Spending the U.S. stimulus: states can't afford it

WASHINGTON (Reuters) - One of the greatest challenges U.S. states face in spending federal stimulus money is funding the burst in bureaucracy that accompanies the funds, a government watchdog said on Thursday, as the Obama administration pledged to give states more help.

Revenue has been dropping in most U.S. states for a year, and many governments have cut staff. But the $787 billion American Recovery and Reinvestment Act flooded states with money for programs and required them to keep the public and federal government apprised of their spending, all of which requires more workers, said the Government Accountability Office.

"Due to fiscal constraints, many states reported significant declines in the number of oversight staff -- limiting their ability to ensure proper implementation and management of Recovery Act funds," the GAO's nearly 300-page report on the stimulus plan said.

U.S. Sen. Joseph Lieberman, an Independent from Connecticut, told a hearing of the Committee on Homeland Security and Governmental Affairs that he chairs that "stimulus spending will be under the supervision of cash-strapped state and local governments that may be forced to lay off the very personnel needed... so we can avoid the kinds of waste, fraud, abuse or theft that could discredit the program."

Vice President Joseph Biden in a letter to the committee on Thursday pledged that the administration would tell states in early May how they can use some of the money from the act to cover "costs of administrative activities."

More than $246 billion in recovery funds will go to states over the next two years, Raymond Scheppach, executive director of the National Governors Association, told the oversight committee.

"Given that all of the economic stimulus funds are temporary, it will be extremely difficult for states to spend funds quickly, fill a three-year budget gap and maintain program stability and efficiency," he said.

In testimony for the same hearing, Gene Dodaro, the Acting Comptroller General of the United States said most states had created stimulus task forces or "czars," but that these were largely made up of government workers with other responsibilities.

New Jersey, he said, had received $469 million for highway repairs in the stimulus bill, but was not able to hire anyone to help with the increased responsibilities.

JOBS REMAIN A MYSTERY

Obama pushed to create a recovery package that would pump cash into the economy and create or save at least 3 million jobs. States, though, are not sure how to track those jobs or report on them.

Senator Susan Collins, a Republican from Maine, told the hearing she was concerned there could be double counting of jobs or inconsistencies among states on which jobs they count.

The GAO report found states are confused by tracking the jobs effects of the stimulus, down to the language used.

"Officials from several of the states we met with expressed a need for clearer definitions of 'jobs retained and jobs created,'" the GAO said.

Senator Lamar Alexander, a Tennessee Republican, pointed to the GAO's breakdown of where the funds will be spent as proof the stimulus will not create jobs. In fiscal 2009, more than 60 percent of the stimulus money will go to healthcare programs, primarily reimbursing states for Medicare, the healthcare program for the poor which, he said, does not produce jobs.

In his letter, Biden said the administration would also give states "a standard procedure for recipients to calculate jobs created," as well as additional details on data reporting requirements and clearer definitions of how state and local governments must show they are complying with the law.

Republican critics, meanwhile, said the GAO report showed the stimulus plan, passed at the end of February, had already failed to live up to Obama's promise that it would "temporary, timely and targeted."

Senator Alexander said the act established permanent spending on social programs and Sen. John Thune of South Dakota said the report showed states would scramble for money once stimulus funds run out in two years.

"If you're a state government, a windfall today is a train wreck tomorrow," Thune told reporters.