The slowdown of obligation and reimbursement of regular Federal Highway Administration formula funds raises questions about whether recovery act funds have had the full economic stimulative effect intended, GAO states in its "Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States' and Localities' Uses of Funds" report.

"Some state officials told us they had not been obligating regular federal highway formula funds as quickly because they had been focusing on meeting the recovery act obligation deadlines and did not have the resources to do both," according to the report. "Because states did not spend regular federal highway formula funds at the same pace as in previous years, while also spending recovery act funds, the full economic benefits of recovery act funds are likely to be delayed."

FHWA officials told GAO investigators that they expect all regular highway program funds to be obligated by states by Sept. 30, the end of federal Fiscal Year 2010. GAO noted that will be challenging, however.

As of June 30, the end of Third Quarter FY 2010, states had almost $20 billion in highway funds remaining to be obligated, 63% more funds than they did at the same time during the past three years. As of July 31, the reimbursement of regular federal highway program funds was lower compared with the reimbursement at the same point in the three previous fiscal years.

GAO also found that, during the first 10 months of FY 2010, FHWA reimbursed state transportation departments 18% less in highway formula funds (a little more than $4 billion) compared to the same period in the three previous fiscal years.

"In the last three months of Fiscal Year 2010, state highway agencies not only have to request FHWA obligate over $500 million in remaining recovery act funds, but also $19.7 billion of regular federal highway formula funds," GAO states.

The report notes that most of the unobligated recovery act highway funds, 85%, are the result of contract award savings. Due to the poor economy, state DOTs have reported receiving numerous bids that were lower than the costs they had estimated for particular projects. That cost savings must all be reobligated to new projects by Sept. 30 or states will forfeit the funds.

Monday's GAO report is the latest in a series examining the uses of and accountability for recovery funds. GAO selected 16 states and the District of Columbia for in-depth examination of their recovery act spending. The report tracks spending of $282 billion in recovery funds across numerous federal agencies, including $48 billion from the U.S. Department of Transportation. In this month's report, GAO updates the status of agencies' efforts to implement 58 previous recommendations and makes five new recommendations to improve management and strengthen accountability.

Two of those new recommendations are directed at U.S. Transportation Secretary Ray LaHood. GAO recommends that LaHood direct FHWA to:

• Develop additional rules and data checks in the Recovery Act Data System so that theses data will accurately identify contract milestones such as award dates and amounts, and provide guidance to states to revise existing contract data; and
• Make publicly available -- within 60 days after the Sept. 30 final obligation deadline -- an accurate accounting and analysis of the extent to which states directed funds to economically distressed areas, including corrections to the data initially provided to Congress in December 2009.

GAO's 284-page report and a summary are available at bit.ly/GAO092010.