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Assuring Accountability and Equity in Recovery Spending

In January, Progressive States Network highlighted the many reasons Why States Need to be a Focus for Any Economic Recovery Plan.  Without help, states would catastrophically slash both spending and payrolls, deepening the economic crisis in communities across the nation, while undermining the investments needed to revive the economy in the long-term.

But we have also emphasized that any stimulus spending has to be tied to increased accountability and transparency in spending decisions, especially by government contractors who often operate like a shadow government with little oversight.  One key reality, as this Dispatch will highlight, is that those most in need often don't receive help from government spending without transparency and accountability measures built into the rules.  While the recent federal recovery plan made real strides in expanding such accountability, additional measures are still needed if the recovery plan is going to deliver real equity in our economic recovery.


- Assuring Recovery Funds Address Immediate Crisis

- The Link Between Accountability and Equity

- Demanding Transparency and Accountability in the States

- Conclusion


Assuring Recovery Funds Address Immediate Crisis

As the Center for Budget and Policy Priorities outlined in a recent report, federal aid is covering roughly 30-40 percent of state budget shortfalls. Virginia, for example, has been able keep open three mental health facilities, reverse a planned cut in Medicaid payments, lessen reduction in universities aid, avoid a major education budget cut, and avoid laying off an estimated 310 deputy sheriff positions.

For the economy, some of the most immediate money flowing into states is via the expansion of food stamps benefits in the recovery plan: 32.5 million people in April got a 13.6 percent monthly increase in benefits, averaging about $20 per person.  Since the federal government pays 100% of food stamp benefits, states that vigorously sign up people who qualify can stave off some need to use other benefits directly funded by the states. While many states are stepping up outreach efforts, only 60 percent of eligible Americans received food stamps in 2004, the most recent year data are available.  Signing up more people is a direct way to expand federal stimulus spending in states.

Assuring States Maintain Spending to Fuel Consumer Demand:  While the federal government is dramatically expanding support for programs like education, food stamps, and Medicaid for state governments, the key caveat is that states can't use the funds just to paper over state cuts for the programs.  In using state fiscal stabilization funds, states must assure that in fiscal years 2009, 2010, and 2011, they will maintain state support for elementary, secondary and public higher education institutions at fiscal year 2006 levels.  The goal is to assure that the federal stimulus to expand the economy is not just undermined by state governments cutting spending -- avoiding what economist Paul Krugman calls "fifty Herbert Hoovers" promoting austerity economics and deepening the economic downturn.

"States Rights" versus Accountability: Some state leaders like Texas Governor Rick Perry have tried to argue that any conditions on federal money is a violation of states rights; Perry even supported a resolution  asserting "sovereignty" for the state of Texas and arguing all federal legislation that "requires states to pass legislation or lose federal funding be prohibited or repealed."   It is a bit strange to see some conservative leaders -- who usually argue that government spending should be tied to reciprocal responsibility by recipients -- suddenly demand that federal dollars be a blank check with no accountability for states receiving it.  Of course, even most conservative leaders have agreed to the accountability measures required to qualify for funding under the federal recovery act.  Ironically, South Carolina  Governor Mark Sanford -- who is seeking to reject $700 million in education spending approved by his own state legislature -- has argued that federal courts, rather than state courts which are not seen as sympathetic to his position, should decide whether the governor can prevent the state from spending the money.

Fight over Unemployment Funds: That the strongest resistance to federal funds has come over funding unemployment insurance for many of the poorest unemployed workers is evidence that the fight over "states rights" is actually a fig leaf for ideological attacks on those most in need.  As the National Employment Law Project has documented, incentives in the recovery act to encourage states to extend unemployment benefits to poor and part-time workers often excluded from unemployment systems, has been a major success of the recovery plan, with states across the country reforming their laws to improve equity in their systems.  While both Republican and Democratic leaders in many states have readily expanded such benefits, it is a few ideologues on the right, such as Perry in Texas or Gov. Bobby Jindal in Louisiana, that have used the unemployed as whipping boys for their rhetoric.  Even as many families continue to suffer post-Katrina in the state, Jindal chose to forego $100 million in federal unemployment dollars, as legislators have labored to override his opposition to unemployment insurance modernization.   As Dan Lavoie of Policy Link argues, "This is a looming disaster for folks who’ve had too much disaster in their lives already."

Resources:
ProPublica - Stimulus Infrastructure Funding Short-Changes States With High Unemployment
Center for Budget and Policy Priorities - Federal Fiscal Relief for States Is Working As Intended: The Cases of New York and Virginia
U.S. Department of Education - Guidance on the Maintenance-of-Effort Requirements in the State Fiscal Stabilization Fund Program
National Employment Law Project - Modernizing Unemployment Insurance--The American Recovery and Reinvestment Act
Policy Link - Thousands to Protest Jindal Stimulus Rejection

The Link Between Accountability and Equity

The exclusion of many of the working poor from unemployment insurance systems is just part of the broader problem of equity in in state spending and assuring that the federal recovery plan is directed to reviving communities hardest hit by the global economic downturn. Unfortunately, state-by-state analysis of federal transportation recovery funds by the independent research organization ProPublica finds that "the higher a state’s unemployment, the less money it gets."  States with the most people out-of-work are seeing fewer job openings on transportation projects.

Within states, the same phenomena seems to be happening.  By basing dollars spent on transportation money on whether a community has "shovel ready" construction projects, the law has bypassed some communities with the highest unemployment.  In Indiana:

An analysis of Indiana's per-capita transportation stimulus dollars committed through this month shows that of the state's 10 counties with the highest unemployment rates, three have received no funding, and four have received less than $37 per person, the median amount given to counties that did receive funding.

Building Equity into Transportation Budgets:  Richer communities often already had more money in the pipeline for new projects, so they had "shovel-ready" projects ready to be funded.  As a report by Policy Link and Transit Equity Network argues, "There is serious concern that the timeline for spending recovery dollars will reinforce historic inequities by concentrating funds on ex-urban highway projects versus maximizing low-income community benefits through investment in transit, pedestrian, and bicycle infrastructure."  As report co-author Radhika Fox, an Associate Director at Policy Link argues:

Historically, the deck has been stacked against transportation projects that can improve the lives of low-income people and people of color. To ensure that the federal recovery package does not continue this imbalance, advocates and community leaders must be ready and prepared to fight to ensure their communities get a fair share of the recovery dollars.

“Accountability in government spending is job number one when it comes to the stimulus,” said Laura Barrett, national policy director for the Transportation Equity Network. “The nation's governors must make sure that all stimulus-spending targets distressed communities and brings jobs to low-income people, women and minorities. The public needs to know who got the jobs and who can be held accountable."

Lack of Data Has Held Up Addressing Inadequate Teaching in Poor Schools:  Transparency in spending decisions is also the key to actually making sure poor schools receive the help they have usually been denied in the past.  The stimulus measure’s provision on equitable distribution of teachers is identical to language in the federal No Child Left Behind Act that requires states to put plans in place to ensure that poor and minority students aren’t taught disproportionately by out-of-field, inexperienced, or unqualified teachers.  Not much momentum on this goal was made under President George W. Bush, some experts say, in part because of states' archaic recordkeeping, a former Bush administration official indicated.  “It was difficult to move the needle on teacher-quality efforts in the states at the time,” said M. René Islas, who oversaw the issue at the Education Department between 2002 and 2006. “They lacked the data systems and the incentive.”

Greater accountability and greater transparency in data for the recovery plan is a necessary step in making it possible for low-income and minority communities to be able to demand equity in the distribution of funds.

Resources:
Policy Link and Transportation Equity Network - An Engine of Opportunity: A User’s Guide to Advocate for Transportation Equity in the 2009 Recovery Act
Education Week -
Stimulus Bill Spurs Focus on Teachers: Language on Fair Distribution, Effectiveness Offers Policy Clues

Demanding Transparency and Accountability in the States

Recognizing the need for broader accountability in the federal recovery plan, advocates have formed States for an Accountable and Transparent Recovery.  In this effort, Progressive States Network has joined with a number of key allies -- including the Apollo Alliance, Center for Community Change, Common Cause, Consumer Federation of America, Good Jobs First, National Employment Law Project, National People's Action, OMB Watch, Partnership for Working Families, Policy Matters Ohio, Right to the City, Smart Growth America, Transportation Equity Network, U.S. PIRG, and Wider Opportunites for Women -- to work for both greater equity and accountability as the recovery plan is implemented in states across the country.

Limits of Federal Transparency Rules:  The ARRA includes a wide range of accountability provisions and created a Recovery Accountability and Transparency Board.  President Obama has announced that Vice President Joe Biden will “oversee the Administration’s implementation of the Recovery Act’s provisions." The Vice President issued his first quarterly ARRA progress report on May 13.

President Obama has made a broad commitment to create transparency for federal spending, but the problem is that as funds move from federal government to state to local government to hired contractors, the data to assure accountability starts to disappear.  As the Washington Post highlighted in a recent article:

The Office of Management and Budget requires stimulus spending to be reported by primary and secondary recipients, but in many cases, this means the reporting will stop short of the contractors and subcontractors that are hired to do the work. For instance, if a state allocates transportation money to a local authority, such as Metro, that authority would not necessarily have to disclose what contractors were hired.

Earl E. Devaney, the Interior Department Inspector General who has been placed in charge of stimulus oversight, admits, "The law doesn't require [recipients] to go to the depth that people imagine it does."

State Accountability Sites:  The States for a Transparent and Accountability Recovery site has a state-by-state review of accountability practices in each state, including overviews of state-level recovery act websites and other government-run accountability sites, how coordination and oversight for the recovery plan is being administered in each state, the in-state policy debates on the recovery plan, as well as a list of state watchdog groups and other resources.   Some states are providing greater transparency than others, yet almost none yet provide the level of detail needed to monitor either the overall equity in distribution of funds or what contractors are really doing with the funds they receive.

Expanding Transparency and Accountability in the States:  As PSN outlined in February, there are a number of models for state leaders seeking to expand transparency in their recovery and state contracting systems.  These included:

As we emphasized, not only do such accountability measures assure that money goes where intended, they can actually save states money by streamlining spending decisions and eliminating spending abuses that thrive in secrecy.

Funding Transparency:  One area where the federal government can step up is in making funding of state accountability systems a greater priority.  An April Government Accountability Office report found that state funding for oversight was a problem:

Officials in most of the states and the District expressed concerns regarding the lack of Recovery Act funding provided for accountability and oversight.  Due to fiscal constraints, many states reported significant declines in the number of oversight staff—limiting the ability to ensure proper implementation and management of Recovery Act funds.

If the feds are going to spend hundreds of billions of dollars on the recovery plan, providing the funds to protect and expand the capacity of states to build better accountability systems would be money well spent.

Resources:
Progressive States Network - Transparency and Economic Recovery: What States Are Required To Do and Why They Should Do It
States for an Accountable and Transparent Recovery
Coalition for an Accountable Recovery
Education Week - Initial Aid Is Puzzle to Track: Transparency Proves Elusive as Stimulus Funds Flow
ProPublica - Tracking States' Spending Sites

Conclusion

Accountability and transparency are not just "good government" issues.  Without such measures, money inevitably flows to those who already have political and economic power.  Only with clear accountability rules -- and data collected to assure such rules are being implemented -- will we see recovery funds go to those most in need and the money used to address the real problems of economic inequality in communities across our country.