OK.
Mr. Dodaro. And we will rely on that, first for the
coordination issue, not just at the Federal level. It is also
at the State and local levels.
Senator Tester. Absolutely.
Mr. Dodaro. And I am committed to build on what they have
done.
Senator Tester. So in a time of tough budgets, as Senator
Voinovich talked about, I can tell you that one of the things
that States will probably be cutting out is staffing, and some
of that staffing may be in the area of oversight. How are you
going to deal with it? We are talking about 16 months, assuming
80 percent of this money goes out--which, by the way, I applaud
that for good projects. How are you going to know if the States
are doing their job?
Mr. Dodaro. Well, from our standpoint, we are going to get
out in the field. I have senior GAO leadership for each State.
We are going to have a team. We are going to be there. That is
why I wanted to stay with the 16 States for a period of time,
Senator, so we could figure it out. If you are popping in and
out, you are not going to be able to do it.
Senator Tester. OK.
Ms. Fong. With respect to USDA, we have the Food Stamp
Program, which receives massive amounts of money, and it
transfers it right down to the States.
Senator Tester. That is correct.
Ms. Fong. And then it gets put out to individuals. We have
always worked very closely with the State governments to
oversee that program to make sure that eligible people get
money, ineligible people do not get it. We are ramping up our
efforts to intensify our collaboration with the State and local
officials, and we will do more with them.
Senator Tester. All right. There are some great measures
taken in this whole thing, and I commend you all in the work
you are doing, and I will get to that in a minute. But one of
the things that I think occurs to everybody in this position as
we put that bill through to stimulate the economy, create jobs,
and build infrastructure is what happens to the people who get
money and do not spend it correctly and you are paying for a
backhoe that is idling in somebody's yard instead of digging a
trench to put in a water line? You have allocated the money.
The money has been spent. The contractor has it. They did not
do the job as planned. You guys know it. What do you do?
Mr. Dodaro. Well, the first thing you do is report it and
make sure that it is visible. And depending upon the nature of
the offense there are potential remedies. But I think
transparency is the real key here, to raise it up to the proper
authorities to----
Senator Tester. I agree. What are the remedies?
Mr. Dodaro. Well, you have clear remedies if there is----
Senator Tester. What is the range of remedy?
Mr. Dodaro. Well, there is a range--from fraud, if there is
fraud, there is a normal process for those type of penalties.
The other types of penalties would have to flow from whatever
the State or local response would be in this particular case,
or the Federal level recourse for getting reimbursement. It
depends on the grant provisions and the contract provisions.
That is why it is important to have those spelled out so you
can take action.
Senator Tester. All right. You have talked about guidance;
you have talked about making the controls evident; you have
talked about transparency and accountability. All that is good
stuff, by the way. It is all really good stuff. I assume each
one of you have probably been with your individual department
for a number of years. You just did not come in the first of
the year. You have probably been there awhile?
Mr. Nabors. I have been at OMB since January 20.
Senator Tester. OK. So I was wrong. [Laughter.]
Mr. Dodaro. I have been at GAO for 36 years.
Senator Tester. OK. Well, you make up----
Mr. Dodaro. I am settling in.
Mr. Nabors. We average together 18 years.
Senator Tester. Yes, 18 years apiece.
Ms. Fong. And I am in the middle. I have been at USDA 6
years.
Senator Tester. Well, these things that you are doing, it
is great stuff. Especially when you talk about what happened
with Hurricane Katrina, and what has happened in Iraq with some
of the spending there. Why isn't this just standard operating
procedure? And do you anticipate it being standard operating
procedure from this time forward? Or do you think at the end of
this 24-month period that you are going to be cutting a bunch
of people loose and you are going to go back to the way things
used to be? Oversight of money is critically important. People
are always talking about government waste, and there is waste
in the private sector, too. But government waste is tax
dollars. Do you anticipate your jobs changing going into the
future because of this?
Mr. Nabors. From OMB's perspective, I think that before
Recovery.gov was stood up, we had USAspending.gov, and I know
that there has been some frustration as to the financial
reporting that has been put on there. I think that we are using
Recovery.gov to test-drive a number of different concepts that
we have, and I think just in that one narrow area, if we are
successful in terms of making money transparent, that type of
thing will filter over into other activities.
Senator Tester. So you do not see it as much as manpower,
more transparency?
Mr. Nabors. I think manpower will be important, but
transparency is going to be important as well.
Senator Tester. Mr. Dodaro.
Mr. Dodaro. I am hopeful that the attention being given to
this issue right now will transform itself into more
fundamental changes and better management. You need more people
to manage these contracts and grants if you are going to
eliminate waste. We face an ominous Federal budget situation
going forward. It is not just this situation.
Senator Tester. I hear you.
Mr. Dodaro. We have a long road to travel together in this
area, and better management is essential.
Senator Tester. Ms. Fong.
Ms. Fong. I would say that the techniques and the work that
we are bringing to bear on this issue are not drastically
different from what we normally do in our oversight of agency
programs. But what has changed is the intensity and the time
critical of the issue. And I think that urgency is what really
makes this unique.
Senator Tester. Well, I thank you very much for testifying
today. Thank you very much.
Chairman Lieberman. Thanks, Senator Tester. Excellent
questions. Senator McCaskill.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you. I do not know where to start.
Let me start with the Single Audits. It seems to me that we
ought to figure out a way to wipe out A-133 Compliance
Supplements for the next 2 years and require every Single Audit
to be completely about this money, and I wanted to get your
response to that idea. For the record, the Single Audit is a
required audit that States must do for Federal money.
Now, knowing the folks that do Single Audits, they get
tired of looking at the same programs every year. I think the
auditing community at the State level would be thrilled to
accept this challenge, because--and it would be just for the 2
or 3 years that we are tracking this money. Frankly, most of
the oversight and controls are in place for most of the Federal
programs they audit every year. They may find a little bit of
problem with a reconciliation, or maybe they may find a problem
in the child support program or some of the other Federal
programs. But this is a huge enchilada that has been put on
their plate, and it seems to me we could unleash all of those
State auditors that know about how to audit Federal money to do
nothing but these funds on an emergency basis for the next 2 or
3 years.
Now, first of all, what do you think of the idea? And,
second of all, what would it take for us to legally require
that?
Mr. Dodaro. First of all, I think it is an excellent idea.
If something does not change with the Single Audit procedures,
it is too little too late going forward. And bringing the State
audit community in earlier, the local audit community--I had
mentioned in my opening statement I have already outreached to
them, to try to engage them to help GAO coordinate with what we
are going to do.
I think you could implement what you suggested. But I do
not know if OMB has the authority to do that administratively.
They can change the A-133 Compliance Supplement. You are
talking about a radical change, which I would endorse. I think
it is a really good idea. The only amendment I would make is to
require internal control testing now and not wait until the end
of the year with the Single Audit.
But I think they have the capabilities. They have already
asked and talked to me about funding. They will need some
support. But the normal support that they receive, I think,
should be sufficient if you change the requirements.
Senator McCaskill. Yes. I mean, you would not need any
additional personnel--they have the staff in place. In fact, we
are beginning the Single Audit season as we speak.
Mr. Dodaro. Right.
Senator McCaskill. The teams in every State are right now
looking at A-133, figuring out which programs they need to look
at. They are doing their scopes. They are doing their plans.
And why could we not just say we are going to tell you to
forget about A-133, we want you this year in the Single Audit
to look at the controls that are in place for this money that
is coming, and next year in the Single Audit we want you to
evaluate those controls and how they are working. It would be a
perfect way, without spending any extra money, for us to look
at an unprecedented amount of money that is flowing quickly
into the States. And if we had to amend a law to do that, I
think we could probably get that done. I think we could
probably get both sides of the aisle to agree to something like
this that we could quickly do. And I think that the State audit
community would embrace it because they would like to be
challenged in this regard. At least I know the line auditors
would, because they are sick of doing the same old Single Audit
every year that nobody pays any attention to. They would like
to do a Single Audit that somebody reads.
Mr. Dodaro. I think it is a great idea.
Ms. Fong. I think from our perspective it is a great idea,
and I would love to have some time to think about it and give
you some comments on that.
Senator McCaskill. Well, if you guys would, and I would
particularly like, Mr. Nabors, for you and the team at OMB to
think about that. I know if we try to change A-133, trust me, I
know it will not get changed until 7 years from now. I mean,
the notion that we could do this by making announcements about
A-133, that we are going to change it, and then taking
comments, and then somebody is going to write it awhile, and
then somebody is going to look at it awhile, and before you
know it, we will change A-133 to audit these recovery funds,
right about the time they are all gone. So it would take the
government doing something we do not do very well.
Now, we just did something pretty bold. It seems to me that
we could be just as bold with oversight as we have been with
spending the public's money. And it seems to me they need to go
together. So I would hope that the Administration would take a
serious look at this, and if you all could maybe--Mr. Dodaro,
if you would reach out to the State auditing community and get
their response, I would be shocked if it was not positive.
Mr. Dodaro. I would too. But I will do that.
Senator McCaskill. All right. Let us see if we cannot get
that done.
Mr. Dodaro. OK.
Senator McCaskill. The second thing is I am a little
confused about the Web site. I do not believe the Web site
belongs with the Recovery Board. I think that is a huge job for
a temporary group of folks. I think it belongs at OMB. That is
where the data is. I had an amendment to do that, and we did
not get it done. But I think OMB needs to really stay hooked up
on this Web site because it is unrealistic that this board is
going to be able to do what we have advertised that this Web
site is supposed to do. And, specifically, I want to talk about
the detailed guidance you guys gave to reporting requirements.
On page 14 and 15 of the OMB's guidance document for the
Recovery Act, dated February 18, 2009, I am a little confused
because it seems to indicate that the only recipients that need
to report is, in fact, the prime recipient. What it says is
``prime recipients.'' Now, obviously the agencies have to
report, but I am talking about the money that is going to the
State.
What the guidance says, which is very troubling, is if the
State A gives the money to City B, who hires a contractor to
build a bridge, and then hired a subcontractor to supply the
concrete, OMB is telling the State that all State A has to do
is report the sub-grant to City B. But City B has no
requirement to report anything.
Mr. Nabors. Right.
Senator McCaskill. So how do we get to the contracts?
Mr. Nabors. Well, I think that in putting out the guidance,
one of our chief concerns was reporting burden with regard to
small businesses. We have a strong desire to get to the very
last contract, if at all possible. But one of the things in the
quick timetable that we were looking at, both with the
legislation and putting the guidance out, was that we could not
have a system or a structure in place that would sufficiently
reduce the burden on small business or perhaps individual
contractors in such a way that it would not be overly
burdensome.
As we are going through the guidance process, this is the
type of thing that we will be looking at, though. This will
always be a tension. How far can we drill down into the data?
And I think our commitment is to drill down just as far as we
can possibly get.
Mr. Dodaro. I would just add, this sub-recipient issue has
been a nettlesome one for a long time. I think this would be a
good pilot exercise, before the money disappears. You could set
some thresholds on this so you are not reporting things below a
certain level.
Senator McCaskill. Well, the law has a $500,000 threshold.
Mr. Dodaro. Right. You need to have this information if you
are going to properly track this.
Senator McCaskill. I have to tell you the truth. If a city
in my State gets $5 million to build a bridge, and that is all
we know, I tell you, that city is going to be bothered because
my staff is going to be calling them and wanting to know--they
are not even required to say whether they competitively bid it.
I just think this guidance does not match what we have
advertised. And I get the reporting requirements are tough, and
maybe there are ways that we can streamline that. But if we are
actually saying that all the money going to the State, all the
State has to do is say what city got it or what program got it
and that is it, I do not think we get to competitiveness; I do
not think we get to the issues that many of us have staked our
reputation on that we are going to try to do this. And to start
at the very beginning and say you do not even have to report
who got the money in terms of the contract, I think that is
problematic.
So I would ask you guys to take a look at that. I know this
is not final guidance. I know this all came really quickly. But
I would ask you to take a look at that, and I will save my
other stuff for the next round. Thank you.
Chairman Lieberman. Thanks, Senator McCaskill. I was just
thinking that in the U.S. Marine Corps they say once you are a
marine, there are no ex-marines. So I think in your case, once
you are an auditor, there are no ex-auditors. [Laughter.]
Thanks very much. You really make a contribution to the
Committee. We will do a second round as long as Members want to
have another 7-minute round.
Incidentally, I will say with regard to one of the
questions you asked, at a staff level there were some very
preliminary discussions with Mr. Devaney, and I think it is
fair to say that he understands that the law says that the
board has the primary responsibility for the Recovery.gov Web
site, and a lot of their money will be used to staff that up.
But OMB has started it, and I think he envisions a cooperative
relationship between the two. But I am sure you all will work
that out as it goes on.
Let me focus in on this question of fraud. I mentioned
earlier that the Department of Homeland Security (DHS) Computer
Emergency Readiness Team had found out about scammers offering
economic stimulus payments fraudulently in an attempt to steal
personal data information from those who respond. Human nature
unfortunately tells us when you have this much money out there,
quickly being spent, in one or another way people are going to
try to take advantage of it and rip off the money.
What are the standard moves that you make as inspectors
general at GAO, to try to ferret that out? Because this is
going to be a lot of money going out to a lot of people pretty
quickly. And obviously we have the whistleblower protections
here, so you hope that will help with people involved directly
in the public and private sector. But do you do random checks?
Do you use undercover people? How are we going to work to
prevent fraud in the use of this money?
Ms. Fong. Let me take a first crack at that.
Chairman Lieberman. Go ahead.
Ms. Fong. We are aware of a similar situation that occurred
in one of the departments--I think it was the Small Business
Administration (SBA), actually--where there was someone in the
public who was attempting to hold themselves out as an SBA
official, and they were trying to get personally identifiable
information (PII). The IG became aware of it and worked with
the administrator of the agency. They squashed the fraudulent
bulletin. They went out and issued releases to the public, and
also to their recipients of funds, saying, ``If you are
contacted by anybody holding themselves out to be a Federal
official saying `Send in your PII information,' do not do it.''
They have also issued some public information notices, and most
importantly, they have notified all the rest of the IG
community that these scams are going on.
And so what we are doing in our own departments is going
out to our officials and saying, ``Hey, this went on at SBA, it
could happen with us, we need all of you to be aware of these
potential scams, please let us know when you see them, and then
we will pursue it through all of our prosecutorial means.''
Chairman Lieberman. Well, that is good. And, of course, we
hope even by mentioning it here today that people will be on
notice. But go beyond that. I just happened to mention that
because I heard about it.
One of the worries that I have with all the money going out
so quickly is--and this is a subtle kind of fraud, but it is a
fraud--that we will end up being overcharged by various
contractors who will be getting stimulus funding. We should not
allow ourselves to be overcharged.
Mr. Dodaro. Yes, there are at least two issues in addition
to the awareness feature that Ms. Fong talks about, which is
very important. One is to look at the design of the controls
for the program up front or the testing of the eligibility
requirements. Are they verifying with other data sources up
front?
But we also plan to do proactive testing whereby we would
use undercover identities. We would test the system. The $1
billion that Senator Collins mentioned in the FEMA program and
Hurricane Katrina was a result of our people doing a
statistical sample and then projecting from that using
identities to test the system to make sure that people who are
not eligible were not receiving benefits--or even testing
whether or not you can receive a provider status under the
Medicaid program and not have a real entity.
So we plan to do targeted testing up front to try to test
these systems, but you also look at the design and the
controls.
Chairman Lieberman. Ms. Fong, do you want to add anything?
I know you spoke first about the kind of consumer scam, but
from the IG perspective, what else can we expect the IGs to do
to try to ferret out fraud here?
Ms. Fong. Well, one of the things that we are doing at USDA
is building up our data capacity, and what I mean by that is we
are starting to go to the agencies and looking at the data
coming in on program monies and participants to identify
anomalies in that data, which is sort of an early-warning
system for us.
When we identify situations like that, we can then go out--
--
Chairman Lieberman. Excuse me. What kind of anomalies, for
instance?
Ms. Fong. Well, for example, if benefits are being passed
out through one of our programs--and we notice in some of the
data fields that there are a number of indicators that perhaps
some people should not be getting these benefits, for whatever
reason. It depends on the eligibility criteria.
Chairman Lieberman. Right.
Ms. Fong. Then we would be able to take that data, go out
and do some testing, do some undercover work if we need to do
that, which is a traditional tool that we use quite a bit at
USDA, and start working with the program managers to say,
``Hey, you need to be looking out for these red flags, go after
these red flags, and we will pursue individual cases as well.''
Chairman Lieberman. I am really glad to hear you are using
undercover agents, and I want people to know that you are using
undercover agents because this could be different to those who
may be hatching plots to defraud the public of some of this
money.
Mr. Dodaro, I was very encouraged by some of the proactive
steps you are taking with regard to the tax cuts in this
program, and they are very important. So I gather part of the
aim here is not only to make sure that people get the tax cuts,
but to put you in a position to evaluate the impact of the tax
cuts. Is that right?
Mr. Dodaro. Yes, that is correct.
Chairman Lieberman. Why don't you talk a little bit about
what you are looking for in the evaluation?
Mr. Dodaro. Oh, sure. These would be not in the amounts of
money being reduced, withholding, or the amount of checks that
are sent out to people. This is for the tax provisions.
For example, there are provisions in there that allow
Recovery Act bonds to be provided. But unless IRS identifies
who is giving those bonds, a lot of this gets rolled up in part
of the tax reporting of the entities, and you cannot determine
at the end of the day how many of those bonds are issued or
whether people are getting credit for creating certain jobs and
taking that credit. But if it is rolled up with other
information IRS collects and not separately identified by IRS,
that will not happen. The same for depreciation. There are some
depreciations that are allowed under the Act.
Those are just three examples. There are many others that
are in there, and our experience has been over the years that
when Congress turns to us a year or two down the road and asks
us to evaluate the effectiveness of some of these credits--the
Enterprise Zone credit is one that we were asked--you cannot do
it.
So what we have been trying to do is proactively identify
these areas so that IRS can track it. This is equivalent to
Senator McCaskill's question on the sub-recipient level because
IRS is concerned about the burden on the taxpayers, but the
real issue is if Congress really wants to know whether or not
the amount of money that has been foregone, if you will, or
provided through tax relief here--which is significant, it is
over $200 billion--is actually producing what the Congress
intended, you need the data to be able to do it.
In any one year, tax expenditures can be more money than
total discretionary spending. And we have advocated for a while
now that more transparency, visibility, and re-evaluation of
those tax provisions be a normal part of oversight in the
Federal Government.
Chairman Lieberman. That is very important. I appreciate
it, because obviously--and, of course, we will see some of this
from the macro economic data, but we hope that the tax cuts
will encourage people to spend, because consumption has been
falling so fast and not driving our economy in the way it
normally does. Thank you very much.
Mr. Dodaro. You can also have tax fraud in some of these
areas, and that is something else we will be taking a look at
as well.
Chairman Lieberman. What are you thinking about?
Mr. Dodaro. Well, this would be in some of the
administrative areas and whether or not some of the payments
were made; people are claiming credits that may not actually
have the justification for.
Chairman Lieberman. Thank you. Senator Collins.
Senator Collins. Thank you.
Mr. Nabors, I want to associate myself with the questions
that my colleague from Missouri asked you about the guidance
that is being given. The intent--indeed, the letter of the
stimulus act--requires Federal, State, and local governments,
but also private businesses, that are receiving money under the
Recovery Act to adhere to the transparency and accountability
requirements. The initial implementing guidance that OMB issued
on February 18, seems to indicate that you are looking at
tracking only at the macro level.
For example, the guidance states that sub-grantees,
including contractors and subcontractors, do not have any
specific reporting requirements for the purposes of reporting
to the Recovery.gov Web site.
I just want to alert you that that concerns me, because if
we are truly going to follow the money, which is the goal, we
have to be able to track it down to the level of those who are
the actual recipients, not just those who are passing the
funding on.
And so I hope that you will take a look at this issue as
you issue more detailed guidance. I am not trying to burden
small businesses with unreasonable reporting requirements, but
we do have an obligation, if we are going to be tracking the
money, to look at where the money goes.
I think that Senator McCaskill has raised an important
point, and it is a point that I had intended to raise as well.
Mr. Nabors. The points that you have raised are very
important, and we will take that back.
Senator Collins. Thank you. Mr. Nabors, you may be aware
that the 2009 Defense Authorization Act, as a result of
provisions that Senator Lieberman and I authored, required the
establishment of a government-wide Contingency Contracting
Corps. Our vision in authorizing such a core of experienced
contracting officials applies exactly to this kind of situation
where there is a need to have money allocated and under
contract quickly, but we need experienced personnel to ensure
that it is also done effectively and without shortchanging the
need for competitive contracting.
The Corps would be a very useful asset to have in place for
the stimulus funding. Could you tell me the status, if you are
aware of it, of establishing this Corps and where this falls on
the list of priorities that you have?
Mr. Nabors. Well, I am aware of the Corps. We have had some
initial conversations, not just with regard to the Recovery
Act, but in terms of the President's commitment to essentially
clean up the way Federal contracting is done. And we have
evaluated, or we are continuing to look at this as an important
tool.
I cannot give you a specific timeline or prognosis as to
when you would see the Administration come forward with a
specific proposal to implement this, but I can tell you that it
is very much on people's radars right now.
Senator Collins. Ms. Fong, you mentioned the number of
additional auditors and investigators and human resources
individuals that you are looking to hire, and, of course, that
is being repeated across the Federal Government. I am not
concerned about your ability to get the human resources people,
but I am very concerned about whether or not GAO and the IGs,
in particular, are going to be able to find the number of
auditors that are going to be required.
We have seen with the Special Inspector General for
Afghanistan a terrible time in his efforts to staff up his
office. Now, granted, it is a lot harder when you know that you
might be deployed to Afghanistan than to cities around the
United States to audit the stimulus spending. Nevertheless, I
am concerned about this.
I am also concerned that the Federal hiring process is so
encumbered with regulation that it is very difficult to hire
people quickly, even if they are superbly qualified.
Do you have any recommendations to this Committee for
helping you cut through the bureaucracy for hiring the people
that you need?
Ms. Fong. Well, you are exactly right. This is one of the
major challenges we are facing.
I think in our view--and I have talked to a number of my
colleagues in the community--if we can bring on board people
who have left our offices and retired, if we can re-employ them
as annuitants, that would do a lot to solve our problems,
because they are properly trained, they know the programs very
well. They can just get on board and start running right away.
Now, the trick on that, of course, is that under the
current legal structure, we have to go to OPM, and we have
talked today about the need to work with OPM very closely on
that.
Obviously, one of the issues that we could put on the table
is if there is any legislation working its way through Congress
right now on re-employed annuitant authority, perhaps
consideration could be given to us. That would be a wonderful
thing.
Senator Collins. Ms. Fong, there is a huge disincentive for
annuitants to come back, as their pensions are offset by their
salaries. And Senator Kohl and I have a bill that would solve
that problem. I would ask you all to take a look at it, because
I think if you are looking at re-employing annuitants, we have
to take away the huge financial disincentive for them to come
back to work.
Mr. Dodaro. Senator Collins, we at the GAO have the
authority to waive the annuity offset provision. We have our
own personnel authorities, and so I have no doubt we will be
able to find the right people. But on your point about re-
employed annuitants, over the past few years we have hired
about 80 people that way, to come in for specific projects for
specific periods of time. It is wonderful, and I would endorse
whatever you could do to provide legislation to give that
authority to others.
It needs to be carefully used, just like any other
authority, but in the meantime, there is no reason OPM could
not give a blanket waiver for this emergency situation, in my
opinion.
Senator Collins. I am not sure that OPM has that authority,
but we will take a look at that. You have correctly envisioned
what my next question was going to be, because I knew GAO did
have that authority, and there is a real contrast in your
ability to re-employ annuitants who are already trained,
looking for a short-term assignment. It is truly perfect for
overseeing this money which is going to expire. So I hope, Mr.
Chairman, that we can move that bill.
Let me just ask quickly one final question, Mr. Dodaro. It
is extraordinarily important that we track the job creation
provisions of this bill so that we know whether or not we were
successful in creating or saving 3.5 million jobs, which is the
estimate for this bill.
Are you working or do you have recommendations for OMB and
for us in Congress on how that can be best accomplished? One of
the reasons that I am concerned about the tracking is if you do
not have tracking going down to the contractor level, I do not
know how you are going to be able to estimate with any accuracy
at all how many jobs were created.
Mr. Dodaro. Yes, we have responsibility under the
legislation to look at the recipient reports, specifically as
it relates to the portion of the report that they are required
to file quarterly on the number of jobs preserved or created.
Now, there are a lot of issues we have been thinking about
on this. We have been trying to get up and running on the bi-
monthly reviews at the State and local level, and the sub-
recipient question was one we had talked about. If that is
provided, you will have better data on that. There are
definitional issues. What is a job? How do you make sure all
the people who are reporting are using the same type of
definitions? So we are going to look into that issue going
forward.
I think also the recipient reports need to be juxtaposed
against macro economic analysis of the job creation. CBO has
made some estimates about the number of issues there, and I
have talked with the new director, Doug Elmendorf, about trying
to use the reviews of the recipient data to test some of the
broader trends in the macro economic analysis.
So we are going to turn our attention to the methodological
aspects of this soon, and we would be happy to share our
thoughts with you.
Senator Collins. Thank you. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator Collins. Senator
McCaskill.
Senator McCaskill. OK, so here is another idea. All the
State governments are offering early retirement to experienced
auditors because of their budget crunches, and they have made
very attractive packages for State auditors to retire. There
would be a whole pool of auditors available for this period of
time that would not have the annuity considerations. Let me
just talk about my love affair with auditors for a second.
These people, you people who do this work, you are not in
it for the glory, and you are not in it for the money, because
there is very little glory and there is not a whole lot of
money. The people who do this kind of work are really public
servants. They enjoy the fact that they are doing what needs to
be done to look after the way we spend public money. And I
think that there is a cadre of these retired people at the
State level that would be honored to step up to the plate and
help out during this 2-, 3-, 4-year period because of what we
are trying to do here. We are trying to save our economy in a
way that makes sense for most of America, and I think that
there would be a patriotic duty that would kick in.
I can give you five or six names of incredibly good
auditors in the State of Missouri that have all retired within
the last 2 years, and I think the average amount of time they
audited was 25 to 30 years apiece. And they never made six
figures. And one of them was in charge of the Single Audit in
the State of Missouri for probably 20 years.
Now, here is somebody who understands Federal programs,
understands how to track Federal money, and poor Ken Kuster is
going to hear about this hearing and go, ``I cannot believe
Claire is signing me up, and nobody has talked to me.''
But I really do think that if you went out to NASACT and
said, ``Can you give us five to six names in your State of
recently retired State auditors that might be willing to come
to work for IGs that have all these resources that we hope to
get in the bill?'' I think you would have an incredibly
positive response, especially if you told them they did not
have to move to Washington for the rest of their lives, because
they are not going to want to come here. They are going to want
to stay where they are. But that is the beauty of this, is that
you need people out in these States doing this work, and I
think that you have a built-in contingency audit force there if
you take advantage of it.
This is an awkward thing for me to ask because I think
everybody knows how supportive I was of the President during
the political season, but I want to talk to you all about the
Web site, and this is especially for OMB. This board now is
made up of IGs. They are not political. They really do not
serve this President. They served the last President and they
will serve the President after this President. They are non-
political people, for all the right reasons. They should not
claim a party. They should not claim an allegiance. They should
want to just look after public money, period, and we need to
protect them politically.
I would like to throw out the notion that we need to be
very careful on this Web site to make sure that it is not
political. I want to see the President's radio addresses, or
hear them every week. But I am not sure that is a link that
belongs on Recovery.gov, because he is going to give a lot of
radio addresses in the next year that do not have anything
directly to do with how we are spending this money.
I think this is a little bit different than the White House
Web site or any other government agency Web site where I think
there is a natural tendency to promote whatever President is in
office. But I think on this Web site, because you have a group
of IGs in charge, I just think everyone needs to be very
careful that it does not appear to be promoting anything that
could even have a whiff of political advocacy. And I would like
your take on that, Mr. Nabors.
Mr. Nabors. I concur with your assessment. Part of the
reason why we originally envisioned the oversight board taking
control of Recovery.gov is to better convey to the public that
this is not data that has been cooked through a political
process. And I think that OMB will continue to play a role
going into the future with the Recovery Board simply because
OMB, as sort of the backbone of the Federal Government, has
processes in place to actually quickly pull that data in that
they are looking for. And I think that we will continue to want
to play that type of role.
We are very concerned, though, about the appearance that
Recovery.gov may be seen as something other than a fact-based/
driven database of information for the public, and I will make
sure that your concerns get back to the White House. But it is
a sensitivity that has been expressed.
Senator McCaskill. Great. And every single picture has our
President in it. I think a great photograph that should be on
Recovery.gov would maybe be a photograph of the Chairman and
Ranking Member of this Committee as it relates to the oversight
capacity they have.
Chairman Lieberman. Because we are so non-political.
[Laughter.]
Senator McCaskill. In this example, you are.
Chairman Lieberman. I appreciate it.
Senator McCaskill. For individual reasons for both of you.
But this is not about just the President of the United States.
This is about having more information about IGs and who they
are and what they do, and how they get to the jobs, and more
information about GAO. I think people who are coming to this
site want to get information about if we are watching their
money. I would much prefer links through to a number of reports
from GAO than links through to 150 pictures of the President I
worked so hard to get into the White House. So, consider that
for what it is worth.
Mr. Nabors. I will work to ensure that those links are
there in the future.
Senator McCaskill. All right. Great.
The last thing I wanted to just mention to you, Mr. Dodaro,
was your testimony as it related to contracting. I would
welcome any suggestions you have. I am very excited that the
Chairman has created an Ad Hoc Subcommittee on Contracting
Oversight. And we have hired a staff director for that
subcommittee. She begins on Monday, and we will begin work
immediately. I would very much like input on how we can in that
oversight committee begin to immediately look at contracts that
are being entered into with this money. And I would like us to
keep the running tally of competitive versus non-competitive
and fixed price versus any other garden variety. And it may be
that we can together devise a way that tally is kept, because
if everyone knows we are keeping that tally going into it, I
think it might have the sanitizing effect that we are looking
for. And I would ask that you and also Ms. Fong, in terms of
the IG community, to consider that as you begin to get some of
these contracts and see them.
I am particularly interested in personal service contracts.
I am particularly interested how many people we hire to do
services as opposed to building stuff or moving dirt. I think
there is a real potential for abuse there.
Mr. Dodaro. I would be happy to provide help on that. I
think it is a very important issue. It is another good idea.
And we would be happy to help.
Senator McCaskill. Thank you all very much.
Chairman Lieberman. Thank you, Senator McCaskill. I am
excited, too, about the subcommittee that you are going to
chair, and I think it would be a perfect focus at the outset to
take some of the contracts issued pursuant to the stimulus,
because, again, we want both the governmental people involved
and others to know that we have the GAO, we have the IGs, and
we have this Committee overseeing what they are doing.
I want to come back to something Mr. Nabors said. The fact
that there have been 150 million hits on the Recovery.gov Web
site in less than 2\1/2\ weeks since the law was signed by the
President is amazing. And I presume, to reach a conclusion that
it reflects both the anxiety and urgency with which the
American people want to see us doing something to get the
economy going again and want to benefit themselves as they
understand where the money is going. Also it reflects how much
they want us to make sure that the money is spent efficiently
and well. And, of course, the law empowers the three of you to
play critical roles, and those that work with you, in doing so.
I am very encouraged by what you have said today. I think
we are off to a good start. But we have all got a
responsibility to stay on top of this because any significant
fraud or waste in this program is going to have a devastating
blow on public opinion and trust in government.
Our full Committee is going to stay on this, and as
frequently as is constructive. I definitely want to come back
within the month before we break for the Easter/Passover recess
to hear Mr. Devaney and maybe ask you to come back and tell us
where you are at that point, and we will continue to do that on
a monthly basis as long as it makes sense, to see how much
money is out, how is it going, and what are you learning. Maybe
there is something that is happening that requires a quick
legislative fix, and we can also see what systems you have put
in place, Mr. Dodaro, Ms. Fong, and Mr. Nabors, to make sure
that this money is being spent efficiently and honestly.
So I thank you very much. We have a lot of work to do
together. We are going to keep the record of this hearing open
for 15 days, if you want to add to your testimony, or Members
of the Committee want to ask you additional questions. But,
most of all, thanks for what you have done so far. We are with
you. This is very important to our country.
The hearing is adjourned.
[Whereupon, at 12:05 p.m., the Committee was adjourned.]
RECOVERY AND REINVESTMENT SPENDING:
IMPLEMENTING A BOLD OVERSIGHT STRATEGY
----------
THURSDAY, APRIL 2, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:01 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Joseph I.
Lieberman, Chairman of the Committee, presiding.
Present: Senators Lieberman, McCaskill, Burris, Collins,
and Coburn.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. Good morning and welcome to this second
in what will be a series of hearings our Committee will hold
pursuant to our oversight responsibility to monitor how the
billions of taxpayer dollars that we have appropriated under
the American Recovery and Reinvestment Act, the Stimulus Act,
are being spent.
I am going to begin with a quote from Benjamin Franklin,
which is always a safe thing to do. ``It takes many good deeds
to build a good reputation and only one bad one to lose it.''
And so it is in some ways with the Recovery Act. We all want
the Recovery Act to succeed. In fact, we all need it to succeed
to protect and create jobs to start our economy growing again.
But a mistake, a story about how taxpayer money is being wasted
or funneled to improper uses, will really undercut faith in
this program and, I suppose, undercut faith once more in
government, no matter what other parts of the program are
successful.
I understand that is a large undertaking, to say that we
will attempt to prevent any misuse of this money, but that has
to be our goal because of the importance of this project to our
national economic revival. So our Committee wants to use these
hearings in cooperation with the Administration, particularly
with Mr. Devaney, whom we welcome this morning, as a way
together to assure ourselves that we have systems set up to
guarantee two things as best we can. One is that the money
moves out quickly, which is what we want it to do, but two,
that we set up systems that both prevent waste, fraud, and
abuse, and also detect potential problems in that regard so we
can stop them before they occur.
To help with the very kind of supervision I am talking
about the legislation which created the Recovery Act also
created a Recovery Accountability and Transparency Board
composed of a chairman and 10 inspectors general from across
the Federal Government. That board met for the first time last
Friday and its chairman, Mr. Devaney, on loan from his job and
good work as an inspector general (IG) at the Interior
Department, joins us here today. We look forward to hearing how
that first meeting went and what plans or recommendations
emerge from that or have been put in place already.
The Recovery Act also included $250 million for Federal
Inspectors General to hire additional experienced auditors and
investigators for their agencies and we would like to hear
about how that is going.
There is a special problem that we note around the country,
and I heard some indication of it in Connecticut, and that is
to make sure that State and local agencies, which are now being
stretched thin by the recession, in some cases letting people
go, have the capacity to effectively manage Recovery Act funds
at the State and local level. I am going to be holding a
Committee hearing next Tuesday in Connecticut to explore in the
State and local setting how the money is being watched as it is
being spent at the State and local level.
I am also pleased to welcome again this morning, Robert
Nabors, Deputy Director at the Office of Management and Budget
(OMB). In addition to providing overall guidance to Federal
agencies on Recovery Act implementation, OMB has stood up the
Web site, Recovery.gov, which will allow citizens, journalists,
and bloggers, to keep an eye on stimulus spending and report
waste, fraud, abuse, or theft if they suspect it.
I continue to be impressed by the numbers of usage here.
The last I heard, Mr. Nabors--and you can bring us up to date
in your testimony--was that the site is getting about 4,000
hits a second. That is astounding. This can be a marvelous
tool, not only to monitor Recovery Act spending but to
eventually help us develop powerful tools to monitor all
Federal spending.
For Recovery.gov to work to its best potential, it is going
to need, I think, to allow users as best we can to burrow into
the details of where and how the money is being spent. I want
to follow up this morning on concerns raised at our last
hearing about how we can actually do that, how the data trail
can be followed and not turn cold at some of the precise points
spending should be monitored, and that is at the specific
contract level.
I understand, Mr. Devaney, that the board is taking over
responsibility for the content of Recovery.gov while OMB will
remain responsible for the collection of data that feeds into
the Web site, so I would like to hear from you about how your
work is going.
And Mr. Nabors, finally, it is important for us in these
regular hearings to get a sense of how much of the money is
actually out there. We have seen some glimmering of economic
upturn lately. Obviously, employment numbers continue to be
bad, but some other indicators have taken an upturn, and I
wonder whether some of that may be related to the first
spending of the stimulus dollars. Again, we ask these questions
in the spirit of trying to make this program work well working
together with the Administration.
I close with gratitude to my staff for yet another piece of
wisdom from Mr. Franklin. ``By failing to prepare, you are
preparing to fail.'' So with our economy at stake, the American
Recovery and Reinvestment Act really is too big and too
important to fail, and that is what we are all about with your
help this morning and every day. Thank you.
Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman. I feel like I
should quote Abraham Lincoln or something just to get into the
spirit of this day, but I will proceed nonetheless.
Nearly 2 months ago, the President signed into law the
American Recovery and Reinvestment Act to help turn around our
economy. Now the challenge is to make sure that the billions of
dollars provided by that law achieve the purpose of boosting
our economy and saving and creating jobs.
As my Senate colleagues and I worked to craft this bill, we
established an oversight board and imposed tough reporting
requirements to help ensure transparency and accountability in
the expenditure of these funds. We remain determined to protect
this critical spending from waste, fraud, and mismanagement.
Several provisions included in the law provide safeguards
and oversight of stimulus spending. Perhaps, however, the most
important is the Recovery Accountability and Transparency
Board, created to coordinated Federal oversight efforts. As the
Chairman has indicated, the GAO and many of our Nation's
inspectors general also have been provided with additional
funding to carry out investigations and reporting requirements.
A new Web site, Recovery.gov, has been launched to report on
expenditures and to provide the public with access to stimulus
information. The more eyes that we have on this spending, the
better.
The Recovery.gov Web site is now up and running, and as the
Chairman has indicated, is tremendously popular. It is my
understanding that it has already received some 300 million
hits. It is now linked to the individual Recovery Act Web sites
for States and Federal agencies. I have included a link to the
Recovery.gov Web site from my own Senate Web site, as well as
the special Web site I created to provide Mainers with specific
information about Recovery Act spending as it relates to our
State.
Technology not only allows an abundance of information to
be shared quickly with people across this Nation, but also
helps to ensure transparency and accountability.
The American people have high expectations for the Recovery
Act. The President has estimated that it will save or create
approximately 3.5 million jobs and will help to turn the
economy around. Taxpayer dollars will be used to improve roads
and schools, enhance health care, and invest in infrastructure
and science. Regardless of the purpose, each dollar must be
spent wisely. Funds need to be disbursed quickly to meet the
goals of stimulating the economy, but we must ensure that haste
does not make waste or permit fraud and mismanagement. Striking
the right balance between speed and caution will be difficult,
but it is essential as we administer the grants and contracts
funded by this law.
Press reports have already questioned whether some of the
first few contracts using stimulus funds were awarded without
sufficient transparency and whether contracting mistakes were
made. Although the press has generally described these as
sloppy paperwork, this is not a reassuring start. Problems like
these can easily erode public confidence and leave our economic
goals unrealized.
Today's hearing will provide us with a more in-depth look
at the most important oversight organization, the Recovery
Accountability and Transparency Board. I look forward to
hearing from Mr. Devaney, the board's recently-appointed
Chairman.
From OMB, I am particularly interested in hearing how it
expects to address the challenges of tracking funds at the
State and local level, the very issue that the Chairman raised,
and ensuring transparency, accountability, and competition in
stimulus contracting.
Our government has an obligation to make sure that these
vital dollars provide the maximum possible benefit to our
economy. The American taxpayers deserve no less from their
investment.
Thank you, Mr. Chairman.
Chairman Lieberman. Thank you very much, Senator Collins.
We will start with Mr. Nabors. I note, Mr. Nabors, in one
of the recent news stories on OMB Director Peter Orszag, it
mentioned that he drank a lot of high-caffeine tea during the
day. I note the presence of the bottle of Coke Zero there. I
share that particular addiction, and with that sense of
brotherhood, I now invite your testimony. [Laughter.]
Mr. Nabors. It might be best just to close at that point.
[Laughter.]
Chairman Lieberman. Go right ahead.
TESTIMONY OF HON. ROBERT L. NABORS II,\1\ DEPUTY DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
Mr. Nabors. Chairman Lieberman, Ranking Member Collins, and
Senator Burris, thank you for inviting me to testify about the
implementation of the Recovery Act. Today, I would like to talk
about the progress we have made since the last hearing in
addressing our shared goal, and that is to implement the
Recovery Act as wisely and as quickly as possible.
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\1\ The prepared statement of Mr. Nabors appears in the Appendix on
page 230.
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I will start by talking about where we are with respect to
spending Recovery Act funds. As of this morning, Federal
agencies have obligated about $51 billion. That is up from
about $15 billion when we last met. While just two agencies had
issued Notices of Obligation at the beginning of March, an
additional 13 have done so since then. This includes the
Department of Transportation, the Department of Housing and
Urban Development, the Department of Labor, the Department of
Education, and the Department of Health and Human Services.
In addition to obligations, there is other evidence of
accelerating spending activity. Agencies have announced nearly
$151 billion in formula and block grants that will be made
available to States. These allocations enable States to foresee
important increases to their budgets and can influence States'
decision making and benefit the economy even before they are
technically obligated. Nearly 500 Recovery Act contracting
opportunities and notices have been posted. Seventy-one
Recovery Act grant opportunities have been posted. And as of
yesterday, Making Work Pay tax cuts were fully implemented,
benefiting 95 percent of working families.
Chairman Lieberman. Can I interrupt you on that? I
apologize. We will give you more time. But explain what that
means, about the Making Work Pay tax cuts. I understood that it
might go in, depending on the employers' decision, as early as
April.
Mr. Nabors. It actually started in February and there was
an April 1 deadline.
Chairman Lieberman. I see.
Mr. Nabors. At that point, it should be fully implemented.
Chairman Lieberman. So the people should really begin to
see now, or will see as of April 1, a reduction in the payroll
tax.
Mr. Nabors. Exactly.
Chairman Lieberman. I originally had heard that it might
not happen until June. Maybe that was during the consideration
of the bill. OK, that is great. Thank you.
Mr. Nabors. But it is important to be absolutely clear that
while getting funds into the economy is important, it is
critical to do so in a responsible and transparent way. This
remains a priority for the Administration and the American
people who continue to monitor the government actions through
Recovery.gov.
As Senator Collins mentioned, the Recovery.gov has had a
total of about 300 million hits. That is double the level since
the last time we spoke.
Speaking on behalf of OMB, I can tell you that we are
taking numerous steps towards effective implementation of the
Recovery Act. We are reviewing numerous agency spend plans to
ensure that funds are invested appropriately and with
sufficient planning ahead of the actual obligations. We have
facilitated the launch of recovery Web sites at all major
agencies, which are linked through Recovery.gov. We have worked
with Federal agencies to improve the timeliness and
completeness of their financial reports that are publicly
available through Recovery.gov.
And perhaps most importantly, we are preparing to release
tomorrow additional guidance to enhance agency reporting
requirements and clarify recipient reporting. In order to get
the most up-to-date information possible, the updated guidance
requires agencies to report more frequently and in more detail.
We will ask agencies to provide information about significant
funding announcements to OMB as they occur. We are not going to
wait. We are going to ask them to report that information to us
as the spending decisions occur in order to provide a better
real-time sense of what projects are being funded, where they
are being funded, and how much funding they are actually
receiving.
We will define agency and program plan requirements with a
detailed template geared towards performance and oversight. We
will eliminate the transition into a monthly financial report
that was included in the original guidance. The monthly report
was originally intended to provide a more detailed level of
reporting. But instead, we will continue the weekly financial
report with enhanced reporting requirements so that more up-to-
date information will remain available for the public,
Congress, and Federal managers.
To further ensure that Recovery funds are tracked and
monitored to the sub-recipient and project levels, the updated
guidance also provides significantly more detail on recipient
reporting and establishes data collection methods, standard
data definitions, and a process by which the recipient
information will flow into Recovery.gov.
The guidance will clarify several points. For instance, our
guidance will establish that the Administration will be able to
track the vast majority of Recovery funding to the sub-
recipient and project levels. For contracts, which total about
$60 billion of the Recovery Act, we will be able to track
Federal contracts awarded, how prime contractors are using the
funds, and information on any subcontracts that they award.
For the approximately $300 billion in grants that are
subject to recipient reporting requirements, we will be able to
collect detailed information on Federal grants awarded and sub-
awards from the primary recipient. Overall, we anticipate that
we will be able to collect sub-grant information in about 95
percent of the cases and we are working to expand that going
into the future to collect the other 5 percent.
I would just like to stop here and acknowledge, when we
came before you the last time, we heard the concerns that this
Committee raised with regard to making sure that we follow this
money as far down through the chain as possible. As much as
possible in everything that we are doing going forward, we are
trying to capture those concerns. This is a first step towards
addressing some of your concerns and we are going to continue
to take steps going into the future.
We are going to ensure that recipient data collection will
be centralized. OMB will oversee the development of a central
collection system for recipient reporting, which will lower
government-wide system modification costs, improve the
consistency and availability of data, and alleviate reporting
burdens for the recipients by establishing the central point of
collection. We are only going to make a limited number of
exemptions to that centralized point, and we are going to make
those exemptions for those agencies that have clear expertise
or systems already set up where it might be disruptive to
create a secondary system.
Recovery Act reporting will be standardized via the terms
and conditions for Federal grants, loans, contracts, and other
awards. This will also assist agencies in implementing Davis-
Bacon and Buy American provisions.
And finally, OMB is interested in public views on this
guidance and will be accepting public feedback through April
17. After this date, OMB will plan to issue another update to
their guidance based on those comments from stakeholders,
including Federal agencies, Congress, State and local
government officials, grant and contract recipients, and
citizens.
There are just a few of the things that we are trying to do
to address the concerns that you have raised in the past.
To point to another issue raised by members of this
Committee, the Administration is committed to ensuring that
agencies have the skills and capacity to plan effectively,
award and administer contracts, and carry out programs funded
by the Recovery Act. Per the advice of this Committee, we are
reviewing the use of a government-wide contingency contracting
corps in limited circumstances.
However, given the likelihood that the activities of the
Recovery Act will require many agencies to handle an increased
workload over an extended period of time, we are also
encouraging agencies to use various existing authorities and
options, such as the direct hire authority or coordinated
interagency recruitment efforts. We are looking at all
available personnel authorities that are currently available.
For example, on March 17, the Office of Personnel Management
(OPM) authorized the government-wide use of excepted service
appointments so that agencies can quickly hire additional staff
without sacrificing veterans preferences.
We are also reviewing a bill introduced by Senator Collins
recently which would authorize Federal agencies to re-employ
retired Federal employees on a limited basis without offsetting
the annuity from salary. Employing retirees could be a
promising means of building capacity for Recovery Act
implementation and we are supportive of the kinds of additional
flexibilities proposed in this legislation.
With that, I will conclude by reiterating that all levels
of and branches of government have been entrusted with a great
deal of responsibility for helping to lead the Nation out of an
economic crisis. We share the burden of living up to the
expectations of the American people and delivering the
transparency and accountability and performance that we
promised.
Thank you, and I look forward to your questions.
Chairman Lieberman. Thanks very much, Mr. Nabors. That was
very helpful in many regards and I thank you for responding to
the concerns and questions raised by the Committee at the last
hearing.
Mr. Devaney, welcome. Obviously, we have enjoyed the
presence of you and your testimony before at this Committee. We
welcome you in your new capacity and thank you very much for
taking on these responsibilities.
TESTIMONY OF HON. EARL E. DEVANEY,\1\ CHAIRMAN, RECOVERY
ACCOUNTABILITY AND TRANSPARENCY BOARD
Mr. Devaney. Thank you, Mr. Chairman, Ranking Member
Collins, and Senator Burris. I want to thank you for the
opportunity to testify today. I have had the honor of
testifying, as you mentioned, before this Committee in the past
as the inspector general of the Interior Department, and as you
know, the President has recently appointed me to chairman of
the Recovery Accountability and Transparency Board, and it is
in that capacity today that I appear before you.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Devaney appears in the Appendix
on page 235.
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I am pleased to tell you that the board has recently
obtained office space and is busy acquiring a staff of highly
skilled oversight and IT professionals. Our first board
meeting, as mentioned earlier, was held last week and we have
set in motion a number of initiatives to ensure that the board
fulfills all of its responsibilities under the Recovery Act.
The members of the board, and I, view the board as having a
dual mission. First, the board is responsible for establishing
and maintaining a Web site, the purpose of which is not only to
foster historic levels of transparency, but to do so in a user-
friendly way. Second, the board will coordinate and conduct
oversight of Recovery funds to prevent fraud, waste, or
mismanagement.
Even before the Recovery Act was signed into law by the
President, OMB and the General Services Administration (GSA)
had begun designing the architecture and creating the
implementation plan for the Web site. A great deal of credit
must be given to OMB and GSA for their efforts to launch this
Web site. Because of their efforts, all Americans can visit the
Web site today, as we have talked about, at Recovery.gov.
However, I think it is important to point out that the creation
of this Web site is an evolving process with multiple phases.
It is not a single event.
As you know, the Recovery Act vested the board with the
authority to maintain this Web site. Now that this first phase
of getting Recovery.gov up and running is over, I am eager for
the board to start the second phase of development. During this
second phase, the board will begin to manage the Web site's
design and content. OMB will retain responsibility for the
reporting guidance and the collection and verification of data
and GSA will continue to host the Web site.
I am confident that this division of labor will provide the
best opportunity to maximize Recovery.gov's use as a
transparency and accountability tool, and I am equally
confident that we will also have the opportunity to achieve an
unprecedented level of citizen participation.
IGs across the Federal Government have developed multiple
strategies to help prevent fraud, waste, or mismanagement of
Recovery Act funds. In fact, this Committee recently heard
testimony about some of those preventative strategies from the
Chairman of the IG Council, Ms. Fong. What I can tell you today
is that IGs are quickly transforming those strategies into real
action. For instance, at least six IGs have finished reviews of
previously unimplemented IG or Government Accountability Office
(GAO) recommendations. These reviews will allow the Departments
to take corrective actions now to ensure that effective
controls are in place for handling these funds.
Interior Department's Office of Inspector General has
developed a risk-based model to use in conjunction with
Recovery grant funds and is now assisting the Department with
developing its own risk-based models for grants with the hope
of extending those models to contracts and cooperative
agreements.
Energy's Office of Inspector General has completed over 30
fraud awareness briefings nationwide involving over 2,000
attendees. And several other IGs have audits and evaluations
that are about to be released which will include
recommendations that will be particularly helpful to the
Departments for Recovery Act activities.
At our first board meeting last week, both Ms. Fong and I
supported the board's decision to form a new Recovery Funds
Working Group, which will be co-chaired by Board Member Calvin
Scovel, the IG of Transportation and a member of the board
staff, former IG John Higgins, will be the other co-chair. The
purpose of this working group will be to ensure a maximum level
of coordination and cooperation among the IGs necessary to
prevent fraud, waste, and mismanagement.
Mr. Chairman, you and the Members of the Committee have
noticed that I have been using the word ``prevent'' to help
describe the board's mission of accountability. That is very
deliberate on my part. The language of the Recovery Act
strongly suggests that IGs and other oversight entities are
being asked to minimize the risks inherent in distributing such
an extraordinary amount of money and to maximize the
opportunities to prevent fraud, waste, or mismanagement in the
first instance before it happens.
I see the board actively detecting fraud trends,
identifying best practices for conducting reviews, designing
risk-based strategies to help focus the oversight community's
limited resources. The new Recovery Funds Working Group will
undoubtedly serve as a catalyst for an unprecedented leveraging
of resources. We will also work closely with the Department of
Justice to ensure that when fraud is detected, a swift,
coordinated process will follow.
Finally, I would like to talk about some of the biggest
challenges I see the board having. First and foremost is the
matter of data quality. Simply stated, the Federal Government's
systems have never been fully successful at producing timely
and reliable data.
Second to data quality is the lack of an adequate number of
procurement professionals at all levels of government, not only
the Federal Government. However, I am encouraged by the news
that the Office of Personnel Management has tentative plans to
hold a multi-agency job fair sometime in May to help agencies
with their human resource needs in this arena.
And finally, Mr. Chairman, I am concerned that there may be
a naive impression that given the amount of transparency and
accountability called for in this Act, little or no fraud or
waste will occur. I am afraid that my 38 years of Federal
enforcement experience tell me otherwise and that some level of
fraud or waste is, regrettably, inevitable. Obviously, the
challenge for those of us charged with oversight will be to
significantly minimize those losses. My promise to this
Committee today is that my staff, the members of the board, and
I will work tirelessly to reduce those losses to the lowest
level possible.
Mr. Chairman, Members of the Committee, that concludes my
oral remarks and I would be glad to answer any questions.
Chairman Lieberman. Thanks, Mr. Devaney. That is a good
beginning. We will do 7-minute rounds of questions.
Mr. Nabors, let me talk first about the speed with which
money is being spent, because obviously one of the reasons the
President asked Congress and Congress responded with the
Stimulus Act quickly was to get the money out into the economy.
You have mentioned some numbers, $51 billion obligated, and
then I think you said another $151 billion, which I take it is
formula money that will go out to the States.
But help put that in some context for us. The total of the
stimulus package was $787 billion, rounding off. That is over a
2-year period. In the Senate--I am pleased to say that under
the way we wrote the bill, 80 percent would be spent in the
first 2 years as opposed to a lower number when it originally
came through the House. Give us a sense how these numbers fit
in.
Obviously, if we divide the $780 billion by two--you tell
me if this is correct--then it would seem there would be $390
billion available this year. So how much of that would you say
has begun to move out into the economy? And am I choosing the
right numbers as a reference point?
Mr. Nabors. Well, I think it is a little more complicated
than that----
Chairman Lieberman. Yes, I would suspect it.
Mr. Nabors. If you look at what both the OMB technical
staff and the Congressional Budget Office (CBO) technical staff
were projecting, they were projecting a ramp-up in year one and
significantly more activity at the end of year one leading into
year two, and I think that is exactly what you are seeing right
now.
The numbers that I talked about were just grants, loans,
and contracts. Within the $787 billion that you referenced,
there is additional money with regard to food stamps----
Chairman Lieberman. Right.
Mr. Nabors [continuing]. Unemployment benefits, and tax
cuts. That money is not tracked in the numbers that I was
talking about with regard to obligation, but that money is also
making its way into the economic system, as well, so----
Chairman Lieberman. And that is a substantial amount of
money----
Mr. Nabors. Absolutely.
Chairman Lieberman. That is many tens of billions, and
presumably, as you indicated, with the reduction in the payroll
tax credit, that has begun to feed in as of yesterday, as of
April 1. I presume with food stamps and other programs, the
extra benefits are already going out, but that they would go
out over a period of time as people become eligible for those
benefits.
Mr. Nabors. That is correct. The food stamp money has not
yet gone out, but it will go out soon and it will go out in an
even way over the entire length of the program.
Chairman Lieberman. Right.
Mr. Nabors. With regard to unemployment insurance, those
benefits are available through December 2009, so it is on a
slightly shorter time frame than the rest of the benefits.
But I think overall, what you should expect to see is that
agencies--and we are encouraging this type of behavior--
agencies are taking time right now to plan their spending
activities. We will see increased grants, loans, and contracts
being made going into the summer and into the fall with a--and
there will be increased activity going into the end of this
year and going into the beginning of next year. I think that
both OMB and CBO were projecting large bumps in terms of the
amount of spending that is being done probably by the end of
this year and at the beginning of next year. So we are ramping
up to that.
Chairman Lieberman. So what number do you use? I mean, the
presumption was that all this money could not be spent in the
first year or even in the first 2 years. What percentage of it
do you hope will be spent in the first year, and if you can--I
may be pushing you to take a guess--what percentage do you
think has already begun to flow out into the economy now?
Mr. Nabors. Our goal is that within the first 18 months,
through this year and going into the next fiscal year, we would
hope that 70 percent of the funding is actually spent.
Chairman Lieberman. OK.
Mr. Nabors. And I think we are on track to accomplish that.
Chairman Lieberman. OK. So that is a kind of front-loading,
if you will.
Mr. Nabors. Yes.
Chairman Lieberman. And that does not count all of next
fiscal year.
Mr. Nabors. Well, it counts all of next fiscal year. It
does not count all of the next calendar year.
Chairman Lieberman. OK. So by the end of the fiscal year
2010, you hope to have spent 70 percent----
Mr. Nabors. Correct.
Chairman Lieberman [continuing]. Of the money, which is a
little lower than I think was originally anticipated. Is that
because of the capacity of the system to spend quickly or is
that just the way it ended up once Congress sent the bill to
the President?
Mr. Nabors. I think that is just a reflection of the
changes in programs that were made as the bill was going
through conference.
Chairman Lieberman. Right.
Mr. Nabors. I think that we will still have a responsible
plan. I think over the period of the plan, we are still making
significant investments that will--even the promise of the
money will jump-start the economy.
Chairman Lieberman. Yes. I understand what I am asking is
very dependent on definitions, but what percentage of that
would you say has been obligated now--which does not
necessarily mean spent yet, but it is into the flow?
Mr. Nabors. I would want to get back to you with a more
definitive answer for the record on that. I know the answers
with regard to the spending side. I would want to talk to the
Treasury Department with regard to some of the tax revenues
that are floating out.
Chairman Lieberman. But to summarize it, are you feeling
good about the extent to which the system, the governmental
agencies responsible, have begun to move the money out into our
economy and into people's pockets?
Mr. Nabors. I do. We are still at a very early stage in the
Recovery Act----
Chairman Lieberman. Right.
Mr. Nabors [continuing]. And for the most part, the
agencies are still in the planning phase. We want to make sure
that the planning phase is as effective as possible. We are
planning on working closely with Mr. Devaney to make sure that,
as he mentioned, that we are trying to avoid waste, fraud, and
abuse up front, and as we develop those plans, more of that
money will go out the door.
Chairman Lieberman. OK, thanks.
Mr. Devaney, not only do we oversee, but the press does. I
want to ask you to respond to two press stories I have seen.
One is the New York Times report that bids on some of the first
stimulus construction projects are coming in lower than
expected, which is good news. But then others raised the
question, particularly watching what has been happening in the
area of Department of Defense acquisition, about whether the
initial bids are accurate and whether there will not be
inflation as we go along.
The second is a story the press always loves, and we know
this from Department of Defense history, regarding spending on
toilets. There is a press report that the Forest Service used
an existing GSA Schedule for the purchase of 22 precast
concrete toilet buildings for the Mark Twain Forest in Missouri
and therefore did not solicit any other bids. My own
understanding of this, and I am not drawing a conclusion about
the fairness of the price, is that when an agency purchases off
the GSA schedules, it does not mean there is a lack of
competition.
So give us a quick response to both of those.
Mr. Devaney. Let me start with toilets first.
Chairman Lieberman. I am not going to comment. [Laughter.]
Mr. Devaney. Unfortunately, the first thing that came
through the door was this.
Chairman Lieberman. Yes.
Mr. Devaney. And it was borne from a story that chronicled
the first 11 contracts, actually, that were let, and so when
they came to our attention--we have the ability to do a
preliminary inquiry and take a look and see and identify, if,
in fact, it was sloppy reporting, if something was tagged
wrong, or something is not in the right database, we probably
can do that. But of the 11, we ended up referring nine of those
to the two IGs that had the nine contracts and----
Chairman Lieberman. So they are going to follow up on that?
Mr. Devaney. They are going to follow up on that and get
back to us, but actually, if you are going to need to do
interviews in the field, they are going to have to do that.
Chairman Lieberman. And there was the suggestion that by
using a GSA Schedule, they were avoiding the law's requirement
for competitive contracting procedures.
Mr. Devaney. Well, the law does not actually forbid using
the GSA Schedule. It just says that it should be competitive as
often as possible. The positive thing about the GSA Schedule is
these companies have been vetted and they have been used
before----
Chairman Lieberman. Right.
Mr. Devaney [continuing]. And it is something that I think
contracting officers will think about when they are trying to
move money fast.
Chairman Lieberman. So we will rely on you to let us know
when you get the IG reports back.
Mr. Devaney. Right.
Chairman Lieberman. How about a quick response to the other
story about the first bids on construction coming in lower than
expected?
Mr. Devaney. I will get back to you on that. I am really
not familiar with this.
Chairman Lieberman. Thank you. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Devaney, you said in your testimony that your many
years of experience informs you or convinces you that some
level of waste or fraud, regrettably, is inevitable. The
problem here is the numbers are so huge that even if we lose a
very small percentage to waste, fraud, and abuse, it is a big
number. Do you have a percentage estimate based on your
experience of what you are concerned will be lost to waste,
fraud, and abuse?
Mr. Devaney. Well, as I mentioned in my testimony, our goal
is to reduce any percentage to as low as we can possibly get
it, and the transparency that is going to be in this arena has
never before been in place. So I am excited about the
opportunity to have the force multiplier, to have citizens
telling us about things that we probably will not discover if
it were not for them calling in or e-mailing in that something
is wrong.
So I think we have a good shot at reducing it to as low a
level as we possibly can, but I have been in this business for
39 years. With that kind of money on the table, the bad guys
are going to come. As we put up on Recovery.gov today, I think
a series of scams that have already started, people who say, we
will send you a stimulus check if you send us your Social
Security number and your bank account, that kind of stuff has
already started. It started 6 days after the bill was signed.
So that kind of thing is almost inevitable and we are going to
try to get those kinds of things up on the Web site, get the
press knowing about those kind of things, point people to the
right departments that can help them with that.
Senator Collins. The more eyes, the better, clearly----
Mr. Devaney. Right.
Senator Collins [continuing]. As I said in my opening
statement. The problem is, if you take $787 billion, even if it
is a 1 percent loss, you are talking about a huge amount of
money and that is why I think that it really is important to
enlist citizens in reporting and to make sure that you have the
resources to follow up on those tips, because we have seen
cases in the past where citizens or Federal employees have
called to blow the whistle on fraud and the resources have not
been adequate, which brings me to your testimony today on the
two biggest challenges.
The first is the quality of the data. The second is the
lack of qualified procurement personnel. Mr. Nabors very kindly
mentioned the bill that I have introduced with Senator Kohl
that would allow experienced Federal employees who have retired
to be reemployed temporarily to help meet this surge capacity
need. Do you support legislation that would allow for the
rehiring of annuitants without their incurring a financial
penalty?
Mr. Devaney. Well, speaking personally, yes, I do. I do not
think the board has taken a position on that, but I cannot
imagine that not being a good thing.
Senator Collins. Thank you.
Mr. Nabors, I want to bring to your attention an issue that
has come up in Maine. The people of Maine are trying hard to
comply with the guidance and report accurately, but on some
issues, it has been difficult to figure out exactly what OMB
wants to have reported. One of them centers on the very
important issue of what constitutes a job. Now, since all of us
are very interested in how many jobs are created--that was a
major purpose of our working so hard to pass this bill--this is
an important measure of our success. Let me give you the
specific example that the people of my State have given to me.
There is a paving project that is going to be funded from
the stimulus bill from Topsham to Gardiner in Maine, and it is
going to create much needed jobs. Those jobs are, however,
temporary jobs. They are only going to exist as long as this
paving project is underway and it will take a number of months,
but then it will be completed. Then those individuals,
theoretically, at least, could go on to another project that is
funded by the stimulus law, another transportation
infrastructure project.
So how are they counted? Are they counted twice, which is
not exactly accurate because it is one person continuing to
have a much-needed job, but on two different projects? Are they
counted twice, because, after all, they are new jobs that are
created and would not exist. Are they not counted at all
because they are temporary jobs? What do I tell my constituents
on how to comply?
Mr. Nabors. You have put your finger on the exact issue
which is sort of confounding us in terms of making sure that we
have a standard way of reporting that. In the very near future,
OMB is going to be putting out specific guidance with regard to
how to calculate the job numbers. We are working very closely
with the Council of Economic Advisers (CEA) so that we have the
best economic measures and the best economic minds thinking
about this so that we can standardize those types of issues
across not just States, but also across Federal programs, as
well.
Just to give you one example, building on what you have
just said, we will get estimates from the Department of
Transportation, who is very familiar with the type of issue
that you are raising. They use a calculation for job years.
Well, job years is not the same as a job that the Department of
Energy is calculating. What we are trying to do right now is
come up with a methodology so that it can be standardized in
such a way that everybody can use it in the same way, but most
importantly, that it does not misrepresent the numbers.
I think that you are absolutely right. The whole reason for
the Recovery Act was to create or save jobs. I think the last
thing that we want to do is misrepresent what is actually going
on with the dollars that we are spending. So within the next
few weeks, you should see that guidance coming out and we hope
that it will be helpful to States and local governments in
terms of making those types of calculations.
Senator Collins. Thank you. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks very much, Senator Collins.
Senator Burris, good morning.
OPENING STATEMENT OF SENATOR BURRIS
Senator Burris. Good morning, Mr. Chairman, Ranking Member
Collins, and to our distinguished presenters.
My question will initially piggyback on what Senator
Collins was asking in reference to the ability to bring in
talent, Mr. Devaney, from the other governmental employees. Do
we have a number, in terms of these agencies, of what we are
really looking for in terms of the number of personnel? And
second, I would assume that these agencies with the stimulus
packages have been provided resources to handle that, what size
are we talking about in terms of costs in that regard?
Mr. Devaney. Well, Senator, I think that it is fair to say
that this is a problem across government. It is not any
particular agency. It is absolutely across the board. There has
been not much hiring in the procurement professional arena over
the last decade, and at the same time, there has been flat
hiring. There has been an awfully big increase in spending and
this bill just dumped on top of that is causing a great deal of
concern.
IGs are looking and working with the departments to see
what the gaps are, what the needs are. The board is required to
conduct a review, which we have just started, to look and see
what the needs are and what the situation is. I think as of 2
days ago, and now up on Recovery.gov, the first report came out
of the Department of Energy, which suggests that they are
understaffed in the procurement professional arena. Even though
they have actually undertaken a hiring blitz over the last 3 or
4 years and gone up in percentage, still, with this kind of
money going to be spent, they are going to need to do better.
We have an aging workforce. We have people eligible to retire.
So all of this is sort of coming together as a perfect storm,
if you will, and it causes me great concern.
I think OPM is looking at a number of different kinds of
solutions, and as I mentioned in my testimony, they are going
to hold job fairs. But I think they are going to do a lot of
thinking about issues like Senator Collins raised with retired
annuitants and other things to bring some relief to this very
troubling area.
Senator Burris. Mr. Nabors had mentioned the fact that
there are $51 billion that has either been obligated or is
already out there, and I would assume that we are tracking that
pretty closely, if either one of you all want to respond to
that, in terms of are those dollars in advance of our tracking
system? We need to make sure that they are going to get the
same scrutiny that dollars will be 6 or 7 months from now.
Mr. Nabors. No, they are not in advance of our tracking
system. Right now, we currently have a system in place where
the agencies are reporting to us on a weekly basis on their
financial activities. Grant information, contract information
is coming to OMB and we are making sure that information is
made public. A lot of the initial funding are obligations
related to things like Medicaid and we have a very good idea on
where that money is going because it is largely going to States
for health care types of costs.
Senator Burris. Now, are you sure the States are geared up?
Will your computer be able to track down to the spending point
of that contract or of that grant from the States?
Mr. Nabors. The guidance that we are going to put out
tomorrow will put in place a system that will allow us to track
subcontract recipients.
Senator Burris. Mr. Devaney, I think about the fraud issue
and abuse issue, and being a former attorney general of my
State, would certainly say that you have to look for those type
of resources, especially your State attorneys general that
could help you with that fraud and abuse tracking process, and
I hope that there would be some attempt to bring those in,
especially as a part of the overall tracking system. Will this
put an additional burden on the State resources?
Mr. Devaney. Absolutely, Senator. I think what we are
looking to do is we are going to have in-house an experienced
prosecutor that is going to work at all levels of government,
Federal, State, and local, with district attorneys, attorneys
general, and try to figure a way to leverage our resources, to
figure out how to best present fraud awareness training and to
help prosecutors at all levels of government.
Senator Burris. But you know what will be reported, the
sensational story where the one person got away with a major
contract, and they are out there. They are trying to do it. It
is amazing how the schemes come about. You mentioned it
already, they are already advertising with their schemes to try
to rip off the government. We spend more money trying to
protect ourselves, which will then free up a lot of money to
get out from people trying to rip us off.
So I just hope that we are able to track this, because as
Senator Collins said, that is a lot of money when you are
dealing with these numbers and these sizes. If you are just
talking about a tenth of one percent of a few billion dollars,
the taxpayers are going to start looking at all of us, saying,
why did not we do something?
Of course, we have to make sure that we do what the
President said we are going to do, which is that we are going
to watch every dime. I hope that we can probably watch every
$100 million rather than every dime, because if we can watch
every dime in this, I want to know what format President Obama
is going to be using and I would want to commend every staff
member on your team and on Mr. Nabors team who protect our
money. I mean, you all should get a major blue ribbon for that.
Mr. Devaney. Thank you, Senator.
Senator Burris. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator Burris. Senator
McCaskill, welcome.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you very much.
I know we are struggling with overseeing some of this money
and the last time we talked a little bit about the Single
Audit, I heard back from most of the GAO and IG community on it
and I completely understand that we cannot abandon some of the
basics of the Single Audit, primarily the financial statement
audit, because everybody depends on that for their bond
ratings. And we have to have a schedule of expenditures in
terms of Federal awards just so everybody can keep track of who
has what.
But the requirement that 50 percent of all Federal funds be
covered and the emphasis on the very large low-risk programs,
the A-level programs, as opposed to, for example, in my State,
and I think in all of the States, where we are going to have
some ugly stories before this is all over is in the
Weatherization Assistance Program. I look at the Urban League
of St. Louis, and typically they get a million dollars a year
for weatherization programming. They are going to get $15
million.
Where do these crews come from? Are they competent to do
the work? Has it been bid? And are they being told it is OK to
turn the money back in instead of the alternative of giving a
second cousin who has a pick-up truck and two friends a bunch
of money to go weatherize some homes, and then we go and check
and maybe they put weather stripping around the front door and
that is all that happened.
I mean, we are up here, and you get right down to it, I
think the home Weatherization Assistance Program is not like
Medicaid. It is not like child support. But it is one of those
places where you have a low-level program that now has
incredibly high risk because we are overloading that program
with a whole bunch of money they have never had before.
Where are we on looking at the OMB annual Compliance
Supplement A-133 and what chances do we have of changing it
this year to move out some of these A-level low-risk programs
and get at some of these smaller programs where I think we are
going to have some problems?
Mr. Nabors. Well, in response to your comments from the
last hearing and in response to your letter, I have asked the
OMB staff to work with the key stakeholders to determine how
the Single Audit process can maximize the accountability and
transparency of our Recovery actions. By the end of April, OMB
is planning on publishing an update to the compliance
supplement for Circular A-133 and this will clarify the
coverage of the Single Audit. It will highlight significant
accountability requirements for Recovery dollars and it will
help to ensure that appropriate Recovery programs are
designated as high-risk and audited as major programs.
Senator McCaskill. And they are looking at this, the issue
that I talked about----
Mr. Nabors. Absolutely.
Senator McCaskill [continuing]. Where we are putting a
bunch of money--I mean, a lot of these programs are going to
get looked at anyway, but when you have such a huge bump-up,
that is where I think----
Mr. Nabors. And if I may, ma'am, you will know more about
Circular A-133 than I will ever know and I was hoping that I
could have my staff come up and work with your staff as we put
together this supplement----
Senator McCaskill. That would be terrific.
Mr. Nabors [continuing]. To make sure that we are, to the
extent possible, capturing the concerns that you have.
Senator McCaskill. That would be terrific. And what might
be really helpful is to get somebody on the phone in a
conference call at that time that actually does an A-133 audit
in the State. There are people in every State that take on this
responsibility to do these audits, the practitioners at the
State level, and the government auditors at the State level.
And I would think pulling together two or three of those
people--I am not talking about the elected State auditors or
the appointed State auditors. I am talking about, I mean, there
was somebody in my office that had been doing the Single Audit,
responsible for 20 years. They know everything. Frankly, they
know a whole lot more about it than I do.
And I think getting those kinds of practitioners together
quickly is important, and you could do it very easily through
the State auditors association. You could pull together five or
six very senior State auditor practitioners, not the bosses,
but the worker bees, the ones that are actually going to do the
work papers and the ones that are actually going to look at
internal controls and all those kinds of things that those of
us who hold the press conferences do not do.
Mr. Nabors. We will do that.
Senator McCaskill. OK. Let me also ask you about the
Federal Audit Clearinghouse for Single Audits. This is going to
be a great location because I think all these State auditors,
regardless of what you do with A-133, are going to want to look
at these funds because there is a lot of political pressure for
them to look on these funds, although a lot of State auditors
are not elected. But having said that, most of them are going
to feel the pressure to look at this money and how it is being
spent.
Typically, the Federal Audit Clearinghouse is not really
particularly well-suited for the average citizen. It is not
really user-friendly. And auditors--and I know that Mr. Devaney
will back me up on this--many times, they do not speak English.
They are a little bit like the people that hang out at the
Pentagon. They have a lot of terminology that is not friendly
for the average person.
Have you guys on the board considered looking at the
Federal Audit Clearinghouse and seeing if we could incorporate
that into Recovery.gov, because it is going to be a great
treasure trove of oversight information on the stimulus money
and it seems to me we ought to transplant that over to
Recovery.gov in a user-friendly way that allows people to get
to their own State audits to look at what is actually happening
in their States in terms of oversight.
Mr. Devaney. Senator, I think that is a great idea. I mean,
we really had not thought about it, but I appreciate you
bringing that up and I fully agree that whatever we do, it has
to be in English and not ``auditese.''
Senator McCaskill. Yes. And speaking of English, we have
been spending a lot of time on Recovery.gov in my office and
the weekly updates, kind of feel like internal use project
plans. They do not feel like they are being written so people
can look at it and really understand what is happening. I do
not think they are useful to most people, the weekly updates,
the way the terminology is and the way it is characterized.
Let me ask you this. On Recovery.gov, do you have folks
that are like the people who go into the restaurant that are
working from the newspaper and going to see how well they do
with their food? Do you have people accessing this Web site and
giving you objective third-party feedback that are not working
there in terms of what they are learning, what they are not
learning, and how it works?
Mr. Nabors. Well, the Recovery.gov does have a link that
allows the public to comment and add suggestions with regard to
how we are performing. But I would defer to Mr. Devaney.
Mr. Devaney. Well, every morning, Senator, I get up and I
go to Recovery.gov, the first thing in the morning, and I share
your concern.
Senator McCaskill. You poor thing.
Mr. Devaney. I share your concern. Well, it is mine, so I--
--
Senator McCaskill. I know it is yours. [Laughter.]
You have no choice.
Mr. Devaney. I have no choice. But let us say it this way,
that the site, as I mentioned earlier in my testimony, is an
evolving process and this site is going to be, I believe, an
opportunity to really have an historic level of transparency
and citizen participation, and it may serve, if we do it right,
as the model for how we do this in the future.
And so I am determined to get this right, and I think, for
instance, content management is an issue, that we are now
transitioning from OMB's good work standing this site up to the
board is going to take over content management, and I am
working very hard to get on my staff people who can write in
English and can put stuff up to which people are going to be
attracted. And at the same time, the technology out there, it
is phenomenal, what we can do with this site. In a relatively
short time, I think we can have a site where people would only
go on it once, but want to come back the next day and the day
after because we will be able to drill down as the information
starts coming back in to the level where people really want to
see this in the neighborhood.
Senator McCaskill. Thank you, Mr. Chairman, for your
indulgence. Let me just say that I think another idea I would
give you is that I discovered that the best thing I did when I
was an auditor was I hired a journalist to begin writing the
summaries for audits. Unfortunately for our democracy, there
are a lot of journalists looking for work right now and they
understand how to write a lead, they understand how to keep it
very concise, they understand how to make it interesting, and I
would certainly encourage you to look at the vast number of
really qualified journalists that are out there looking for
work right now because I think you could get some real talent
that could really help us with that content in terms of making
it interesting to people.
Mr. Devaney. Senator, tomorrow morning, I am interviewing
two journalists.
Senator McCaskill. There you go. All right. Great minds
think alike. Thank you, Senator.
Chairman Lieberman. Thank you, Senator McCaskill. Senator
McCaskill has her own stimulus employment program. [Laughter.]
Senator McCaskill. Helping all the people out there typing
on their laptops.
Chairman Lieberman. I appreciate that.
We will do a second round if people want to stay. I think
we have a while before the vote-a-rama starts.
Let me just pick up on the Web site, if I might. The usage
is really miraculous or stunning. So to the extent that you are
analyzing now, am I correct in assuming that most of those hits
are just looking for information about how the stimulus works,
how you might get funds, or something of that kind?
Mr. Devaney. Mr. Chairman, I think people are coming in
right now out of curiosity----
Chairman Lieberman. Yes.
Mr. Devaney [continuing]. And seeing what is there. And
what I would say to them is keep coming back periodically and I
think you will see it getting more robust and more user-
friendly. And I am really excited about the idea. There are
some terrific technologies out there that we can use,
interactive mapping and drill-down techniques where you can get
down to where I think people really want to see the rubber hit
the road. And I think OMB's guidance coming out now will be
very helpful in getting down to those lower levels that you
have expressed some concern about.
And then we need to display that. We need to be able to let
people go on that Web site, click on their State, and then keep
clicking until they get down to their city to see the projects,
to see the money that has been spent in that area----
Chairman Lieberman. Yes.
Mr. Devaney [continuing]. And all of that is possible. It
is not there now, but it will be.
Chairman Lieberman. I appreciate that commitment to make
that happen.
Let me ask you about the extent to which this is
interactive. For instance, tell us about the process--it is
early on now in the program, but this will presumably happen--
where someone will say, hey, this Stimulus Act money in my town
is being used badly, or my company got a grant and it is being
wasted. How do you funnel those comments to a point where you
can respond to it and use it?
Mr. Devaney. Well, if the call were to come to us, we would
do what we always do in any IG office. We would get as much
information as possible and then, in our case, we are going to
be funneling that to the appropriate IG and then asking that IG
to get back to us.
Chairman Lieberman. So is there a clear portal for people
to go to on the Recovery.gov Web site if they want to
whistleblow?
Mr. Devaney. There is a portal where they can make
comments. There is a portal where they can tell a story, if
they wanted to.
Chairman Lieberman. Great.
Mr. Devaney. I do not think we necessarily are, from the
oversight perspective, interested in the stories as much as we
are the citizen that might look across the street and see the
Web site, says a school is going to be built and they look
across and there is just a forest.
Chairman Lieberman. Yes.
Mr. Devaney. So we are going to have to develop the
capacity, and this is no easy endeavor, to sift through the
millions of citizen comments that are going to be coming into
this Web site.
Chairman Lieberman. Yes, that is what was on my mind. It is
pretty hard to do that right now, I assume.
Mr. Devaney. No, we cannot do that right now, and we are
talking to groups that suggest they can do that for us. But we
want to make it real. Personally, I believe that we will lose
the value of citizen participation if they do not think they
are heard.
Chairman Lieberman. I agree.
Mr. Devaney. And so if you write into the site and you
never hear anything back or you never see any action, I mean,
that is actually worse than inviting them to do it in the first
place.
Chairman Lieberman. Yes, I agree.
Mr. Devaney. So we have an enormous challenge here. I am
trying to get the smartest people I possibly can to come in and
talk to us about this. It has never been done before at this
scale, so----
Chairman Lieberman. Right. That is a real challenge, and so
we wish you well. I could not agree with you more that people
at least have to have a kind of automatic response that you got
their message and somebody will go over it. But to ferret out
of all that input the whistleblowing that you really do want to
know about is your challenge.
Let me go to a second part of this, on the prevention part.
What will your IGs do--what kind of systems will they set in
place, not just to detect but to prevent, with a program this
large and with this money moving out this quickly, to prevent
waste, fraud, and abuse?
Mr. Devaney. Well, as I mentioned earlier, we have created
a working group where we are all going to talk to each other on
a regular basis. We are going to try and leverage our
resources. There are going to be some IGs that are going to be
able to easily handle the load and then there are going to be
some IGs who do not have the staff to do it, so we are going to
have to leverage resources and achieve the highest level of
cooperation, perhaps, we have ever seen before in the IG
community.
And I think IGs are, right now, they are out there giving
fraud prevention awareness training to the Department staff.
They are out there talking to local enforcement and
prosecutors. They are doing a lot of that right now. They are
developing risk models, as I mentioned in my testimony. We have
to figure out what the risk models need to look like in this
endeavor so that we can focus our limited resources in the
right place. A model that suggests that this particular kind of
a grant or this particular kind of a contract, if we only have
a certain amount of resources, let us expend it there.
But IGs are not just doing that internally. I mentioned at
my former office, they have taken that risk model that we have
always had internally and they shared it with the Department
and they are encouraging the Department and working with the
Department to help build their own risk models. So IGs are out
there right now working with the Departments, who, by the way,
are working, from my overview, very well in setting up their
own internal shops to manage this money, as, quite frankly, I
have never seen them do before. So I am encouraged by that.
Chairman Lieberman. That is good news.
Mr. Nabors, let me ask you this question, and it may be
hard to answer it now, but perhaps as we go on in this
experience, when you come back, you can help us with it.
Obviously, we appropriated this enormous amount of money
because we all heard about the trillion-dollar gap in normal
demand in the economy and we are trying to fill it and get
economic activity going again.
There has been some encouraging news lately. And obviously
the discouraging news is that the economy continues to bleed
jobs. The encouraging news is that there was some evidence last
month of consumer spending going up a little bit, of more
activity in housing sales, and the stock markets had their best
month in March in quite a while.
So I do not know whether you have any ability to relate
that to the money that the Recovery and Reinvestment Act has
put out into the economy thus far. I would welcome that
analysis as we go on, which is a way in a broader sense for us
to try to determine whether the Stimulus Act is achieving its
purpose.
Mr. Nabors. We do not have it now, but I would be happy to
work with our staff to generate that model for you.
Chairman Lieberman. I appreciate it. I mean, it is hard to
imagine that putting this much money out into the economy would
not help some. I mean, the question is, how do we track, to the
best of our ability, how much it has helped? I thank you.
Senator Collins.
Senator Collins. Thank you.
Mr. Nabors, I want to bring up another area that really
concerns me, and that is when the omnibus appropriations bill
was passed, without my support, I would add, it did not
reconcile the funding in that Act with the funding that we had
just approved a couple of weeks earlier as part of the stimulus
bill. The result is that there are some Federal agencies that
are going to receive an enormous increase in funding, far
beyond what they have ever handled before. Let me give you a
specific example.
The Federal Railroad Administration (FRA) has traditionally
been a very small agency that is responsible for dispersing
some Amtrak funding. Now, its funding is going from $1.5
billion to over $10 billion. It is an enormous increase in the
funding that this very small agency is going to have to get out
the door properly in grants and contracts. Are you doing
anything to target agencies like this one that are receiving,
as a result of the combination of the Stimulus Act and the
omnibus bill, a massive increase in funds but may not have the
people and the procedures in place to ensure the money is spent
wisely?
Mr. Nabors. This issue is one of the primary issues that we
have been focused on since the passage of the omnibus, making
sure that there is the appropriate management and planning
structure in place, especially for these agencies that are not
used to seeing large sums of money. The Vice President has been
very involved personally with regard to the FRA and ensuring
that they have both the personnel and the plans and procedures
in place to ensure that this unprecedented amount of money that
was provided to them is used for what it is intended, and that
is to both stimulate the economy and to fundamentally transform
the way our infrastructure system operates in this country.
It is going to be a challenge. I will not try to softball
that one. And it is a challenge that we are dealing with each
and every day. But it is something that we are all very
cognizant of and it is something we are focused on and it is
something that we are working on every day.
Senator Collins. Mr. Devaney, are you giving extra scrutiny
to agencies or programs that have had massive increases in
funding? It seems to me that this is a recipe for the kinds of
problems that you have been talking about.
Mr. Devaney. I think you are right, Senator, and I think
this IG Working Group that we have put together, all of those
IGs, as I mentioned, are at some stage in developing risk
models and the kind of things you are talking about would be
the kind of agencies we would look at as high-risk. And so I
think what you will see emerging at some point is a strategy
for IGs, maybe somewhat different in different Departments, but
overall, we are going to try to identify those high-risk areas.
That one would certainly be one.
Senator Collins. Mr. Devaney, you talked earlier about the
e-mail scams that are already going around----
Mr. Devaney. Right.
Senator Collins [continuing]. And one of them asks people
to send personal data and information in order to get their
``stimulus check.'' I am fearful that a lot of people will fall
for that scam because--and what I think was an error in
policy--we did do these one-time checks a year or so ago of
$300 or $600 to taxpayers. So this may well ring a bell with
the citizens of this country and they may respond to it.
Have you thought of enlisting groups like AARP, or there is
a group called Triad that works with local prosecutors to try
to educate seniors in particular? It is fine for the IGs to be
aware of this. It is fine for the Federal Trade Commission
(FTC) to put out alerts, but that is not going to reach a lot
of people who will receive these e-mail scams. It seems to me
that you need to get nonprofit groups, senior centers, Area
Agencies on Aging involved. Is there any attempt to do that
underway?
Mr. Devaney. Not yet, but that is a wonderful idea. I mean,
we have just been collecting all the various scams. We put them
up, I think, 2 days ago on Recovery.gov and we have been
working with the various agencies like FTC and we have all of
the linkage. On Recovery.gov, we have links to all of those
agencies. We have links to all the IGs at the respective
agencies. But working with groups like AARP, that is a
wonderful idea. We will do that.
Senator Collins. Thank you.
Let me just end with one final question, and that is to go
back to the issue that waste, fraud, and abuse is inevitable. I
know there was a Wall Street Journal interview that you gave in
which you expressed your concern that there could be as much as
7 percent of the stimulus funds lost to waste, fraud, and
abuse. When you are talking about $787 billion, I think that
amounts to something like $55 billion.
I just want to get on the record that we simply cannot
allow that. That is an unacceptable percentage no matter what
number it is applied against, but when we are talking about a
number this large, the economy will lose significant funding.
The public will lose significant confidence in what we are
doing if more than $50 billion is lost to waste, fraud, and
abuse. So I believe it is incumbent upon all of us to ensure
that does not happen.
I know what you are saying, and you are applying more than
30 years of Federal law enforcement experience to this job, but
we have to ensure that does not happen.
Mr. Devaney. I totally agree. The 7 percent comes from a
very reputable and well known association of fraud examiners,
and I was asked about the 7 percent and it is $55.1 billion. I
was horrified when I first did that math. I am very hopeful
that we would never, ever see something like that, but we have
to get it down to the lowest level possible. I do not even like
talking about the 7 percent because I do not want to
acknowledge it ever could be that way. It is a number that is
out there.
Senator Collins. Thank you.
Mr. Chairman, I want to commend you for the hearings we are
holding because I think that the ideas that we are all
generating and passing on to you in this collaborative effort
will help to ensure that we do not see that level of waste,
fraud, and abuse, so thank you for your leadership.
Chairman Lieberman. Thank you, Senator Collins. Thanks for
your contribution in that regard. Too often we authorize, we
appropriate, and then we leave the rest to the Executive
Branch. This is really too critical, too big, and as I said at
the beginning, it is too big for us to let it fail. So
together, we have to make it work, and I thank you.
Senator McCaskill.
Senator McCaskill. I would like to talk a little bit, Mr.
Devaney and Mr. Nabors, about blanket purchase agreements and
utilizing the catalogs of existing deals. The toilets that have
been talked about are in the Mark Twain National Forest and
they are in my State, so I have spent a lot of time going
through it, and you know what? It was not a bad deal. It made a
great headline, and my friend, Senator Coburn, before you talk
about the toilets, make sure I get you this memo because you
will be impressed.
In reality, what they did was they looked carefully to find
the least expensive way to build buildings for toilets that are
accessible, low maintenance, and a good value in the Mark Twain
National Forest. But because they were toilets and it was a lot
of money, all of a sudden, everybody got the vision of the gold
hammer and the $5,000 toilet seat.
But it brings me to an issue that I am wondering if you all
have talked about, and that is I was surprised when I got here
and I learned that agencies were soliciting other agencies to
buy off their book of contracts because they got some kind of
bump for it. In the Armed Services Committee we were looking at
this. There was actually advertising by one agency saying, use
our existing contracts to buy off of because, I guess, there is
some kind of transfer of funds between the agencies if they use
each other's. So when GSA sells stuff to the Department of
Defense (DOD), they were able to get some extra money.
Have you all looked at that in terms of these transference
of funds between these agencies using existing contracts
because that is not what we meant this money to be used for.
Mr. Devaney. Well, I would just tell you that as the IG of
the Interior Department, I wrote some rather scathing reports
about the use of the franchise funds at Interior. I think the
Interior Department is one of seven departments that actually
has that capacity. Things have gotten a lot better. They still
have it, and some of the abuses that we chronicled have been
corrected. But nonetheless, there are seven entities--I think
there are only seven--that allow other departments to come in
and they will buy you and take a piece, if you will, of the
action----
Senator McCaskill. Right.
Mr. Devaney [continuing]. In some administrative fees. My
critiques went to what they were doing with those fees after
they got them.
Senator McCaskill. Right.
Mr. Devaney. But nonetheless, it is legislation that was
passed by Congress and they are allowed to have it.
I really have not thought about these funds with those
systems. I am interested to hear that is happening and we will
look into it.
Senator McCaskill. Yes, because I think it is a place where
we could have some abuse----
Mr. Devaney. Right.
Senator McCaskill [continuing]. Because there is a lot of
money being put into the system and because--and, of course,
they have two masters here, all these agencies. One is to get
the money out quickly and one is to make no mistakes. Well,
those are two masters that are hard to serve at the same time.
So I think that might be something we want to look at.
Let me also, just briefly, ask you about leasing versus
construction. One of the things I discovered is that we have
this bad habit of leasing non-permanent buildings that
eventually turn into permanent buildings that we buy. Is there
any incentive in the way that we are putting this money out
there that people would begin to engage in buying temporary
buildings? Army Materiel Command did a temporary building, OK.
Well, I went to the temporary building, and believe me, this is
not a temporary building. This is a large office building, and
they tried to tell me, well, we could take it apart if we
needed to.
But I am curious if you all have put any rules in place
about uses of this money for capital as to whether or not
people are going to lease temporary buildings or if they, in
fact, are going to invest in buying buildings, because right
now, construction costs are so low, they might even be lower
than what we would pay to lease a temporary building which
inevitably the government ends up getting around to buying at
the end of the day. Have you all talked about that or looked at
that?
Mr. Devaney. We have started talking about it. I think that
one of the first 11 contracts that we were asked to look at,
particularly as Chairman Edolphus Towns on the House Oversight
and Government Reform Committee asked me to look at, involve
such a matter, and so we have referred that to the GSA IG and
we are waiting for them to get back to us. But I think we want
to learn from that what the scope of that problem might be.
Senator McCaskill. Yes. I think you are going to see--
because these manufacturers can come in and do a pretty good
sales pitch on temporary buildings. I am just worried that it
will be a very seductive process, that people will say, well,
we can just go for this lease of a temporary building. We do
not have to jump through all the hoops that we would have to if
it was a capital expenditure because we can take it out of a
different fund, and with this stimulus money, I think that is
another area that we might have some abuse. So I would
appreciate any feedback we could get on that.
Mr. Devaney. Absolutely. Sure.
Senator McCaskill. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you very much, Senator McCaskill.
Senator Coburn, welcome.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, and thanks for having the
hearing and thank you all for coming to testify. I have read
your testimony.
One of the problems that we have in the Federal Government
is Congress telling us how we budget, because outside of the
stimulus package, we lease almost 90 percent non-military
buildings. We do that because the accounting rules we have
charges the whole cost of the building in the year in which you
take occupancy to the agency. So we do not actually buy. We
lease because it is the least budget-impacting, which is silly
and something we ought to change in the long run.
I was not prepared to talk about toilets this morning, so I
will pass on that one.
Senator McCaskill. I knew it was coming some day.
[Laughter.]
Senator Coburn. Maybe, maybe not. We are looking for the
truth, not the headline.
Mr. Nabors, I have some real concerns with what you all are
doing thus far, and let me explain. If you go to Recovery.gov
and you put another computer up right next to it and go to
USAspending.gov, you see two totally different approaches. In
USAspending.gov, you can go by city, you can go by contractor,
you can go by grantee, you can go by Department, and you can go
all the way down to find out who is doing what. I am waiting on
a letter to come back from OMB now clarifying when
USAspending.gov will include subgrants and subcontractors.
Senator McCaskill and I were significantly involved in getting
that done.
I am hearing that you plan to move USAspending.gov to
Recovery.gov, which scares me to death based on what I see in
Recovery.gov. Recovery.gov is not searchable where as
USAspending.gov is searchable.
So would you mind settling me down a little bit in my worry
and gray hair accumulation that you are going to go toward
something like USAspending.gov, that is multi-searchable, that
you can use almost any matrix to get where you want to go, and
you can do it quickly? I spent 10 minutes this morning on
Recovery.gov, and I want to tell you, there is nothing there. I
know it is early, but I just want to know where you are going
with it. If you are going in the direction of what it looks
like versus what is on USAspending.gov, you are not going to
give anybody the assurance of anything in this country about
really finding out what is going on across the street.
Mr. Nabors. Well, let me try to save your gray hairs.
Senator Coburn. OK. Thank you.
Mr. Nabors. Our plan--I think it is a misunderstanding with
regard to what we are trying to do with Recovery.gov. The
reason why we did not use USAspending.gov right now is because
there seems to be such an overwhelming demand to get
information as quickly as possible onto the Web sites. The data
systems that feed into USAspending.gov just are not at the
point right now where we can get information up as quickly as
we believe that the public is demanding it.
But our goal in the long term is to try to merge the best
of both Web sites, the data quality and the extensiveness of
the data on USAspending.gov along with the search capabilities
with the speed that we are trying to build into Recovery.gov.
Recovery.gov, in my wildest dreams, will become a model for
being able to update our financial systems to a degree where we
are not just able to track Recovery Act spending in almost real
time, but we can also do the same types of things with regard
to overall Federal spending.
I know that the Recovery Act has a special place in our
economy at this point, but I think that both you and the
President share the joint objective that every dollar that the
taxpayers provide to the Federal Government for spending is
special, as well, and we need to be able to track that money
quickly. So we are trying to not necessarily bring
USAspending.gov into Recovery.gov, but to learn lessons from
the two to make a Web site going into the future that allows us
to better track Federal spending.
Senator Coburn. What is the difficulty with getting the
data? My understanding was the difficulty with getting the data
to USAspending.gov is that the agencies were not providing it.
It was not a technical problem. It is that the agencies
refused on a timely basis to bring it forward. If they did, how
is that going to be any different on Recovery.gov using the
same agencies?
Mr. Nabors. Well, the batch processing and the financial
data that we use for USAspending.gov does have a significant
delay and we are trying to, at this point, speed up the extent
to which data is available. So we are actually using not just
financial data on Recovery.gov, but potentially budgetary data
and other types of information, as well, to get that money out
ahead of the normal time frames that our financial systems
produce that amount of information.
Senator Coburn. Right. Mr. Devaney, thank you for your
years of service as IG. It is often times an unthankful job,
but I know you have done a great job there and I appreciate it.
The 7 percent figure bothers me, but the 10 percent figure
on the Federal Government bothers me even more. If we look at
what the Federal Government is doing in total, if you come in
at 7 percent, that is not acceptable, but it is better than
what we are doing everywhere else. What we ought to be doing is
redoubling our efforts to where we get that down to about 2 or
3 percent because after that there are diminishing returns on
the dollar. I have heartburn over the $787 billion. I have
heartburn over the $55.1 billion. However, I do not think it is
going to be in better hands than in your hands to see if we
cannot limit the waste.
I would suggest, besides what Senator Collins said, put Ad
Council ads on TV for seniors about these scams. I mean, it
does not cost much. You can get it out faster than AARP can.
Two weeks from now, you can have 2 or 3 weeks' run of Ad
Council ads where almost every senior in the country knows, do
not fall for this scam.
You may have covered this prior to me coming in. When do
you foresee that we will actually have a viable and multi-
searchable Web site on Recovery.gov?
Mr. Devaney. Senator, we have been doing an awful lot of
meeting on this, and we have been talking to a considerable
amount of smart people. We are going to try to hold an
electronic town hall in the near future where we solicit the
public in general and technology folks in general, and then
move quickly after that with the help of perhaps somebody like
the National Academy of Public Administration (NAPA) to select
some vendors. There is some really amazing stuff out there that
I think is going to make this site very exciting to go on. So I
hope you will continue to visit it as we try to make this thing
something that people are going to want to come to on a regular
basis and allow them to understand where their money has gone.
Senator Coburn. If we are a year from now, and a year is a
pretty fast pace to do something like this, a year from now we
will have spent about 70 percent of that money already. Can we
do that within a year? Can you get it done within a year? I am
talking the real deal, up where people can really use it?
Mr. Devaney. Yes, I think we can. That is my goal.
Senator Coburn. Would you be so kind as to keep this
Committee advised if you are going to fall behind that
schedule----
Mr. Devaney. All right.
Senator Coburn [continuing]. So that if it looks like you
are not--we spend $64 billion a year in this government on IT.
Thirty-six billion of it is wasted. The American taxpayer needs
to know that. Thirty-six billion, over half of what we spend on
IT, gets wasted every year. This is the one place where we
should not waste and there should not be a hiccup. We do not
need another Harris Corporation Census no-bid contract that
does not perform that we paid a bonus for.
And Mr. Chairman, I would ask that my statement be
submitted for the record.\1\
---------------------------------------------------------------------------
\1\ The prepared statement of Senator Coburn appears in the
Appendix on page 229.
---------------------------------------------------------------------------
Chairman Lieberman. Without objection.
Senator Coburn. And I thank you all.
Chairman Lieberman. Thanks, Senator Coburn. Very good
questions.
Thanks, Mr. Nabors and Mr. Devaney. I think it has been a
very constructive exchange. I appreciate what you are both
doing, first to spend the money that we have appropriated
because that is why we appropriated it, to get it out to help
the economy grow and to protect and save millions of jobs. And
second, to make sure with every human and technological
resource we have that the money really is spent for the purpose
for which it is intended and not wasted or lost to fraud in any
way. So I thank you.
I found this so constructive, and Senator Collins did too,
that we are going to ask you back for a repeat performance
because we really want to keep this going. We hope you find it
as productive as we do. We will probably ask you to come back
sometime later in May, so you have a little more time to see
how it is going.
We will leave the record of this hearing open for 15 days
for additional questions or statements.
I will just end with thanking both of you. You are really
both very impressive public servants and we need you to do what
you are doing.
The hearing is adjourned.
[Whereupon, at 11:33 a.m., the Committee was adjourned.]
THE AMERICAN RECOVERY AND
REINVESTMENT ACT: MAKING
THE ECONOMIC STIMULUS
WORK FOR CONNECTICUT
----------
TUESDAY, APRIL 7, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Hartford, Connecticut.
The Committee met, pursuant to notice, at 10 a.m., at the
Learning Corridor, Greater Hartford Academy of the Arts,
Theater of the Performing Arts, 359 Washington Street,
Hartford, Connecticut, Hon. Joseph I. Lieberman, Chairman of
the Committee, presiding.
Present: Senator Lieberman.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. This hearing of the U.S. Senate
Committee on Homeland Security and Governmental Affairs will
now come to order. Let me thank all of you for being here.
I want to apologize to all of you out there on behalf of
the witnesses that their backs are turned to you, but such is
our custom in the U.S. Senate.
Let me also quickly but quite sincerely thank Eric
Bernstein, Principal of the Hartford Academy of the Arts, for
hosting this field hearing; and Jim Keller, Managing Director
of the Theater of the Performing Arts, for handling the
logistical arrangements. And let me give a particular welcome
to the students and teachers of the Greater Hartford Academy of
the Arts and the Greater Hartford Academy of Math and Science.
[Applause.]
Let me welcome also everyone else who has come, including
some in State and local service who are here to join us in what
is a continuing series of hearings that our Committee is
holding. The first two occurred in Washington DC. This is the
third one, a field hearing here.
And the basic goal we have is to monitor how the billions
of taxpayer dollars that the President requested and Congress
approved for the so-called stimulus program are being spent.
I thought because the students are here I would take just a
moment to give some history and explain why we are here and
what this Committee is about, and maybe I will start with a
personal story.
Shortly after I was elected to the Senate in 1988, I was
down in Washington for some orientation meetings for the new
senators, and I was at a reception, and Senator John Glenn, who
was then the Senator from Ohio--and, of course, world famous
for being an astronaut--came over to me and he said, ``Joe, I
am going to try to return a favor to you that was once done to
me.'' He said, ``Just after I was elected, I was at a reception
somewhat like this, and the then-Senator from Connecticut,
Abraham A. Ribicoff ''--probably the students do not remember
that name, which should inspire some humility in people like
me, but others will remember our former governor and Senator
from Connecticut. Senator Glenn said, ``Abe Ribicoff came over
to me, and he said, `John, you are going to have the
opportunity to select what committees you want to be on. A lot
of times, people do not think about the Governmental Affairs
Committee, but it is an extraordinary Committee. It has the
responsibility, among other things, to oversee the expenditure
of Federal money and to monitor what every department of the
Federal Government is doing and to hold investigations' ''--
which, over history, the Committee has done. These
investigations go back to Senator Harry S. Truman, when he
investigated, during the Second World War, the spending of
money during wartime. There were other investigations held by
the Committee. Probaly the most famous, when I was a kid, was
done by a Senator from Tennessee, named Estes Kefauver, into
organized crime. It goes on and on.
Senator Glenn said, ``Why do not you put your name down for
it? I do not think there is much interest.'' So I did. And
Senator Glenn by that time had become the Chairman of the
Committee, and he said, ``I always look back and I am grateful
to Abe Ribicoff for giving me that suggestion.''
So I did put my name down. It was not my first choice. My
first choice was the Environment Committee, which I was lucky
enough to get on, but there was not much interest in this
Committee. And so I also got put on it. The students probably
have heard about the seniority rule in the Senate. This is the
rule that basically says that you get the opportunity to move
up in almost all cases based on how long you have been there. I
remember that at the orientation session we had when we first
arrived, there was a Senator named Wendell Ford from Kentucky,
who had been a Senator for a long time. He came in and he said
to the 10 or 11 of us who were new Senators, ``A lot of the
things you are going to find around here, you are not going to
understand or they are actually going to annoy you.'' He said,
``That is the way I felt about the seniority rule when I got
here. But, the longer I have been here, the more sense it
makes.'' [Laughter.]
So it goes. You never know how your seniority is going to
play out because you never know what is going to happen to the
people ahead of you in seniority on the Committee. I have been
very fortunate to become the Chairman of this Committee.
In 2002-2003, this Committee generated the legislation that
created the Department of Homeland Security, and when it came
time to decide which Committee would oversee this new
Department, they asked us to do that, in part because our
Committee has had a really good reputation for bipartisan work,
and I have had the privilege to work with two Republican
chairmen, Ranking Republicans when Democrats have been in the
majority: Senator Fred Thompson, who left me to go back to
``Law and Order''--I do not know how he could have made such a
choice--and Senator Susan Collins from Maine. So the Committee
is now known as the Senate Committee on Homeland Security and
Governmental Affairs, but it is in the second capacity,
Governmental Affairs, which is the oversight of how Federal
programs are operating and how Federal money is being spent,
that I am privileged to conduct this hearing today.
In a way, I want to use our State of Connecticut as a
microcosm of the challenges facing all of our State and local
governments as we try to get Federal stimulus money moving
through our economy, protecting and creating jobs, and making
investments in our future.
I am not going to spend much time talking about the
economic problems that brought forth the stimulus because we
live with them. This is an unprecedented economic experience.
Last year, the American people, American households, lost
$11 trillion of value, assets, and wealth in the loss of value
in our homes and in the loss of value in stock markets and the
savings and investments that we have had. In the State of
Connecticut, since the recession began in December 2007 to
January 2008, we have lost over 50,000 jobs. We had the worst
month of job loss in Connecticut in February, the worst month
in 15 years, in which we lost over 15,000 jobs.
It is that set of facts that led President Obama and his
Administration, as they came into office, to reach out to
Congress and to propose what we call a Federal stimulus
package. The formal name of it is the American Recovery and
Reinvestment Act. It is the largest Federal appropriation of
its kind in American history, and it came about because the
economic situation we are in is unprecedented. We have never
had one like this.
This is not the Great Depression, thank God. Unemployment
and the loss in the economy are nowhere near as great as they
were then. And we have the beginning of some signs of
hopefulness. The markets which measure all of this had their
best month in years in March. There was the beginning of
economic activity. Consumer spending went up a little bit. The
newspapers today, here in the State, say that the Connecticut
Business Industry Association did a survey of small businesses
in the State, and it found that they were finding it easier in
the month of March to get loans from banks, which has been a
real problem.
But State and local governments are hurting, and will
continue to hurt, and until we begin to create jobs again and
stop the bleeding off of jobs with people becoming unemployed,
we are not going to be anywhere near where we want to be. That
is what occasioned the stimulus package, $787 billion
authorized over 2 years, and here is what the basic thought
was.
There was a real problem in our economy: Subprime
mortgages, loss of housing values, trouble in the financial
sector and banking, people could not borrow money, the
beginning of unemployment--real problems. Those real problems
did two things: First, they created understandable anxiety, a
lack of confidence in the American people about their future
economically, whether they were going to lose their jobs, for
instance, or if they had lost wealth in the stock market or
their housing values. And so people stopped spending, and
spending drives about 70 percent of economic growth in our
country.
A lot of economists told President Obama, and told Members
of Congress, that there was a $1 trillion gap between what the
American people will normally spend and what will be spent.
Businesses stopped investing because they could not borrow the
money for this year and probably next year. And in that
reality, the only entity, the only organization that could
begin to spend to try to turn the economy around and restore
people's confidence was and is the Federal Government. That is
why the President made the recommendation to enact a stimulus,
and why we adopted it. I was privileged to be in the middle of
the negotiations to not only form the bill but to get the 60
votes we needed to get it out of the Senate to a conference
committee and to pass and be signed by President Obama.
I believe that the stimulus package has begun to put money
out into the economy in a way that is working, and I think that
is part of why confidence has gone up and why some of the
economic indicators have gone up. But there is a lot more that
we have to do, and that is why we are really here this morning.
I will tell you that there were two goals that the
Administration spoke of, and I think most Members of the
Congress have, for the stimulus package. The first was to get
money out into the economy to protect and create jobs. The
second was to try to do it in a way that would make
investments, significant investments in a better future for the
American people; in other words, not only to stop the bleeding
and build up the economy again, but to do it in a way that
would be an investment in better quality of life and sustained
economic growth, particularly in three areas--education, health
care, and energy independence.
As you probably heard, under this program, the State
Government of Connecticut is in some cases not holding all the
money itself but in most cases distributing it, including
through local governments, particularly education money. The
State will receive $2.9 billion in funding, and I am very glad
we have been able to do that. This total does not account for
other programs that will be funded under this that people will
apply for directly from the Federal Government, nor does it
count the payroll tax reductions that are beginning this month
and will reduce the payroll tax for 1.4 million workers in
Connecticut and their families, $400 for a single worker and
$800 for a couple. Some people say that is not a lot of money.
For a lot of people in our State right now, that is a lot of
money, and it is going to enable them to maybe pay some bills
off or maybe buy some things that they need that they otherwise
would not be able to buy.
So, today, we are really focusing on that $2.9 billion that
is coming to the State Government of Connecticut for spending
and also redistribution to other entities. And we are
privileged to have with us a perfect group of witnesses, one
representing the State, the others representing an education
group, a health care group, and a broader group, which speaks
particularly for children, but also for social services in our
State.
So let me now go, with that introduction, to our witnesses.
Each of them, I think we have told you, will have 10 minutes
for an opening statement, and then we will go on to a question-
and-answer period.
Our first witness is the Secretary of the Office of Policy
and Management of the State of Connecticut, Hon. Robert
Genuario. I cannot think of a better preparation for this job
that he had than to be a State Senator. Since I was once one
myself, I have a bias. Secretary Genuario, welcome, and we look
forward to your testimony now.
TESTIMONY OF HON. ROBERT L. GENUARIO,\1\ SECRETARY, OFFICE OF
POLICY AND MANAGEMENT, STATE OF CONNECTICUT
Mr. Genuario. Thank you, Senator Lieberman, and it is a
pleasure to be here. Let me, on behalf of Governor M. Jodi
Rell, extend my thanks to you for holding this hearing and
giving us an opportunity to have a conversation, a dialogue
about the stimulus package and its impact on Connecticut. We
appreciate very much the effort and the rapidity with which
this package was passed. It came to Connecticut when
Connecticut, as other States, was going through a very
difficult time.
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\1\ The prepared statement of Mr. Genuario appears in the Appendix
on page 252.
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I might add that the current economic crisis may adversely
impact Connecticut to a greater degree than most other States
because of Connecticut's dependence or involvement in financial
services industries, both from the point of view of its
population and from the point of view of the revenues that the
industry generates for the State budget so that the State
budget can provide services to many others.
So, by way of backdrop, at the time the Congress and the
President were putting together the package for our Nation,
Governor Rell, my office, and members of the Rell
Administration, were putting together a proposed budget for the
General Assembly's review, and we were facing very substantial
deficits. Our revenue situation had deteriorated significantly.
My office had projected a $6 billion deficit back in January
over the 2-year period. Since that point in time, my office has
looked at the data that is coming in, and we are currently
projecting a $7.4 billion deficit.
So difficult decisions needed to be made, and the fact that
the Federal Government was recognizing the problem that all
States were facing and was providing assistance--not assistance
to make all our problems go away, to be sure, but significant
assistance by virtue of a variety of revenue streams targeted
in many ways at those services that States historically have
stepped up to the plate on and have provided for their
populations.
So Connecticut, we believe, began even before the Federal
legislation was adopted by including our best estimates of what
that legislation would provide in Governor Rell's State budget.
We have been working with various agencies at the Federal level
ever since to make sure that we are in a position to maximize
the benefits of this legislation for Connecticut and
Connecticut's citizens, and to do so in a way that makes
Connecticut citizens proud and the Federal Government proud and
keeps to the goals of transparency and accountability that are
contemplated by the legislation.
To that end, Governor Rell issued Executive Order No. 25,
which calls for the creation of a State accountability officer,
a State transparency officer, and a stimulus project oversight
officer. The governor is very focused on making sure that
Connecticut leads the way in demonstrating how transparent a
process this can be. Early on in the process, the governor
called together groups of legislators, municipal leaders,
representatives from the nonprofit community, and stakeholders
of all sorts to try to put together a list of projects that
would meet the shovel-ready definitions in the Federal
legislation. That has been an open and transparent process. She
created very early on in the process a State Web site to follow
the workings of this group. Decisions that are made are posted
immediately on the Web site as those decisions are made. Those
meetings are public, recorded, quite transparent in the manner
in which the decisions to move the stimulus money--particularly
what I would call the shovel-ready or the infrastructure
portion of the stimulus package money--out to Connecticut
citizens and to the folks who will create the jobs and improve
the infrastructure for the State of Connecticut contemplated by
the Act.
As you might imagine--and I think as everybody recognized
going forward--because of speed with which this legislation was
developed, because it was developed at a time when States were
putting together their own budgets, there has been and
currently is a lot of interaction between our State agencies
and their counterparts on the Federal level as policies on the
Federal level are developed to tell us what we can do and what
we cannot do with the money, how we can access it, what it is
intended to do, what are the limitations, what are the
condition on it.
Chairman Lieberman. Are you finding the Federal Government
personnel responsive?
Mr. Genuario. We are finding them to be very responsive,
Senator, and that is really one of the most pleasant
experiences about this. These are complicated questions. There
is a clear policy contemplated by certain provisions of the
Act, but by its nature, there is not time to adopt formal
Federal regulations for the use of this money consistent with
the speed with which we would like to see the money get out.
But my office, and the offices of various State agencies, have
had numerous phone calls, conference calls, meetings with their
counterparts at the Federal level, and we have found the
answers are coming very quickly and that the Federal Government
is showing a demonstrable willingness to work with the States
in order to solve problems that come up on a day-to-day basis.
So we are very pleased with the Federal Government's response.
Chairman Lieberman. Good.
Mr. Genuario. From where I sit, Senator, assisting the
governor in promulgating and hopefully passing a State budget,
the help that came to us by way of a stimulus package was very
important to us. And as far as its impact on the State budget
itself as a budget and as a mechanism to deliver services,
those funds fall into several categories. First and foremost,
there is the increased Federal Medical Assistance Percentage
(FMAP) Medicaid money, that Connecticut will share generously
in. Connecticut will receive over the course of 3 years about
$1.3 billion additional Medicaid reimbursement. That will begin
in fiscal year 2009, which is important because the State faces
a significant deficit for the fiscal year that we are in. It
will also assist us over the course biennium.
There are, appropriately, conditions although, in my view,
not too onerous in terms of the use of that money. When the
governor proposed her budget, some of those conditions were not
known. We will necessarily withdraw a proposal or two that she
had made that are inconsistent with those conditions. But, by
and large, the additional FMAP money does not unduly constrain
the States in our view in order to access it.
Perhaps I am speaking more from Connecticut's point of
view. Connecticut tends to have relatively generous benefit
packages, and I will use the unemployment compensation
component as an example. Connecticut stands to get about $87
million in additional unemployment compensation money.
I noted in some of the national colloquy that certain
conditions are required; certain benefit levels at the State
level need to be adopted in order to access that money. The
truth of the matter is Connecticut already meets 95 percent of
those conditions from a benefit point of view.
We did need--and the governor has proposed and the
legislature is poised to adopt--one fairly inexpensive
improvement to that benefit package in order to access that $87
million. We are quite willing to do it. From where I sit,
again, it will probably cost us $2 to $3 million per year. I
think any businessperson would be willing to----
Chairman Lieberman. That is a good deal.
Mr. Genuario [continuing]. Undertake that additional burden
in order to access the $87 million at a time when it is sorely
needed.
The other significant component of the stimulus package
that flows through the State budget is the State stabilization
fund. Obviously, that is targeted primarily, though not
exclusively, towards making sure that we are able to continue
our commitment to funding public schools. And the governor has,
in fact, proposed a budget that will provide an amount of money
to public schools in Connecticut equal to that which it
provided last year. The governor essentially flat-funded all of
its major educational grants. And I say that with some pride
because in this day and age of shrinking revenues, flat-funding
is a sign of priority. We are not in a position to increase our
funding in too many areas, so that if we are able to maintain
our commitment over the course of the next 2 years and,
therefore, be in a position to continue the gains in those
areas in the out-years, it is a win for us.
I might add that Connecticut under Governor Rell's
leadership provided one of the most significant increases in
public school funding over the last biennium, so we are
starting at a higher plateau than we would have been say 3
years ago.
The stabilization money does provide--and it is somewhat of
a curious mechanism, but not one that I believe we will find
difficult to work with. But we need to appropriate less than
what we appropriated last year in order to access the money.
But if we do so, then that money will then flow to the
municipalities and the boards of education in amounts equal to
what they would have gotten under the grant. It is not a
provision that we think in the long run will provide us any
difficulty. We will have to craft legislation that will
accommodate that condition, but at the end of the day, the
result will be the same, that every public education entity
will get the same amount of money this year that it got last
year consistent with the governor's proposal.
The stimulus package also provides additional money under
Title IV-E in order to assist Connecticut in its efforts to
provide programs and services for children who are in need of
adoption and in need of the services of the Department of
Children and Families, and we are grateful for that as well.
Beyond those three areas that flow through the State,
Connecticut will receive approximately $150 million--and when I
say Connecticut now, I am talking about entities other than the
State itself--in other education programs, primarily special
education, which we are grateful for, and educational
technology; $450 million in transportation infrastructure
money; $48 million in clean water funding; $64 million in
weatherization; and $38 million in other energy programs.
All in all, the stimulus package has provided the State
with needed resources at a time when the State needs it the
most. We are grateful for that, and we are particularly
grateful with the efforts of the Federal Government to make
clear the methods and conditions that we need to comply with in
order to access these funds.
Chairman Lieberman. Thanks, Secretary Genuario. That gets
us off to exactly the right start, and I think your testimony
perhaps shows--I tried to say this in my opening statement
also--the main goal of the stimulus package was to get money
out into the economy quickly to stop the slide down of our
economy, but obviously also we had two other goals, which are:
First, not to spend it so quickly that it is wasted or it is
subject to fraudulent uses; and the second, obviously, is to
make sure that it gets used for the purpose for which we
intended it.
Let me ask you just a factual question at this point about
the flow of money to the State now from the Federal Government.
Has it begun in a significant way?
Mr. Genuario. We have not actually received the cash yet,
but----
Chairman Lieberman. But the check is in the mail.
Mr. Genuario. The check is in the mail. [Laughter.]
We do expect to be receiving it very shortly, particularly
the fiscal year 2009 Medicaid money. Our counterparts down in
the Federal Government have assured us that those dollars are
available.
We need to file our applications. The applications are
involved. I think we are poised to file our application for the
energy funds today. I was told, though, late last night that
the electronic components are not up to receive the application
as yet. But those are things that will be worked out.
So, as you say, I think the check is in the mail. I am very
confident that we will receive it by the close of business----
Chairman Lieberman. In a timely fashion. I appreciate that.
That is a good beginning.
The challenge here is to make sure that the money is spent
for what we wanted it, not just to avoid waste and fraud but to
get to the benefits we wanted. And I will admit that there were
mixed feelings, at least, in the Congress, probably in the
White House, too, about this. We do not want it to be used just
to pay for the operations of State government that otherwise
would have to be paid for in the State. On the other hand,
clearly, if one of the things we are doing by getting the money
to you is to enable the State and local governments, education,
etc., not to have to let people go, then that is part of what
we wanted to do. And that line is a difficult line, and I think
it is one that we will probably hear about as we hear our next
three witnesses.
John Yrchik is the Executive Director of the Connecticut
Education Association (CEA), and education obviously was very
much in the minds of Members of Congress and the President in
adopting the stimulus package in all the ways that I have
stated. So please proceed now with your testimony, Doctor.
TESTIMONY OF JOHN P. YRCHIK, PH.D.,\1\ EXECUTIVE DIRECTOR,
CONNECTICUT EDUCATION ASSOCIATION
Mr. Yrchik. Good morning, Chairman Lieberman. I want to
thank you for your invitation to appear at this hearing on the
American Recovery and Reinvestment Act, and I would like to
thank you, Senator Christopher Dodd, and other members of our
congressional delegation for your roles in assuring the passage
of this legislation. The CEA would like to commend you and
other Members of Congress for recognizing the critical
importance of education in our economic recovery.
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\1\ The prepared statement of Mr. Yrchik appears in the Appendix on
page 256.
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In the next 2 years, over three-quarters of a billion
dollars in new education aid will flow into Connecticut. This
aid is unprecedented both in size and in nature. It is the very
first time the Federal Government has stepped in to directly
fund school funding formulas. But even with this enormous
infusion of Federal dollars, like other States, Connecticut is
projected to have layoffs and reductions in positions in a
number of districts in our State. The reason for this, as
Secretary Genuario has alluded to, is in part due to the
enormous concentration of financial services jobs in our State.
We have approximately 60 percent more financial services jobs
than other States on a national average basis, and those jobs
in turn produce many other jobs. So when the rest of the Nation
has a cold, we catch the flu, and that is really what we are
struggling with. The size of our deficit is a matter of great
dispute in our State. One projection has it as high as $8.7
billion, or approximately one-quarter the size of the entire
budget.
Connecticut is one of the relatively small number of States
that is proposing to use the State fiscal stabilization fund to
supplant State aid that the State currently provides to
municipalities. Our State may be alone in proposing to use the
entirety of the State fiscal stabilization fund to backfill
existing State education aid to municipalities with Federal
dollars, and in doing this, our State will have reduced its
actual commitment to education aid by over 14 percent over the
next 2 years.
Connecticut's governor did have the option of using
stabilization funds to exceed the fiscal year 2009
appropriation but chose not to do so. And as Secretary Genuario
said, we are not funding municipal aid to education at the
level of current services. And next year, the State will be
contributing 21 percent less than what it would have
contributed if it merely provided an increase sufficient to
maintain current services at this year's level of education
cost-sharing grants.
But, I have to say that as difficult as the situation is
now, it would undoubtedly have been far, far worse had the
American Recovery and Reinvestment Act not passed Congress. By
way of illustration, our State Board of Education earlier this
year passed a budget in which it cut education cost-sharing
grants by 12 percent. Had a cut of this magnitude or anything
like it survived the legislative process, it would have had
catastrophic results on education in Connecticut.
Chairman Lieberman. And I presume, if I can draw you out on
that, that would have meant significant layoffs of teachers and
other school personnel.
Mr. Yrchik. Enormous. And so I think it has to be said
that, as bad as things are now, they would have been
considerably worse had these funds not been available, and that
is a point that has to be stated categorically.
At the same time, because these are one-time funds and our
State is using them to supplant existing State dollars, the
question arises: What will we do when the funds run out and our
State does need to begin, it seems, rather soon to develop a
plan to deal with the hole in the budget that will come when
the Federal dollars are no longer there? That is one challenge.
Another one is that as a condition of accepting the
stabilization funds, the State has to make progress in four
areas: Teacher effectiveness, standards and assessment,
improving achievement in low-performing schools, and creating
systems that track student progress.
In the governor's original budget, she eliminated the
funding for a mentor program that would have been extremely
important in improving effectiveness in our State, and
particularly in ensuring teacher quality across Connecticut
districts.
Chairman Lieberman. Mentoring for teachers.
Mr. Yrchik. That is correct.
Chairman Lieberman. Not students, right?
Mr. Yrchik. Yes.
Chairman Lieberman. Important.
Mr. Yrchik. In addition, her original budget eliminated
funding for a program called CommPACT Schools, which takes some
of our lowest-performing schools and, in a historic
collaboration with the School of Education of the University of
Connecticut (UConn), attempted to turn them around using a
whole school reform approach that has been proven successful in
many other parts of the country.
Both of these programs have been restored in the most
recent budget of the General Assembly, and we are hopeful that
they will survive the legislative process.
Last, with respect to transparency, we believe that our
State's efforts to ensure transparency are adequate, and we
believe that they are doing an admirable job in trying to track
the use of funds. I would just say that we want to ensure that
the need for transparency does not create so many
administrative burdens that it becomes counterproductive, and
that is something I think we will monitor as we go along.
On the subject of IDEA, our State will be receiving $133
million in IDEA funds.
Chairman Lieberman. Please define IDEA?
Mr. Yrchik. IDEA is the Individual with Disabilities
Education Act. The Federal Government originally committed to
spend about 40 percent of the total costs of IDEA when the Act
was first passed. Currently in our State, it spends something
like 16 or 17 percent. With the stimulus package came an
enormous infusion of new IDEA dollars. The State currently
receives $150 million in IDEA funds and over the next 2 years
will receive an additional $133 million.
Chairman Lieberman. Almost doubling. Or a little less.
Mr. Yrchik. A 60-percent increase in each of the next 2
years, correct. And one of the things that the last
reauthorization allowed is for school districts to use 50
percent of the increase, just 50 percent of the increase, to
supplant State and local funds currently being expended on
special education to defray other costs in the school operating
budgets.
In a time like this, when teachers are being laid off in
many parts of the State, this would seem to be an important
issue. But so far, school districts have not really moved to
aggressively use the IDEA funds that can be freed up in this
way to prevent layoffs. I think in part that is because at an
initial meeting of superintendents, they were not told that
they could. And then when guidance finally came from the State
department, they were told that if they did, they could have
holes in their operating budget 2 years from now.
But given that these funds are arriving in our States under
the guise of an act whose primary purpose is to preserve jobs,
to retain jobs, and to create jobs, it would seem to be
important that we look at the potential uses of money in this
way to do exactly that.
I would also like to talk about Title I, which is education
for disadvantaged students. In fiscal year 2009, Connecticut
received $102 million and over the next 2 years will receive an
additional $97 million, roughly a 50-percent increase in each
of the next 2 years. A perennial criticism of No Child Left
Behind has been that it was underfunded, and one of the primary
areas of criticism was that Title I was underfunded. And with
this historic increase, it would seem we are much closer to our
goal of properly funding No Child Left Behind.
The problem is that these are not ordinary times, and in
the context that we are in, we are looking at effectively a
reduction in State aid because level funding is a reduction for
next year. We are looking at layoffs, eliminations of programs,
positions, and pretty severe fiscal stress in many
municipalities. And I think the question really is: Can $97
million over 2 years adequately compensate for the losses that
will come to education from the distress that I have just
mentioned?
In normal times, it would be used to provide professional
development, to create after-school tutoring programs, pre-K
programs, and other things that we know work. But at this time,
it is difficult to know what its effect will ultimately be. It
will ameliorate some of the effects of the distress, but
whether it will ultimately be able to help districts fulfill
the promise that comes with it is hard to stay at this point.
As with IDEA, we believe that a portion of these funds
could be used at this time to help districts preserve their
core education programs and bridge the shortage in revenues
that they will experience between now and fiscal year 2011.
What we need to do this, however, is clear guidance from our
State department and from the Federal Government, and we need
the ability to get this guidance on a rapid basis.
I would like to say just two quick points in conclusion:
That the CEA stands ready to work with the State Department of
Education in helping to ensure that these funds are used
properly; our teachers at the local level stand ready to work
with local school districts. And we believe that this is an
important time for all of us to work together.
I would like to say, too, to reiterate what I said earlier,
that the overall result of almost $800 million in Federal
funding is unreservedly positive. We believe that the promise
of the Recovery Act is great, and on behalf of the CEA and the
National Education Association (NEA), we very much appreciate
your effort to hear our stories and to work with you toward
economic recovery.
Thank you.
Chairman Lieberman. Thank you, Dr. Yrchik, both for the
tone and the substance of your statement. And I think you
really highlight the moment we are at, a moment of real need in
which this Federal money can avert and will avert some really
disastrous consequences at the State level in education, for
instance. But we want it to do more than that, and that is the
challenge that everybody has here because we want it really to
be not just a stop-gap now but an investment in a better future
for our kids through the education system. It is not easy to do
because there is a natural tendency to try to put your finger
in the dike so it does not get blown away by the water. But, on
the other hand, if I may continue this old metaphor, maybe we
really need to rebuild the dike so that it is a better dike.
That is the challenge, and I want to engage in some
conversation after we get to the other witnesses about that.
Our next witness, speaking for the health sector, is Steve
Frayne, who is the Senior Vice President for Health Policy at
the Connecticut Hospital Association. He has been a long-time
advocate and thoughtful spokesperson for better health care in
the State. We welcome you now.
TESTIMONY OF STEPHEN A. FRAYNE,\1\ SENIOR VICE PRESIDENT,
HEALTH POLICY, CONNECTICUT HOSPITAL ASSOCIATION
Mr. Frayne. Thank you, Senator. Good morning. As you said,
my name is Steve Frayne. I am the Senior Vice President for
Health Policy at the Hospital Association, and we do appreciate
this opportunity to testify on the benefits that the American
Recovery and Reinvestment Act of 2009 will have for Connecticut
hospitals and Connecticut communities. We also want to thank
the hosts here for this wonderful facility and also for all of
the students who are participating. I am sure some of them
might feel a little anxious about some of the things we are
talking about here, but I am sure you agree, as I am hopeful
most of the panelists do as well, that really we do have the
best and brightest folks working on these issues. I think we
are all very confident that we will succeed, and succeed in a
terrific way, in turning our economy around and producing some
great things for the future.
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\1\ The prepared statement of Mr. Frayne appears in the Appendix on
page 267.
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I would certainly encourage all of them, as they are
thinking about their future, to also consider careers in public
service. These are terrific careers. They are very rewarding.
Whether it is in health care, education, or in government,
these are things that we would certainly encourage them to
think about.
This morning, in terms of my testimony, I would like to
talk about a few things. One is to give a little context about
what hospitals are and who they serve. Second is to talk about
how we are doing right now. And then third is to really talk
about how the Recovery Act affords us some opportunities to, in
fact, be able to advance where we need to go as both a hospital
community and as a State as a whole.
Connecticut hospitals are really more than just facts and
figures and dollars and cents. At their very core, hospitals
are really people taking care of people. Each year, the more
than 66,000 employees who work in Connecticut hospitals do
their level best to provide the absolute highest quality of
care that the citizens of our State need.
Last year alone, we had roughly 2 million days of care
delivered by hospitals to patients in the State of Connecticut.
We also had more than 4 million outpatient visits to the
hospitals throughout the course of the State. Some of those
visits, about a million and a half of them were emergency
department visits; other visits, well over 600,000 of them,
were for basic primary care services, basic physician services
that individuals just could not find access to at a private
physician's office, and they needed to seek out that care in a
hospital.
We also contributed quite significantly to the overall
economy of Connecticut. Last year, those 66,000 jobs together,
with the direct employment and then the employment for all of
the other jobs that actually provide services to hospitals,
combined produced over 97,000 jobs in the State of Connecticut,
almost $13 billion in economic activity, and we purchased
nearly $6 billion in goods and services locally here in the
State of Connecticut.
So, obviously, hospitals are a fairly significant part both
of the economic health of the State as well as the personal
health or contributing to the personal health of those who need
our assistance when they are ill.
In the best of times, the ability of Connecticut's
hospitals to contribute to the general economy as well as to
providing high-quality care is often taxed, and taxed quite
significantly. In a routine year--and, obviously, we are not in
a routine year--it is quite typical for hospitals to experience
well over half a billion dollars in losses providing services
to individuals who are enrolled in State and Federal programs,
as well as the uninsured. This is really a fairly significant
burden, one which we have to figure out how to deal with on an
annual basis. It never goes away and it grows larger and larger
every year.
As I said, obviously these are not typical times, and what
we are experiencing, unfortunately, for the very first time in
our history is a situation where those instances where we have
had investments that we were able to use to help offset some of
those losses through Federal programs or State programs, those
investments, not dissimilar to what other folks are
experiencing in their 401(k)s or dollars that they might have
had saving for the future, have declined quite dramatically
over the last year. We are now in a situation where not only
are they not contributing to our ability to manage some of
these routine losses, they are actually adding to the losses on
a routine basis. And this is really a very devastating
situation that we find ourselves in at the moment.
Switching to hopefully some of the good news, thankfully, I
think, Senator, with your leadership, Congress is delivering
some very significant relief to the State of Connecticut. It is
much needed, and we are clearly very appreciative of all the
hard work that you and your staff and others in Congress have
put forward to bring desperately needed funds into the State of
Connecticut.
I am going to talk about four elements of the Recovery Act
and how those might be particularly helpful to hospitals.
I think earlier, Mr. Genuario referenced the Medicaid match
and how that will provide a significant benefit to the State,
particularly in its ability to be able to continue to provide
much needed access to health care. Where we stand at the moment
in terms of how those funds are going to be used is we have
kind of a range of options, anywhere from, on the upside or the
best of situations as it currently looks, we may experience no
cuts to our current levels of funding; and in the worst-case
scenario, there are proposals out there where there may be
potentially upwards of $170 million worth of cuts over the
course of the next 2 years.
This is a difficult situation, and I think it gets to the
point that you were raising earlier, which is where is that
fine line and do we find the right place where, on the one
hand, we both stimulate the economy and preserve jobs and
increase jobs in our State and, on the other hand, we also make
it possible for the States to help balance their budgets. That
is a very difficult line to find, and I think, respectfully, we
all may have very different opinions sometimes around where
that line may lie.
Our view, obviously, is that first and foremost those
dollars are intended for Medicaid and need to be used for
Medicaid. We think that it is absolutely critical that we
preserve access to health care for those folks who, through no
fault of their own, find themselves in a situation where they
need to rely on the State and Federal Government for their
basic health insurance. So we certainly do not want to see any
of those funds not used to both preserve access as well as to
meet the growing number of individuals who need to use those
services.
Chairman Lieberman. So you would say your minimal goal for
the use of the Medicaid reimbursement or support that is part
of this bill, is that there be no cutbacks in services
available to anyone in the State eligible for Medicaid?
Mr. Frayne. Correct. That is our minimum starting point for
which we think those funds should be used.
Chairman Lieberman. Let me just interrupt you. I do not
usually interrupt, but since we are at home, Secretary
Genuario, do you accept that goal or does the State accept the
goal?
Mr. Genuario. We have proposed some changes to our Medicaid
plan, changes that I think are reasonable. I do accept as a
general premise that Medicaid is an important program, that
there should be no deterioration in rates that we pay for
services, and that there should be no deterioration in
eligibility for Medicaid services. But I think the State should
reserve the right and is entitled to reserve the right
concerning the particular programs that it provides and whether
or not modifications in those programs are warranted.
Chairman Lieberman. So that means what?
Mr. Genuario. I will give you an example.
Chairman Lieberman. Yes. Obviously, what I am interested in
is whether it means a reduction in benefits under Medicaid in
the State.
Mr. Genuario. I will give you a couple of examples, and
they are examples that vary in range. But Connecticut, for
example, for those who are dually eligible for Medicaid and
Medicare, pays for preferred policies as opposed to benchmark
policies offered under the Federal Medicare Part D plan.
Chairman Lieberman. That is the prescription drug program.
Mr. Genuario. Yes. Under the governor's proposal, this
year, given our economic times, we have suggested that the
State will pay for benchmark plans but not for preferred plans.
I know of no other State in the Nation that pays for the
preferred plans.
So there are changes like that that I think are
appropriate.
Chairman Lieberman. Mr. Frayne, do you want to react to
that? Would that meet your minimum threshold or does it go
beneath it?
Mr. Frayne. I think in the example that the Secretary
provides, it probably could meet it, but I think there are a
number of other changes which have been proposed that, we have
testified before the legislature that we think do not, for
example, imposing co-pays on individuals, requiring them to
share in a cost of the premium, I think changing who might be
necessarily eligible for the program or some of the benefits of
the program. I think in those instances we would hope, first
and foremost, we use these dollars to make sure--we do not have
to make it more difficult for folks.
Let me just say, we do genuinely appreciate this
Administration and those in the legislature who are having to
wrestle with these incredibly difficult problems.
Chairman Lieberman. Yes, tough times.
Mr. Frayne. How to balance this and make it work. We
certainly do not envy the decisions that they have to make. And
I think it is our goal to, as respectfully as possible,
communicate to them our views on how these things might work
and how they could best be used and how actually they can help
create jobs in the State.
One of the things that has been kind of a consistent theme
of ours is that, in order for it to be a stimulus, it actually
needs to have some portion of increased spending. If, in fact,
all we do is crowd out the State dollar for a Federal dollar
and there is no actual increase in spending, then, in fact, in
part some of the stimulus impact has been lost.
We think, quite frankly, there is a way to balance the
objectives of both preserving the Medicaid program intact for
those who are in need of it, helping the providers so they can
continue to provide that care, and having an enormous amount of
funds left over to, in fact, contribute to the State budget. So
we think we can meet all three goals.
Chairman Lieberman. OK. That was an important exchange.
Incidentally, I would say this with regard to education,
health, and the whole array of child services that Sharon
Langer is going to talk about: Part of why I am doing a hearing
like this and why we are continuing our oversight is, as I said
earlier, to make sure that we are achieving in a difficult time
the goals we want to achieve. And I will tell you that Congress
will reserve the right to legislate again on this before this
2-year period is over if we think that the difficult balance--
nobody is making it easy--between sustaining current services
and investing in new services that are meant to improve our
future, is not met adequately, not only here but across the
country. I think you can expect Congress to get back in and
mandate or speak more clearly in some areas of this law where,
frankly, there was some room left for judgments at the local
level.
So, I am sorry, go ahead, Mr. Frayne. Please finish your
statement.
Mr. Frayne. There are a few other things that I would talk
about that are in the Recovery Act. There is the provision to,
in fact, provide to hospitals in particular access to
additional funds to deal with the fact that the number of
individuals in this State who find themselves without any
access to health insurance at all and, therefore, perhaps not
access to basic fundamental care. Those numbers of individuals
are growing, and thankfully, as part of this legislation, there
was a provision in there that said we are going to open up some
additional funding to States to allow them to be able to pass
that on to providers.
One of the caveats or one of the hooks that causes those
funds to come in is at first the State has to be currently
expending all of the available dollars that it could access.
This is a program called the disproportionate share program.
Every hospital in the State of Connecticut is, in fact,
eligible for those, so it is not a program just limited to
cities or towns. It helps suburban hospitals and urban
hospitals and large hospitals and small hospitals.
Sadly, in this instance, as we see it, we are not going to
be able to get access to those funds principally because, as it
stands right now, the State is not fully accessing existing
dollars. So it would require in this environment to have the
State actually increase spending, which is not likely--not
possible, really. And, therefore, I think those dollars will
not be able to be accessed for the purpose they were intended.
On this point--and I think the next two points that I am
going to raise--as Congress thinks about these things in the
future, one of the things that we would hope some thought is
given to, particularly when the States find themselves in a
very difficult place where they need to spend a dollar in order
to bring in a dollar, perhaps it might be better in the future
when the States find themselves in a situation where they
literally cannot spend another dollar, even though they may
want to do everything they can to help us, they just find
themselves not in a position to do so. And I would at least
propose for consideration that we find some way to make sure
that those dollars that you are looking to send to us are not
simply contingent upon the good will or the ability of the
State to be able to access those funds.
Chairman Lieberman. That is a good recommendation. Yes, I
take your point.
Mr. Frayne. The last two things I would talk about are
interrelated with each other. There are dollars that will flow
through the Medicare program starting in 2011 over the course
of 4 years. Actually, a fairly large sum of funds, probably
about $150 million, will come into the State of Connecticut
over the course of 4 years. The purpose of those funds is to
help hospitals, in fact, implement electronic health records so
that we can actually improve the quality of care that we
provide to patients. What many may not know is that these kinds
of undertakings--electronic health records, physician order
entry systems, and computerization, really of a lot of what we
do in health care--are extremely expensive, very time-
consuming, and could take multiple years to complete these
projects. It would not be unusual for an average hospital to
have to spend upwards of $20 to $30 million and be engaged in a
3 to 5-year project to implement these things. So these kinds
of resources coming through us would be extremely beneficial
and should go a long way to helping us succeed.
The very last point which is related to that is--and one I
hope that we will be able, in fact, to work with the Secretary
on and the balance of the Administration and the legislature--
that there is another provision in the law which relates to
this that says States can actually create loan programs to, in
fact, help providers--not just hospitals but physicians and
other providers--be able to borrow money so that they can, in
fact, purchase these electronic health record systems, which we
know are extremely expensive. And it is really unprecedented, I
think, the benefit of this program, where the Federal
Government will match $5 to every $1 the State is able to put
forward.
Now, obviously, we realize it is a very difficult time for
the State to even come up with the $1, but we are hoping that,
given the fact that this is not a grant but it is, in fact, a
loan program, we will be able to find during the course of this
legislative session both the will and the commitment and the
means to be able to do this, because I think we really need to
be looking out for the next several years on how are we going
to improve the care that Connecticut citizens want and expect.
So I think I would just conclude that, as I said earlier
on, we are clearly very appreciative of all the hard work that
you personally have put into this Act. And I think yourself as
well as the Congress have really put before us really an
unprecedented opportunity, one which we really just cannot
afford to squander. We have to find a way to make this work. We
have to find a way to balance both the needs of the citizens in
Connecticut and the care that they need along with balancing
the State budget. I am reasonably confident that we are going
to be able to do that. Thank you.
Chairman Lieberman. I appreciate that very much. Thank you.
I would just say a word to the students about something you
said earlier, which maybe is not evident. The hospitals of
Connecticut, the health care system, like the schools, do not
just deliver a service, which is health care or education. They
are tremendous centers of economic activity. In almost every
city in this State, probably the largest employer or close to
the largest employer is the local hospital. And part of why we
want to keep them healthy is not just so that they keep us
healthy, but that so they keep our metropolitan areas healthy
economically. And part of why we want this money to be used to
avoid the disastrous layoffs of teachers, for instance, that
would have occurred without the stimulus funding is that, to
say the obvious, you want to protect the jobs. I always feel
the best thing government can do is to try to help people get
and hold good jobs to provide for themselves. But if they lose
their jobs, they obviously do not have the money to go out and
buy the things they would normally buy, and that trickles down
in the economy so that the recession gets worse and worse.
Stores close, etc.; other people get laid off because the
stores are closed.
Anyway, that is why at the center of this stimulus program
the first goal was to protect and create jobs, for the jobs
themselves but also for what they mean to the rest of the
economy.
That is the end of my economic lesson for today, students.
Sharon Langer is the Senior Policy Fellow at Connecticut
Voices for Children. Thank you for being here, and thanks for
your patience.
TESTIMONY OF SHARON D. LANGER,\1\ SENIOR POLICY FELLOW,
CONNECTICUT VOICES FOR CHILDREN
Ms. Langer. Thank you, Senator Lieberman. I am honored to
be here today, and I echo many of the sentiments of the other
panelists. I am here on behalf of Connecticut Voices for
Children. For those of you who do not know, it is a research-
based public education and advocacy organization which works
statewide to promote the well-being of Connecticut's children,
youth, and families. And I appreciate particularly the
invitation to discuss the enormous challenges that our State
faces in ensuring that the stimulus funds for health care and
education are spent quickly, wisely, and fully.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Langer appears in the Appendix on
page 273.
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And I echo Mr. Frayne's comment that I do not envy
Secretary Genuario his job, but I want to say on behalf of
those of us who are not part of the government, who are not
either in the Executive Branch or the legislature, that we
stand ready--and I think the Secretary knows that Connecticut
Voices for Children stands ready--to be a partner, not merely
to criticize, but to be a full partner in helping the State
move through this very difficult next 2 or 3 years. And I am
delighted that the Federal Government, represented by you,
Senator, and Secretary Genuario today representing the State,
that you are here together, that this is a dialogue that
hopefully will continue on many levels.
I will just reiterate a couple of points that others have
made.
We know that our State is reeling from the collapse of the
financial markets, the slump in the housing market, and the
alarming increase in our State unemployment rate, which I
believe is approximately 7.4 percent. And at the same time, the
governor and the State legislature are faced with tackling a
projected State budget deficit, as we have heard earlier, of
anywhere between $6 and almost $9 billion for the two State
fiscal years that will begin July 1. And just to keep it in
perspective--and I think maybe Dr. Yrchik actually said this--
if we have a projected State deficit for 1 year that is
anywhere between $3 and $4.5 billion of an $18 billion State
budget, that is approximately 25 percent of our State budget,
which is unprecedented. And at the same time, Connecticut, our
little State, which has 169 cities and towns, faces terrible
budget choices, including the town of West Hartford that I live
in. And as a result, I agree that the Federal stimulus dollars
have come none too soon to help our State keep its commitment
to children, struggling families, and all the residents of our
State.
I also want to reiterate what has been said before about
the Federal Government agencies--the Department of Health and
Human Services, the U.S. Department of Education--it is
seemingly unprecedented that they have been able to issue
guidances to help the States understand and interpret the
stimulus legislation. And I think that those kinds of efforts
by the Federal Government are enormously helpful. It is my
understanding that the Federal Government and its State
partners are on the phone, practically daily and for weekly
conference calls.
I would urge both the Federal Government and the State
government, to engage nongovernmental stakeholders in these
conversations. I was in Washington recently, and one of the
general counsels for the Department of Health and Human
Services talked about the fact that they are trying to figure
out how to reach out to others who are very interested in
understanding how this money is used, both to make sure that it
fulfills the multiple objectives to stimulate the economy and
to preserve critical services. It is also so important that
everyone knows what is happening on the ground so there is not
unnecessary concerns about waste or fraud. I mean, everyone has
to be vigilant given how much money is at stake and how quickly
the attempts are being made to move it on the ground.
We were particularly pleased that the Department of Health
and Human Services, its Centers for Medicaid and Medicare
Services, came out with a guidance that really explained to the
States what they can and cannot do in order to receive the
increase in the Federal Medicaid matching funds. And I just
want to say, for those of you who do not know, that the
Medicaid program in Connecticut alone provides critically
needed health care services to one out of four children. Over
30 percent of the births in this State are to moms on our
Medicaid program (which includes those moms on the Healthcare
for Uninsured Kids and Youth (HUSKY) A program).
While the guidance from the Federal Government and the law
make clear that the States cannot cut back their eligibility
rules, there are many other ways, as we know from years and
years of research, that you can create either intended or
unintended barriers to getting families on publicly financed
health programs, keeping them on, and getting them services.
Proposals that have been put forward to institute cost-shifting
onto low-income families, persons with disabilities, or elderly
folks, garner savings by inhibiting people's ability to either
get on the program or to access the health services. So we
encourage both the Federal Government and the State Government
to really carefully assess whether such proposals are in the
best interests of children and families.
I would also point out that we have to appropriate the
Medicaid dollars, in order to draw down the stimulus funds to
appropriate the money. We have to spend the money in order to
receive Federal reimbursement. And so there is not a guarantee.
And so to the extent that we are cutting back in our Medicaid
budget, for example, we put at risk our ability to access all
of the Federal dollars that we get from the Federal Government.
I also want to reiterate what Mr. Frayne said, that we are
worried that Connecticut may forego opportunities to utilize
all the Federal funds available because Connecticut, quite
frankly, has a long history of leaving Federal funds on the
table, whether those are Medicaid funds, as Mr. Frayne said, a
disproportionate share of hospital payments. During the 10
years of the Children's Health Insurance Program, we left a lot
of money. Delightedly, the law with your help and the help of
your colleagues, Senator Lieberman, the Children's Health
Insurance Program (CHIP), was recently reauthorized. It is a
fabulous law. It attempts to fix the funding problems to give
States many options to cover more children, to simplify
eligibility requirements and processes, to do outreach. And,
quite frankly, Connecticut is very unlikely to take advantage
of most of the opportunities in that law, partly because of our
fiscal crisis and partly because Connecticut in some ways has
been ahead of many other States, and it will just be a very
difficult process.
The other challenge has to do with the way that Connecticut
actually budgets. I do not know if there are other States that
do this, but we are one of a few States that gross budgets both
the Federal Medicaid dollars and actually the Title IV-E
dollars, which, as Secretary Genuario said, goes to fund our
child welfare program to help families adopt children. Those
are really our poorest children in the State. And we also gross
budget, which means we appropriate many of the Federal block
grant funds that the Federal Government sends us.
So what that means in plain English is that the Federal and
State dollars are combined in line items of the State budget.
For example, the anticipated Medicaid stimulus funds in the
form of the increased what they call Federal Medical Assistance
Percentages (FMAP) payments to the State will just appear as a
Medicaid line item in the State Department of Social Services
budget. And as a result of this longstanding practice of
including the Federal funds without explanation in the State
budget, it will be difficult to track the actual use of the
stimulus funds.
I am delighted to hear from Secretary Genuario, and after I
wrote my testimony, I did become aware that the governor has
issued an executive order to create various positions, a
stimulus project oversight officer, and the like. And so, in
order to facilitate increased transparency and accountability,
we would urge the governor to make sure that any work of these
officers is put on the State recovery Web site and that the
work of any work groups that Secretary Genuario referred to is
also on the State's recovery Web site.
I would also let you know that Connecticut Voices for
Children has created our own web page concerning the Federal
stimulus, and so as soon as we see something new, whether it is
a guidance from the Federal Government, information from
Secretary Genuario's office, or elsewhere related to the
implementation of the stimulus, we have put that information
on----
Chairman Lieberman. Ms. Langer, let me interrupt and I
apologize. The time is going on.
Ms. Langer. I am basically done.
Chairman Lieberman. Let me say for the record that we are
going to enter everybody's statement in the record in full--and
I have read them; you have some good statements. I want to
leave some time for back and forth. But I appreciate what you
have said.
I actually want to pick up on the final point that you
made. The Recovery Act itself and the President are very set on
this being as transparent and accountable a program as we have
ever had in the Federal Government, particularly using
technology and the Internet. The government set up a Web site
called Recovery.gov, and as of last Thursday, when I held my
second hearing on this in Washington, the Web site had received
over 300 million hits since about the middle of February when
the Act was signed. It is quite startling how much interest
there is in what is happening, and the President has set some
very high standards that have never been met before here for
people to be able to follow contracts, and to follow money from
the Federal to the State to the local level.
So I want to ask you, Secretary Genuario, first, what the
State is doing to try to comply with those requirements?
Mr. Genuario. The State has its own Web site.
Chairman Lieberman. Specifically with regard to the
stimulus?
Mr. Genuario. Absolutely.
Chairman Lieberman. What is that address? Ah, I got you.
Mr. Genuario. You got me on that one. It has its own Web
site. I think it is up on the governor's----
Chairman Lieberman. Ms. Langer, what is it?
Ms. Langer. I have it.
Mr. Genuario. Terrific.
Chairman Lieberman. What is it?
Ms. Langer. It is www.recovery.ct.gov.
Chairman Lieberman. That is recovery.ct.gov, good.
Mr. Genuario. Thank you.
Ms. Langer. You are welcome.
Mr. Genuario. I was going to point out before that when I
want information, I go on Connecticut Voices' Web site.
[Laughter.]
But Governor Rell's office, early on, formulated its own
Connecticut stimulus Web site. It can be accessed directly. It
can be accessed off the governor's own Web site. The minutes of
every working group meeting are posted on that Web site.
Decisions that the working group make or that the governor
makes following recommendations of the working group are posted
on the Web site. Decisions have already been made with regard
to certain Department of Transportation infrastructure. Not
only have those decisions been made, but as contracts are
entered into, those will be posted on the Web site.
So I think Governor Rell has actually been in the forefront
of making sure that this is a transparent process. Backing up,
even before that, she engaged a variety of stakeholders in
order to help make decisions in these areas.
Chairman Lieberman. That is really important, and to say
what is obvious to you at the table, this transparency that you
will find on the Federal Web site and now on the State Web site
is important for many reasons, one of which is obviously for
people to figure out how to access funding under the stimulus
bill; but the second, of course, is to see how it is being
spent and in a certain sense to enable any citizen to become a
whistleblower, to say, for example, the Web site says that this
money is being used to build a new building in my town, and I
live across the street from that property and nothing is
happening. So it is very important.
As part of this desire to make sure the money is spent
wisely, we set up a Recovery Accountability and Transparency
Board, which is being headed by Mr. Devaney, who is the
Inspector General at the Interior Department. He has said that
one of his goals will be to try to help the States in fraud
prevention and waste prevention by conducting briefings.
Is that something you think would be helpful for State
officials?
Mr. Genuario. I do think it would be helpful, and I think
we all need to be conscious of the fact that this is a lot of
money going out the door relatively quickly.
Chairman Lieberman. Right.
Mr. Genuario. So I think that would be very helpful.
Chairman Lieberman. Incidentally, we appropriated, believe
it or not, $250 million over the 2 years for the hiring of
additional inspectors and investigators for the inspectors
general to pursue the spending of money across the country,
just as a kind of guarantee.
I know you mentioned some appointments Governor Rell has
made. Governor Schwarzenegger recently got some attention by
employing a separate inspector general at the State level to
monitor stimulus spending in California. Is the governor
contemplating anything like that?
Mr. Genuario. She has made several appointments. She has
appointed a transparency officer, an accountability officer. We
are looking to hire a stimulus officer who will track each and
every project within that office.
Chairman Lieberman. So that would be the equivalent of what
Schwarzenegger has done in California.
Mr. Genuario. Exactly.
Chairman Lieberman. And I think in your prepared testimony,
Ms. Langer, you endorsed a State Senate bill?
Ms. Langer. Right, and it was a Senate bill before the
State legislature that basically would set up a commission to
do what I believe Secretary Genuario is talking about. We
applaud the governor for instituting these kinds of offices,
and what is important to us is the transparency and the
opportunity to give feedback.
Chairman Lieberman. So do you still favor the creation of a
State commission on Federal stimulus fund distribution, or do
you think what the governor has done satisfies that?
Ms. Langer. All I know about what the governor has done was
in the press release, so it appears to do that. I guess the
question is whether the commission goes farther because it is
made up of a group of people rather than just several
individuals.
Chairman Lieberman. Secretary, does the governor have a
position on this bill? Are you familiar with it?
Mr. Genuario. I am generally familiar with it, and I think
the governor's position is that the Federal legislation sets up
the Executive Branch as the director of most of these funds,
though not all. And to the extent that the Federal legislation
sets that up, that ought to be the system that Connecticut
uses.
With regard to advisory commissions or advisory boards, the
governor has frequently worked with the legislature in terms of
creating those types of bodies, and I doubt whether there would
be an objection to that.
Chairman Lieberman. Let me ask you about some of the
questions Mr. Frayne raised about the State losing the
possibility of Federal funding because of its unwillingness or
inability to put in the State's share. Would you respond to
that?
Mr. Genuario. Well, over the course of the last several
years, the State has, I think, gone to great lengths to
maximize, to the extent possible, Federal reimbursement. Now, I
believe he is correct that there is some room within our
Disproportionate Share Hospial (DSH) pools for additional State
appropriations that would result in additional Federal
reimbursement, though if memory serves me, the DSH pools are
not eligible for the increased FMAP stimulus reimbursement.
Chairman Lieberman. I believe that is right.
Mr. Genuario. So there would not be any increased Federal
reimbursement.
There are times when, pursuant to the amount of revenue we
have available, we spend what we think is reasonable and obtain
the Federal reimbursement that is appropriate. You cannot
always spend a dollar to chase 50 cents, and there are probably
times where hospitals and other providers would like to see us
increase rates in order to get additional Federal
reimbursement. And to be sure, we have done what we think is
reasonable.
I will point out that over the course of the last 2 years,
Connecticut has increased Medicaid rates substantially--clearly
not to the extent that some of the providers in the hospitals
would like. But there has been a substantial movement towards
increased Medicaid rates over the course of the last 2 years,
and those increased rates will remain in effect under the
governor's budget, and presumably under the budget that finally
passes, we will get the additional FMAP for those increased
rates, though not for any DSH payments.
Chairman Lieberman. Let me ask you a question that each of
the other three witnesses in one way or another raised. And I
know it is hard, particularly when you are in the midst of the
budget crisis the State is in, to look too far forward. But I
guess some people call it keeping away from the edge of the
cliff. In other words--and Dr. Yrchik I think stated it very
explicitly--the significant additional Federal funding for
education that will flow through the States to the local
governments for education purpose will go on for 2 years. Those
funds are stopping some significant cutbacks that otherwise
would have occurred. In one sense certainly with IDEA and with
Title I of No Child Left Behind, they are helping to meet
commitments that the Federal Government has not met, where the
Federal Government set a mandate but did not fund it.
But then what happens after the 2 years? In other words,
obviously we all hope and I believe that the economy will be
doing better so that tax revenues will be coming in at a more
normal pace 2 years from now for the State and local
governments; but, nonetheless, we have a real challenge ahead.
Mr. Genuario. Well, I thank Dr. Yrchik for raising it, and
thank you for asking the question, Senator, it is not something
that we find hard to look at. It is something that we look at
very carefully. And in fiscal year 2012, we will have some
significant issues.
I might add that not only will the stimulus money go away,
but under anybody's budget--let me back up just very briefly.
One of the things Connecticut has done right over the last
4 or 5 years, it has been very diligent in building up its
budget reserve fund. And, clearly, that budget reserve fund
under anybody's proposal will be utilized over the course of
the next 2 years. So that when we get to 2012, we not only will
have, presumably, a loss of stimulus money, as is intended, but
we will no longer be able to rely on our budget reserve fund.
So 2012 will be a very challenging year. I estimate that our
structural deficit for 2012, if all goes well, will be in the
area of $1 billion plus.
So we have 3 or 4 years of difficult budget cycles ahead of
us, and one of the reasons we make decisions that we make in
terms of not expanding programs in 2010 and 2011 is because we
know there is a problem in 2012 and we need to be conscious of
that as well.
Chairman Lieberman. Let me ask a specific question about
Head Start funding. The stimulus bill included $2.1 billion for
Head Start funding. Last week, as I understand it, a small
portion of those funds were released basically for cost-of-
living increases and quality improvement for existing grantees.
And, of course, I hope the Department of Health and Human
Resources moves quickly to provide information on how you can
apply for the bulk of the remaining funds.
But I want to ask you, Secretary, how do you envision, the
State best utilizing the Head Start funds to improve early
support and education services? And I will ask Ms. Langer and
Dr. Yrchik whether they want to comment.
Mr. Genuario. Well, early childhood education has been a
significant goal of Governor Rell since she has been in office,
and we have had a fairly significant expansion of those
services over the course of the last several years, including
Head Start but also including some State-funded programs.
We think that we have built up an infrastructure for early
childhood education that will serve us well and be able to
better access some of the Federal dollars for Head Start than
we might otherwise have been able to do. But it is money that
will flow through Connecticut's Department of Social Services
(DSS), will move to appropriate grantees as expeditiously as
possible. A number of the Head Start programs are run through
the Community Action Program (CAP) agencies in the State of
Connecticut. They will continue to be, by and large, the
providers of the services for those programs, and that money
will flow through DSS to those providers consistent with that
legislation.
Chairman Lieberman. Ms. Langer, Dr. Yrchik, do you have a
response to that and how you would hope this money would be
spent?
Ms. Langer. Well, we have made progress, but it is like a
lot of areas where we need to do more. And I actually would
like to defer the answer. There is someone in my office,
another senior policy fellow, who really knows far better than
I do about the details of this area.
Chairman Lieberman. That is fine. We will leave the record
open for filing of that kind of statement.
Dr. Yrchik, do you want to add anything?
Mr. Yrchik. I would like to make a comment about early
childhood in our State. I think that several years ago we
really began to make considerable progress in this area. We
agreed that relatively soon teachers of early childhood would
have to be certified or have a B.A. in early childhood
development. It was landmark legislation. The governor created
a policy council to advise her on expanding early childhood
opportunities. But a combination of things has occurred this
year which I think has probably set us back.
The governor disbanded her Early Childhood Policy and
Research Council. The economic circumstances of our State have
caused the number of slots for early childhood to be level
funded. And our progress has been, I think one would have to
say, halted. So I think everyone in the State recognizes that
this is a critical area and will be an enormously important
area for improving student achievement over the long term.
At the same time, the funds that have come into the State
through the stabilization fund, IDEA, Title I, those that could
have been used to buttress support for early childhood programs
have largely been used for other purposes or certainly have not
lived up to the potential that they would have had in ordinary
times.
So I would say that I think while our State recognizes the
importance of this area, we really have been dealt a blow by
the economy, and there is no getting around that fact.
Chairman Lieberman. Yes, I agree. That is the corner we
have to turn.
Let me ask a last question to you, Mr. Frayne. This bill
has a lot of traditional infrastructure investment in it, which
has been proven to create jobs, protect jobs, and the money
flows to highways, bridges--significant investments I am really
pleased to say, in mass transit. But one of the more
interesting new infrastructure investments the bill makes is $2
billion in health-related information technology. This is a
sort of transition to the next great challenge we are going to
face in Washington this spring, early summer, which is to
really get into health care reform, both to provide affordable
health care for every American and also, obviously, to try to
reduce the costs of high-quality health care.
Just give us a little bit of a sense of the hurdles we need
to get over so that Connecticut receives all the health
information technology funding to which it may be entitled. And
give us an idea of how this money will be spent by some of the
hospitals here in the State.
Mr. Frayne. Sure. Thank you. As you noted, one of the
things hospitals have been working on for quite some period of
time is to evolve their plans to go from a paper-based world
into what we would call an electronic world, a computer-based
world, where all of the information would be able to be
transferred by computers. And there are enormous benefits to
doing that. One, it would hopefully make us much more efficient
than we are today in the care that we deliver, and probably an
even more promising advantage of doing that is not only that we
will become more efficient and actually help the economy as our
cost structures will hopefully come down slightly over time,
but also it will actually help improve the quality of care that
we deliver to folks by having access to what were their most
recent tests, what were the results of those tests, did they
have an x-ray over at another facility, and what did that look
like so we can get that without having to duplicate that test.
So these are kinds of efficiencies and economies and quality
improvements which are really desperately needed.
The good news is that nearly all of the institutions in
this State are on that journey already. They are making
significant investments in personnel, in time, in energy, and
in dollars to evolve, in fact, from where we were to where we
need to go.
The current challenge that we are facing is not dissimilar
to, really, many other industries in that the markets to borrow
money from are essentially closed. We cannot go and issue
bonds, for example, through our State bonding authority. If we
had the ability to do that, the interest rate currently would
be too high. And the typical vehicle that we would use--and
this is a little inside ballpark, but if you would bear with me
one second--bond insurers--these are entities that actually
improve the creditworthiness of our bonds--they have not fared
very well recently in the economy. Actually, the underlying
creditworthiness of hospitals now happens to be higher in some
instances than the entities we rely on to help boost our
creditworthiness. So it is an unfortunate turn of events.
But the combination of all those things essentially means
you cannot get the money to borrow to be able to implement
these projects, which everybody knows to an absolute certainty
are critical for our future. And, one of the things that we are
very hopeful of that we will be able to do over the course of
the next few months, even in a very difficult State budget, is
to be able to work with the State and your offices and other
members of our congressional delegation to put in the
application to create this loan program, because thankfully in
this instance now the Federal Government is saying, ``We think
this is an important goal, we want you to get there, providers,
and we are going to help you get there by allowing you to
borrow the money from us.''
So I think if, in fact, we can work with the Administration
and those in the legislature to make that happen, it would be
really terrific.
Chairman Lieberman. I would look forward to helping in any
way I can.
I want to thank the four of you. Your testimony has been
very helpful to me. Congress and the President's initiative did
something that we have never done before, certainly not at this
dimension, in passing this stimulus program. That is because we
are facing an economic challenge the likes of which we have
never faced before. We worked hard to get our fair share of it,
Senator Dodd and I and all the members of the congressional
delegation from Connecticut, for Connecticut. So it is very
important to us, of course, that it be used well and
effectively to protect and create jobs, to move more money
through the State economy, and hopefully to make some
investments in a better future.
I acknowledge the natural tendency to use the money to
survive. We are going to constantly push to do more than that
to try to use it in a way that is an investment in a better
economic future and a better quality of life for people in the
State. My own impression from the testimony that you have
given, all four of you, is that we are off to a good start here
in Connecticut. But I want to stay involved with you and others
here. I know there are others who were good enough to come to
the hearing. I saw some firefighters and police officers; they
benefit from other programs that are part of the stimulus. Very
important. There are other recipients who are here. Not only do
we have a Web site in my office, but I invite you to call me or
call our office, either here in Hartford or in Washington, with
any ideas you have or anything you want to report to us about
how this money is being spent, because it is your money. That
is the bottom line, and we want to make sure that you benefit
from it. So I thank you for that.
In the normal course, the record of this hearing--and we
are keeping a transcript of all of this--will be open for 15
days if any of you want to submit additional statements. In the
normal course, other Members of the Committee may submit
questions. I doubt that they will ask you questions. We may
have one or two follow-up questions. And then I would say to
anybody else, and this is a little bit unusual, but if anybody
else in the audience wants to file a statement with the
Committee, please do so and it will be printed in the official
record of this hearing.
I cannot thank you enough, those of you who testified,
those of you who were here. This is probably the most
attentive, well-behaved group of students that I have ever had
sit at a hearing.
[Laughter and applause.]
There must be some future Senators up there, maybe even
Presidents. Anyway, I thank you all, and with that the hearing
is adjourned. [Applause.]
[Whereupon, at 11:48 a.m., the Committee was adjourned.]
FOLLOW THE MONEY: STATE AND LOCAL OVERSIGHT OF STIMULUS FUNDING
----------
THURSDAY, APRIL 23, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 9 a.m., in room
SD-342, Dirksen Senate Office Building, Hon. Joseph I.
Lieberman, Chairman of the Committee, presiding.
Present: Senators Lieberman, Carper, McCaskill, Tester,
Burris, Bennett, Collins, and McCain.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. Good morning, and welcome to this
fourth in a continuing series of hearings that our Committee is
holding on the American Recovery and Reinvestment Act to
monitor how effectively and efficiently the $787 billion in tax
cuts and spending are being used, but also to make sure, to the
extent that we can, that it is doing the job that we, in
Congress, intended it to do, which is to breathe life back into
our economy.
While the Office of Management and Budget (OMB) tells us
that $60 billion of the Recovery Act money has been committed
so far, the vast bulk of the Recovery Act money is still in the
pipeline. One of the questions that I want to ask the witnesses
today is whether they feel the Federal Government is moving
this money out into the economy as rapidly as it could,
because, obviously, that was the goal that Congress had, with
an understanding, as one of the witnesses--I think, Mr.
Scheppach said--``you have got attention here. You want to move
it out as quickly as you can, but you want to make sure it is
spent efficiently and not wastefully.''
Personally, I am impressed by the extensive planning, at
all levels of government, to meet the Act's accountability and
transparency provisions, which obviously are critical to
creating pressure for effective, efficient, and non-wasteful
spending of the money. I am also impressed by what appears to
be a strong spirit of cooperation between Federal, State, and
local governments in implementing this Act.
But the next few months are going to be the real test as to
whether we can ramp up spending quickly enough to stimulate the
economy the way it needs to be stimulated and the way Congress
intended with this American Recovery Act to have it stimulated.
And to do that, we are asking all levels of government to do
more, to do it well, and to do it in record time.
On April 7, I convened a field hearing for our Committee in
Connecticut. And the State Secretary of Policy and Management,
the chief budget officer, if you will, in Connecticut,
testified that the Federal Government has reacted swiftly to
his questions on behalf of the State and, he thought thus far,
has imposed an acceptable level of red tape, or at least kept
it to a minimum.
However, during that hearing, he also testified that there
were very important implementation challenges from a State
level; in particular, the need to give State and local
governments clear direction and whether some of the Recovery
Act money can be used to help pay for administrative and
oversight costs. And I hope that the witnesses will talk about
that today.
We know that the Act includes $250 million for additional
Federal investigators and inspectors to be hired to monitor
from the Federal level, but about $300 billion, by the last
calculation we saw of this, in stimulus spending will be under
the supervision of State and local governments. And, of course,
those State and local governments are themselves under real
fiscal financial pressure now. And the question is whether they
have adequate personnel to monitor the spending at the State
and local level. Therefore, I know they have asked for
permission to use Federal stimulus money to retain personnel
for that purpose.
I am very pleased that this morning, Vice President Joe
Biden has released a letter to Senator Collins and me,\1\
indicating that his office is working on this, and that OMB
will be issuing guidance soon that will give new flexibilities
to the States and local governments to cover administrative
costs with the Recovery Act funds. In this balance that we are
trying to strike, it seems to me that makes a lot of sense.
---------------------------------------------------------------------------
\1\ The letter referenced by Senator Lieberman appears in the
Appendix on page 283.
---------------------------------------------------------------------------
In the interest of moving ahead with the hearing, I am
going to put the rest of my statement in the record.\2\
---------------------------------------------------------------------------
\2\ The prepared statement of Senator Lieberman appears in the
Appendix on page 277.
---------------------------------------------------------------------------
I do want to say how pleased I am that the Acting
Comptroller General, Mr. Dodaro, is today going to release
before this Committee his first bi-monthly report on State and
local spending under the Stimulus Act as required by the
Act.\3\ The Government Accountability Office (GAO) helps us
enormously in performing our function of oversight on this
critical piece of legislation.
---------------------------------------------------------------------------
\3\ The GAO report referenced by Senator Lieberman appears in the
Appendix on page 350.
---------------------------------------------------------------------------
It is too early to say. There are obviously some
glimmerings of hope about some movement in the right direction
in the economy. We are not going to know until more of the
stimulus spending is actually out there. And, of course, more
significantly, beyond the jurisdiction of this particular Act
or the purview of this Act, until all the steps that the
Treasury Department, the Federal Reserve, and other
institutions are taking to try to reestablish the health of the
financial sector of our economy, and to get money flowing
again, from banks, to businesses and individuals. Until all
that happens, we are not going to have the kind of recovery, or
the kind of confidence, that will lead to the recovery, that we
need.
But anyway, we are pleased to have the three of you here:
Gene Dodaro, and then a front-line report from Ray Scheppach of
the National Governors Association, and Carolyn Coleman of the
National League of Cities. We look forward to your testimony
today.
Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman.
The American Recovery and Reinvestment Act is vital
legislation intended to boost our troubled economy and to
create and save jobs. If properly implemented and overseen, the
law will also improve our Nation's roads and bridges, prevent
cuts in health care, and provide important investments in
education and science, while helping to turn our economy
around.
State and local governments are playing a critical role in
distributing, spending, and measuring the impact of Recovery
Act funds. The GAO estimates that State and local programs will
receive about $280 billion under the law. As a result, they
must prepare to handle the challenge of managing and overseeing
this influx of new funds, a resource-intensive undertaking.
This challenge is further compounded by the fact that many
State and local governments are facing major budget shortfalls
that often leave them short-staffed. Like the Chairman, I, too,
welcome the Vice President's letter this morning, which tells
us that new flexibility is going to be allowed for States to
recover the costs of certain administrative activities.
It would indeed be unfortunate and ironic if money is lost
to waste, fraud, and abuse because States had insufficient
funds to hire the necessary contracting officials, auditors,
and oversight employees to ensure that the funds are well
spent.
The Recovery Act also creates several important oversight
mechanisms that the Chairman and I worked hard to ensure were
included. These oversight mechanisms include the bi-monthly
reports from the GAO on the use of funds by selected States and
localities. The GAO is issuing its first of these reports
today, and we are eager to hear the progress that State and
local governments have made in developing plans and internal
controls to ensure that the Recovery Act funds are not lost to
waste, fraud, and mismanagement.
Today's hearing will also explore the mandates for
accountability and transparency placed on State and local
governments under the Recovery Act, as well as how quickly the
money is being spent. This was a major issue in the Senate
debate. The Senate was determined to make sure that the final
version of the bill had a quicker impact on the economy by
having a faster spend-out rate than the House bill had.
I am pleased to welcome, not only the GAO, but the National
Governors Association and the National League of Cities to this
hearing. These associations can provide useful insight into the
innovative approaches State and local governments are taking,
including how they are planning to communicate funding
opportunities to hospitals, fire departments, businesses,
schools, and nonprofit organizations. A complaint that I hear
from my State, is that a lot of the intended beneficiaries of
this funding are still uncertain how to access it.
In addition, I want to hear about the steps that States are
taking to ensure that the infrastructure contracts are awarded
competitively, fairly, and effectively, and, of course, to
ensure that taxpayer dollars are not wasted.
Thank you, Mr. Chairman.
Chairman Lieberman. Thanks very much, Senator Collins.
I welcome Senator McCain and Senator Bennet.
And now we will go right to Acting Comptroller General
Dodaro.
Thanks for being here and thanks for issuing this first
report before our Committee this morning.
STATEMENT OF GENE L. DODARO,\1\ ACTING COMPTROLLER GENERAL,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Dodaro. Thank you, Mr. Chairman. Good morning to you,
Senator Collins, Senator McCain, and Senator Bennet. We
appreciate the opportunity to be here today to discuss the
results of our first bi-monthly review of the use of the funds
by selected States and localities.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Dodaro appears in the Appendix on
page 286.
---------------------------------------------------------------------------
As I mentioned to this Committee on March 5, when we were
here to outline our plans, our review focused on 16 States and
the District of Columbia across the Nation that will account
for about two-thirds of the total amount of money that is
allocated by the Federal Government to States and localities.
And I also mentioned that we were going to follow these 16
States and the District over the next 2 or 3 years to do a
longitudinal study of how they use the money but also what the
impact of the Act had been and whether or not it was going to
achieve its objectives.
This first chart explains why a longitudinal study is
important.\2\
---------------------------------------------------------------------------
\2\ The chart referenced by Mr. Dodaro appears in the Appendix on
page 326.
---------------------------------------------------------------------------
This is the estimated Federal outlays by the Congressional
Budget Office (CBO) and other information we have put together
as to when the Federal moneys will be outlayed to the States
and localities. And as you can see, there is a ramp-up here in
Fiscal Year 2009, but a lot of the outlays will be in 2010 and
2011 and in ensuing years.
Now, as the next chart will show,\3\ for this fiscal year,
Fiscal Year 2009, there will be about $49 billion outlayed to
the States and localities. Most of that, 90 percent of that,
will be in the health area, education, and transportation.
---------------------------------------------------------------------------
\3\ The chart referenced by Mr. Dodaro appears in the Appendix on
page 327.
---------------------------------------------------------------------------
Now, over time, as you can see, this chart compares Fiscal
Year 2009 to 2012. The composition of the Federal spending will
change. While a large part, 64 percent, this fiscal year will
be spent in health care, as represented by the red piece of the
pie, by 2012, that will be only about 1 percent. That is
because the increased Federal share of the Medicaid program is
for a 27-month period that will stop at the end of 2010.
You can also see that the amount of money that is going
into community development, energy, and environment, will
increase along with the transportation spending as new programs
come on line, the broadband program, high speed rail program,
and some of the housing and community development initiatives.
Our first bi-monthly review, therefore, focused on the
three programs where there is the largest amount of money to be
spent during Fiscal Year 2009: The Medicaid program, the
highway program, and the State Fiscal Stabilization Fund. Now,
in the Medicaid program, the 16 States and the District that we
looked at received an allocation from the Centers for Medicare
and Medicaid Services (CMS) at the Federal level of about $16.9
billion. As of April 1, they had drawn down $7.96 billion of
that or about 47 percent of the total amount of money that was
available. They reported using the money to sustain eligibility
requirements for the Medicaid population within the States and
also to help them meet increased caseload demands. As we all
know, during economic downturns, other people come on to the
Medicaid rolls, and so they were able to do that.
Now, the Federal share increased quite a bit. In the States
that we looked at, it went from a 7.9 percent increase in Iowa
to an 11.5 or almost 11.6 percent increase in California. So
the Federal shares increased significantly as a result of this
legislation. That also may mean in some States they are able to
reduce their share, thereby making funds available for other
purposes. And some States have reported being able to do that
and using that to avoid layoffs in other areas or to offset
general fund deficits. And this helps to prevent other actions
that might be detrimental to economic recovery.
Now, in the transportation area, money was made available
to the 17 jurisdictions that we looked at, about $15.5 billion.
As of the middle of this month, about $3.3 billion had been
obligated. Now, obligated in this sense means that the Federal
Government and the States have agreed on the projects to be
funded. Many of these are still out for bid during the April
and May time frame, while a few States, Mississippi and Iowa,
among our sample, had actually let contracts to begin work.
Most of the other States are in the process of completing the
competitive bidding process and will then be awarding the
money.
So far, there have not been a significant amount of
Recovery Act funds spent yet for the highway programs, but as
you mentioned, Mr. Chairman, the pipeline is there. The
projects that have been agreed to by the Federal, State, and
local governments for the jurisdictions we are looking at--
there were over 950 projects that had already been approved. So
this is moving through the system, and I think it will have the
desired effect.
Now, in the State Fiscal Stabilization Fund, this is a new
program, about 81.8 percent of the money in the State Fiscal
Stabilization Fund is to be used for education purposes; 18.2
percent can be used for basic government services, including
education. Now, about a little over $20 billion had been
allocated to the 17 jurisdictions that we looked at, but in
order to be able to use this money, States have to submit an
application to the Education Department. The Education
Department reviews it, and then once the Education Department
determine it is complete, the States can move forward.
Among the jurisdictions that we looked at, two have
submitted their applications and have the review completed by
the Education Department. Last Friday, the Education Department
gave the OK to California, and this past Monday to Illinois.
Other States are in various processes of preparing their
applications and submitting them to the Education Department
for review.
Now, in addition to looking at the uses of the funds, we
also looked at the efforts being made by the States to ensure
that there are proper safeguards and proper accountability
mechanisms put in place. Here, we were pleased to see the
States paying very close attention to their new
responsibilities. They were appointing people to focus on this
program full time, either as a Recovery Act czar or special
person associated with it. They were trying to assess what some
of the internal control risks were up front, as you mentioned,
Senator Collins. And there are some risks; some of the prior
audit work and other things done note some areas where sub-
recipients have not been monitored in the past as they need to
be, but people were trying to put in place proper improvements
to ensure that those risks were mitigated.
Now, here we found exactly what was mentioned by both of
you, Senator Lieberman and Senator Collins, in your opening
statements. Most of the States have been under fiscal stress
and they have cut back, some significantly, in the amount of
oversight activities that they are funding at their level, both
in the management side as well as on the auditing side. So that
is a concern that they had, and we recommended to OMB that it
clarify where administrative funds can be funded through the
Recovery Act. There are a number of possibilities. There are
also indirect cost rates in some of the existing Federal
programs. So we were pleased that OMB and the Vice President
adopted our recommendation, and they are going to clarify that.
The other recommendation we made to OMB was to modify the
Single Audit process. This is the State audit of the
departments by the State auditors. It is a very important tool,
but unless it is changed, as Senator McCaskill mentioned in our
last hearing, and modified to allow for earlier testing of the
program and to give some relief to the State auditors, it will
not be a timely, effective tool, as much as it could be, to
help with Recovery Act funding.
Now, our recommendations would mean the auditors would do
some testing of internal controls in 2009, before a lot of the
money is spent in 2010 and 2011. So it is very important. OMB
has acted positively. We were hoping that they implement those
changes.
We also made recommendations that OMB provide better
clarity on the methodologies used to estimate the number of
jobs created and preserved, which is a very important aspect of
evaluating the impact of this program. And we also made
recommendations that OMB move to improve the communications
with the States, to give them more timely notice of the
availability of the money, the application process. And
importantly, a lot of States were concerned that they were not
getting information about the amount of Federal money that
would flow directly to localities within their State that would
not come through the State agencies. So they would not have a
total picture. That would impede their ability to assess the
overall impact. So we made the recommendation to OMB that they
provide that information to the States, and they have agreed to
do that.
So, in closing, I just would say we have made a series of
recommendations to OMB. They are acting on those
recommendations. We are very pleased with their response and
also would want to publicly thank all the State and local
officials, including the associations that are here today. But
we have received very good cooperation in every State and
locality that we have been in, as well as with our Federal
officials. So we look forward to continuing our
responsibilities under the Recovery Act, and we will produce
regular reports as required. And I will be happy to take
questions at the appropriate time, Mr. Chairman.
Chairman Lieberman. Thanks very much. You got us off to a
good beginning. And I appreciate what you did, because I am
sure there is a connection between the work that you have done
and your communication with the Vice President's office and his
announcement today about the guidelines that will make it
easier for the State and local government.
Also, during the question and answer session, I want to
come back to this because this is really quite interesting, and
probably surprising to most people. One, much more of the money
will be spent in Fiscal Year 2010 than this year. And then,
two, a lot will be spent from 2011 right out to 2016.
Mr. Dodaro. And, actually, some of it may even go further.
Chairman Lieberman. I want to get into that a little bit--
--
Mr. Dodaro. Sure.
Chairman Lieberman [continuing]. During the questions and
answers session.
Next is Ray Scheppach, who is with the National Governors
Association. He has been here before, although not recently,
and always welcomed. Thank you for your testimony this morning.
STATEMENT OF RAYMOND C. SCHEPPACH, PH.D.,\1\ EXECUTIVE
DIRECTOR, NATIONAL GOVERNORS ASSOCIATION
Mr. Scheppach. Thank you, Mr. Chairman. Good morning,
Senator Collins, Senator McCain, and Senator Bennet. I am
pleased to be here on behalf of the National Governors
Association (NGA) to talk about implementation of the Recovery
Act.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Scheppach appears in the Appendix
on page 328.
---------------------------------------------------------------------------
My best estimate right now of the fiscal shortfalls in
States is somewhere between $200 and $250 billion over the next
3 fiscal years, and that is the States fiscal years of 2009,
2010, and 2011. Because 49 out of the 50 States have a balanced
budget requirement, they can only take two actions. One, they
can cut budgets or raise taxes, both of which will have a
negative impact on the economy. Because of that, it actually
has a multiplier effect on the economy, making it longer and
deeper. This is why many economists argue that one of the most
productive strategies is to provide flexible money to State and
local government to offset that negative action.
In terms of how much is coming to States, we estimate it is
probably around $246 billion that comes to States or through
States to individuals out of the total $87 billion. I tend to
think of this money in four broad categories, or buckets,
depending upon the intent and the timing of it.
The first category I would argue is the counter-cyclical
funds, or the funds that are relatively flexible. I put the $87
billion of Medicaid money in there not because you can utilize
the Federal money, but, again, because you can withdraw the
State money that you had planned to put in there and move it
to, in fact, plug holes other places.
The second component would be the State Stabilization Fund,
that $39.5 billion, really, plus the $8.8 billion flexible
money. And the reason that is relatively flexible is that
education represents about 32 percent of State budgets, if you
add higher with elementary and secondary. So because of that,
you have a fair amount of flexibility to move that around
across those various categories.
If you add those two categories together, you get about
$135 billion in relatively flexible money. And that is going to
go a long way, and you are already seeing a number of States,
basically, not go forward with planned cuts because they know
that the money is, in fact, coming. And so I would argue, some
of that is already having a positive impact by offsetting
negative cuts.
The problem is, in all honesty, that even after that money,
States are going to continue to have a shortfall in the
neighborhood of $200 billion over the next 3 years, which means
most States are going to have to continue to downsize,
consolidate, and/or raise taxes.
The second category I would like to talk about would be the
straight appropriations, which is mostly the formula grants.
This is the highway money and the sewer money. This is the
energy grants, the weatherization, and so on, which is a little
short of about $100 billion in those funds. Most of it is in
existing programs, so it can be at least obligated relatively
quickly because the rules of the game are generally known. With
the exception of those new programs or some programs where you
have had dramatically increased budgets, I think those will go
along fairly smoothly, and you will begin to see, shortly,
outlays in a number of those programs.
The third category is what I call the safety net. That is
essentially the food stamps, unemployment, and so on. That is
about $40 billion. And there is a fourth category, which I will
argue is a longer term investment, trying to develop the
foundations for economic growth in the longer run. I put the
money in terms of alternative energy and smart grid, health
information technology (IT), broadband build out, high speed
rail, and research and development money into that category,
where I think you actually have to spend somewhat more time in
planning to ensure that money is actually spent efficiently.
In terms of the good news, I think there is a lot of good
news so far. I would argue that the Vice President's office
actually has provided a lot of leadership on this issue, and
has been in touch with governors. And I think I would give the
Administration, OMB, and agencies, pretty high marks in terms
of getting out guidance as fast as they can, trying to get out
the allocations so States know what they are going to get. So a
lot of information has flowed already.
Second, I think governors have all designated their leads,
and many of them have, in fact, appointed task forces or
working groups. A lot of those have included private sector,
local government, and other organizations, so trying to get at
some of that outreach that you were talking about.
Third, I think OMB and GAO have been very accessible. We
actually have calls every Friday morning to talk about emerging
problems and try to feed those back into OMB. And they have
been very responsive about trying to deal with those issues as
we find that they come forward.
Finally, I would say that most times, I would probably
argue as an economist, that attempts to stimulate the economy
through fiscal policies have generally failed. They have been
too late. Generally, the money starts being spent after the
economy is already recovering.
I suspect this time, you are probably going to be much
closer to the mark. Again, I would say that already I see a
number of States postponing cuts because they know the money is
coming. That is having a positive effect on the economy. And I
think over the next 2 to 3 months, we will begin to see some
additional outlays from this package. And I can tell you that,
as far as the revenues in States is concerned, it is still
coming in month after month, the worst estimates. So we see no
recovery yet or even leveling off in State revenues.
There are a number of challenges, I think, however, that
governors have. The biggest one is that we do believe that this
budget hole will be for 3 years. Two years because we probably
will not get GDP back to the 2008 level for 2 years, and we
know from the last three downturns, the biggest impact is on
States in the year after the recession is declared over. And
that is primarily because the Medicaid spending is very late.
It takes time for people to lose their jobs and then apply for
Medicaid, and so that spending is very late. And, of course,
similarly, income tax revenues continue to fall very late in
the cycle.
So governors are going to have this tension between
spending the money now quickly to gain the job creations on one
hand, and on the other hand, trying to maintain program
stability and fill the budget hole that is going to last for 3
years.
The second one is there is a lot of accountability here,
much more than is normal. Not only are governors going to be
accountable to OMB and the agencies, but also now the Recovery
Act Transparency Board, the inspectors general (IGs), and, of
course, GAO, is out in the field. So there is a phenomenal
amount of accountability.
The only issue there, I think, is that we hope that the
data requests can be streamlined and that congressional
committees also do not ask for separate information, which is
happening in some instances, because it is not the oversight as
much as it is the data collection that I think is potentially
burdensome to the States.
You have already mentioned this issue of funding for this.
I would argue that this has been one of the biggest issues,
that there is no place to charge the additional work that is
necessary. And so, to the extent that OMB and the Vice
President's office is dealing with that issue, I think that is
going to be very valuable.
I do think that this whole issue of collecting the number
of jobs is going to continue to be difficult. I am not sure at
the end of the day, even when we get more guidance, that the
data is going to be particularly usable to look across States
or across programs just because of the difficulties in
collecting accurate information.
The only areas that I think that there are going to be
problems are when you are establishing a new program, that is
something like in weatherization, where you may have gone from
an appropriation level previously of $200 million to $6
billion. That is a phenomenal ramp-up, and I think it is going
to be difficult to maintain program stability and efficiently
at the same time as ramping up that program.
You have already mentioned the capacity problem. It is
true, as Mr. Dodaro has indicated, States have cut back over
the last couple of years, and, therefore, have less capacity in
the accountability area, and, therefore, are going to have to
build that up over time. It is also true that the existing
information systems may not be the ones that can handle the new
data requests, and, therefore, it may be that those are going
to have to be reprogrammed, which will take time.
The only final comment I will make is that there is a lot
of funding going to local government and to port authorities
and other places, where governors do not have control over.
They are concerned about making sure that they are at least
informed when that money goes directly to other entities so
that it is coordinated.
With that, Mr. Chairman, I would be happy to answer
questions.
Chairman Lieberman. Thanks very much. A very good and
helpful report from the State level.
Next, we have Carolyn Coleman, who is here to represent and
speak on behalf of the National League of Cities.
Good morning, and thanks for being here.
STATEMENT OF CAROLYN M. COLEMAN,\1\ DIRECTOR, FEDERAL
RELATIONS, NATIONAL LEAGUE OF CITIES
Ms. Coleman. Good morning, Chairman Lieberman. It is good
to be here.
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\1\ The prepared statement of Ms. Coleman appears in the Appendix
on page 337.
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Also, good morning, Senator Collins. Good to see you again.
I know the local leaders who were here in Washington a few
months ago really appreciated your remarks at our conference.
Senator McCain, Senator Burris, and Senator Bennet, it is
good to be here with you as well.
I welcome the opportunity to discuss this important issue
with you. Local governments across the country are working very
hard to plan and to be ready for the funds as they begin to
flow a little bit later this year into our communities.
Different from the remarks you just heard from Mr. Scheppach
and the National Governors Association, we are estimating about
$40 to $60 billion of funds will come to local governments. And
it is not just cities and towns, but other local government
entities in our States across the country. So we do not have
quite the firm handle on exactly which funds, but we believe
that is a good estimate.
It has also been clear to us, and becoming clearer
everyday, that while these funds are welcomed and cities and
towns will be able to put them to good use, that they will not
begin to fill the budget holes and the stresses that are
happening at the local level, given what we have seen with
sales taxes, property taxes, and income taxes. So while these
funds will be helpful, much more will be needed to meet the
budget gaps that are on the horizon for cities and towns.
We do believe that the transparency and accountability
provisions in the Act will help ensure that we can get the
maximum possible benefit out of these funds. And also, and I
think importantly, that we will be able to best engender the
American taxpayer's confidence in the ability of all levels of
government to actually get things done in our communities. I
want to assure you that in conversations that we have been
having with local leaders everyday over the last several
months, that they are truly embracing the accountability
provisions and ramping up to move forward.
I want to talk just a little bit about what the National
League of Cities (NLC) and other organizations have been doing
to help local leaders get ready.
Senator Collins, you made the comment about it is not just
local governments, but it is also nonprofits, the fire stations
and others that are striving to understand, still, what is in
the bill, what can be accomplished, and how do we access those
resources.
We have been working very hard here in Washington to help
them understand exactly how to do that. For example, NLC has
hosted three recovery-focused Webcasts. Each Webcast is
reaching 4,000 to 5,000 listeners. The demand is high and they
are hungry for this information, and we will continue to do
this. We do appreciate the ability that we have had to invite
our partners here in Washington, the Federal agencies, and we
look forward to OMB and GAO and others on those calls, so,
again, that we can help get the information out to them
quickly.
I mentioned that we had a conference here in Washington
recently. We, at sometime in February, decided to really
customize the programming for that conference so it was focused
around the Recovery Act. So it gave us another opportunity. And
I know that the other associations here in Washington did
something very similar to make sure to get the information into
the hands of the people who had to make this work.
I think probably the most important discovery that we have
embarked on lately, another initiative, is the recovery
coordinators network. We have invited about 50 to 60 local
government czars to convene in a forum where they can exchange
ideas, find out what is working, what is not working, where
they are having obstacles, where can they, perhaps, implement
some self-help and get some solutions to some of the challenges
in terms of moving forward with the Recovery Act. And I could
tell, based on just an hour phone call with them yesterday,
that while they are moving forward, they do share some of the
same concerns we have heard this morning from you, as Senators,
as well as from Mr. Scheppach, and from GAO, that the capacity
issues and the stress on the current infrastructure and local
governments is going to be tough. And what we certainly do not
want to see is governments making decisions not to pursue
recovery funds because they are afraid that there will not be
the administrative dollars to help manage those grants
effectively. I think that is just the course of actions that we
do not want, to leave these dollars on the table when they are
so needed in our communities.
We are convinced at this point that OMB, the Federal
agencies, and the Vice President's office--and you have heard
this before--are doing a great job in terms of the spirit of
cooperation. We know that this is an emerging process, but I
think it has been working very effectively in terms of not only
our ability to reach out to them with questions and to consult
with them as they develop new guidance, but also for them to
reach out to us and to the local governments and try to give
information that will be helpful.
I am going to talk just a little bit about some of the
mechanisms that cities and towns are putting into place in
order to comply with accountability and transparency provisions
of the Act.
Many of them, just like the Federal Government, have been
launching their own recovery Web sites on their own home pages.
And, for example, I am going to give you just a few of the
jurisdictions that have been doing this, but I can assure you
that many of them have launched their own Recovery.gov Web
sites. But Hartford, Connecticut, has launched one; Lewiston,
Maine; Reno, Nevada; Kansas City, Missouri; Detroit, Michigan;
Denver, Colorado; as well as Chicago, Illinois, have launched
Web sites that are making it a little easier and a little more
transparent for not only citizens but also vendors in their
communities to understand how to access these resources and to
understand the process that the city will use to allocate those
dollars. And I think we will begin to see more of those as we
go forward.
In terms of how cities are organizing themselves to oversee
the implementation of the Recovery Act, as you might suspect,
it has not been a one size fits all. We are basically seeing a
couple of different models, with some cities establishing the
recovery czars and the mayors appointing a recovery working
group. That could be just city staff. It might also involve
members of the private sector. That is one model.
Then the other model we are seeing is a little less
centralized approach, where the mayor's office might be
overseeing the recovery implementation, but the individual city
agencies are making the decisions about which funds they will
apply for. I think it is important, then, we just have to
recognize, with the many different types of governments and
sizes of local governments that are involved and pursuing funds
to the Recovery Act, that they will have to customize their
internal bureaucracy to best fit the needs of the Act as well
as their city.
I do want to echo--and this has been mentioned before--that
there are lots of questions, and there continue to be
questions, in terms of what is a job created, what is a job
retained, and how do we track those. So like the other comments
you have heard on the panel this morning, cities and towns,
too, would welcome additional guidance that we believe will be
forthcoming from OMB on that important topic.
I just want to briefly echo--and I have mentioned this
already, and I share this with the others who have talked
before--we would welcome and look forward to the additional
guidance from OMB in terms of the administrative costs and
getting some additional funds to do that good work.
I believe that covers many of the areas that I wanted to
mention this morning, and I look forward to the questions from
the panel. And I just want to say that we look forward to
continuing to work with the Federal agencies, with OMB, the
Vice President, as well as with the States and the other
organizations here in Washington to make this a success. Thank
you.
Chairman Lieberman. Thanks very much, Ms. Coleman, for that
testimony.
We will do 7-minute rounds of questioning. And there are
two elements of our interest. First, is the money being spent
rapidly enough? And then, second, are we setting up mechanisms
to monitor how it is being spent to avoid waste and fraud?
Let me begin on the second question with the Vice
President's letter this morning, and just try to develop that a
little bit, Mr. Dodaro.
In the letter itself, it says that the OMB guidance will
provide for ``new flexibilities for States for cost of
administrative activities associated with the Recovery Act.''
So help us understand, because your work, I think, has been
a big part of generating this letter, as well as concerns and
realities expressed from the State level.
Is it the flexibility for overall Administration funding
for the State and local governments or is it primarily money to
audit or oversee this funding?
Mr. Dodaro. It is basically, from a management perspective,
to oversee the programs. It is not on the audit side. Now, the
audit side is a concern.
Chairman Lieberman. Right.
Mr. Dodaro. And our recommendation, though, basically, on
the audit side, Mr. Chairman, would be to give the auditors
flexibility to reallocate their resources from low-risk areas
to the Recovery Act areas and focus more on high-risk areas.
Chairman Lieberman. Federal auditors or State----
Mr. Dodaro. State and local auditors.
In 1984, there was a mechanism put in place called the
Single Audit Act for State and local auditors to audit their
entire entities, including Federal funds, and there is certain
testing. And that is a foundation accountability tool that has
been put in place. And it is a very effective tool, but it
could be modified. But if it is not modified, it is going to be
too late, because they will not look at a lot of this until
2010 is over. This gives flexibility up front and reduces the
amount of money that would need to be spent.
Now, if they do not want to give the State and local
auditors flexibility, then they should give them additional
money to cover this earlier. But most of what the Vice
President is talking about deals with giving States the
management capacity, people administering the program----
Chairman Lieberman. So, for instance, the people
administering the Medicaid program or State transportation
programs.
Mr. Dodaro. Yes. Or in the administrative areas, the
procurement people, the people to monitor sub-recipients in the
program areas. It is those type of people that have been cut
back as well.
Chairman Lieberman. Incidentally, I noticed that
Congressman Ed Towns, who chairs our partner committee in the
House, the Committee on Oversight and Government Reform, is
proposing legislation to separately fund State and local
auditors to oversee stimulus spending.
What do you think about that?
Mr. Dodaro. Well, that is an important proposal that I
think could work. Our proposal is intended to minimize the
amount of additional funding, but the additional funding is
very appropriate, commensurate with the amount of additional
Federal resources that are going to go there. So I would be
supportive of that. I think that is very important.
Chairman Lieberman. Do you have any idea about the amount
of money it would require?
Mr. Dodaro. Not offhand, but I could provide an
estimate.\1\
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\1\ The response from Mr. Dodaro appears in the Appendix on page
652.
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Chairman Lieberman. Please do that, and we will be in touch
with Congressman Towns. I have no idea whether it is even
plausible to think about that, but I am interested in the idea.
Let me go to the spending side now, because I think one
reaction to that chart would be--well, let me define the chart
first.\2\ This is under the Stimulus Act. This is just the
money going to States and localities, right?
---------------------------------------------------------------------------
\2\ The chart referenced by Senator Lieberman appears in the
Appendix on page 326.
---------------------------------------------------------------------------
Mr. Dodaro. Yes, that is correct.
Chairman Lieberman. What does not it include?
Mr. Dodaro. It does not include the $280 billion in
estimated tax relief provisions, and it does not include
direct----
Chairman Lieberman. And payroll taxes are not included.
Mr. Dodaro. Right. It includes about $280 billion of the
$787 billion estimated amount for the Recovery Act.
Chairman Lieberman. So on that chart, what jumps out at me,
certainly, and I presume would at others, is that a relatively
small proportion of that money is going to be spent in this
fiscal year.
Mr. Dodaro. Well, I think, Senator, if you reflect on the
fact that the Act was passed in February, we were almost
halfway through Fiscal Year 2009 before the Act was passed. So
there is only about 7 months of spending in Fiscal Year 2009.
So if that was extrapolated, you would have a greater figure,
but I think that is part of the reason for that.
Chairman Lieberman. So you are not critical, at this point,
that the Federal Government is putting this money out too
slowly. In other words, your attitude--I do not want to put
words in your mouth.
Mr. Dodaro. Right.
Chairman Lieberman. One would look at that and say, how
come so little is going out this year and so much more in the
next 2 years, when we need it now, people would say.
Mr. Dodaro. Well, I would say two things. One, I agree with
Mr. Scheppach's comment, that because the States know the money
is coming, they are able to take action to avoid making some
cuts right now.
Chairman Lieberman. Right.
Mr. Dodaro. They know they will have a steady stream of
payments, for example, in the Medicaid area, which is a large
portion of this funding, so they can plan accordingly going
forward.
I think particularly for areas that are new areas, like the
State Fiscal Stabilization Fund, the balance between spending
the money wisely with the proper amount of controls in place is
being balanced appropriately with due speed to get things out.
In the transportation area, there was a lot of planning in
advance of passage of the Act by the State departments. They
are focused on construction and maintenance before they can get
the contracts out right away.
So I think it is proceeding in a balanced fashion, where we
will both get the money out as quickly as possible, but wisely
and with the proper degree of accountability, so we will get
the right result at the end.
Chairman Lieberman. Obviously, you will keep monitoring and
let us know if you think that it is moving more slowly to State
and local governments than it should or could.
Am I correct that if you did a chart--and I would not ask
you to do that today--of all money being spent under the
Stimulus Act, including tax relief, unemployment checks, and
reduced COBRA premiums, that a greater percentage would be
spent this year, or am I wrong?
Mr. Dodaro. My staff tells me, yes. CBO has already
produced that in scoring the bill, so we can provide that.
Chairman Lieberman. Yes. I would appreciate that. I did
note, in the hearing we held in Connecticut a couple of weeks
ago, that the State budget director seemed very pleased with
the Federal Government's interaction with the State, but
ultimately said that money had been obligated, but they
actually had not seen any money yet. But they were reassured
that it was coming, and as a result, they were not laying some
people off that they thought they would have to.
Mr. Dodaro. That is exactly right, Senator. And that is
what we have seen across the States that we visited.
Chairman Lieberman. Right. I am over my time. Senator
Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Dodaro, in the last hearing, we talked about the
importance of the accurate and agreed upon measures on the
number of jobs either created or retained. The Administration
has estimated that more than 3 million jobs will either be
saved or created by this Act. That, arguably, is the most
important measure of the effectiveness.
Two other witnesses today have commented on how difficult
that measurement is. I brought up in the last hearing the
concerns of my State officials about whether, if you are
creating a construction job for 3 months, and then that person
goes on to another construction job that is funded by this Act,
is that two jobs? Is it one job? Is it a job created in the
first place and then preserved?
I know in response to the concerns that we raised at the
last hearing, that OMB has put out additional guidance. Do you
think that guidance is accurate as far as allowing us to assess
how many jobs really were created or saved by this important
bill?
Mr. Dodaro. I think the guidance was a good first step, but
it does not go far enough. And that is what we heard from the
States and localities that we visited.
To deal with the question that you mentioned, they try to
deal with it in a full-time, equivalent type discussion, so you
do not do double counting. But you also need to have a way to
measure the indirect effect on employment or the multiplier
effect, as Mr. Scheppach, and other economists would say. So we
recommend in this report that they develop additional
methodologies to try to get a consistent reporting approach so
that the proper amount of information can be gathered to draw
the conclusions that you and others seek to find.
So we think additional guidance is necessary. We think a
cooperative effort at the Federal, State, and local level is
warranted. And I believe OMB agrees, and we will be trying to
move to develop additional guidance.
Senator Collins. I think that is so important in terms of
credibility and also uniformity, because it cannot have one
State doing it one way and another doing it a completely
different way.
Mr. Scheppach, I want to follow up on a comment that is in
your March 10 report on State implementation of the Recovery
Act. You made a very interesting point in that report about the
new law having several ``use it or lose it'' provisions, which
require State funding to be allocated to other States if they
are not obligated by a certain deadline.
Now, I am not talking about those few States that have
decided to refuse recovery funds altogether. I am talking about
States that have accepted the funds but now face deadlines to
expend the money.
Several years ago, I headed an investigation into fourth-
quarter spending in the Federal Government, and we found that
the ``use it or lose'' mentality causes money literally to be
shoveled out in wheelbarrows because of the fear that it would
not be available. It led to a lot of wasteful spending.
There is a balance here, a tension between our desire to
make sure that the money is being spent quickly so it
stimulates the economy in a timely fashion, a point you made in
your opening remarks. But there is also the concern that if
there are deadlines for spending it, that the money may be just
put in that wheelbarrow and shoveled out, and not spent wisely.
Could you comment on what you think we could do to ensure
that the use it or lose it requirements do not lead to wasteful
spending?
Mr. Scheppach. I would say right now, when you talk with
the leads who are basically administering this money, they are
very scared because of all the oversight; that I am not sure
you are going to see that this time at the end of the queue
because nobody wants a story in the local newspaper, or down
here, that money went out inappropriately.
So my own view is that until we get to that point, that
money is probably going to come back to Washington, and it is
going to be redistributed. I do not think anybody out there in
States right now is going to take any risks with accelerating
that money.
Senator Collins. Thank you.
Ms. Coleman, you mentioned that your organization is doing
Webcasts to help educate local officials, and I really commend
you for that because this is in some ways a bewildering maze
for smaller communities to try to follow. I want to give you a
specific example and see if you have some suggestions.
There is a small fire department in Maine, the Readfield
Maine Fire Department, that was looking for a potential source
of funding under the Recovery Act and could not determine a
source, based on the information available. This fire
department went to the State's Commissioner of the Department
of Administrative and Financial Services, who found that there
were 30 different Web sites that potential Recovery Act funding
recipients would have to access to find funding that they might
be eligible for.
Now, it turns out for this fire department, there is a pot
of money in the Federal Emergency Management Agency (FEMA) that
we increased by $200 million that would meet its needs. But how
is a small fire department going to figure that out if there
are 30 separate Web sites that need to be accessed?
We focus so much on oversight and transparency, but do you
think that more needs to be done to help the potential
recipients of money determine how to apply and where the money
is located?
Ms. Coleman. That situation or scenario you describe is
happening across the country, and it is, in part, why the
national local government associations and the State affiliates
of those organizations, are working very hard to educate and
make information available to local city leadership so that
they know more quickly and do not miss deadlines, and do not
leave money on the table, so they can find out what is it that
we could use to fund this need in our community.
On top of that, there is no one place, yet, where you can
find all of the funding opportunities for cities in the
Recovery Act, so that is being cobbled together. But it is a
particular challenge, and that is why we want to continue using
the technology via Webcasts, conferences, meetings out in the
various cities and towns.
I know some State associations have been hosting townhall
meetings and inviting representatives from the different
Federal agencies, using the regional offices of the Departments
of Housing and Urban Development (HUD) and Homeland Security,
and inviting those representatives into a townhall meeting in
communities where the public and nonprofit groups can then be
on site asking these questions.
But I think it will continue to be a challenge. And I go
back to, if recovery is to be successful in cities and towns,
the first most important thing we need to do is help educate
our local leaders so that they know what is possible and how to
get to those resources. But it is a challenge.
Senator Collins. Thank you.
Chairman Lieberman. Thanks, Senator Collins.
I will call on Senators in order of arrival, which today is
Senator McCain, Bennet, Burris, Carper, and McCaskill.
Senator McCain.
OPENING STATEMENT OF SENATOR MCCAIN
Senator McCain. Thank you, Mr. Chairman, and thank you for
holding this hearing today. It is obviously very important that
we do the best we can to monitor the expenditures of these
large amounts of funds.
Mr. Dodaro, much of this funding has been expended, and it
is being expended, for State expenditures for Medicaid
services.
Is that pretty much across the board to make up for
deficits that the States are experiencing? Is that what you are
finding out?
Mr. Dodaro. Senator, the Medicaid money, the way that the
Act worked is that it gave each State a 6.2 percent increase in
the Federal matching rate, and then depending upon the
unemployment rate in the State, there is an additional match,
additional funding. The States that we visited, for example,
Iowa received a 7.09 percentage point increase in the Federal
match. California is 11.60 percent.
Now, the underlying theory here was to give fiscal relief
to States, but also to help them meet increased caseloads and
to maintain eligibility requirements. So the States have to use
the Federal money for Medicaid services. They have to maintain
eligibility requirements that were in place as of June 2008. So
they cannot reduce the eligibility requirements. They have to
continue to pay providers promptly in order to continue to
receive the money, and they cannot use any of the money to put
into a rainy day fund within the State.
Senator McCain. Isn't it true that some States' eligibility
rules on Medicaid has prevented them or hindered them from
getting this money?
Mr. Dodaro. I believe there is one that had to go back and
restore some of the eligibility requirements to get the money,
but they have to maintain the eligibility requirements that
were in place in June 2008.
Almost all the States that we have looked at have drawn
down the money, Senator, except for Colorado. Colorado had not,
among the States, drawn that down. So that is one of the areas
that we and the inspector general are going to continue to look
at, is to make sure that the States meet the maintenance
requirement and eligibility standards. I am not aware of any
particular situation.
Senator McCain. I see.
I was looking at your table number 4 here,\1\ which shows
the percentage of apportionment that has been obligated by the
various States. It is a part of your report, I believe, on page
19.
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\1\ The table referenced by Senator McCain appears in the Appendix
on page 307.
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Mr. Dodaro. Yes.
Senator McCain. The thing that kind of interested me here
is that at least one State, Iowa, has obligated 62 percent, and
yet there are several States that have obligated zero. What is
the story here?
Mr. Dodaro. Well, in some States, the legislatures have to
approve the projects before moneys can be spent. And that is
the case, for example, in Florida that you see here, that has--
--
Senator McCain. Zero.
Mr. Dodaro [continuing]. Zero. So every State is set up
different.
In some cases, the transportation department is not even
under the governor's authority, like in Mississippi, for
example. So depending upon the State's structure and what the
rules are in terms of the legislatures having to approve the
funds, that dictates in large part the pace that you see here
and the differences among these States.
Senator McCain. So it is really a matter of procedure
rather than lack of action that has gone on here, in other
words?
Mr. Dodaro. That is correct. It is the process within the
State to commit to be able to move that forward, and it varies.
All the ones that we looked at were planning and are trying to
move forward. It is just a matter of going through their
proper, normal process.
Senator McCain. And according to your chart there that we
are looking at, we would anticipate by the end of 2010 to have
dispensed roughly about 60 percent of the funds?
Mr. Dodaro. Yes, to the State and localities. Right.
Senator McCain. And what are the major problems that you
have found the States are encountering?
Mr. Dodaro. Major problems are, first, having clarity,
guidelines, on whether they can use some of the moneys to
increase their oversight and accountability mechanisms. And we
make a recommendation to OMB that they clarify that so the
States can deal with that issue.
Senator McCain. Have you found that in some areas, that
apparently there are insufficient mechanisms in place for
oversight?
Mr. Dodaro. Yes. We think that in some States, they have
cut back considerably on their oversight. That heightens the
risk. I mean, we have not seen actual problems yet because of
the status of the money, but I am concerned, based upon their
analysis of where some of the risks are. And unless they move
to address those risks, we could have problems down the road.
Senator McCain. I interrupted you, by the way. Do you want
to complete your answers?
Mr. Dodaro. Yes, right. On the second area, Senator, there
is greater need for communication at the State level about what
money is going directly to the local government, bypassing the
States. So we have recommended to OMB they clarify that, and
they have agreed to do that.
Third, States need some guidance on methodologies and
definitions for the number of jobs preserved or created, and
the total amount of data collection requirements that are being
imposed on them. And we have made recommendations in both of
those areas in our report today to address that. And OMB
understands those issues and hopefully will move to clarify
them.
Senator McCain. Ms. Coleman or Mr. Scheppach, do you have
any comment on those questions that I asked Mr. Dodaro?
Mr. Scheppach. Well, the only thing I would say on the
Medicaid issue is that the Medicaid was the one area where the
payments are actually retroactive to October 1, 2008. So it
seems to me that Congress intended by that to provide some
money early to offset potential cuts that States were going to
make. And I think that was very helpful. I mean, most of the
money that is, in fact, going to pay out in 2009 I am assuming
is the Medicaid money. So it is the fastest money that will be
going out.
Senator McCain. Not exactly the largest job creator. Ms.
Coleman.
Ms. Coleman. Senator McCain, I would just echo what GAO has
said. We also look for additional guidance and clarity around
the performance measures, the data management requirements, and
greater communication about where dollars are going, not just
States and locals, but just overall.
Senator McCain. Thank you. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator McCain.
Next is Senator Burris. Senator Bennet has left.
OPENING STATEMENT OF SENATOR BURRIS
Senator Burris. Thank you, Mr. Chairman, Ranking Member
Collins, and other colleagues on the Committee.
I would like to welcome our distinguished panelists and
certainly have some major concerns. I just hope that my
concerns can be addressed by this panel.
Having been home over the recess, and when I go home on
Saturday, I am getting confronted with questions about where
the stimulus money is going. Primarily in the minority
communities, and specifically in the black community, I want to
know whether or not any of the Federal guidelines, for example,
on that transportation money, when it is going to the States,
whether or not those States have to follow any type of
guidelines with reference to those minority requirements, that
those moneys be shared with minority companies and small
businesses.
Any one of you want to respond to that? Mr. Dodaro, if you
would like to, or the governors. I have some more questions
down that line as well.
Mr. Dodaro. Right. In the transportation area, they
basically use the existing Federal highway program, but there
are some new requirements. One is that the States have to
maintain their level of spending and have to certify that they
will do that in order to continue to receive funds, and that
they give priority to economically distressed areas.
Now, those two areas we are going to look at more carefully
in our subsequent reviews to make sure that they comply with
those requirements because we want them to get through their
process to designate the full range of projects that they are
going to fund in those areas.
But as I mentioned, and we discuss in our report today,
there has not been a significant amount of money allocated yet,
or spent yet I should say, in the transportation area, with the
exception of a couple of States, Mississippi and Iowa. Most of
the projects now are out for competitive bid.
Senator Burris. I understand Illinois has been allocated
$187 million in transportation dollars. I do not know whether
or not the dollars have come. And then they had all these 5-
year projects, and that is where the dollars are going, to
those projects. The reason why Illinois got the money so
early----
Mr. Dodaro. Right.
Senator Burris [continuing]. Is because we already had
projects. And the question is whether there are any
stipulations on those projects, because that is all I am
hearing. The stimulus money is coming to Illinois, and the
small businesses are saying where is it going, who is getting
it. I know it has to go through the States, it has to go
through the legislature to be appropriated.
But were there any other special guidelines that would deal
with that for smaller, minority companies, other than those
standards, which mean that it would be very little dollars
getting into those companies that are going to need it.
Mr. Scheppach. Yes. I would just echo. I think what the law
requires is the normal standards that have been in place for
all transportation spending and all spending. And then, second,
in the transportation area, you are supposed to give preference
to distressed areas. But it is true that there is very little
money that has been obligated in States yet, so it is hard to
say what is happening.
Senator Burris. So we will be able to track those and
determine what is happening there?
Mr. Dodaro. Yes.
Mr. Scheppach. There are very detailed requirements in the
Act for States to report on a quarterly basis of exactly where
that money goes for every specific contract.
Senator Burris. Well, I was looking at a figure in
Illinois, having received $15 million for the Illinois Health
Center funding. And there were 36 projects, and the data is
there. And I am looking at some of these clinics and health
centers that are on the money for allocation. And I am just
wondering, is there oversight responsibility as to whether or
not those clinics are in underserved communities? And if they
are not, then what type of penalty or requirement would be
faced on these States, or the local government, whoever is
responsible for allocating those moneys to these health
centers, if they are not giving money to health centers in
underserved areas?
What is the punishment if they do not? The money will then
be out and spent and will not be shared.
Mr. Scheppach. Well, first off, I think that in most
categories, you are required to come back to the Federal
Government with specific projects that are going to be done, to
be approved at that particular level. So there is some
additional oversight there as well. I do not know of any
penalties, but I can tell you, most people who are dealing with
this money do not want to make errors because they know they
are going to be called out publicly.
Senator Burris. Pardon me, Doctor. It is not a matter who
is dealing with the money. What my constituents are going to--
how this stimulus money is going to impact the black community,
in Chicago, in Peoria, in Rockford, and what Federal authority
would we have to make sure that there is sharing of these
stimulus tax dollars that are supposed to be stimulating these
underserved communities?
Yes, Mr. Dodaro?
Mr. Dodaro. Yes. Senator Burris, in the transportation
area--this is with projects--in Illinois, our work has shown
that they were apportioned $936 million, and that they have
obligated, which is the Federal Government and the States have
agreed on 214 projects--this is as of April--that account for
about $600 million of that amount of money.
Senator Burris. Those are the 5-year plans and 10-year
plans that the Department of Transportation (DOT) has in place.
Mr. Dodaro. Right. That is exactly right. So for those 214
projects, the States has to follow the normal rules to make
sure that they give attention to contracts for disadvantaged
areas, disadvantaged businesses, rather.
Senator Burris. Right.
Mr. Dodaro. And then there is also the additional
requirement for economically distressed areas.
So part of our job will be to follow up to see--once these
projects are in place and once the other ones are there, there
should be a proper reporting back by the States. And we will be
able to look to see whether or not they have met those
requirements.
Senator Burris. Yes, but there is nothing--if they do not
do it, and there are no requirements, and the money has been
spent and has gone to all these major construction companies,
and they did not meet the guidelines, is there a penalty to be
paid?
Mr. Dodaro. Well, there are additional projects in the
pipeline that the Federal Government would have the ability to
not approve, and there may be some other issues. These are not
all the projects. There have to be additional projects. So I
think there is supposed to be oversight by the Department of
Transportation.
Senator Burris. But wouldn't we do better if we could get
some type of upfront requirement before that money--whether or
not the Federal Government would have any authority to oversee
prior to the signing to rebuild I-75.
Mr. Dodaro. Well, in this case, Senator, the Federal
Government has approved these projects reviewing exactly what
they have looked at is something that we need to do. But there
is a check in the normal process that the State cannot go
forward with the bids until the Federal Government approves the
project. So all the ones I mentioned here, DOT has signed off
on.
Senator Burris. I see my time is up.
Mr. Chairman, I do not know whether or not there will be a
second round, but I have a lot more questions in this regard.
Chairman Lieberman. OK.
Senator Burris. So if there is a second round, I would like
to stick around and raise these questions.
Chairman Lieberman. Well, we will see how the clock goes.
Senator Burris. We have to vote today I understand, too,
this morning.
Chairman Lieberman. The rumors are mixed. I guess it has
been vitiated. They originally thought we were going to have a
vote, but I think it has been vitiated.
Senator Burris. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator Burris.
For the sake of clarity, Mr. Dodaro--because I know some of
us have been affected by that chart. But it is clearly labeled.
This is the pace of spending for State and local funds. But
just to clarify, that is basically what GAO is charged to do
here in oversight of this stimulus bill. Am I right?
Mr. Dodaro. That is one of our responsibilities. We have
other responsibilities. For example, to review the recipient
reports once they come in; special attention to jobs created
and preserved.
Chairman Lieberman. Right.
Mr. Dodaro. We have been required to look at special
education grants.
We issued a report last week on the Small Business
Administration's efforts to increase liquidity in the secondary
market for small business loans.
Chairman Lieberman. I did not mean to interrupt you,
because I do not want to take----
Mr. Dodaro. But I have the numbers on the total amount of
the Recovery Act.
Chairman Lieberman. Oh, you do? That is great.
Mr. Dodaro. Yes, I do.
Chairman Lieberman. Because that is somewhat beyond what
you are doing; am I right?
Mr. Dodaro. Right, that is correct.
Chairman Lieberman. It is probably better for us to ask
OMB, but since you have them, let us hear from you.
Mr. Dodaro. Right. For Fiscal Year 2009, it is $185
billion; $400 billion in Fiscal Year 2010; and $134 billion in
Fiscal Year 2011.
Chairman Lieberman. That is the total spending.
Mr. Dodaro. Right, estimated total Rocovery Act impact
outlays.
Chairman Lieberman. And that includes, for instance, the
payroll tax cuts.
Mr. Dodaro. Yes.
Chairman Lieberman. That is surprising that it is still----
Mr. Dodaro. But I think you always have to keep in mind
that Fiscal Year 2009 is only half of a year.
Chairman Lieberman. Yes, exactly. On October 1, we are
starting the new fiscal year.
Mr. Dodaro. Right.
Chairman Lieberman. OK.
Mr. Dodaro. So you only really have, from February 17 to
September 30 in the 2009 numbers.
Chairman Lieberman. So I suppose in fairness, as we judge
the impact--I am thinking of Mr. Scheppach's statement that the
history of fiscal stimulus is not always a happy one because a
lot of times the moneys arrived after the economy has begun to
recover. So $185 billion is not small change, but the real
impact is going to come after October 1 of this year. And I
suppose, in that sense, in fairness, we are not going to be
able to judge the impact of the stimulus until then.
I guess from our point of view--and I am going to stop here
because I want to yield to Senator Carper--the question that we
will always ask is if we are getting this money out as quickly
as we can. Because, clearly, there is a desperate personal need
for it around the country to get the economy going.
Yes, go ahead, Mr. Scheppach.
Mr. Scheppach. Just to make a comment, you have to
remember, though, that unemployment peaks very late in this
cycle.
Chairman Lieberman. Right.
Mr. Scheppach. So we are probably not going to get to the
10 percent unemployment for another 12 months to 15 months. So
I think that the amount of money that you have going out in
2009 and 2010, I can assure you, history is going to write you
well, Senator.
Chairman Lieberman. Well, that is very kind of you.
[Laughter.]
Senator Collins. I wish Senator McCain had been here to
hear that. [Laughter.]
Chairman Lieberman. This reminds me of a great Churchill
quote--which I am paraphrasing. But somebody asked him, after
the end of World War II, how he thought history would treat
him. And he said he thought history would treat him well
because he intended to write it. [Laughter.]
So I thank you for writing it here this morning.
Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Speaking of Churchill, Dr. Scheppach, were
you the head of the National Governors Association when----
Mr. Scheppach. When it began.
Senator Carper. I was going to go back in time when George
Voinovich was the chairman.
You were, were not you?
Mr. Scheppach. Yes.
Senator Carper. How about when Bill Clinton was chairman?
Mr. Scheppach. Yes.
Senator Carper. How long have you been there now?
Mr. Scheppach. About 25 years.
Senator Carper. That is terrific. You have done a great
job. We are grateful to you. All of us are grateful to you.
Mr. Scheppach. I have trained a lot of senators.
Senator Carper. And one or two governors. And at least one
president----
Mr. Scheppach. Yes.
Senator Carper [continuing]. When you think about it.
I got here too late to hear Mr. Dodaro give his testimony,
but I am curious. I would just ask you and Ms. Coleman, did he
use notes today?
Mr. Scheppach. Did he?
Senator Carper. Yes.
Mr. Scheppach. No. He memorized it all.
Senator Carper. He never uses notes. And I am told
Churchill used to memorize his speeches. And once, I think, in
an address he was giving before Parliament, he lost his train
of thought in the middle of a speech, and he never memorized
his speech again after that.
So I just want to be on hand when Mr. Dodaro is right in
the middle of one of his testimonies and just loses it,
entirely.
Mr. Dodaro. Not yet. [Laughter.]
Senator Carper. Well, you keep coming back and we will keep
coming back. It is always a pleasure to hear your testimony.
I have three hearings going on at the same time, so I am
going to slip out here in a minute.
Will you just give me the most important take-aways from
your testimony, please, for our purposes today, each of you.
Mr. Dodaro. Basically, the States are taking their
responsibility seriously. They are trying to move through their
processes as quickly as they can. They are concerned about
their ability to provide proper accountability and oversight
over the areas.
We made a series of recommendations to OMB to make the
Single Audit process more effective, and we think that will
help with accountability; to clarify how much Recovery Act
money or what Recovery Act money can be used to strengthen the
States' oversight and accountability mechanism is very
important. The OMB needs to provide additional guidance to help
people determine the amount of jobs created and preserved so we
have credible estimates down the road. And they need to improve
their communication with the States and localities to help them
plan better. They are doing a good job. They are off to a good
start, but they can build on that and do better.
Senator Carper. Good. Thank you. Dr. Scheppach.
Mr. Scheppach. It is very early now, so it is hard to say.
The reports by States are not even due until October for the
first one. But I think there is a lot of good cooperation. We
are getting the guidance that governors need and moving
forward.
You have to understand, though, that as much help as there
is for States to offset the draconian cuts, that States are
still going to be in a big hole for the next 3 years. And they
are going to have to continue to cut and/or raise taxes in the
order of magnitude of $200 billion over the next 3 years.
Senator Carper. Yes. Ms. Coleman.
Ms. Coleman. Senator, I would echo that we are off to a
good start. The spirit of cooperation between the States, the
Federal Government, the local governments, OMB, the Vice
President's office, and others, I think, is going well. The
local governments continue to get ready and are internally
organizing their systems to be prepared to handle these
resources. But we do share the concern about the resources to
oversee these programs and to manage the grants effectively and
in the manner that was intended.
I would also share what the governors have mentioned, that
while these resources will be helpful, that the gaps will
continue to be big at the local level in terms of our budget.
Senator Carper. Well, they certainly are in Delaware, I can
assure you.
I realize that the legislation is fresh, the money's just
beginning to be dispersed, and the systems are set up to make
sure States go out and get as much as they are eligible for and
put the money to good use.
What do we need to be doing here in the legislative side,
in this hearing? We are actually doing a series of oversight
hearings, which would seem to certainly be appropriate given
how much money is involved.
What should we be doing to exercise our appropriate roles?
Yes, Mr. Dodaro?
Mr. Dodaro. Senator Carper, we made these recommendations
to OMB about modifying the Single Audit legislation and also
Senator McCaskill had mentioned this issue before. We followed
up, as she requested, and made these changes. And also
clarifications on the administrative expenses.
There has been a bill introduced on the House side to give
funding to the State auditors to carry out responsibilities. I
would say, if OMB has not made the proper clarifications soon,
that Congress may want to consider legislation to strengthen
the ability of State oversight mechanisms, both to manage it,
provide proper controls, and also audit it at that level, and,
also, on the creation of a different approach or a uniform
approach for job measurement on jobs created and preserved.
So I would wait to see what OMB does, if they take the
proper action. I do not have any suggestions additionally for
Congress at this time.
Senator Carper. Do you recall who is the author in the
House of Representatives of the Single Audit Act?
Mr. Dodaro. It was 1984 when the Act was originally passed,
and we made the last set of amendments in 1996.
Senator Carper. An at-large congressman from a small State
on the East Coast.
Mr. Dodaro. Great foresight. [Laughter.]
Senator Carper. I do not know. Let me follow up on that.
State auditors already bear a significant responsibility for
oversight of Federal spending by State agencies, pursuant to
the Act and to the amendments that have been made to it. Those
audits are generally conducted annually. They provide some
assurance to the Federal Government as to the management and
the use of funds that the States receive, as well as their
subdivisions.
The importance of the Single Audit process is, I think,
magnified, rather than minimized, by the Recovery Act's
emphasis on accountability. And given the additional
responsibilities now given to State auditing agencies, what
plans are in place--and you spoke of this, but what plans are
actually in place to ensure that these efforts are coordinated
with Federal agencies?
Finally, what is being done by the Federal Government to
increase outreach and coordination and communication with the
State and local audit community, and to determine ways of
improving data sharing?
If you would just comment further on that, I would
appreciate it.
Mr. Dodaro. States are in the process now of going through
their planning activities for the Single Audit program. And the
concerns that we have raised and, as I mentioned, Senator
McCaskill had, and others before, was that the States right
now, unless they adjust the process and it follows this amount
of money--we think the Single Audit Act can be used more
effectively to test controls before these expenditures are made
in 2010. That will not happen unless OMB modifies the guidance.
We will get the reports after all the money has been spent in
2010. And they could give them more flexibility to focus on the
Recovery Act and less on low-risk programs as they know. So
that is what we would suggest in that particular area.
Now, in terms of sharing responsibilities, soon after the
Act was passed, sharing information, I had a conference call
with 40 some State auditors. I followed that up at Senator
McCaskill's request.
Senator Carper. Was she a former State auditor?
Mr. Dodaro. Yes, we have regular contact with the State
auditors. They were one of the first places we stopped in the
16 States and localities that we visited. We are also working
with the IGs and the Recovery Accountability and Transparency
Board to coordinate all the audit activities.
We are also working with the National Association of State
Auditors, Comptrollers, and Treasurers, and other groups, on
the reporting requirements with OMB. And as Dr. Scheppach had
mentioned previously, we have regular meetings every Friday to
coordinate. So there is a lot of coordination going on. I am a
big believer in that. I think it is very important early on
this process.
Senator Carper. Well, I applaud those efforts and urge you
to continue them.
Let me just say to each of you, thank you for being here.
It is a special privilege to see Dr. Scheppach.
Chairman Lieberman. Thanks, Senator Carper. Senator
McCaskill.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. Thank you. This will segue nicely into
what you were just talking about, Mr. Dodaro.
As a former auditor, I have looked at three programs in
Missouri, and I know that the State auditor's office in
Missouri is aware of this. But I will tell you where I think we
are going to have a big, huge problem.
We have a weatherization program that in fiscal year 2008
received $6.1 million. It is going to get $125 million. We have
a Missouri State energy program that has $9.6 million in the
current year, they are going to get $60 million. A clean water
State revolving fund that has $18.8 million on an annual basis
is going to get $100 billion. And a drinking water State
revolving fund that gets $15.8 million is going to get $30
million.
Now, the weatherization program particularly, I mean, this
is--and the thing that makes me nervous about this is that I
know how this is going to get covered. I am just sitting here
and--everybody just circle the day on the calendar because
there will be scandalous stories across the country about
problems with the weatherization program. And the reason is
that we are giving them so much money, and these are all going
to be contracted out.
I mean, we have the St. Louis Urban League in St. Louis
that typically gets a million a year. They are getting $16
million. Now, who are they hiring? Where are these people
coming from? And who is checking to make sure that there is any
internal controls in this program?
So I am a little nervous that OMB has not yet come out with
any guidance on the Single Audit. And I am even more nervous
because I know there is a tendency--I mean, changing the Single
Audit guidelines is like moving a huge tanker.
Is there anybody here from OMB?
[No response.]
OK. Well, I will make sure that we call them today.
But if they do not act quickly and say to these States, you
have to make sure there are internal controls in these small,
new programs, we are going to have a horrible set of stories
that are going to indict the entire stimulus, when, in fact,
these are relatively small programs but with huge potential for
abuse and problems as it relates to internal controls.
Tell me where you think they are in this process. I am
worried. They have said they want to meet with our staff, but
not until May 8. Why is this taking so long?
Mr. Dodaro. I have been concerned as well. At your request,
we met with the State auditors or had a conference call with
them, got their ideas. We talked to the inspector general
community. I thought we were moving along and making the
modifications. But there is a resistance to making significant
changes in the process and staying with the status quo. That is
why we elevated our proposal, we had been working jointly with
them on a recommendation to try to get more urgency to act.
I think it is just inertia that has prevented them from
acting, and some people do not want to change the process. I
think it has to be changed. I think the State auditors would
use good judgment in assessing risk. Unless the internal
controls are looked at for these new programs in advance of the
spending for 2010, the prevention that you are talking about
will just not be there.
Senator McCaskill. It will not be there.
Mr. Dodaro. And so, I would encourage you to try to
encourage OMB to act on our recommendation. We think it is a
reasonable approach to doing this, and I think the Single
Audits can really play a big role, but only if those changes
are made.
Senator McCaskill. Part of the problem is that hardly
anybody knows what a Single Audit is. Senator Carper would
know, people on this Committee would know. But I think even a
lot of the Members would not know. And it is just a natural.
And it is just frustrating me that people do not see that now
is the time to be flexible about what the Single Audit should
do.
The big programs that they are going to focus on, they
already have internal controls. I mean, Medicaid has internal
controls. All these programs have internal controls. State
highway departments have internal controls. They are used to
contracting out major, multimillion dollar road projects. But
this guy with a pick-up truck who is going to go out there and
hammer up some weather stripping, or maybe not, and just say he
is hammering up the weather stripping, and maybe he is getting
his check. I mean, who is checking to see the work is actually
done, especially in a program like home weatherization?
So I think it is really a problem.
Mr. Dodaro. On that point, my staff just gave me a note
saying OMB is now not thinking about putting the guidance out
until June 30, and that is way too late.
Senator McCaskill. That is way too late.
Mr. Dodaro. Yes. So I would urge you to do that. I will
continue my efforts on this as well.
Senator McCaskill. And, Mr. Chairman, I hate to interrupt
you. But I would really hope that you and the Ranking Member
might consider, as the Chairman of this Committee, weighing in
on this with OMB. I think it is a golden opportunity for
oversight, a golden opportunity to make sure we have internal
controls.
Individually, these programs seem small, compared to the
overall, but if you add them all together in every State--and I
think if we do not put a lot of pressure on OMB right now to
tell them that they need to tweak the Single Audit requirements
immediately to harness that power without spending another
dime, that is a special moment in the Federal Government, when
we can get real meaningful oversight without spending another
dime. And we can. But if we wait another 60 days, it is going
to be too late. The cow is going to be----is it the cow out of
the barn or the horse out of the barn? Is it is the horse out
of the barn, or cow, I guess, either one?
Which is it, Senator Tester?
Senator Tester. The hogs are out of the shed. [Laughter.]
Senator McCaskill. The hogs are out of the shed.
It will be the hogs out of the shed that we will not be
able to recapture. So I hope that I could get the added weight
of the Committee leadership on this so that maybe we can
convince the folks at OMB that now is not the time to rest on
the way they have always done it. They really need to step up
and do it differently. Thank you very much.
Chairman Lieberman. Thank you, Senator McCaskill.
I mentioned before you came in that Senator Collins and I
have been in communication with the Vice President's office.
And he did send a letter today to us, but it bears following up
on your point. But I do want to reassure you, though, to this
extent.
He said that OMB is aware of some of the problems we are
talking about and will begin issuing updated guidance, beyond
the two they have done already, in early May. The letter says
the guidance will ``address several points that GAO has touched
on, as well as concerns from State and local officials.'' And
then he summarizes some of the areas of the guidance that will
be forthcoming, including changes to the Single Audit precisely
to ensure the Recovery Act activities receive special emphasis
and audit scrutiny. But it is not clear that will be in early
May.
So we will follow up to stress the Committee's concern
that, specifically, with regard to those guidelines, that they
will be put at the top of the list.
Senator McCaskill. I think it is important.
Chairman Lieberman. Yes. I agree. Thank you very much.
Senator Tester, we do not say hogs out of the shed in
Connecticut.
Senator Tester. Well, we do not say it in Montana either,
but I thought it would go over well. [Laughter.]
OPENING STATEMENT OF SENATOR TESTER
Senator Tester. I have a very quick opening statement, and
then I have some questions.
Thank you, Mr. Chairman. I appreciate you calling this
hearing, and I appreciate the panel members for their good
work.
The Recovery Act's transparency provisions build on efforts
that I have been doing, going back to 2007, to bring more
accountability and transparency to government. It is critically
important. In these tough economic conditions, the Recovery Act
in Montana is already working to rebuild the economy from the
ground up with infrastructure projects--like roads, bridges,
water systems, and many others. But we do need aggressive
oversight to make sure that these projects, with only rock
solid merit, are getting the taxpayer money. So I am pleased,
Mr. Chairman, with you calling this important hearing about
oversight.
I have several questions, many which I had before I came in
the door, and a lot more since I have been here.
I am going to start with you, Mr. Dodaro, because I have
heard a lot of comments about State auditors and their role in
oversight. I do not know what it is in other States, but in
Montana, the State auditor's main job is insurance
commissioner, oversight of the insurance industry. I do not
know that they have ever been asked to do things like auditing
a weatherization program, for example, as Senator McCaskill
talked about.
So the question I have for you is what if--I mean, the
mechanisms are there in places like the Departments of
Transportation and Health and Human Services (HHS) and those
kind of things, but what if the State auditor does not
typically do those kind of oversights? What do you do then?
Mr. Dodaro. I am not familiar with Montana, but I am with
many of the States. And there is a legislative State auditor--
each State is set up a little bit different. But each State has
to, according to Federal law and regulations and OMB, arrange
for these Single Audits. Now, some may contract them out.
Senator Tester. OK.
Mr. Dodaro. So that process is standard and in place.
Senator Tester. Right. Quite honestly, the legislative
auditor has got a full plate already in our State.
What percentage of the money can they utilize and where
does that money come from to enable them to have the resources
to be able to do an additional set of work?
Mr. Dodaro. They are all funded a little bit differently,
but I think there is some ability to recover the administrative
costs of carrying out those responsibilities. But the audits
are supposed to cover all spending, including the Federal
spending, and then have testing on Federal compliance
requirements.
Senator Tester. Yes, but how does a legislative auditor get
the money to do their audits?
Mr. Dodaro. They receive an appropriation from the State
legislature just like the legislature appropriates moneys.
Senator Tester. I know that.
Mr. Dodaro. Right.
Senator Tester. The issue here is that they get their
appropriation from the State legislature. The question is that
they have additional work here to do. And where do they get the
resources to do that? Does it come from the State legislature
or does it come out of the Recovery Act?
Mr. Dodaro. That is what we are asking OMB to clarify now.
First, I would say, Senator, our recommendation about changing
the Single Audit process would be to change the focus of it,
which would not require additional money.
Senator Tester. OK.
Mr. Dodaro. But if they do not know, then OMB can determine
and----
Senator Tester. That is good. Are you recommending caps on
the amount of money that they can use for audit oversight?
Mr. Dodaro. We have not addressed that issue in particular,
but I would expect them to use prudent judgment.
Senator Tester. All right. Well, thank you.
There are States that have full-time legislatures and there
are States that have biannual legislatures, and everything in
between.
The Department of Energy (DOE) changed the rules after we
went in, so the State of Montana, who happens to be in the
biannual session right now, had to pull back, do some things
different. That is all cool.
How do you anticipate this happening in areas where there
is a citizen part-time legislature and we have OMB or anybody
changing guidance, and they release it after the sessions are
over with?
And this is to you, Mr. Scheppach. How do you anticipate
them handling that?
Mr. Scheppach. Well, again, it is going to differ quite a
bit by the State. Some States, you will have to pull back the
legislature for special session. Some States, essentially, have
a committee that just needs to come back, and they can deal
with it. Some States you could probably deal with it with
executive order until the next session. So it really differs by
State.
Senator Tester. OK. A fair amount of this money is going
into regions typically because unemployment rates are higher
there than in other areas, where the most need is for jobs. In
Montana, the Forest Service in Region 1 just gave significant
moneys to the region, in the northwest part of the State. Our
unemployment rate there is approaching 16 percent, very serious
because of the wood products industries is in the tank.
Although there is no stipulation in the bill, to my
knowledge--and I want you to enlighten me if there is--that
once the money is allocated to a region, they can contract it
out, and somebody from a different part of Montana or a
different State could come in and do some of the restorative
work, or the bridge building, or the road building, or putting
in culverts and all that.
To your knowledge, is there anything in the bill that would
require moneys that go to an area where unemployment is high,
to actually be spent on people who live in that area that do
not have jobs? Do you understand the question?
Mr. Dodaro. Yes. I understand the question. I am thinking
of the answer.
Basically, Senator, it will vary by program activity.
Obviously, the Medicaid program is spent for the eligible
population in the State, and there is a factor for unemployment
rates. The highway programs have to be given priority to
economically distressed areas within the counties, and they
have to consider disadvantaged businesses as a certain
percentage of it.
But to your particular question, I am not aware of anything
that is in the legislation that would require that. I will go
back and ask our attorneys to take a look at it.\1\ But each
program has its own unique regulations.
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\1\ The response from Mr. Dodaro appears in the Appendix on page
652.
---------------------------------------------------------------------------
Senator Tester. I would like that, if you could do that;
and then, if you have any recommendations on what I could do.
Because, see, the truth is--and this is just a comment--in
different regions of the country, unemployment is much higher
in some areas than it is in other areas. In Montana, it easily
swings 10 points.
If we are plugging money into doing important work,
important infrastructure work--it is not to make work, it is
work that needs to be done and should be done--but, yet, people
can come in from outside to do that work, and not employ any of
those people to reduce that unemployment rate, we are really
not accomplishing everything that we wanted to accomplish.
So if you have any recommendations, I would love to hear
them. Thanks for your work. Appreciate it.
I would like to grill all of you, or at least ask you
questions, but I cannot do it. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks very much, Senator Tester.
Maybe we will do one more question on this round.
Senator Burris, at the end, if you have more questions, I
might just ask you to carry on the hearing until you are done
with your questions because I want to go over to the Days of
Remembrance commemoration. But let's start with one question
each and see how we go. I will go first quickly, and then I
will go over to you.
I am pleased to hear about how many States and localities
have created Web sites to provide accountability and
transparency. It really is quite remarkable. In some sense,
just as the size of the stimulus is unprecedented in Federal
Government history, the efforts that the Federal Government,
with the Recovery.gov Web site and at the State and local
level, I think are unprecedented, too, in terms of bringing
modern technology to bear on all this. It strikes me that if
nothing else, the Recovery Act is creating jobs for Web
designers and Web managers. [Laughter.]
That is good.
But I want to ask you how the State and local sites will
complement Recovery.gov, and is Recovery.gov sort of
piggybacking on what the States and localities are doing, or
are these basically separate sources of information?
Let's start with you, Ms. Coleman.
Ms. Coleman. Yes. I will give you my sense just from
perusing through the various Web sites. Most of the local
government Web sites I have looked at provide a link to
Recovery.gov, the Federal Web site. But there is a range of
content. New York City has a very sophisticated Web site and
will actually be modeling its efforts to attract recovery
dollars, very similar to the Baltimore City statistics local
government accountability measure. So it is probably on the
unique high end, but certainly New York City has different
challenges and resources available.
To vary on the other end of the spectrum, there are very
static Web sites are just posting the information and providing
the links to not only the Recovery.gov, but also the different
Federal agencies who also have all launched their own recovery
Web sites. So some very dynamic ones were seen as well as some
that are static, but at least making the information available
and letting their constituents know who they can contact if
they have questions about recovery.
Chairman Lieberman. We were really impressed, surprised, by
the usage, the number of hits on the Recovery.gov Web site. The
last time Rob Nabors from OMB was here, it was over $300
million since it was instituted.
Are you finding similarly heavy traffic on the State and
local, or do you know?
Mr. Scheppach. I do not really have a good sense.
Ms. Coleman. I do not have a sense of that.
Chairman Lieberman. OK. How about the States' sites, Mr.
Scheppach?
Mr. Scheppach. Well, a lot of it is going to be
duplicative. Everything that is going to go on Recovery.gov is
also going to go on the States. But I think there will be more
information on States about the task forces that have been
created, when there are public meetings that you can attend.
Also, I suspect some of them are gearing up to put out more of
the regional information in terms of contracts and so on, so
you can accumulate it various different ways.
Chairman Lieberman. Mr. Dodaro, do you have anything to add
to that?
Mr. Dodaro. Yes. The only thing I would add, I know on the
Recovery.gov Web site, there are links to each State Web site.
So I think the links are there, which is helpful. Also, some of
the States we have looked at--I know Ohio, for example, is
using a Web site to take ideas from the public on specific
projects. So I think some of the States are using it to get
some input, too, to help them make decisions. So I would add
that.
Chairman Lieberman. Good. Thank you. Senator Collins.
Senator Collins. Thank you, Mr. Chairman. Just one final
question for me.
Mr. Scheppach, I want to talk to you about the issue of the
restrictions on funding being used to supplant State funding. I
think this is a very confusing area because Congress put some
of these restrictions into the law to ensure they were getting
the stimulative effect of additional funding. If the Federal
funding is simply displacing State funding that otherwise would
occur, then it is not going to stimulate the economy.
On the other hand, if the funding is going to allow the
States to avoid cuts that would displace people--cause them to
lose their jobs or services to be reduced--then, presumably,
that is a use that we want to see.
Could you help us sort through this, and do the governors
have an understanding of what is supplanting versus
displacement? Because as I understand it, OMB has indicated
that if States ``misuse'' the discretionary money by displacing
instead of supplementing State budgets, the Federal Government
could seek to recover the money.
I think this is extraordinarily confusing.
Mr. Scheppach. It is a difficult problem. And I think the
biggest place that this is an issue is in the State
Stabilization Fund, $45 billion worth of education money. And
the maintenance of effort there says that no State can go below
their 2006 level.
The problem is that States were in such different places
because we had four or five States--like Florida, Arizona and
everything--that went down very early economically, and a bunch
of others did not have major problems until later. So anytime
you pick a year for a maintenance of effort, it works pretty
effectively for a group of States but not for others.
A perfect example there is Florida, which had, I think, cut
their budgets quite significantly. So maintaining that 2006
maintenance of effort, they were so far under it, that it was
causing a big problem. But at least you did build a waiver
approach into it so they can apply for a waiver from the
department so that it sort of helps.
It is just a difficult problem to get a concept that is
effective across the board for all States. And something like
the Medicaid one, where you are not measuring money, you are
actually measuring eligibility and other issues, is cleaner in
that sense, but in a lot of other areas, you just cannot do
that.
So I think something is in there, which is pick a
reasonable year for most States and provide a waiver authority
is probably as good as we can do, in all honesty.
Senator Collins. Thank you, Mr. Chairman.
Chairman Lieberman. Thank you, Senator Collins. Senator
Burris.
Senator Burris. Ms. Coleman and Dr. Scheppach, if you could
let me know what the States' position is going to be for these
underserved communities, minority businesses, or the local
community municipalities, whether you have any knowledge that
they have in place programs to make sure that the stimulus
dollars would go to minority companies, small businesses, to
create jobs in those areas.
Do you have any specific knowledge as to what your
municipality or the State governments are going to be doing?
Ms. Coleman. Senator, I would say that I do not know what
all the specific cities and towns are doing. They are quite
diverse and there is quite a range. But I can share that in my
conversations, in our conversations with minority, local
elected leaders, that they are certainly being champions for
that cause as their cities and towns move forward with the
requests for proposals or other decisionmaking processes as it
relates to the recovery dollars.
So there are champions, hundreds and thousands of
champions, for that cause who are in the local governments and
a part of that decision-making process that I think will call
attention to any disparities or efforts that do not seem to be
in compliance with the Federal requirements, as well as any
local requirements that there might be.
Senator Burris. Well, in Illinois, they are coming to me
saying how can they get their local businesses to get a piece
of this action, a piece of the project that is coming in,
whether it is a weatherization project or a highway
construction project. And they have no knowledge of how the
process is working.
Do they talk to the mayor of the city? Do they talk to the
governor of the State? And they are coming to me saying who do
we talk to.
Ms. Coleman. Well, I would echo what you are saying in that
the first step is education and awareness about what are the
opportunities and how to access those opportunities. And this
is where we will go back to the communication that local
governments are doing with their constituents, and the vendors
who are interested in these opportunities, as well as the
communications from the State and the Federal Government. These
are important so that people and vendors wanting to do business
can understand what are the opportunities and who do I talk to
about those opportunities.
I know that cities and towns across the country, as well as
the States and the Federal Government, are working hard to make
those communication vehicles available so that the information
is accessible.
Senator Burris. Do you have an example of any entity that
you know about that might be an example of what is taking
place? Is there a city councilman who has his business person
put a grant in, let's say, for one of these community health
centers, and that grant was approved?
Ms. Coleman. I do not have any particular examples, but I
am happy to do some work on that issue when I return to the
office, and we will be happy to follow up with your office.
Senator Burris. Will you be following that piece of it with
your authority under the National Governors Association, how
they are following up with the minority piece?
Mr. Scheppach. It is probably not something we would
normally do. The State of Illinois has appointed people who are
their leads for this. And I would recommend that the community
sit down with those leads and talk about this issue. I mean, no
money has been spent yet----
Senator Burris. He is named the stimulus czar. We have a
stimulus czar.
Mr. Scheppach. Well, I would encourage you to sit down with
that person and talk about the issue, because, as I say, you
are in front of it. There are very few decisions that have been
made so far.
Senator Burris. But right now I am getting all the heat
from it. I was getting calls in yesterday about how do we get a
piece of the stimulus? I mean, that is all I am hearing from my
constituents. And I am now trying to get some answers from
them. I have certainly met with some local officials, and they
did not know as much as I knew in Illinois.
So there is major concern. And I tell you, if these dollars
come into the community, and none of them get into those
underserved and minority communities, then there is going to
be--here again, this is what we are looking at; it is all at
the top. They are going to keep us at the bottom and not give
an opportunity for a chance to grow businesses and to share in
our dispersion of tax dollars.
Mr. Scheppach. Well, again, I would sit down with the
mayors in your particular area, as well as the governor's
people.
Senator Burris. Thank you, Members of the Committee. I
appreciate your response.
Chairman Lieberman. Thanks, Senator Burris.
Thanks to the three witnesses. I think this has been a very
informative hearing. That is why we are going to keep doing
them. And bottom line, I am encouraged by what you have all
said. I think the Federal, State, and local governments are
trying to work very hard together. In our oversight, there are
questions, but there are responses coming, including the Vice
President's announcement of the guidelines today.
Overall, the money has gone out. So not only am I
encouraged about what we have heard in the short term, but I am
encouraged by Dr. Ray Scheppach's vision of what history holds.
[Laughter.]
We do not normally look that far ahead.
Anyway, the record of the hearing will stay open for 15
days for any additional questions or statements. I thank you
all very much for what you have been doing. We had a very good
turnout today, and, frankly, beyond what I expected for Members
of the Committee, which shows how much interest there is among
the Members. And a lot of it is because there is so much
interest, as Members have indicated, back home.
Senator Collins, do you want to add anything?
Senator Collins. I do not.
Chairman Lieberman. Thank you very much. The hearing is
adjourned.
[Whereupon, at 10:55 a.m., the Committee was adjourned.]
FOLLOW THE MONEY: AN UPDATE ON
STIMULUS SPENDING, TRANSPARENCY,
AND FRAUD PREVENTION
----------
THURSDAY, SEPTEMBER 10, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Joseph I.
Lieberman, Chairman of the Committee, presiding.
Present: Senators Lieberman, Carper, Pryor, McCaskill,
Tester, Burris, Collins, Coburn, and McCain.
OPENING STATEMENT OF CHAIRMAN LIEBERMAN
Chairman Lieberman. The hearing will come to order. Good
morning and welcome to the witnesses and everyone else who is
here.
This is the fifth in a series of oversight hearings that
our Committee, pursuant to its oversight responsibility as the
Governmental Affairs Committee, has conducted on the American
Recovery and Reinvestment Act (ARRA or Recovery Act), the $787
billion stimulus package that was enacted earlier this year to
help pull our economy out of the worst recession in the living
memory of most Americans.
We hold this hearing on the heels of what I would call
mixed news about our economy. That is that we are still not
where we want and need to be, but we seem to be making some
progress. After a slight decrease in the unemployment rate in
July, down a tenth of a point to 9.4 percent, the jobless rate,
as we all know, went back up to 9.7 percent in August, which is
the worst rate of unemployment in America in 26 years. We know
that unemployment is a lagging indicator of an economic
recovery, so this was not entirely unexpected.
We also know that just a few months ago, our financial
sector was on the verge of collapse and the overall economy was
teetering somewhere between a great recession and, at worst, a
depression. Thankfully, both of those calamities have been
averted. The stock market is up. Housing sales are up. And
manufacturing grew last month for the first time in more than a
year.
But the unemployment level now is above what many
economists predicted when we passed the stimulus in February,
particularly the numbers for the building construction trades,
where unemployment still exceeds 17 percent in many States,
including my own State of Connecticut. Perhaps that explains
why, when I met with workers in the construction trades in
Connecticut during August, they were having a hard time
expressing any gratitude for the positive effects of the
stimulus. So the danger of a jobless recovery remains all too
real.
With that in mind, a lot of people, understandably, are
asking if we can do more. Some have called for a second
stimulus, although those calls seem to have receded. Others are
asking, and I number myself among those, whether we can
implement what we have already passed faster, whether we can
speed up the process so that more of our citizens can feel the
positive effects of the stimulus that we intended more quickly
than will happen in the normal course. I, for one, hope that we
can and I look forward to exploring that with the witnesses
today.
This morning, overall, we are going to take a status check
on what has been done so far and ask about the capabilities of
all levels of government, and the performance of all levels of
government in administering Recovery Act programs. The pace of
spending naturally will pick up--we have known all along that
we would spend more in fiscal year 2010 than in fiscal year
2009--and, of course, we will ask whether we can increase the
pace of that spending even more.
Personally, I believe that much has been accomplished since
the Recovery Act was passed as a result of the Recovery Act.
While I am going to not fall to the temptation about telling
old jokes about economists never reaching a similar conclusion,
I think, from what I have read, most of them agree that the
Recovery Act has helped halt America's economic slide and is
helping the private sector toward a recovery.
I can tell you that certainly mayors and governors, and
other local officials, make clear to me and others that things
that would have been worse without the help that the Recovery
Act provided. Let me briefly sum up where we are now and the
progress we have made.
On the tax side, 95 percent of working Americans have seen
their paychecks increase because of the Make Work Pay tax
credit. It has put about $23.2 billion into the pockets of
these families so far. And in total since the Act was adopted,
$62.5 billion has been pumped into the economy through tax
relief, with $225.5 billion more of tax cuts still to come.
Nearly 334,000 new homeowners have claimed the Recovery Act's
$8,000 first-time homebuyer tax credit. Many analysts, and
maybe in some senses more importantly, many people in the real
estate business--brokers, agents, etc.--that I have talked to
in Connecticut say that this provision really has played a part
in steadying the housing market and even now is helping to
increase home sales for 4 months in a row.
In transportation infrastructure, over 6,700 highway
projects have been approved and more than 2,200 are underway.
Hundreds of airports across the country have been awarded funds
for improvements, and about $1.1 billion in Amtrak improvements
are on the way.
The Recovery Act is also helping families through these
tough times with extended unemployment insurance, increased
Social Security payments, more food stamp assistance, and aid
to States through increased Medicaid grants.
Recovery Act payments to the States through the Federal
Medical Assistance Percentages (FMAP) program and the State
Fiscal Stabilization Fund have helped, by the numbers that I
have seen, keep 135,000 teachers and 5,000 law enforcement
officers on the job.
We will come back to all that with some questions and
answers.
Besides the spending of stimulus money, another topic of
this hearing will be our continuing interest in the
transparency of Recovery Act spending and a final, but
critical, question that we want to deal with today with
particularly the presence of--I would like to see ``Hon.''
before Jon Leibowitz's name. He worked here in the Senate many
years. We always thought he was honorable, but now he has been
officially declared honorable.
The challenge we want to deal with today is the Federal
Government's efforts, which he is helping to spearhead, to
prevent Americans from being bilked by scam artists who
fraudulently promise government money in return for credit card
information. Scams directly related to the stimulus appear to
be few so far, but unfortunately, tough economic times are
always accompanied by people who are eager to take advantage of
other people's misery and try to exploit those who are
financially strapped and desperate for cash. So we look forward
to that additional and unique part of the government's response
to this recession.
So I welcome all the witnesses today. I look forward to
your testimony, and I am glad to call now on our distinguished
Ranking Member, Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you, Mr. Chairman.
Seven months ago, the American Recovery and Reinvestment
Act was signed into law. Since that time, this Committee has
conducted oversight to help ensure that these funds are used as
intended, to help revitalize our economy by creating needed
jobs, improving roads and bridges, sustaining vital health care
programs, and investing in infrastructure and science.
These funds must be disbursed quickly to meet the goal of
stimulating the economy. At the same time, we must ensure that
haste does not make waste or permit fraud or mismanagement.
Striking the right balance between speed and caution has been a
challenging task.
For example, we recently learned that the Social Security
Administration erroneously sent about 10,000 stimulus checks
for $250 each to people who were either dead or incarcerated.
This mistake may cost taxpayers about $2.5 million and it could
easily have been prevented. Now, instead of these funds
stimulating the economy, the Social Security Administration
must work to recover them and put controls in place to prevent
similar errors in the future.
Today, as the Chairman has indicated, we will explore three
issues that could blunt the economic recovery impact of the
stimulus: The first, unnecessary delay; second, inadequate
transparency; and third, outright fraud.
First, some reports indicate that stimulus funds are
entering the economy too slowly, delaying the potential
economic benefit. The Office of Management and Budget (OMB),
however, has reported that it is on track to meet the spending
targets. I am interested in exploring with our witnesses
whether the spending to date has had the desired effect on the
economy, whether the money is being pushed out of Washington
and to the intended recipients as quickly as possible.
Second, I want to ensure that we are providing the American
public with accurate and thorough data about stimulus projects
around the country. Congress directed the creation of the
Recovery.gov Web site to increase transparency, allowing the
American people to monitor stimulus spending in their own
States and to help be a watchdog and report abuses. Progress on
Recovery.gov initially has been slow, however, particularly
when compared to some private sector alternatives.
Third, I am concerned about the growing incidence of fraud
and predatory scams that appear to be on the rise as con
artists prey on citizens facing financial hardships. These
crooks are smart and they are opportunistic. They exploit these
tough economic times to lure Americans into scams that look and
sound legitimate. They uses phrases that we hear on news
reports and see in the headlines, such as ``stimulus grants''
and ``government funding'' to confuse victims. They manufacture
forms that have an official look to them when, in fact, the
services offered are not connected in any way to any government
agency or to the Recovery Act.
To appreciate the potential that these scams have to spread
and grow, possibly ensnaring thousands of trusting consumers,
we must recognize that the Federal stimulus program is
instantly recognizable. It is part of our economic and
political vocabulary. It carries so much weight and credibility
that the police in Florida recently used the lure of economic
stimulus checks to conduct a sting operation in which 75 people
were arrested.
The Florida example demonstrates the attention-drawing
power that the words ``economic stimulus'' can have on the
American people. It is critical that we aggressively pursue
scam artists who brazenly use the stimulus program as a
springboard for fraudulent or other unfair activities.
I have brought to the hearing today two examples of
mailings that were sent to my constituents in Maine in order to
illustrate my point. The first example, sent shortly after
Congress passed the Recovery Act, is misleading because it
resembles an official government form. It could easily be
mistaken as a legitimate government offer of help and
assistance. For those of you who can see the blown-up form or
have it before you, it looks very much like an Internal Revenue
Service (IRS) form. It provides an identification number for
the individual. It has Form Number 009-S. It has ``Stimulus Act
2008.'' It is easily mistaken for an IRS form and looks very
official.\1\
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\1\ The chart referenced by Senator Collins appears in the Appendix
on page 661.
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The second example is a letter that was sent to my
constituent telling him that he is preapproved for a Consumer
Debt Initiative because he may be experiencing a financial
hardship. Well, most of my constituents are experiencing
financial hardships, regrettably, nowadays. The letter implies
that the initiative was established under the Economic Stimulus
Act of 2009. In the letter, the alleged manager of the so-
called Credit Relief Division, a fictitious but realistic-
sounding title, encourages the consumer to call and refer to
the case number provided. It has a Washington, DC, address. It
looks very legitimate.\1\
---------------------------------------------------------------------------
\1\ The chart referenced by Senator Collins appears in the Appendix
on page 662.
---------------------------------------------------------------------------
So I am particularly looking forward to hearing from Mr.
Leibowitz today about the Federal Trade Commission's (FTC)
efforts to identify, publicize, and stop stimulus scams.
I also appreciate the work that the Department of Justice
has done to train more than 10,000 Federal, State, and local
officials to monitor the contracting process for abuses such as
collusion and bid rigging. These officials can help play an
important watchdog role.
With a combination of education and enforcement, we can
help prevent exploitation and stop scams. At the same time, I
hope that this hearing will serve as a warning to con artists
out there that our government is on the lookout. We will alert
citizens. We will expose scams. And criminals will be
prosecuted. Preventing fraud in the execution of stimulus
funding is a key element to the ultimate success of the
Recovery Act.
I appreciate the Chairman's continued scheduling of very
important hearings to provide sufficient oversight in this area
and I look forward to hearing the testimony of our witnesses.
Thank you.
Chairman Lieberman. Thank you very much, Senator Collins.
I thank the other witnesses of the hearing who are here
this morning. We will go now to Robert Nabors, who is the
Deputy Director of the Office of Management and Budget with
special responsibility for the ARRA, the Stimulus Act. Thanks
very much for being with us again.
TESTIMONY OF HON. ROBERT L. NABORS II,\2\ DEPUTY DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
Mr. Nabors. Good morning, Mr. Chairman. Good morning,
Members of the Committee, and thank you for inviting me to
testify about our progress in implementing the Recovery Act.
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\2\ The prepared statement of Mr. Nabors appears in the Appendix on
page 663.
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Today, I would like to focus on four key areas that are of
particular concern to the Committee. That is the rate of
Recovery Act spending, recipient reporting, job counting, and
the Single Audit system.
The Recovery Act is making a difference, and the
Congressional Budget Office (CBO) has noted it is one of the
reasons why economic activity is expected to begin its rebound
in the coming months. At the heart of this approach is an
effort to accelerate the pace of spending. In previous
hearings, you have asked me whether our pace of spending is on
schedule. The answer is yes. The Recovery Act was designed to
ramp up in 2009, have its peak impact in 2010, and lay the
groundwork for further growth moving forward.
In April, when I last testified here, Federal agencies had
obligated about $54 billion. Today, nearly $234 billion has
been obligated. When combined with more than $66 billion in tax
relief, about $300 billion has been committed to date.
Importantly, agencies have outlaid nearly $94 billion in
spending so far, up from $12 billion in April. Combined with
the tax relief, this totals to about $159 billion. This pace of
spending is consistent with our original goal of outlaying 70
percent of the $787 billion contained in the Recovery Act by
the end of fiscal year 2010, and it is also consistent with
CBO's initial projections.
The Administration has worked to meet or exceed a series of
ambitious funding targets. As the Government Accountability
Office (GAO) has noted, Recovery Act funds are actually moving
to States faster than anticipated and certain programs are
being implemented faster than anticipated. For example, the
Making Work Pay tax credit for middle-class families was
implemented about 3 months ahead of schedule, and all States
obligated at least half of their highway funds at least 10 days
before the deadline set in the Recovery Act.
At the beginning of the summer, the Vice President
presented the Road Map to Recovery, a plan for 10 major
benchmarks that would help define the Recovery Act during its
second 100 days and speed implementation. Last week, the Vice
President announced that the government had met or surpassed
each target.
In addition to implementing the Recovery Act quickly, it is
critical that we do so in a way that is transparent and
accountable to the American people. That is why Congress
required funding recipients to provide detailed reports on the
use of funds and on the jobs that these funds have created or
saved.
The first report from recipients are due on October 10. We
have taken several actions in recent months to anticipate the
needs of recipients and develop the appropriate leadership
structure and technical capacity to manage the expected
workload. Three rounds of OMB recipient reporting guidance have
clarified the expectations on grant recipients and contractors.
Our guidance responds to the President's charge for greater
transparency by going beyond the data elements required by law
to capture significant payments to vendors, those dealers,
distributors, merchants, and other providers of goods and
services necessary to conduct Federal programs.
Working with the Recovery Accountability and Transparency
Board, we have provided detailed instructions for registering
and submitting information at Federalreporting.gov. We have
worked with the board to test and fine-tune the site, which is
now open for registration. As of last evening, there were about
19,000 registrants so far and we are pushing hard to increase
registration.
In addition, we have worked with the board to conduct seven
Webinars, attracting more than 17,000 registrants in a total of
more than 20 different training sessions with recipients to
explain their reporting responsibilities, to discuss how to
calculate job estimates, and to review the technical solutions
and data elements for reporting on recovery funds.
As some challenges will require specialized attention, we
are coordinating with the board to provide on-site technical
assistance in State capitals and several localities during the
reporting period. We will deploy about 100 on-site liaisons to
every State capital and to many of the largest counties and
cities. The liaisons will provide State and local Recovery Act
coordinators with daily data on registration and reporting
trends and to serve as a backstop for questions that are
pending resolution from the board, service desks, and the
agencies. A 10-person Project Support Team will oversee their
operations, provide training, and coordinate information flow.
Finally, there will be a team of 20 to 30 coordinators
drawn from different agencies, positioned to get answers from
agencies and OMB to recipients and to compile reports
documenting what liaisons have learned on the ground.
To further improve the flow of information, we responded to
a recommendation from GAO and implemented a new State
notification process, which requires agencies to notify States
within 2 days of any grants awarded within their boundaries and
will provide for up-to-date listings of new contracts, as well.
We are committed to strengthening the reporting processes
and collecting the data that we need to track spending, count
jobs, and deliver on the President's promise of unprecedented
transparency and accountability.
Later today, the White House Council of Economic Advisors
(CEA) will release its first quarterly macro-economic impact
analysis of the Recovery Act. I am not in a position to discuss
the report's specifics in this hearing, but I did want to take
this opportunity to explain to the Committee the differences
between the CEA report data and the data to be submitted in
October by funding recipients.
The data will differ in several important ways. First, the
Recovery Act recipient reports encompass only those projects
and activities funded by State Fiscal Relief Grants and other
investment spending. That comprises about one-third of the
total spending in the Act. The CEA report, however, will assess
the total Recovery Act program, from grant spending to tax
relief to safety net programs.
Second, recipients are only required to report on direct
jobs and not additional job impacts that may be occurring
beyond that. CEA will look at direct as well as indirect
economic benefits.
Finally, the October data will be driven by the quality and
quantity of information provided by funding recipients. The
completeness of their submissions will determine the quality of
the October job count. We are working with the agencies to urge
funding recipients to register and report on time and we expect
the data to improve with each successive quarter of reporting.
While recipient data will be useful in informing CEA on their
estimating model, the two different job estimates are not
intended to reconcile with one another.
As my final point today, I would like to focus on some
changes that we have made in response to concerns about the
Single Audit process. When I first appeared before the
Committee, Senator McCaskill expressed concern that the Single
Audits were not set up to meet the demands of the Recovery Act
oversight. GAO echoed her concerns. Both have pointed to a few
key issues, including the time lag that typically exists in the
auditing cycle and the fact that the Single Audit process might
not cover all Recovery Act programs that should be examined.
In response, OMB staff worked with this Committee and GAO
to develop a solution that could be implemented quickly and in
a targeted manner. The collaboration is ongoing. We have
modified OMB Circular A-133 such that the majority of programs
with Recovery Act funding will be audited. And our August 6
addendum to this supplemental stresses that auditors should be
prompt in relaying any information that they discover about
deficiencies or weaknesses.
Also, we are planning to use pilot authority to improve
internal control communication for selected major Recovery Act
programs. As part of this program, OMB will work with agencies
to identify at least 10 at-risk Recovery Act programs that
should be audited on an expedited basis of 6 months versus the
normal 9-month time frame. To participate in the program,
States must consent to being audited with respect to at least
two of these programs. As an incentive, participant States will
be exempt from being audited on smaller, lower-risk programs.
In addition, we have responded to concerns about State
oversight capacity by issuing a memorandum that allows States
to use up to 0.5 percent of funds for administrative costs and
to obtain those funds more quickly than traditional schedules
would have allowed.
With that being said, we continue to listen to your
concerns and look forward to continuing our constructive
dialogue about the critical issues over the coming weeks and
months, and particularly as we approach the October 10
reporting deadline.
Thank you again for this opportunity to testify.
Chairman Lieberman. Thank you, Mr. Nabors, for the opening
statement. You touched on some of the items that I certainly
wanted to ask you about and I look forward to the question
period.
Jon Leibowitz comes to us today as Chairman of the Federal
Trade Commission. We are pleased to have you with us. As you
can hear from Senator Collins's opening statement and my own,
we have a real concern about scam artists trying to take
advantage of this stimulus program and the hard times that a
lot of people are experiencing, so it is reassuring, even
before I hear what you have to say, based on what I know of
you, that you are on duty in this regard.
TESTIMONY OF HON. JON D. LEIBOWITZ,\1\ CHAIRMAN, FEDERAL TRADE
COMMISSION
Mr. Leibowitz. Well, thank you, Senator, for those kind but
perhaps undeserved words. Chairman Lieberman, Ranking Member
Collins, Senator McCain, Senator Burris, Senator Tester, and
Senator Coburn, I am Jon Leibowitz, Chairman of the Federal
Trade Commission, and I do appreciate the opportunity to be
here today.
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\1\ The prepared statement of Mr. Leibowitz with attachments
appears in the Appendix on page 669.
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Unlike my colleagues on this panel, who are talking about
frauds directed at the Federal Government, I am going to be
talking about frauds falsely invoking the Federal Government
but directed at American consumers and what we do at the
Federal Trade Commission to try to stop these scams.
My oral statement highlights a series of fraud cases that
the Commission has recently brought involving false promises of
government grants. They are part of Operation Short Change, a
sweep of 120 legal actions announced on July 1 that we
undertook with the Department of Justice and 14 State partners.
In addition to grant scams, as you mentioned, Senator Lieberman
and Senator Collins, we challenged a variety of frauds
exploiting people harmed by the economic downturn. All told,
with our Federal and State partners, we have brought 389 cases
or legal actions in four fraud sweeps in just the past 5
months.
Mr. Chairman, to today's con artists, the challenging
economy presents a golden opportunity. Sadly, it is an
opportunity to prey on the economic distress of American
consumers and bilk them out of their hard-earned savings. As
they do with any crisis, these malefactors have sought to
exploit the government's stimulus plan. Their Web sites promise
government grant money, usually requiring consumers to pay in
advance or to provide personal financial information. But
though they promise to rescue people in troubled financial
waters, after they take the money, these scammers throw
consumers an anchor instead of a life line.
Some sites have even used the images of high-ranking
government officials, as you can see over there,\1\ to add
legitimacy to their misrepresentations. This poster shows one
site, part of the Grant Connect scam, which featured images of
President Obama and Vice President Biden. Just 2 weeks ago, at
the Commission's request, a U.S. District Court judge
temporarily shut down these sites and we have a preliminary
injunction hearing coming up tomorrow with the same judge.
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\1\ The chart referenced by Mr. Leibowitz appears in the Appendix
on page 684.
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But as you know better than anyone, whatever a Web site may
say, the Federal Government does not award grants to
individuals to pay personal expenses or bills, nor does
President Obama hand out stimulus money for leisure travel.
Let me tell you about another scam, Grant Writers
Institute. Grant Writers claimed that consumers could get money
from the economic stimulus. Together with State attorneys
general from Kansas, Minnesota, and North Carolina, earlier
this summer, we filed a complaint against the defendants
allegedly responsible for this scam. The defendants sent
mailings, including post cards, such as the one that we blew up
on this poster, ``You are guaranteed a $25,000 grant from the
U.S. Government. Use your money to pay bills, start or expand a
business, pay for your children's education, help you purchase
or fix up your own home, travel the world.'' \2\ Mr. Chairman,
I am not making this up, and I know that those grants do not go
for leisure travel, do they?
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\2\ The chart referenced by Mr. Leibowitz appears in the Appendix
on page 683.
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Chairman Lieberman. No.
Mr. Leibowitz. Or to individuals.
Another mailing, shown in this poster, from the same
company, used--and this is very much like what you showed,
Senator Collins--used official-looking seals, and as you can
see, this postcard says, ``Official Government Information. A
$25,000 grant from the U.S. Government.'' \1\ Now, consumers
who responded by calling a toll-free number heard this, and I
am quoting again, ``If you have been reading the papers, you
know that recently, our government released over $700 billion
into the private sector. What you probably do not know is that
there is another $300 billion that must be given away this year
to people just like you.''
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\1\ The chart referenced by Mr. Leibowitz appears in the Appendix
on page 685.
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Ultimately, these consumers did not get grants, but many
people did fork over $69 to the defendants and the defendants
talked others into paying several thousand dollars for
additional upstream so-called grant services. Just last week,
several of the defendants responsible for the Grant Writers
Institute scam agreed to a preliminary injunction halting their
scheme.
I will briefly highlight two other FTC cases involving
grants. First, Grants For You Now allegedly promised, for a
fee, access to or expertise in getting free government grants
to pay personal expenses. And Cash Grants Institute placed
illegal robocalls to consumers advertising, ``free grant money
available from Federal, State, and local governments.'' Its Web
site included images of both President Obama and the U.S.
Capitol building. Neither company, of course, facilitated
grants to consumers, but both pocketed money from them. And
these four cases, by the way, involve 270,000 potential
victims.
We will also follow up on the poster and on the entity that
you showed earlier in your opening statement.\2\ It is
conceivable that the Web site has been taken down, because a
lot of the Web sites have been taken down since we announced
our sweep, but we will follow up on that and get back to you.
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\2\ The charts referenced by Senator Collins appear in the Appendix
on page 661-662.
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Our actions here did not stand alone. They were part of
Operation Short Change, which also challenged scams that preyed
on unemployed Americans looking for work, exploited the
entrepreneurial spirit of individuals looking to start their
own business, promised much-needed credit to consumers, but
instead delivered unnecessary debt.
As we did on this sweep, we regularly work together with
State attorneys general, including those from Connecticut and
Maine, and with other Federal agencies on sweeps like this,
including the Departments of Justice, and Housing and Urban
Development (HUD), and Treasury, and working together really
can have a much bigger impact.
Mr. Chairman, we bring a lot of fraud cases, but, of
course, we would vastly prefer that no one falls for these
scams in the first place. One part of that solution is to
educate consumers, and we do that, we think, very well, as we
hope the materials in front of you demonstrate.
The Commission has also reached out to legitimate companies
for help in pulling down ads for these scams. At our request,
several major online ad companies, including Facebook and
Google, moved to screen out ads touting the economic stimulus
as providing grants for individual consumers. Let me commend
these companies for their help.
Let me also commend this Committee for all of your support.
There is a lot more to be done in this area, and we do have
some ideas about ways you can make us more effective, for
example, by growing our agency, which is actually about 35
percent smaller than it was 30 years ago though the American
population has grown by more than 30 percent during that time.
But I am happy to report that the President has committed to
increasing our resources, and I am also happy to expand on this
issue at my next Appropriations Committee testimony before
Senator Collins. And finally, I am happy to answer any
questions you have.
Thank you so much, and I will yield the balance of my time.
Chairman Lieberman. Thanks very much, Mr. Leibowitz. Your
statement actually justifies my confidence, as expressed
earlier, and I thank you for it.
Next, we are going to hear from Earl Devaney. Are you still
Inspector General at the Interior Department or are you on
leave to do this job?
Mr. Devaney. I am on a leave of absence.
Chairman Lieberman. This is a full-time job.
Mr. Devaney. It is.
Chairman Lieberman. Today, Mr. Devaney, who has really done
great public service, comes before us as Chairman of the
Recovery Accountability and Transparency Board, which was
created by the Stimulus Act. We look forward to your testimony
now.
TESTIMONY OF HON. EARL E. DEVANEY,\1\ CHAIRMAN, RECOVERY
ACCOUNTABILITY AND TRANSPARENCY BOARD
Mr. Devaney. Mr. Chairman, Ranking Member Collins, and
Members of the Committee, I want to thank you for the
opportunity to appear before you today to provide an update on
the recent and planned activities of the Recovery Board. My
testimony today will address the current status and future
direction of the board's missions, and after my opening
remarks, I will be glad to answer any questions you have.
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\1\ The prepared statement of Mr. Devaney appears in the Appendix
on page 686.
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I would like to begin by addressing some of the suggestions
put forward by Members of this Committee when I last testified
before you in April. One recommendation was that the board seek
the assistance of AARP and Triad in publicizing and creating
awareness of recovery-related scams, like the Chairman just
spoke about, given that perpetrators of scams frequently target
senior populations. The board has since reached out to both of
these organizations, as well as the FTC and the National
Association of Attorneys Generals. And although we have seen a
decline in recovery scams since the initial period of the law's
enactment, the board's relationships with these groups are now
in place in the event that these scams begin to rise again.
Another suggestion made at the April hearing was that the
board consider employing former journalists to assist with our
reporting requirements and to make the board's Web site more
reader-friendly. Since that hearing, the board has hired former
journalists in various staff positions, where their superior
writing skills will be put to good use.
I am pleased to report that the redesign of Recovery.gov
has been completed and its companion data collection Web site,
Federalreporting.gov, has been created, performance tested, and
open for registration. As mentioned earlier, more than 19,000
recipients as of last night have registered since the site was
launched on August 17. However, we are actively encouraging
recipients to register prior to October 1, which is when the
system will first be open for reporting purposes.
The fully enhanced version of Recovery.gov is scheduled for
release prior to October 10. It will provide visitors with a
visually pleasing, user friendly, and highly interactive Web
site. For instance, it will have a mapping capacity that will
allow visitors to search for spending all the way down to their
own zip codes or their own Congressional districts, for that
matter. The redesigned Recovery.gov is currently undergoing
user testing by citizen groups and various stakeholders around
the country.
As you may sense, I am very hopeful about the new features
of Recovery.gov 2.0 and the data the Web site will display once
the reporting begins next month. However, I do not believe that
just throwing data up on a Web site classifies it as
transparency, nor am I under the illusion that the first
quarter or even the first several quarters of reporting will be
free of data quality problems. This kind of data reporting
represents new territory and brings the potential for new
complications. The government has never before required
recipients of Federal funds to report to this degree.
While I am on the subject of data quality, Mr. Chairman, I
think a distinction needs to be made between data quality and
data integrity. Although the board and the inspectors general
(IGs) will play a role in data quality, chiefly by reviewing
the agency's processes for ensuring the quality of the data,
the board's main goal will be one of data integrity. That is,
the board will strive to ensure that the data on Recovery.gov
is a true reflection of what recipients report, including any
subsequent modifications made to that data. The board intends
to carefully track all changes to the data and make that
information on Recovery.gov for all to see.
The prime responsibility for data quality, however, rests
with the recipients of the funds and the agencies distributing
those funds, as they are in the best position to know the
details associated with these funds. Indeed, any direct
involvement by IGs in the assessing of the data quality process
could run afoul in participating in the data quality process
and could run afoul of the Inspector General Act's longstanding
prohibition on IGs performing programmatic functions of a
department or agency, as well as government auditing standards.
Although the status of Recovery.gov receives most of the
public's attention, transparency is only part of the board's
mission, as you well know. The board continues to focus equally
on the second mission of accountability and the attendant goal
of minimizing fraud and waste.
At this point, I would like to expand briefly on my view of
waste in the context of the board's mandate. Whenever I say
that the board is trying to minimize waste, I am referring to
an objective assessment of contracting practices rather than a
subjective viewpoint of the nature of a particular expenditure
or project. My view is that aside from being mindful of the
Recovery Act's flat-out prohibition on funding for aquariums,
zoos, and the like, the purpose of the board is not to weigh in
on spending choices that come down to an agency's judgment or
opinion. Such decisions are the result of political and policy
determinations made by multiple layers of watchful individuals.
Instead, when the board focuses on waste in the spending of
recovery funds, we will be looking principally at the incurring
of unnecessary costs due to ineffective practices or internal
controls.
The board continues to strategize ways to not only receive
reports of fraud, waste, and mismanagement and then refer them
to the appropriate IG, but also on how to analyze trends in
light of publicly available open-source data. To that end, the
board has recently put out a solicitation for analytical tools
and personnel that can best extract and harness existing
information in order to make the board's referrals more value-
added for the IGs and also contribute greatly to risk-based
predictions about potential fraud. We have high hopes that this
risk-based fraud prevention and detection program will serve as
a future model for government oversight.
The board's compliance and investigative staff also
continues to review Recovery Fund procurements as they occur,
coordinating with IG offices on a myriad of issues. Thus far,
we have referred more than 100 matters to various IGs to ensure
a heightened scrutiny of specific procurements that the board
staff have identified as potentially problematic. These issues
range from instance of administrative oversight to awards that
may raise more serious questions requiring resolution.
The board also will be implementing a hotline where the
public can report potential cases of fraud, waste, and
mismanagement. After researching several public and private
hotline options, the board has selected a hotline that will
allow citizens to call, e-mail, fax, or mail letters to trained
operators, and the board staff will then use this information
to refer complaints to the relevant IGs for investigation or
for other suitable response. This enhanced hotline solution
will be launched in conjunction with the upgraded Recovery.gov
in early October.
In conclusion, Mr. Chairman, I look forward to returning to
this Committee once we have begun to unveil to the American
public the full scope of recovery spending. These will be
interesting times. I do not claim to be a prognosticator, but I
suspect that there will be a strong reaction when the American
public sees how the government actually spends its money for
the first time. Some of the instantaneous reaction may be
negative, but I think there will be substantial positive
reaction, as well.
Whatever the short-term effects, however, I truly believe
that the long-term effects of such transparency will be
decidedly positive. That is why I remain optimistic that the
board and I will be able to achieve success in this grand
experiment created by the Recovery Act and I firmly believe
that what we accomplish here will lay the groundwork for how
future government spending takes place.
Mr. Chairman and Members of the Committee, that concludes
my oral remarks and I stand ready to answer any questions.
Chairman Lieberman. Thanks very much, Mr. Devaney.
I have a quick informational question. I remember at
earlier hearings, I was impressed by the number of hits on the
Recovery.gov site. Are there any current numbers on that?
Mr. Devaney. Well, it has gone down a little since the last
time I talked to you. I think people are waiting, and I
certainly am, for the new site----
Chairman Lieberman. Right.
Mr. Devaney [continuing]. And so I am going to suggest to
you that when that new site goes up, there will be a phenomenal
amount of hits.
Senator McCain. What potentially----
Chairman Lieberman. Senator McCain wants to know, what are
the numbers now, do you know? Mr. Nabors, do you have a quick
answer to that?
Mr. Nabors. I do not.
Chairman Lieberman. OK.
Mr. Devaney. I think they were about 32,000 hits per minute
not too long ago.
Chairman Lieberman. Yes, which is down from what it was
originally. But it is still substantial.
Mr. Devaney. It is still substantial, and a hit does not
necessarily mean that somebody comes in and spends time there.
Chairman Lieberman. Right.
Mr. Devaney. So, quite frankly, the more appropriate
measurement is how long they stay and how often they come back.
So those are the kind of metrics we are going to use when the
new site goes up.
Chairman Lieberman. And again, the new site going up is
October----
Mr. Devaney. Well, probably the first part of October,
maybe October 5.
Chairman Lieberman. So as soon as you have data on the
hits, it would really help us to know those, comparatively.
After it has some time to get started, I think the Committee
would be interested in that.
Mr. Devaney. Absolutely.
Chairman Lieberman. Thank you.
Our final witness is Chris Mihm, who is the Managing
Director for Strategic Issues at the Government Accountability
Office. Thanks for being here.
TESTIMONY OF J. CHRISTOPHER MIHM,\1\ MANAGING DIRECTOR,
STRATEGIC ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Mihm. Well, thank you, Mr. Chairman and Senator
Collins, Members of the Committee. It is indeed a great honor
to be here today to discuss our July report on the Recovery
Act. As the Act specifies several roles for GAO, including
conducting bi-monthly reviews of selected States' and
localities' uses of funds.
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\1\ The prepared statement of Mr. Mihm appears in the Appendix on
page 691.
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I should mention that the GAO has made a significant
commitment to its Recovery Act work and I would be remiss if I
did not acknowledge and express my great appreciation for the
extraordinary effort that my colleagues across GAO--we fanned
out all across the country to make sure that we are providing
the work that can support congressional oversight, and they
have done just a remarkable job.
Our July report, the second in response to the Act's
mandate, addressed, first, the uses of funds; second, the
approaches taken by States and localities to ensure
accountability; and third, States' plans to evaluate the impact
of Recovery Act funds they receive. The report has our
findings, makes recommendations, and discusses the status of
actions in response to the recommendations we made in our April
report. Our third report will be out later this month, towards
the end of September.
As in States across the country, the budget situation is
bad, and in many cases, the future looks even bleaker, and that
is, in a sense, the good news. The States are being forced to
take dramatic actions to balance their budgets, including staff
layoffs, furloughs, and program cuts. However, and consistent
with the purposes of the Act, the Recovery Act is helping
States stabilize their budgets and minimize the reductions and
the painful cuts that they have to take in services and
minimize the need for tax increases. Many States reported to us
that they would have had to make further deep cuts in services
and programs without the receipt of Recovery Act funds.
However, while the funds have helped cushion the impact of
States' budgets, the current revenue estimates indicate that
additional State actions will be needed--cuts will be needed in
the coming years.
Nonetheless, significant Recovery Act funds are moving out
to States and localities. Overall, across the United States as
of August 28, the most recent data that we have, Treasury has
outlaid about $45 billion of the estimated $49 billion in
Recovery Act funds projected for use in States and localities
in fiscal year 2009. I should mention, or just to underscore,
these funds to States and localities are just a subset of the
overall expenditures going out this year that you, Mr.
Chairman, talked about and Mr. Nabors talked about, which
include obviously the tax provisions and direct payments to
individuals, as well as others. Nonetheless, this $45 billion
is a sizeable amount of money.
More than three-quarters of the Federal outlays have been
provided by increasing Medicaid's FMAP and the Department of
Education's State Fiscal Stabilization Fund. In addition, as of
September 1, the Department of Transportation (DOT) had
obligated about $18 billion for almost 7,000 highway,
infrastructure, and other eligible projects. DOT has reimbursed
States about $1.4 billion to pay for these 7,000 projects.
Across the Nation, almost half of the obligations have been for
pavement improvement projects, half of the highway obligations.
In regards to accountability, we reported in July that the
Single Audit reporting deadline does not provide audit results
in time to address identified problems and did not effectively
respond to Recovery Act risks. We also noted that State
auditors needed additional flexibility in funding to undertake
their added Single Audit Act responsibilities. Fortunately,
since our July report, as Mr. Nabors noted, OMB has moved out
on a pilot program that is to have auditors provide early
notice of internal control deficiencies. If properly scoped to
achieve sufficient coverage of Recovery Act programs, we
believe the pilot program would largely address concerns about
the timeliness of Single Audit Act reporting.
The success of the pilot program, in our view, is also very
important to striking the right balance, as Senator Collins was
talking about, between accountability and getting the money out
quickly. If we can have these internal control reviews come out
earlier rather than waiting until the full Single Audit Acts
are done, then we can provide ourselves with assurance that the
right controls are in place as we are seeking to get money out
more quickly into the economy.
We continue to believe that Congress should provide a
mechanism to help fund the additional Single Audit costs and
efforts of Recovery Act auditing, and I want to express my
appreciation to the leadership that this Committee has shown
over the legislation that Congress is now considering in that
regard.
As Mr. Devaney and Mr. Nabors noted, the next big challenge
for the Recovery Act will be recipient reporting. Direct
recipients of Recovery Act funds, including States and
localities, are expected to report quarterly on the number of
measures, including the use of funds and estimates of the
numbers of jobs created and retained. The first of these
reports is due, of course, in October.
OMB issued implementing guidance for recipient reporting in
June that established requirements and a central reporting
framework. And in recent weeks, Federal agencies have issued
their own guidance and training that builds on OMB's guidance,
and OMB has provided, as Mr. Nabors noted, additional
clarifications on Recovery Act reporting.
OMB is also preparing to deploy the Regional Federal
Liaisons that were noted to provide the on-site assistance and
to establish a call center for entities that do not have an on-
site liaison. These efforts, in our view, are both welcome and
sorely needed.
Nonetheless, I agree with Mr. Devaney when he mentioned
that indications are that recipient reporting, especially for
this first round, will pose a significant challenge for many
entities. As we have a mandate under the Recovery Act to
comment on the jobs estimates, along with CBO that has an
equivalent mandate, and will be reporting on that in November
on this first round of recipient reports.
Let me conclude my comments at that point and obviously I
would be happy to take any questions that you all have.
Chairman Lieberman. Thanks very much, Mr. Mihm. Thank you
all. It was a good beginning.
We will have 7-minute rounds of questions by the Members
who are here.
Mr. Nabors, let me begin by going back to the question that
I raised in my opening statement, which is acknowledging some
of the positive indicators in the economy and a general view
among economists that the stimulus has had a positive effect.
Nonetheless, there is this stubborn persistence of high
unemployment, and with that and other factors, a continuing
anxiety among the American people about their and our country's
economic future, which itself has a depressing effect, of
course, on the economy, including on spending.
And so the question is, can we, and should we, attempt to
speed up spending and, if possible, the implementation of the
tax cuts to accelerate the recovery of the economy? I
understand, as you said in your opening statement, that in the
normal course of what was projected, we will be spending, or
investing, and putting much more money in the economy under the
Recovery Act in fiscal year 2010 than we have in 2009. Should
we be trying to accelerate it even further to accelerate the
overall recovery of the economy?
Mr. Nabors. This is an issue that the Vice President has
taken a personal interest in, and he meets with the cabinet
agencies once a month to go through Recovery Act issues, and
first and foremost in each one of those meetings is what
opportunities are available to speed up Recovery Act spending.
A couple of areas where we have made some progress. The
first is an acknowledgement that there has been a lot of focus
on outlays, but in certain programs, obligations have a
tremendous economic benefit, as well, and that is one thing
that the Federal Government has direct control over, and I will
just give you an example of that.
Chairman Lieberman. All right, and also give us a quick
layman's definition of outlay and obligation.
Mr. Nabors. Yes, sir. What it boils down to is essentially
an obligation is when the Federal Government allows a recipient
to start spending money. An outlay is when the recipient
actually spends the money itself.
Chairman Lieberman. So it is like the authorization and
then the actual check being in the account.
Mr. Nabors. Absolutely.
Chairman Lieberman. Yes.
Mr. Nabors. With regard to a set of programs like
transportation, for example, we have obligated a fairly large
amount of money, and that money--which means that we have given
the States the ability to start spending that money, but the
States have been relatively slow to spend it. That does not
mean that it does not have an economic impact, however.
What is actually going on behind the scenes, because of the
way the transportation programs are set up, is that the money
can be used to reimburse projects that have already started or
that are already beginning. So what many States do is just
knowing the fact that the money is available to them to be
reimbursed later on allows them to go off and start the
projects right away. And what you will oftentimes see is
obligations that sit there for large periods of time and then a
tremendous amount of outlays that come in at the end. In those
instances, in programs like transportation, the availability of
the money, the obligation has a tremendous economic benefit.
In other programs, there are more sensitive problems that
we are trying to work with the agencies to try to address. For
example, we are very focused on removing as many bureaucratic
hurdles that exist within agencies as possible to allow the
money to go out as quickly as possible. We are trying to do
that in such a way as to be sensitive to the appropriate
oversight that needs to be done over spending----
Chairman Lieberman. Right.
Mr. Nabors [continuing]. But we are trying to remove
unnecessary bureaucratic hurdles, including within OMB. Things
as simple as doing concurrent review of projects has allowed us
to speed projects up from taking months to perhaps taking
weeks, and we are looking at every opportunity that we can to
do that.
Chairman Lieberman. OK.
Mr. Nabors. The second point that I just wanted to make is
that we are trying to take lessons learned from particular
agencies and trying to apply them across programs. For example,
when the Federal Government spends money on programs that
relate to tribes, there is a unique set of issues that pop up,
and they pop up across different agencies. What we are trying
to do is transplant the information that we are learning from
particular agencies and trying to educate all of the agencies
about the hurdles that they are going to run into and making
sure that is taken into account when they are developing their
spend plans.
Chairman Lieberman. So, bottom line, based on what you have
said, and the question that you have told us the Vice President
is regularly asking, am I correct to conclude that the
Administration feels that the more it can accelerate the
spending of stimulus money in the coming fiscal year, in the
coming months, the better it will be in encouraging a faster
recovery?
Mr. Nabors. Yes.
Chairman Lieberman. I assume, just based on common sense,
that the more we accelerate the infusion of Stimulus Act
funding, both spending and tax cuts, the better effect we will
have on the unemployment rate. That is, it is more likely to
create more jobs. Is that a fair conclusion?
Mr. Nabors. It is a fair conclusion, but it is a tricky
conclusion, as well. Unemployment tends to be a lagging
economic indicator. Just outlaying and obligating the funds
does not mean we will have employment benefits right away. The
faster we can expend money in a responsible way, the sooner the
jobs will come online, and that is really what we are trying to
do, spend money in a responsible way to create good, solid jobs
that can benefit the economy over the long term.
Chairman Lieberman. Obviously, we have put a fair amount of
money out into the economy in tax cuts in this first period of
months, $65 or $66 billion. But we still have, by the estimates
that I have seen, over $225 billion more in tax cuts under the
Stimulus Act. Just give us a brief description of what those
are, why that number is so high, because I think many of us
were focused on the Make Work Pay reductions in the withholding
tax that people have seen. What else is coming?
Mr. Nabors. I would point to two things, very briefly. The
first point is that the tax relief was a 2-year tax relief and
it was always thought that roughly half of the money would come
out in 2009 and roughly half of the money would come out in
2010. So that is part of what you are seeing.
The other thing that you are seeing is a large chunk of the
money is related to the Alternative Minimum Tax, and that comes
due next year. So next year, we will see almost all of that
money outlay.
Chairman Lieberman. In other words, when people are paying
their taxes next April----
Mr. Nabors. Yes.
Chairman Lieberman. Is that what you are saying?
Mr. Nabors. Exactly.
Chairman Lieberman. There will be a reduction in the taxes
they would otherwise have paid----
Mr. Nabors. That is exactly right, sir.
Chairman Lieberman. I do not know if you have a number
offhand, about how much----
Mr. Nabors. I do not, but I can provide that to the
Committee for the record.
Chairman Lieberman. Is the number that I have been given,
that there is yet $225 billion more in tax cuts to come under
the recovery, sound right, or is it----
Mr. Nabors. I think that might be a little bit high. It is
well over $150 billion, though, but I would have to get you the
specific number.
Chairman Lieberman. Thank you very much. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Nabors, previously, Mr. Devaney has estimated that as
much as 7 percent of the Recovery Act funds may be lost to
fraud and abuse. That amounts to an astonishing $55 billion. We
have seen some disturbing examples already. The Social Security
Administration, as I mentioned in my opening statement, first
sent out 8,000 to 10,000 checks to individuals who had died.
Then 2 months later, we learned that the government also sent
checks to people who were incarcerated and obviously did not
qualify for them.
The GAO mentioned today the importance of internal controls
to prevent these kinds of improper payments from happening in
the first place. What precisely is OMB doing to ensure that
internal controls are in place across the Federal Government to
prevent fraud and improper payments?
Mr. Nabors. We are doing two things. With regard to the
State and local governments that GAO mentioned earlier, we have
increased the amount of money that is available to State and
local governments to do their internal controls and checks, and
two, we are setting up this pilot program that would allow more
extensive and earlier review of programs and highlighting of
potential issues to stop problems before they actually arise.
The second thing that we are doing, and I want to give Mr.
Devaney significant credit for this, when he came on board, the
thing that he had mentioned to me was that for this to work, we
need to make sure that the IGs and the oversight is brought
in--is part of the program discussions, that it is not all on
the back end, because all you are doing then is catching people
after the fact. So we are having ongoing discussions with our
colleagues at the Department of Justice, FTC, Recovery Board,
and with the IGs to incorporate as much as possible, both real-
time lessons learned and best practice program management into
the ongoing activities of the particular Federal agencies, and
we are doing that on an ongoing basis.
Senator Collins. Mr. Mihm, are you satisfied with OMB's
efforts in this area?
Mr. Mihm. They have certainly been doing a great deal,
Senator Collins. There is still obviously more that all of us
can be doing and should be doing in this regard.
One of the things, shortly after the Act was passed, the
Acting Comptroller General did was to get together with the IG
community, separately with State and local auditors, to
collectively coordinate our audit responsibilities. Let us make
sure we are getting the best bang collectively from the buck
from the accountability community, that there is no overlap,
that our efforts are coordinated. We are continuing to do that.
We also were focused on making sure that we were getting
out the best practices in fraud prevention and in internal
controls, down to program officials, not only at the Federal
level but the State and local level, as well. And so there is
this continuing concerted effort to get it out there.
Our continuing concern, is that we think that States, both
in the audit and program communities in the States, need to
continue to work doing the risk assessments and making sure
that they have the controls in place down at the State level to
effectively oversee and make sure that the funds are being
properly spent.
Senator Collins. I think that is a very worthwhile effort,
but clearly, there is something amiss when the Social Security
Administration can send out nearly 10,000 checks that should
not have been sent out. So I think we need to more aggressively
look at the internal controls in the Federal Government as well
as at the State and local levels.
Mr. Leibowitz, let me switch to my concern about consumer
fraud. First, I am very pleased with the work that the FTC is
doing in this area. I think it is absolutely essential. You
discussed four cases that the FTC has been pursuing. Do you
have any estimate at this point of the number of people who are
being harmed by the scams, or could you give us an idea of the
financial impact?
Mr. Leibowitz. Sure. We know in these four cases alone, and
obviously we have more investigations in the pipeline, it
affected about 270,000 people. The amount of money that we
think was at risk here or might have been lost to these
scammers--of course, we will try to get it back and we are in
the process of doing so--isn't that great. It is about $30
million. But we think of this as a small part of the approach
we are taking to going after scammers who are taking advantage
of consumers who are feeling legitimate financial anxiety or
having problems paying their mortgages.
So, for example, we did another sweep involving foreclosure
rescue scams and mortgage modification scams, and we did it
with attorneys general. And that one, for example, probably
involves billions of dollars in potential losses overall.
In the financial stimulus area, it is a little bit of a
whack-a-mole problem. When we did this announcement, we know
that a bunch of Web sites--because we put them on the alert, we
said we are going to make this a priority--just went down. And
so that is good. But sometimes they pop up again, and so we
keep on monitoring the Internet. We watch commercials. We look
at our consumer database and we try to go after these
malefactors as quickly as we can.
Senator Collins. I think a lot of the work that you are
doing, while extremely worthwhile, is probably the tip of the
iceberg, because what I have seen in my State is a lot of times
the senior citizens who are victims----
Mr. Leibowitz. Sure.
Senator Collins [continuing]. Are too embarrassed to go
forth and try to file a complaint, or they are too concerned
about where to go. They do not even know where to begin.
My last question on this round for you is, what advice
would you give consumers who believe that they may have been
taken advantage of? Who should they go to? Where should they
turn?
Mr. Leibowitz. Well, I would say the first thing is, if you
think you have been taken advantage of in a scam, you ought to
check your bank account records and you ought to check your
credit card records. And, of course, there is a mechanism,
especially in the credit card context, for consumers to
challenge unfair or inappropriate charges.
Then we have a Web site, www.ftc.gov, and people can send
complaints to us, and we look at that--and they go to something
called Consumer Sentinel and we look at Consumer Sentinel all
the time to monitor the number of complaints and we go after
the worst malefactors. I think State attorneys general have
also been very involved, particularly when the scams have a
local dimension. And then if it involves an economic stimulus
scam, one way you can tell if it's a fraud. First of all, there
are no individual grants from the economic stimulus.
Second of all, there is a government Web site--it is run by
the Department of Health and Human Services (HHS)--and is
called grants.gov, and if you want to check, it is worth
checking on that Web site because you can find--it is an
official Web site, not just an official-looking Web site, and
you can confirm whether something you have read about or
someone who has importuned you is legitimate or whether they
are just out for your money.
Senator Collins. Thank you.
Chairman Lieberman. Thanks, Senator Collins.
We will go now to the Senators in order of arrival. For the
information of my colleagues, the list I have is in this order:
Senators Tester, Burris, Coburn, McCain, McCaskill, and Pryor.
Senator Tester.
OPENING STATEMENT OF SENATOR TESTER
Senator Tester. Thank you, Mr. Chairman, and I want to
thank the witnesses for being here today.
Before I get to my questions, I want to begin by saying a
few words about a story that has bothered me over the last few
weeks. It is the notion that when it comes to spending dollars,
Recovery Act dollars, on ports of entry on our Northern Border,
it is somehow not as important as ports of entry along our
Southern Border.
Recently, there have been a few folks that have pointed to
one port in northeastern Montana, in particular. That port is
Whitetail. It is in Daniels County. It is a part of the country
that is vast and open, and I mean that--very vast, very open.
And some folks have asked me why the port is getting rebuilt
with Recovery Act dollars even though it is not as busy as some
other ports. A lot of reasons, not the least to say that there
are some asbestos issues. The port is 45 years old. A lot has
changed over the last 45 years when it comes to our national
security.
It was not my decision, but I will tell you it was the
decision of Customs and Border Protection (CBP). But I will
tell you that I have pushed CBP on the Northern Border to make
it more secure. They did decide to upgrade all 23 ports along
that border and those ports are owned by the CBP. The Northern
Border is complicated. It is wide open and uncrowded in certain
areas. It is very crowded in other areas and there are issues
of water when it comes to the Great Lakes region. So we have to
keep our eyes open as far as it comes to drug smugglers, for
terrorists who would do harm to our country.
For me, it is an issue about making this country as safe as
we possibly can, keeping illegal immigrants out and keeping
drugs away from our kids and neighbors. It all starts by making
our ports of entry as strong as they can be, by closing all the
gaps and not pretend that the threats only exist on the
Southern Border. Our borders are only as strong as its weakest
link. I can give you plenty of examples of what has transpired
over the last few years of drugs, potential terrorists wanting
to cross.
But the fact is, is that I think this Committee needs to
work and we need to work with CBP to make sure that no taxpayer
dollars are wasted along the borders and that we maximize our
security options along all our borders and all our ports, and I
know our community would join me in that. Thank you, Mr.
Chairman, for that.
For the questions, there have been many documents--the
Ranking Member brought some up, you gentlemen brought some up--
about people who are getting scammed, and the thought occurred
to me, what is the penalty? If you catch these guys red-handed,
what is the penalty?
Mr. Leibowitz. Well, that is a great question, Senator
Tester, and we are a civil law enforcement agency. So what we
do first is try to shut down the scammers, so they cannot do
further harm. Sometimes we can get redress for the injured
consumers and the victims, and we try to do as much of that as
we can, although sometimes money is dissipated. For the most
part, we do not have fining authority, unlike, I believe, 47
State attorneys general.
Senator Tester. Does anybody have the authority to put
these folks in the clink?
Mr. Leibowitz. Well, what we do is two things. One is
sometimes we pair with State agencies, in part because they
have fining authority. And then sometimes, with the most
egregious cases, we pass them along to the Department of
Justice for prosecution, and some of the worst offenders do get
prosecuted and they do go to jail.
Senator Tester. It just occurs to me, I mean, I was out in
Montana and was harvesting when I went back for the August
recess and there were ads continually about how you could
personally benefit from Recovery Act dollars----
Mr. Leibowitz. Right.
Senator Tester [continuing]. In this bailout era, is what
they called it. It was baloney. I knew it was baloney. But the
fact is, these guys are reaching out to people through various
media. You guys talked about the Internet. They are doing it on
the radio. And I think if there is no penalty, what the heck--
--
Mr. Leibowitz. Well, we agree with you----
Senator Tester [continuing]. If you are of that ilk.
Mr. Leibowitz. Well, we support in our reauthorization, and
I think as part of the Consumer Financial Protection Agency
proposal by the President and Treasury, we support civil fining
authority because we think that makes--or the majority of the
Commission does, because we think that is important, to have a
sanction.
Senator Tester. I actually support jail time.
Mr. Leibowitz. And we will not have the ability to give
jail time to these people, but we certainly support----
Senator Tester. Maybe, Mr. Chairman, we need to visit about
opportunities--and I mean that in a very negative sense--to
make these folks think about what they are doing.
Chairman Lieberman. Yes, I think you are onto something,
Senator Tester. There is obviously no better deterrent than to
convict somebody who has been a scam artist and put them in
jail for a while. That sends a message. And the fact that we
are all seeing these ads in various media means that people are
making money on the scams.
Senator Tester. Yes, they are making some bucks.
Chairman Lieberman. Yes.
Senator Tester. Thank you. Mr. Nabors, just this week, I
pushed your agency to get some money out to some water projects
along the Northern Tier, and I appreciate your efforts in that.
Of these particular water projects, some go to Indian country,
but they are mainly Indian water projects. I guess the question
is, for you or Mr. Mihm, since they are sovereign nations and
the money goes out, you talked about local liaisons, do you
have the ability to do oversight in sovereign nations, to make
sure the money does get to the ground once it leaves our hands?
Mr. Nabors. Mr. Mihm, do you want to----
Mr. Mihm. I will defer to you, Mr. Nabors. [Laughter.]
Mr. Nabors. Yes, we do. I mean, our local liaisons are
limited, but we do have the ability, working through the
overall structure of the oversight community, both the IGs and
the agencies who work very closely with the tribal governments
to make sure that the money is spent the way we intended it to
be spent, and to provide assistance to the tribal governments
in terms of applying for the funding. There is a double-edge to
that that we want to ensure is done.
Senator Tester. Mr. Mihm.
Mr. Mihm. Yes. We have oversight, as well, although most of
our efforts, Senator Tester, are focused on 16 States and the
District of Columbia, which collectively give about two-thirds
of the money and two-thirds of the population.
Senator Tester. And we appreciate that.
I just want to talk about contracting just for a second.
From what I found out, there are a lot of different levels of
contracting. There is a national general contractor. There is
potentially a regional general contractor. And there may be a
bunch of contractors in between that before you get to the guys
that are actually running the shovels and doing the work.
Do you ever look at that system and make recommendations
saying, you know what? Everybody is taking their 10 percent or
20 percent or whatever they take, and by the time we get down
to the folks that are running the backhoes and pouring the
concrete, there is not near as much left as there should be. Do
you ever make recommendations saying, why is this done this
way?
Mr. Mihm. Yes, we have, and to add on another complicating
feature of that is you are seeing this play out in the Recovery
Act--you can have Federal requirements in contracting and then,
of course, once the money goes to the States and if they
contract out, there are different requirements very often,
including different definitions of what it means to
competitively bid a contract, and so it can force an
understanding of 50 different contracting regimes in States. So
it is both a very tiered and a very complexly tiered approach
to contracting that you see across government.
Senator Tester. I would like your opinion on what we can do
from a policy standpoint to take some of the complexity out of
it. I will give you an example. There is a general contract,
the contract in Afghanistan, the contract along the Northern
Border, for example. They do not know anything about the
Northern Border. They get a hold of the local folks to do it.
Why are we not dealing with the folks that know what they are
doing? And that is the question, how do we cut through that? I
would appreciate any ideas you have on that.
Thank you, Mr. Chairman.
Mr. Mihm. We will get you that in short order, sir.
Chairman Lieberman. Thanks, Senator Tester. Senator Burris.
OPENING STATEMENT OF SENATOR BURRIS
Senator Burris. Thank you, Mr. Chairman and Members.
Really, I am impressed with everyone's testimony, so you are
doing a great job and we really appreciate that.
Mr. Nabors, we have a bill that has been in this Committee
and we have been trying to get it out. It has been held up
somewhere, called S. 1064, which would give 0.5 percent of
financing to those local State auditors and finance officers.
You said that you are giving money to state and local
governments for that increased responsibility. Is there a
dollar amount that you have on that?
Mr. Nabors. We allow up to 0.5 percent to be used for
administrative costs and for oversight. I think what S. 1064
does is allow an additional 0.5 percent to be used----
Senator Burris. Yes.
Mr. Nabors [continuing]. And we have indicated our strong
support for that bill.
Senator Burris. Mr. Chairman, that bill has been held up
somewhere and we have to get that bill to the floor. The House,
I think, has already passed it. And those local governments--
being a former State comptroller and former State finance
officer--we need those funds. They need them and we do not want
to come up short in that regard.
Mr. Leibowitz, on the consumer fraud problem, probably a
response to my colleague, Senator Tester--being a former
attorney general of my State--what we have on the fraud officer
is whether we are dealing with the consumer who is being
defrauded out of their funds. These are not really Federal
funds that they are using. They are using the vehicle of the
Federal Government to defraud the consumer, so they are more of
a local prosecutory responsibility there. Am I correct in that?
Mr. Leibowitz. Yes. I mean, that is exactly what we do, we
do a lot of education on the front end to try to prevent
consumers from being victims. But yes, I think almost all of
what we do involves, at least in the stimulus scam context,
people who are falsely representing themselves as facilitating
individual stimulus grants to consumers. But it is not entirely
local in the sense that a lot of this is Internet-related, and
so it has a national scope.
Senator Burris. But sometimes they would try to skim some
stimulus money themselves. I mean, certainly the stimulus money
is subject to be a victim of fraud, as well. But what you see
in terms of mostly the senior citizens--is they have
advertised, send us some money so that you can get your
stimulus money. That is more of a local issue with the State
attorneys general----
Mr. Leibowitz. That is right, and that is why we work with
State agencies.
Senator Burris. Congratulations. Please work with my former
colleagues. The attorneys general are really taking----
Mr. Leibowitz. The attorneys general are terrific. They are
on the case in this area----
Senator Burris. And also our State auditors, as well. They
will do a tremendous----
Mr. Leibowitz. And just going back to your point and
Senator Tester's point, a lot of the cases we are bringing are
really criminal fraud cases, and so we are prosecuting them
because this is in our bailiwick, but they could also be
prosecuted criminally.
Senator Burris. The Federal Government is letting out
contracts with contracting agencies to help track these funds
or to bring in computer skill teams to help them with all of
this, and I want to know how much of these stimulus dollars
that are coming directly into costs that are going to minority
contractors. And for some reason, we find it difficult to get
this kind of data. With the stimulus money, there are outside
contracts that are being let in order to process this, and if
you have any information on that, Mr. Nabors, in terms of how
we are handling that for minority contractors, and specifically
if you have any black contractors.
Mr. Nabors. I do not have the numbers specifically for
black contractors, but some of the more recent numbers that we
have with regard to some of our small business targets, small
businesses have received about 22 percent of the contracting
dollars----
Senator Burris. Now, are you talking about small minority
businesses?
Mr. Nabors. No. I am going to go through a list of numbers
for you. Twenty-two percent for small businesses. About 3
percent for disabled veterans businesses. And about 5.9 percent
for Historically Underutilized Business Zone contractors, which
in some ways captures some of the minority businesses. I do not
have a specific number for you for black businesses, but I will
see if I can get that number for you.
Senator Burris. Would you please, and Hispanics, as well.
Hispanic and black businesses. There is deep concern about
making sure that there are skills in these areas and that our
government is being aggressive in supporting those type of
businesses for their economic viability.\1\
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\1\ The response from Mr. Nabors appears in the Appendix on page
754.
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And I did have another question, but I got so wrapped up in
that one. Mr. Leibowitz, in terms of the numbers, you gave
Senator Collins the numbers of the frauds. What was it, 270,000
people and $30 million----
Mr. Leibowitz. For these four cases that we brought along.
We know that there is more fraud out there involving the
stimulus, but in the cases we brought thus far, that is our
estimate of the number of consumers harmed and the amount of
the potential harm.
Some of these schemes involve initial payments on a credit
card of, say, $1.99 or $2.99, but then there is what we call a
negative option scam that is part of this, where they have your
credit card number. They just keep on billing you every month,
and until you figure out that you can cancel it, and if you
cancel it in a timely manner, then you keep on paying. As
someone in a different context who has been a victim of a
negative option scam, they are sometimes hard for the
individual consumers to detect.
But again, we also know that there are more people out
there who are probably victims. We watch the Internet. We look
at advertisements all the time. We look at our consumer
database and we try to do as best we can to stop these types of
frauds.
Senator Burris. Mr. Devaney, we are going to have a new Web
site, Federalreporting.gov 2.0, or is Recovery.gov still
available?
Mr. Devaney. Recovery.gov is up and running right now,
Senator, and will be replaced by a newer version around the
first part of October.
Senator Burris. October 10, because I just told a couple of
people to go to Recovery.gov----
Mr. Devaney. No, you still go to Recovery.gov and you will
get the newer version when we put that up.
Senator Burris. OK. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks very much, Senator Burris.
Senator Coburn.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Mr. Chairman, and let me
personally thank each of you for your service. You have a tough
job, a really tough job. What we want to be is not somebody
that is critical, but really someone that is helpful.
Mr. Nabors, in your testimony, you said that each of the
stimulus projects is carefully reviewed by OMB to ensure that
their uses of Recovery Act funds are thoughtful and
appropriate. You work with agencies to identify and revise
projects that do not meet that threshold. Could you make that
list of those projects that you have identified and revised
available to the Committee?
Mr. Nabors. I do not know that there is a consolidated list
of those types of activity, but let me go back to the office
and see what we have and what we can provide to the
Committee.\1\
---------------------------------------------------------------------------
\1\ The response from Mr. Nabors appears in the Appendix on page
755.
---------------------------------------------------------------------------
Senator Coburn. One other concern that I have, and again, I
am sure these are old numbers, but the Government Executive
article on August 31, 2009, said that more than half the
Recovery Act contracts that the Federal agencies have awarded
are on a cost-plus basis. I agree with the President. That is
exactly what we do not want to do. We want fixed-price
contracts. We do not want cost-plus contracts. Cost-plus
contracts always cost more. What is the Administration doing,
Mr. Nabors, to make sure that this trend, as reported in this
article, does not continue? It is 53 percent of all the
contracts let so far are cost-plus, which is pretty worrisome.
Mr. Nabors. I think we are doing two things. First, the
Director of OMB and the President put out instructions to the
agencies that our preference, when at all possible, is to use
competitive processes and to ensure that, as much as possible,
that we are using fixed-price contracts. I think what we are
seeing with the cost-plus is somewhat of an anomaly because a
lot of that is being driven by the Department of Energy. And
where we have seen a lot of variable-price contracts used is
when you have things like research and development, where the
true costs are not known up front.
If you look at most of the money for that category of
contracts right now, about 90 percent of the money is the
Department of Energy, which was not unexpected.
Senator Coburn. And that went out earlier than much of the
other money----
Mr. Nabors. Exactly.
Senator Coburn [continuing]. So that tended to skew it.
Well, I am willing to stand corrected on the numbers, because I
know that is just a snapshot. All I am saying is I am concerned
about it and I know the President is concerned about it.
The other point I would make and I have made it several
times, if you do not get a buy-in of companies' capital on
research, in other words, having capital at risk when they get
these contracts, they are not ever going to be as efficient.
So my message to you would be, even though it is the
Department of Energy and even though it is research, companies
should put capital at risk. That is one of the ways we are
going to control the costs. When contracts are cost-plus,
managing those contracts are difficult. You are looking at
after-the-fact rather than preventing it in the future. The way
to get that is to make sure those contracts--those companies
have to have some of their capital at risk.
Mr. Nabors. The point well taken, sir.
Senator Coburn. That will help us a lot.
Mr. Devaney, again, for you and Mr. Nabors, because I am
very appreciative of your work, are we going to be on time with
Recovery.gov and the Web site?
Mr. Devaney. Absolutely.
Senator Coburn. So it is coming up on the 10th or the 11th
of October?
Mr. Devaney. It will be up before that.
Senator Coburn. One of the things that is bothering me a
little bit, and I know it is a big job, but you differentiated
between integrity and quality. I do not have any doubt that you
are going to make sure that the integrity of the data that you
are putting up is accurate, but I am wondering, can you reach
further to make sure that the quality of data is accurate?
Mr. Devaney. Well, it is a major concern, Senator, and
growing, quite frankly, that we have at the board. We are
asking, as I mentioned in my oral remarks, for recipients to
report far more things to the Federal Government than they ever
have before, and it is a tough job. They have to meet the
deadline of reporting, which is October 10, and they are doing
some unique things out there. For instance, 30-plus States are
going to be reporting centrally in bulk form, and I think they
are doing that to ensure that they report on time and to maybe
give themselves a tad more time to look at the data at the
State level to ensure that it comes in in an accurate way.
But having said that, I am concerned that the public's view
of inaccurate data would actually harm rather than enhance
transparency. So, the board and I want to do everything
possible to allow folks to go in and check that data once it
has gone in, to make revisions if they have to, and we are
going to track those changes very closely.
Senator Coburn. Is it going to be starred on the Web site
so everybody else can see that this has been changed?
Mr. Devaney. We are going to be tracking and chronicling
those changes on a daily basis and make all of that available
for anybody who wants to see, for instance, to download it and
just take it off and look at it for themselves. But also, we
are going to put up on the Web site a dashboard, if you will,
with pie charts and graphs that shows where the changes were
made, what categories changes were made in, whether or not X-
percent was over at the Department of Commerce. We are going to
make all that available for everybody to see after those
changes take place.
Senator Coburn. Part of your statement was the fact that
you think this is going to change the way the government
operates. Actually, the President, Senator Carper, myself, and
Senator McCain put through USAspending.gov. Recovery.gov is
modeled after USASpending.gov. If it accomplishes everything,
it is going to be great, and I agree with you. But the quality
of the data--the integrity can be fine, but if the data is not
any good, and it is not a true reflection of what is happening,
we really have not bought anything.
What is going to be in force to make sure that the agencies
which are going to be responsible for the quality of data
will--at least, that is what I understood you to say----
Mr. Devaney. Yes.
Senator Coburn [continuing]. Bring good quality data to
you?
Mr. Devaney. Well, the agencies are going to be actively
involved in looking at that data along with their State
recipient counterparts to get it in the best shape possible. My
suspicion is it will get better as--the second quarter will be
better than the first quarter, etc.
As you may know, when USAspending.gov was stood up
initially, 51 percent of the data was inaccurate----
Senator Coburn. Yes.
Mr. Devaney [continuing]. And we are 2\1/2\ years later and
it is 13 percent, 14 percent inaccurate. So it is a hard thing
for recipients to report data, seemingly, and we are asking
them in this instance to report more data than they ever have
before. So it is going to take a leveraging of resources. OMB
is going to play a role. The agencies are going to play a role.
And I can assure you the Recovery Board will do its best to aid
in that process.
Senator Coburn. All right. You are having a problem with
quality right now, is that correct?
Mr. Devaney. Right.
Senator Coburn. So the site will be up, but full
implementation of the site probably is going to be some time,
is that correct?
Mr. Devaney. Well, the site will be up and very
interactive. As I mentioned earlier, you are going to be able
to do a lot of things and slice and dice the data any number of
ways you want. And our hope is that the data will be as
accurate as it possibly can be, knowing it will not be fully
accurate initially, and that it will get better. I really do
believe that once people get used to doing this, this being the
first time and coming at an awkward time of year--October is
usually an awkward time for most financial entities,
particularly in the States--we will have a lot of good data in
there after a period of time.
Senator Coburn. Thank you very much.
Chairman Lieberman. Thanks very much, Senator Coburn.
Senator McCain.
OPENING STATEMENT OF SENATOR MCCAIN
Senator McCain. Thank you, Mr. Chairman, and I thank the
witnesses for being here today and all of their hard work.
Mr. Mihm, in March, the GAO launched a hotline Web site for
citizens to report waste, fraud, or abuse. How many complaints
has that hotline received?
Mr. Mihm. Senator, we have 80 credible or initially
credible responses that came in. Of those 80, we are doing
eight detailed investigations. From those, another 12 or so are
pending, and then 22 of them we have referred over to the
inspectors general. I do not have the top-line number of how
many have come in, but at least 80 of them were credible enough
to warrant an additional review.
Senator McCain. So it has been worthwhile?
Mr. Mihm. Yes, sir.
Senator McCain. Thank you. I noticed in your prepared
statement, Mr. Mihm, that one of the charts,\1\ Figure 2,
Estimated Federal Recovery Act Outlays to States and
Localities, in 2009 as a share of the total, and then it goes
on to show 87 percent of estimated Federal Recovery Act outlays
to States will be in the nine programs that you have reviewed.
---------------------------------------------------------------------------
\1\ The chart referenced by Senator McCain appears in the Appendix
on page 699.
---------------------------------------------------------------------------
Mr. Mihm. Yes, sir.
Senator McCain. Sixty-three percent has been in Medicaid?
Mr. Mihm. Yes, sir. That is the adjustment. The increase in
the FMAP was a 6.2 percent across the board that went to all
States in increasing the Federal match and then an additional
bump-up for States that had significant increases in
unemployment rates. So for the first couple of rounds, this is
the big money issue that is out there. Most of the States are
using it in order to maintain eligibility and deal with
increasing caseloads that they are having as a result of the
recession.
Senator McCain. And tell me how that is a job creator.
Mr. Mihm. First, since this is a mandatory program, it does
not have to be reported as part of the recipient reports in
terms of job creations or job retained, and so they are off the
table in that regard. What it usually does, or what many of the
States told us, is in addition to helping with eligibility in
caseloads, it also freed up State money, and then the State
money has allowed them to do less draconian cuts than they
otherwise would have done. But again, the short answer to your
question, sir, is that they are not subject to the reporting
requirements that we have been talking about in terms of----
Senator McCain. And how much money are we talking about in
this 63 percent that went for Medicaid?
Mr. Mihm. It will be $87 billion over a 2-year period. The
exact money is that it is $19.6 billion from October 1, 2008,
to September 4, 2009, in the 17 locations we have been looking
at.
Senator McCain. Do you have any comment on that, Mr.
Nabors?
Mr. Nabors. I concur with the assessment. I think our view
of the importance of the FMAP program is exactly how Mr. Mihm
laid it out. What States have told us is because they have
access to this FMAP money, in other areas, such as education or
law enforcement, there is reduced pressure on their budget and
they are able to both create and retain other types of jobs
through the availability of the FMAP money.
Senator McCain. Sort of a trickle-down economics, I guess.
Mr. Nabors, I have seen many Administration witnesses and I
understand that you have to tout the success of whatever
program that the Administration is running. I do think that it
might be well to complete the record, that when the stimulus
package was being considered in the U.S. Senate, the economic
advisors to the President and the Director of OMB said that a
maximum unemployment would be 8 percent. It is now 9.7 percent.
I just came back from spending a lot of time in my State,
as many Members did, and my State is one of the hardest hit,
and our small business owners that are closing their doors and
storefronts and shutting down are asking me why they are too
small to save and financial institutions are too big to fail. I
have yet to come up with a very good response to that.
So the fact that unemployment is at 9 percent, lag or not
lag, comes as small comfort to the citizens of my State who are
unemployed and the people who are unable to remain in their
homes with one of the highest foreclosure rates in the country.
I would be glad to hear your response to that diatribe.
[Laughter.]
Mr. Nabors. Sir, I do not disagree with anything that you
have just said. Our initial assessments of the state of the
economy was based on inaccurate and incomplete information and
the downturn in the economy turned out to be much more
significant, much more severe than we had originally projected
in January and February. As we look at the unemployment
growth--and it is not just the numbers that we are seeing
today, but the numbers that we put out in our mid-session
review project that unemployment could reach as high as 10
percent. That is unacceptable to us. As I said to the Chairman
and to the Ranking Member, we are trying very hard, as much as
possible, to increase the spending coming out of the Recovery
Act and to try to do everything possible to minimize the impact
of this recession on the American people.
Senator McCain. I thank you for that answer, Mr. Nabors.
Mr. Mihm, in your prepared statement, there was a number of
recommendations that GAO had proposed. There is not a page
number on it, but it says, GAO recommendations, accountability,
and transparency, then you have various bullets. Have those
recommendations been largely complied with, and if not, maybe
for the record, you could provide us the areas where you think
there needs to be further accountability and transparency.
Mr. Mihm. In the second half of your question--yes, sir, in
our September report, the one that is coming out in a couple of
weeks, we will give an assessment of all the recommendations we
have been making and where OMB or other Federal agencies are in
that regard.
Now to the first half, as to whether or not they have been
complied with, as I mentioned earlier, I think the pilot
program that Mr. Nabors was talking about for Single Audit is
very important to addressing many of the concerns that we have
in regards to the accountability and transparency aspects here,
and that is that we need this internal control testing earlier.
Not to get into too much of the weeds of this stuff, but most
State fiscal years end on June 30. The Single Audits then come
out 9 months after that. That is the required date. Often, they
lag a little bit more than that.
And so we will not know how things are going from an audit
perspective in States in some cases, for the fiscal year that
has just begun, until March 2011. There has been too much money
by that point, of Recovery Act money that will be out the door,
and so then it will be just a historical document rather than a
document that can really help people manage and help us to
address risk. That is why we need the risk assessments to come
out earlier from the State auditors, so that as a deficiency or
weakness is identified, they can be dealt with before they
become big crises, before they show up over at FTC, for
example. So focusing on that pilot is very important to us, and
I know it is a major focus of the Administration.
Senator McCain. I thank you. Mr. Chairman, my time has
expired. I want to thank the witnesses. Mr. Leibowitz, I am not
sure we need this packet, but it is very good information.
Thank you.
Chairman Lieberman. Thanks again, Senator McCain, for your
thoughtful questions, and, I might add, your high-quality
diatribes. [Laughter.]
Senator McCaskill.
OPENING STATEMENT OF SENATOR MCCASKILL
Senator McCaskill. I am going to try to live up to the
example that Senator McCain had----
Chairman Lieberman. I have every confidence that Senator
McCaskill----
Senator McCaskill [continuing]. On diatribes. [Laughter.]
First, let me say, I could not agree more with Senator
Tester. These people that are out there preying upon folks at
this point in time, they are pond scum and they should go to
jail, and whatever we need to do to help them go to jail, you
need to let us know, because I know you are doing sweeps, I
know you are doing all this, but nothing counts more than
cuffing somebody.
Mr. Leibowitz. I absolutely agree with you, and in the
context of the Commerce Committee reauthorization that we hope
to see later this year or early next year, we will have some
ideas we can talk over with you.
Senator McCaskill. Great.
Now, I do not want you to think, Mr. Nabors, that I am
picking on you, but it is going to feel like I am picking on
you. We sent out requests to all the State auditors asking for
input on how they think this is going in light of their Single
Audit responsibilities and the stimulus funds that are out
there. One of the things that came back loud and clear was the
ridiculous--I think ridiculous notion that we are mechanically
making the decision that any program that gets ARRA funds
becomes a Type A high-risk program.
Let me give you a good example--foster care. Foster care is
a low-risk Type A program under A-133 and the ARRA funding is
approximately 2 percent. And what you do now is you push that
into high-risk as an A-level program, which takes a tremendous
amount of resources in terms of auditing. I really think you
have missed the boat in terms of using the expertise on the
ground of the State auditors that are doing these Single Audits
to make decisions about high risk and low risk as it relates to
these monies.
And I am just curious, and I do not mean to be a smart
aleck, but is there anyone that is making these decisions over
there that has ever done a Single Audit?
Mr. Nabors. The answer is yes, and I do not feel that you
are picking on me and I will try to answer appropriately. There
are people in our shop that have done Single Audits and we are
in constant communication with the auditing community. In
essence, the pilot program that we are proposing today was born
out of conversations that we had with GAO, with some of your
staff, and with the audit community. That conversation is going
to be ongoing and we will continue to have that conversation
with them.
Senator McCaskill. Now, I have to really pour lighter fluid
on the charcoal briquettes here, because I have to figure out,
if we are just rolling out a pilot program, do we have
specifics on when this is going to--I think Mr. Mihm and Mr.
Devaney will back me up--the barn door is already open and the
cow is out of the barn and we are announcing the rollout of a
pilot program. It will have no value whatsoever, as Mr. Mihm
just said, if this pilot program isn't on the ground ASAP.
I am worried that we have gone this many months and we are
announcing a pilot program. How many States are in the pilot?
How are you informing the States of the pilot? The State
auditors of Missouri do not know anything about it. How long
will the pilot last? How much relief from other programs is
being given in connection with the pilot programs?
Mr. Nabors. The pilot program was just announced today by
the Deputy Director of the Office of Management and Budget, so
we will be providing additional guidance about the pilot going
forward. But this is something that we plan on implementing
almost immediately. We do want to make sure that we are in very
tight coordination with the GAO. It is one of the things where
we believe that we have made a change in the oversight regime.
Too often, OMB and GAO go off on their separate ways.
Senator McCaskill. Right.
Mr. Nabors. In this instance, we actually sat down and
tried to figure out what actually makes the most sense.
In terms of some of the specifics that we have already
fleshed out, the number of States, it actually would be
available to any State that wants to involve themselves in the
pilot. We are calling it a pilot mainly because we are using
pilot authority. That is the authority that we have available
to us to make these types of determinations. But it would be as
expansive as the number of States that want to participate in
the program.
Our initial vision of the program is that we would look at
the 10 highest-risk programs based on conversation with GAO and
the agencies and say, of that list, a State that wants to
participate in the pilot has to select two of those programs
for expedited audits. If they want to participate in the
project and they make those two selections, then what we will
do is we will give them relief from doing audits on smaller,
lower-risk programs.
Senator McCaskill. Well, that is terrific, and I am glad to
hear it is going to be available to anybody who wants to
participate. I am really pleased you guys are working closely
with GAO. I do know you are in contact with the State auditors,
but I do think if you guys will let loose of the reins a little
bit as it relates to the Single Audit, knowing that next year's
Single Audit is big because of the way this money is rolling
out, I think you will find you will get a much better product
that will provide much more transparency and accountability
than just arbitrarily saying everything that gets ARRA is high
risk. I think that is a huge mistake.
Mr. Nabors. Well, we do allow the auditors to ask for an
exception, but I take your point for what it is----
Senator McCaskill. The exception is really hard. I mean, it
is a big bunch of paperwork. I have asked for exceptions
before. I know that it is like arm wrestling a gorilla to try
to get an exception. So I think it would be better if you could
figure out a way to loosen up a little bit.
Mr. Devaney probably will not like this--but I had never
met Mr. Devaney until I came to Washington, but I know that he
spent 20 years in the Secret Service. He was Director of
Criminal Enforcement at the Environmental Protection Agency for
8 years. He has been an inspector general for 10 years in the
Department of the Interior. I would say that he and the staff
he directed caught Jack Abramoff and the corruption involved
there.
I think to use his name on a list of cheap political hits
by calling him some kind of unaccountable czar is unfair to him
as a public servant. I think that the members of this body
should rise up and defend people like Mr. Devaney, who have
clearly not come to government to make big money, who clearly
do not have political allegiance, who clearly have done
everything in their career to look after the public's money.
And I think including him and others on some cheap political
hit list by some cable commentator does a disservice to him and
many of the other people that are serving in positions of
accountability and I wanted to put that on the record before I
finished.
Mr. Devaney. Thank you very much, Senator.
Senator McCaskill. Thank you, Mr. Chairman.
Chairman Lieberman. Thanks, Senator McCaskill. I appreciate
what you said and identify myself with your remarks. I want to
say, from visual observation, you are right. Mr. Devaney was
very uncomfortable as you were praising him. [Laughter.]
Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. I thought he was uncomfortable at first,
but I thought the more you got into it, he kind of relaxed
and---- [Laughter.]
So toward the end, he seemed like maybe he was enjoying it.
I was going to take a cheap shot at you, but I guess I will
not. Sometimes we run into people in our business, on this side
of the table, and people know we are elected officials and they
will say, ``Are you some politician? You are one of those
politicians, aren't you?'' And over time, I have taken to
either saying, well, actually, I am not. I know some who are.
But sometimes I will describe myself as I am just a servant. Or
sometimes I will say, well, I am a statesman. [Laughter.]
I used to be a politician, but now I am a statesman.
Whenever I hear folks called government bureaucrats, I do not
take too kindly to that, so we thank you for your service and
I, too, would like to be identified with the remarks of Senator
McCaskill. That is one of the nicest things I have ever heard
you say about anybody. So treasure this day. [Laughter.]
Senator Coburn is gone, but he and I share an interest in a
number of things, along with others on our Committee. One of
the things we have an interest in is trying to recover money
that has been misappropriated or money that has been misspent.
One of the laws we have to comply with deals with improper
payments, and we know that every year, agencies are supposed to
report their improper payments. And last year, I think OMB told
us that we are up to about $72 billion worth of improper
payments, mostly overpayments, and we are offering legislation
this year to not just tighten that money up, but to go after
and recover more of the money that is inappropriately spent.
When folks ask me, well, how are we going to pay for health
care? Where is the money going to come from, and without
cutting people's benefits in ways that are untoward? I talk to
them about what we are doing in going after money in the
Medicare program that has been inappropriately or fraudulently
spent. The last couple of years, we have been going after and
trying to recover money from Medicare, a lot of it fraud.
The first year we tried to do it, we did not get anything.
The second year, we just got a little money back. The third
year, last year, we got $700 million in just three States. This
year, we are going after recoveries in the other 47 States. If
that goes well, we hope to be able to do the same kind of thing
in Medicaid.
I wanted just to ask you all to share some thoughts with us
about when we find where there has been fraud, where monies
have been misspent, inappropriately spent, what are we doing,
or what are we prepared to do to go after and reclaim the money
for the Treasury and for the taxpayers?
Mr. Devaney. I will take a stab at that.
Senator Carper. Please.
Mr. Devaney. I think that early on, the board and all the
IGs have been interacting with the Department of Justice. There
is an already existing task force, Procurement and Grant Fraud
Task Force, that provides entre into the 95 U.S. Attorneys'
Offices around the country, and when a case comes up, we are
going to be very aggressive about seeing that gets prosecuted,
as aggressive as we can possibly be if the facts support those
kinds of things.
So I think the answer is we have about nine cases right now
that are in the various U.S. Attorneys' Offices, which is a
very small amount, and quite frankly, I am a little surprised
it is that small. But as soon as we see it, we make sure the
appropriate IG is doing an investigation and that gets brought
into a U.S. Attorney for review. And we work closely with the
Department of Justice. And I know from talking to them, they
are very interested in sending some very loud signals early as
often as they can with this money.
Senator Carper. Does anyone else want to respond?
Mr. Leibowitz. Just from our perspective, when we see
consumers as victims--and that is where our jurisdiction is--we
go after it. We work with Treasury and Justice. Some cases we
refer for criminal prosecution because the fraud is so
egregious. And with State attorneys general who are often
better equipped to get fines and then to go after malefactors
who are in their jurisdiction. So we try to do this
collectively.
And we also try to look at where the money is going. I
mean, it is really the title of this hearing. Fraudsters or
malefactors are opportunistic. They go, like Willie Sutton
said, where the money is. And so you want to try to at least
figure out where it is going a little bit in advance so you can
get there maybe a little bit before, sometimes.
Senator Carper. If I did not misunderstand, I think Senator
McCaskill used the word ``pond scum''--not a word we hear every
day.
Mr. Leibowitz. It is a legal term of art, actually.
[Laughter.]
Senator Carper. Probably a well-chosen word in this case,
describing some of the folks who are trying to take advantage
of people with some of this money that is supposed to be used
for economic recovery. And I think she said there is nothing
that is more effective, maybe, than cuffing somebody that has
been behaving, not just badly, but criminally.
And the other thing that is really important is, as we
follow the money and money that has ended up where it should
not be, let us get it back. To the extent that we can get the
money back, we need to do that. Find and cuff people, that is
good if they ought to be cuffed. We ought to get the money back
as much as we can.
The other thing I wanted to mention, our Governor in
Delaware; Mike Castle, our Congressman; Ted Kaufman, our
colleague; and I were down in an area between Wilmington and
Dover, the other day where Senator Lieberman has driven by a
time or two when he was running for President in 2004 on the
campaign trail. His campaign trail came right by this place.
But we had a major expansion of, of all things, a park-and-
ride, which sits right alongside two major north-south highways
in Delaware and in a bedroom community place called Middletown.
We were expanding the park-and-ride. We are putting in bicycle
paths and pedestrian walkways from some of the neighborhoods
that people can get to the park-and-ride. We are initiating new
bus service for the park-and-ride. So it is actually a nice
multimodal deal.
The anticipated cost of the project had been about
$900,000. The price of the project came in at $600,000, and
what I am starting to notice, and I do not know if my
colleagues here are noticing it in projects in their States, we
have a lot of people, a lot of contractors hungry for work and
anxious to bid. I know Senator Coburn expressed concern about
cost-plus contracts, but we are finding that, probably better
than any time I can remember, bids coming in under--way under,
in some cases--the anticipation. I do not know if others are
seeing that. Mr. Mihm, any comments on that?
Mr. Mihm. Yes, Senator Carper. Your experience is
consistent with what we have seen in other States. The
transportation officials are telling us the bids are coming in
anywhere between 5 and 30 percent below what they had
originally estimated. It does show that the economy is in bad
shape in the sense that they are able to get that, but it is
also a good deal in that then they are able to do additional
infrastructure projects or additional transportation projects
because of that. And so your experience is, again, consistent
with what we have seen elsewhere.
Senator Carper. In this case, it was a Delaware Department
of Transportation (DelDOT) project, but the extra $300,000
stays in the State, can be used for other DelDOT projects, that
is my understanding. Is that correct? All right. Good. Well,
that is a silver lining in what can otherwise be a rather dark
cloud.
Thank you very much. Thanks for your stewardship. Thank you
for giving the term ``government bureaucrats'' a good name.
Thank you.
Chairman Lieberman. Thanks, Senator Carper, very much.
Senator Collins and I each have a few more questions and so
we will try to do them as quickly as we can.
Mr. Nabors, in your opening statement, I would say that you
veered slightly over into Mr. Leibowitz's territory in what I
would call some consumer protection, which is with regard to
the report of the Council of Economic Advisors today, and I was
interested in it and I appreciate it. I think what you were
saying is that this first quarterly report of the Council of
Economic Advisors today on the Stimulus Act will produce
results that will be greater than the recipient reports that
come in in October, and I presume in job creation particularly,
and this will arouse some controversy, so I appreciate your
raising the point.
The temptation is to ask which one of the two will be
right, or to some extent are you saying that they will both be
right because they are both answering different questions?
Mr. Nabors. I am saying the latter. Really, what we are
asking the recipients to tell us is how many direct jobs did
you create using the Recovery Act funding. What we are asking
CEA to do is to calculate the economic impact of the Recovery
Act overall on the economy, and there is more than just direct
jobs from direct Federal spending involved in that.
As I had mentioned in the conversation with Senator McCain,
even something like FMAP is viewed as having an economic
benefit, because even though it does not directly create a job,
it does free up money for States to use in other areas and
those areas are seen as producing jobs, either for law
enforcement, education, or in other fields.
So what the CEA report will do is two major things that are
different from the recipient reporting. One, it will calculate
a broader base of job creation. It is not just capturing direct
jobs, but it is capturing direct, indirect, and what we call
induced jobs, the jobs that are created as a result of
manufacturers producing things for highway companies that are
building the roads. All of that will essentially have a trickle
throughout the entire economy.
Chairman Lieberman. Yes.
Mr. Nabors. The second thing that the CEA will be doing is
when you look at the direct jobs that the recipients will be
calculating, it is not necessarily clear that they have all of
the information with regard to jobs that are necessarily
retained as a result of that money, and that is something that
is very important in the overall context of the economy, and
that is something that CEA's report will also be capturing.
Chairman Lieberman. Right. So I want to move on to one more
question, but it sounds to me as if you are saying they are
both right. They are both answering different questions. But is
it correct to infer that you are also saying that the CEA
answer is a more comprehensive answer----
Mr. Nabors. Absolutely.
Chairman Lieberman [continuing]. And therefore, perhaps
ultimately more accurate. It is not that the recipients are
being inaccurate, but they are not calculating all the effects
of the stimulus--
Mr. Nabors. It depends on what precise question you are
asking. If you want to know how many jobs the transportation
project in your neighborhood created, then the recipient
reporting----
Chairman Lieberman. Right.
Mr. Nabors [continuing]. Is probably more accurate. If you
want to know what the economic impact of the Recovery Act and
all of its manifestations are, then the CEA estimate is going
to be more accurate.
Chairman Lieberman. That is actually a great transition to
my next question. I mentioned in my opening statement that in
meetings I had last week with some building trades people in
Connecticut, there were great complaints about the fact that
they just did not see much work, and it was particularly
perplexing because I had convened a meeting either right before
the Stimulus Act was adopted or right afterward with the State
Transportation Department, construction firms, and labor
unions, and the State said the jobs were permitted and ready to
go when the money came forward.
My staff did some background on this, and unfortunately, it
ended up with a result that was unsettling and dismaying to me
about my own State, but I want to ask you if it is a broader
problem. I am going to ask the State of Connecticut to respond
as well, but here is what I found.
I am using the language of obligations, money authorized,
and actual outlays, money actually spent. According to the
numbers we found, the State of Connecticut received a total of
$454 million for highway and mass transit through the middle of
last month. Approximately 59 percent, or $269 million of the
Stimulus Act funds have been obligated, in this case meaning
that the project is officially chosen and the Department of
Transportation has been notified. But here is the stunning
number to me. Only $506,000 of that has been outlaid in the
State. Now, in checking, that turns out to be one of the lowest
payout rates in the country, according to the White House.
So I wanted to ask you, from your perspective overseeing
this program, what is happening there? Is this occurring in a
lot of other States? And if so, what is the Administration
doing about it, or what can the Administration do about it?
Mr. Nabors. It is something that we are seeing in a variety
of different States. I think Connecticut is on the extreme side
of things. I think there are two issues here. One is that, as I
had mentioned previously, this is a relatively unique aspect of
the Highway Transportation Fund and other transportation
monies, and I think that in part, what has occurred is the
State transportation offices have gotten used to doing business
the same way every year with regard to their normal money. If
you were looking at their annual appropriations, this would be
a similar type of pattern that you would see.
What we are doing and what the Vice President is personally
doing is reaching out directly to the governors and the State
legislatures and saying, this isn't a normal time. We need to
make sure that the money is getting out the door and
stimulating the economy in a much more direct way. And people
are being responsive to those requests and we will continue to
make those requests of the States.
Chairman Lieberman. Thank you. Thanks, Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. Mihm, let me follow up on the issue of how we track the
number of jobs that have been either created or saved by the
Recovery Act. For most of us, looking at the job creation or
the job saved numbers is a very important measure of whether
the stimulus bill is achieving the goals that those of us who
supported it hoped for. OMB is allowing two different methods
for counting the jobs created or saved under the bill. The
first is direct counting. It is obvious what that means. But
OMB also allows a second option, which is an extrapolation, an
estimate based on project information.
My concern about having two different methods of measuring
job creation or the number of jobs saved is that it could serve
to undermine the public's confidence in the credibility of the
numbers. Could you comment on the issue of whether we need two
different ways, or whether we just need one set or one approach
to measuring jobs created or saved?
Mr. Mihm. That is exactly one of the questions we are going
to be looking at as we look at these recipient reports, is the
methodologies they used. First, is there transparency in the
reporting as to which methodology did they use? That is, does a
user of this understand how they got the number? And then,
second, as we do our assessments, does it make sense at a high
level why people would choose one methodology over another?
That is, is it done for all the right reasons?
Our approach is, over the next couple of weeks, our State
teams that are out there in those 16 States and the District
are sitting down with officials in the States, or the direct
recipients who will be doing the reporting to
Federalreporting.gov, and understanding what are the controls
that you are going to have in place. How are you going to be
reporting on the jobs? To the extent that you are relying on
information from sub-recipients, what are you going to be doing
to assure yourselves that you get good data? That is all before
the reporting takes place.
And then after the reports come in, we are going to go back
out there and say, did you actually do what you said you were
going to do? And then beyond that, then test for some sub-
recipients. Go down and find out that it flows all the way
down.
As I mentioned earlier, our primary focus is going to be
this time around on transportation programs, highway programs,
because that is where a lot of the money is already and that is
also, and my economist friends tell me that is where we can
expect job impacts to the extent that we are going to see them.
So that is going to be the focus, but you are asking
exactly the right question. The transparency on that is going
to be very important.
Senator Collins. It is critical. I am very pleased that
Maine has the opposite situation of Connecticut. We rank first
in the Nation in the expenditure of stimulus funds for
transportation projects. And it was very heartening to me to
meet recently with the owner of a construction company who told
me that there were 100 people working who otherwise would not
have been, just on this one particular project.
But it also became clear to me that this becomes very
complicated on how you count. If you have a project with 100
people working on it, that project ends and then there is
another project that hires 50 of those people, how is that
measured? Are those 50 new jobs, so the total is 150? Or is
that a subset of the 100 that was originally counted? It
becomes difficult, and the problems are obvious as you try to
measure this, which is why I think it is important that we have
an agreed-upon measurement system and just stick with it so the
same standards are used everywhere and we have apples to
apples.
Mr. Mihm. On the particular example that you are talking
about----
Senator Collins. Yes.
Mr. Mihm [continuing]. And I will obviously defer to Mr.
Nabors on this, but OMB has tried to address that by asking
recipients to report on a full-time equivalent basis rather
than on a specific job so that we do not get into these----
Senator Collins. Double-counting----
Mr. Mihm [continuing]. Types of situations, because the one
you were describing, an argument could be made, well, did that
second job then kill 50 jobs, and that is not what we are
trying to get at.
Senator Collins. Right.
Mr. Mihm. And so the full-time equivalent calculation is
designed to make sure we are comparing apples and apples across
the board.
Senator Collins. Thank you.
Mr. Leibowitz, I want to go back to the issue that Senator
McCaskill raised about what happens to these con artists. The
FTC does a terrific job of shutting down the Web sites, doing
the sweeps, but obviously you cannot cuff them, as she puts it,
or you cannot prosecute it. You have to refer the case to the
Justice Department.
Mr. Leibowitz. Sure.
Senator Collins. So that raises the question, is the
Justice Department receptive to pursuing these cases? What you
always wonder and you always worry about, and I have done a lot
of work over the decades on consumer fraud issues, the fear is
that it is viewed as small potatoes and thus a case is never
brought unless it reaches a certain threshold. And what
happens, particularly in the Internet age, is that a con artist
then goes on to set up another Web site and scams the next set
of victims. That is closed down. The prosecution is declined
because it is small again, although it is probably not because
the range of victims is probably far greater than is realized.
But how receptive is the Justice Department to following
through on these cases?
Mr. Leibowitz. Well, you have identified all of the
problems and you did it without a diatribe, by the way.
[Laughter.]
We work with the Justice Department. There is always a
tension, and I have been on the Commission for 5 years, so
there is always a tension at the Justice Department between the
things that are their highest priorities--terrorism, hard-core
crime--and things like fraud, which sometimes fall through the
cracks.
But Attorney General Eric Holder and Lanny Breuer, who is
the head of the Criminal Division, have both been very
receptive to the idea of bringing more cases. We also have
relationships with Assistant U.S. Attorneys and U.S. Attorneys,
so we go directly to where the malefactors are. And, in fact,
my recollection is, and I will check this and get back to you,
that in one of the cases that we brought, Grant Connect, one of
the malefactors is actually in jail now, or the husband who
started the scam that was taken over by his wife who is
actually the former Mrs. Nevada, is in jail.
So we are pretty good at getting cases to the Justice
Department and the folks who can put these bad guys in jail. We
have a Criminal Liaison Unit that has been great at referring
cases. But it is an ongoing effort. On the other hand, we also
respect the Justice Department's priorities and so we want to
be in there as quickly as we can.
But I will get back to you on that particular case and we
will keep the effort up. And again, they have been very
receptive at the Justice Department.
Senator Collins. Thank you.
Mr. Devaney, I am not familiar with the story that Senator
McCaskill brought up this morning. While there are obvious
issues with Congressional oversight, accountability, and
transparency with the creation of new czar positions within the
Executive Office of the President, that is a totally different
issue from Senate-confirmed individuals who are performing
important roles who do testify before us regularly. Although I
am not familiar with the report that Senator McCaskill brought
up, it is extremely unfair if your position is being lumped
into the category with these other issues.
Let me just ask you one quick final question. You brought
up a difficult issue in passing, and that is you said that the
board that you are overseeing is not involved in making
judgments about the quality of projects for which stimulus
money is spent and that you are focused, if there is a direct
bar against funding an aquarium, for example, then you would
come into play, or if there is fraud, obviously, or improper
payments.
But that raises a question of whether there is a gap here,
because there are some projects that have been reported in the
press, for example, building a guard rail around an evaporated
lake, that clearly should not be funded. And traditionally, I
have looked to the GAO or the IG to identify those projects. So
if it is not your job to raise a red flag on those projects,
and I understand why you think it may not be, whose job is it?
Mr. Devaney. Well, we are seeing things like that, and when
we do, we bring that to the attention of either the agency
directly, and we have made a lot of referrals directly to the
agencies, you need to look at this, and also OMB. And
reflecting back on something Mr. Nabors said earlier, there is
a very aggressive approach on the part of the Vice President
and his staff to get right on this. I mean, if they see
something like that, my observation is, from a distance, they
have been very aggressive about that.
I suspect when the data starts to roll in, we will see more
of that. We will see more questionable projects. And we
certainly are going to make sure that all that information that
we get in the data gets out to the right people, gets over to
the Department so they can look at that project to see if it
was approved, if it was not approved, and do some watchful
thinking about whether or not that was a smart thing to do.
But there are going to be projects that two or three people
look at in very different ways. Was that a smart bridge or was
that a bridge to nowhere? There are going to be a lot of
opinions out there when people see this data, and that is what
I meant earlier about sort of it is going to be an interesting
time when people get to see that. We do not want to get
involved in those sort of subjective judgments and want to be
very clear about that, but nonetheless, if we see something
that we think is clearly wrong, we are going to make sure that
gets sent to the right place.
Senator Collins. Thank you.
Mr. Chairman, I just want to thank you for your leadership
on this set of hearings that we have been holding. As you
mentioned, this is the fifth oversight hearing, and I also want
to thank their staff for their work. I particularly want to
thank the staff for their work on the consumer fraud issues. I
have long been very interested in those issues, since my days
in State government and also as Chairman of the Permanent
Subcommittee on Investigations, and I appreciate your including
that aspect in this hearing. Thank you.
Chairman Lieberman. Thank you, Senator Collins. Thank you
for your leadership in all the efforts that were leading up to
this hearing, and I appreciate also the work that your staff
did on the consumer protection part of the hearing and the work
that both of our staffs did together on the overall hearing.
I must say, I am proud of the Members of the Committee. I
thought the questions were thoughtful. There were one or two
diatribes, but---- [Laughter.]
This is exactly what we want to do here. My net impression
is that the Stimulus Act is having a positive effect on the
economy. It is not perfect. I appreciate the fact, Mr. Nabors,
that you said the Administration, with the Vice President
leading the effort, is particularly committed to trying to
accelerate the spending, and the Vice President in his
characteristic way is hands on. I thought it was very important
that you told me that he is on the phone himself calling
governors in States where the rate of spending, or outlay,
actual spending, is not what we hoped it would be. And I thank
you, Mr. Devaney and Mr. Mihm, for the work that you are doing
to assist us in our oversight.
This was an extraordinary legislative act with an enormous
amount of money in it. We did it because of the sense of
urgency we had about where our economy was heading. We worried
it was heading over the cliff. We are comforted to feel now
that it is not anywhere near the cliff, but still there is a
lot of suffering.
But the bottom line here is that with this much money being
spent this quickly, we feel ourselves a sense of accountability
and responsibility, and you are out there working for us in the
various ways you are, sharing that responsibility, and it is
comforting to us. The reward for all your good work is that we
are probably going to call you back here sometime at the end of
October or early November, particularly after the Recovery.gov
gets up and we begin to receive some of those recipient reports
to see what that tells us about how we are doing.
Mr. Leibowitz, you added a very important dimension here
and I appreciate that you were here. You can tell from both the
public questioning by the Members, and I can tell you from the
sort of private conversations as people were coming by the
chair here, that Members are very interested and concerned
about the scam artists. It has been a long time since I have
heard the term ``pond scum.'' It strikes me that we are in an
age where we may soon be referring to ``iPod scums,'' not pond
scum. [Laughter.]
In any case, there is real interest in the Committee in
exploring whether there are any changes in law that can improve
or strengthen the work that you are doing by way of deterrence,
by putting more power in the hands of not only the Commission,
but the Justice Department. So I ask that you work with our
staff and your staff work with ours to see if there is
something constructive that we can do in that regard.
Mr. Leibowitz. We would be delighted to do that. I have had
discussions with Senator Collins, because she is the Ranking
Member of our Appropriations Subcommittee. I will get back to
you with a list, but part of it is growing the agency. We are
30 percent smaller than we were 30 years ago, even though the
population has grown from 225 million to 305 million in the
United States. Part of it is just having a stronger deterrent.
So one thing that we are interested in and that there is
growing support for is giving us fining authority. Another is
giving us easier rulemaking authority. In the Omnibus
Appropriations Act, Congress gave us the ability to do a
rulemaking involving mortgages under the Administrative
Procedure Act rulemaking, which is easier rulemaking. We are
under something more or less medieval called the Magnuson-Moss
Act. And because of that, we will do something very useful that
sets a clear baseline.
So thank you for that support, and we are going to stay on
top of this issue and we will get back to you----
Chairman Lieberman. Good. We will work together on it.
Thank you all. The record of the hearing will be held open
for 15 days for any additional questions or statements Members
would like to submit.
With that, I thank you very much for your very important
public service.
The hearing is adjourned.
[Whereupon, at 12:22 p.m., the Committee was adjourned.]
A P P E N D I X
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