For many state governments, the slight gains in economic recovery seen at the national level will not be shared down the municipal line for months to come, argues Deloitte’s Robert Campbell. But in his latest commentary from The Gallery, Mr. Campbell says that continued stress on budgets in 2011 may compel lagging states to enact fundamental changes to the way they use technology and structure business processes.

While we are starting to see signs of overall recovery in the U.S. economy, this is one of the longest and deepest recessions since the Great Depression.

Unfortunately, just as states lag the commercial sectors going into a downturn, states clearly lag in the recovery as well. The reason for this is fairly obvious; the states’ budgeting process is prospective in nature and state revenue collections follow actual economic improvement.

Fiscal Year 2011 could be the states’ most challenging in recent years. The Center on Budget and Policy Priorities just reported that the states’ cumulative budget shortfall could reach $140 billion this year – and that’s after the various budget adjustments many states made over the last several years.

Why is this happening?

Unfortunately, a large number of states failed to use the economic downturn as an opportunity to fundamentally transform the operation of state government. In addition, funding from the American Recovery and Reinvestment Act (ARRA) made it easy for many state legislatures to use ARRA funds to temporarily plug budget gaps, rather than to change expenditure patterns. When ARRA funding dries up, those states that failed to act aggressively will be looking at deep shortfalls.

The growing federal debt and the likelihood of significant federal action to address it could have further negative consequences on state deficits.

As we all know, fiscal responsibility and constraint in good times make it easier to deal with economic downturns. A recent Deloitte analysis of annual expenditure trends across the 50 states found that states that spent beyond their peers earlier in the decade faced the deepest financial holes after the recession began in 2007.

In contrast, states that have been willing to act aggressively with promising transformational initiatives have done better. These include:

• States like Minnesota that used a commercially-proven shared services approach to drive down administrative costs while driving best practices across state enterprises.
• States like Texas and Michigan that continued to invest in technology to improve the integration of human service programs and save costs.
• States like Florida that adopted enterprise technologies to drive a single technology approach to tax collection and enforcement across the state.
• States like Texas that used commercially-available technology honed in the private sector to improve online access to government services.

The imperative for states to transform their governments’ structure and business processes, adopt advanced technology and challenge long established policies is clear. The forecast for Fiscal Year 2011 shortfalls will likely create additional urgency for states, especially those that have been hesitant to enact fundamental enterprise change.

Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin.

Illinois Governor Pat Quinn announced a new website last week, meant to shine “sunlight” on the state’s finances. Sunshine.Illinois.gov is the state’s first foray into a comprehensive transparency site where detailed information about state expenditures, grants, pubic facilities’ inspection reports and more can be searched by citizens.

Gov. Quinn said the Illinois Sunshine Portal is part of his administration’s continuing efforts to make Illinois more accountable.

“We’ve worked to make state government more transparent and responsive to the needs of everyday people,” said Governor Quinn. “With National Sunshine Week starting Monday, it is fitting that we launch the Illinois Sunshine Project to ensure that our state government takes all steps necessary to make information as accessible as possible.”

Other features of the Illinois Sunshine Portal include, campaign finances and campaign donation listings, consumer complaints, Child Care Center Inspections, and a list of registered lobbyist in the state.

According to Sunshine Review, a non-profit group that monitors state and local government transparency initiatives, less than 1 percent of the over 5,000 state and local websites meet transparency standards as laid out by the “10-point Transparency Checklist.” The Transparency Checklist has features that any citizen should be able to find on their government or school district website, including budgets, meeting times, names of elected officials, permit and zoning records, and taxes, among others.

To those less-than-one-percent state, county, and city websites that meet all of the transparency criteria, the Sunshine Review awards “Sunny Awards.” According to Mike Barnhart, President of Sunshine Review, the awards were created to spotlight the best government websites and underscore standards that all governments can and should meet.

“Access to information empowers every citizen to hold government officials accountable for the conduct of the publics’ business and the spending of taxpayers’ money. Official accountability is the corner stone of self government and liberty,” Mr. Barnhart says on the Sunny Awards website.

Out of the 50 states websites, more than 3,140 counties websites, 805 city websites, and 1,560 school districts the group monitors, only fourteen received perfect scores. Florida School Districts fared well, bringing home four awards, meanwhile Washington was the only state website to receive a perfect score.

For a complete list and to find how your state, city, county or school district compares, go to: http://sunshinereview.org/index.php/Main_Page

According to the Recovery Accountability and Transparency Board, recipients of 1,036 awards representing $583 million dollars in stimulus funds failed to submit reports for the quarter that ended December 31, 2009. And the Recovery Board is calling them out on it.

Recipients who made the first list of non-reporters ranged from state agencies, including departments of transportation and education, to city governments and private companies in all sectors of the economy. For the latest round, the Recovery Board identified “two-time losers” and created a .pdf file naming the over one thousand recipients who did not report their awards as mandated by the American Recovery and Reinvestment Act.

State-level agencies by and large were able to remove themselves from the original list of over 4,350, although private sector recipients and local governments remained a large part of the $583 million in undocumented receipts.

Some of them included:

• An asphalt paving and excavation company from Arkansas, who failed to report an award for $2.2 million
• Del Norte Clinics, Inc. of California who received over $3 million in June of 2009
• Louisiana’s Weeks Marine, Inc. won nearly $3.5 million yet failed to report it to the government
• $1.2 million went to the Lebanon, Missouri Police Department and was not reported

“The two-time losers—those who failed to file reports in the last quarter of 2009 and the earlier reporting period—should really be embarrassed,’’ said Earl E. Devaney, the Chairman of the Recovery board. “They took millions of dollars and then thumbed their noses at taxpayers.”

Devaney noted that the American Recovery and Reinvestment Act of 2009 does not assess penalties for recipients who fail to report. He has previously testified before Congress in support of establishing penalties in the law, stemming largely from federal agencies who could use their administrative powers to punish violators.

“Federal agencies now need to take whatever administrative action they can against those who flout the law so cavalierly,” Devaney said, “ including recovering money that the recipients have not yet spent.”

Over $250 billion was allotted for state and local governments through federal grants and loans in the Recovery Act. Accenture’s Mark Howard discusses a recent joint survey with the National Association of State Auditors, Comptrollers and Treasurers that looks at how states could leverage ARRA requirements to be more efficient and competitive when applying for federal grants.

Are states prepared to compete for — and win — newly available federal grant funds? The $787 billion American Recovery and Reinvestment Act (ARRA) presents an unprecedented opportunity for states and their agencies, many facing current and projected financial shortfalls, to receive federal funding. But it also poses new challenges.

Accenture and the National Association of State Auditors, Comptrollers and Treasurers (NASACT) teamed up to conduct a nationwide survey exploring states’ current federal grants management practices. The survey yielded some important findings, painting a nationwide picture of inconsistency among states’ readiness to address ARRA’s opportunities and challenges. The survey results suggest that, without a centralized process for grants management, states may be leaving money on the table. At worst, they risk failing to recoup their administrative costs.

The message from the Accenture/NASACT survey is clear: the time has never been better for states to push for improvements to their grants management processes to tap more federal funds. The first step, understanding the administrative costs of managing grants, is crucial to actually managing those grants. Adopting a best practices model to centralize functions across the entire grants management life cycle can position states to receive optimal funding from all federal grants in the future, not just from ARRA.

The survey, which sought general background directly from state comptrollers, provided insight on the extent of decentralization within state agencies. The comptrollers were asked explicitly not to reach out to their state agencies in responding to the survey. Accenture and NASACT expected that, to some degree, comptrollers might not know the details of the grants management process. Asked how many applications their states had submitted in the last 12 months across all agencies, 76 percent of responding comptrollers said they did not know. Asked about the number of grants awarded during the same time period, 84 percent did not know. These responses could lead to the conclusion that the information is either being managed in a decentralized manner, or in a way that is not ultimately efficient.

The survey also wanted to determine how ARRA is causing state government practices to change. The hypothesis was that two factors could drive significant change: the influx of dollars (10 to 20 percent increases over current levels) and the attention and requirements ARRA demands. These factors did appear to be at work, but the impact of ARRA was inconsistent across states.

In terms of leading practices and potential areas for improvement, the findings reveal no uniform best practices among states for managing grants. They do, however, provide insight into the gaps that thwart states’ ability to adopt an end-to-end process for winning federal grant funds.

The survey contains a number of recommendations to improve states’ ability to adopt an end-to-end process for winning federal grant funds.

• First, states should centralize the front end. Most states lack central visibility at the front end of the grants management lifecycle. Such a fractured process creates waste, rework and redundancy.
• Next, centralize processes at the back end. Compared to the front end, there is relatively high visibility and control over the back-end — or post–award and financial management — phase. This simultaneously gives states more flexibility and tighter management over this area, and they would be better served by shifting their focus to improved outcomes and results throughout the grants management lifecycle.
• States should also adopt enabling technologies. Cost/benefit analysis should be used to assess the business case for further investments in software solutions.

States should take advantage of ARRA as a lever for lasting change against a backdrop of rising state fiscal challenges. There are abundant opportunities for states to make dramatic improvements in their approach to pursuing and managing federal grants. Understanding the administrative costs of managing grants is a crucial first step. States can accomplish this with modifications and additions to their accounting process. And, again, adopting a best practice model to centralize functions across the entire grants management life cycle is the best way to ensure receipt of optimal funding — not just from ARRA, but from all federal grants in the future.

Mark Howard is Accenture’s state and local government practice, budget and performance management lead.

Download a copy of the full report by clicking here.

The $787 billion funding streams created as part of the American Recovery and Reinvestment Act passed in 2009 will end in 2012. Accenture’s Mark Howard discusses what programs and practices will last far beyond the two-year ARRA life cycle.

From transparency measures to econometric forecasting, federal reporting mandates and increased grants competition has ushered a new era for state and local government management.

“ARRA is not a one-and-done event,” Mr. Howard, ARRA Practice Director for Accenture, said in an interview with CivSource. “We believe the use of ARRA funds has created expectations among citizens, elected officials, and media about how government should conduct business.”

The question, Mr. Howard says, is how best to apply federal requirements under the stimulus package more broadly to address organizational improvements and increased transparency.

According to a report based on conversations with state comptrollers, stimulus directors, and financial experts around the country, Accenture has outlined four areas of opportunity to move beyond ARRA reporting compliance and provide long-term value.

The distribution of and access to information about government projects, using Recovery.gov-type websites has already taken seed in all fifty states, with many of those websites making improvements in user interfaces. According to a report released last week, state transparency websites continue to increase the quality and quantity of stimulus projects information, utilizing geospatial tools to indicate project details like dollar amount, recipient name, status and the text of the contract or grant awarded.

Web-based reporting and project tracking is likely to be the most obvious continuing practice of state and local government after ARRA is done. But according to Howard, most states’ reporting processes have room for improvement. During the second round of quarterly reporting (Jan 1 – Jan 10), the Office of Management and Budget (OMB) extended the reporting deadline by ten days to address inconsistencies and formatting issues.

“Most officials are still trying to keep their heads above water,” Howard said. “In general the second time around was better than the first – people were more comfortable with the standards and expectations of how and where they were supposed to report. It was easier, but not across the board easy.”

Mr. Howard believes there is an opportunity for the private sector to help states maintain these transparency websites after the stimulus well has dried up. “Are states going to get into the business of gathering data, preparing, validating and publishing it to the web,” he asked, “Probably not.”

Most states just don’t have that job title and competency built in to their existing organizations, Howard said. Instead, states are likely to outsource the job to keep citizens and watchdogs happy, while vendors develop technologies and processes that make the task easier and cheaper for the taxpayers. Presently, there are a host of companies including Microsoft, Unisys, Actuate, IBM and others who have developed solutions meant to streamline the tracking, managing and reporting process for stimulus-related projects.

This continued surveillance of government projects via transparency websites, even after the last Recovery dollar has been spent will likely manifest itself in two other areas of related opportunities, Howard says, outcome reporting, or “scorecarding”, and economic forecasting.

“The amount of information created by ARRA is staggering. Right now, the only real value delivered metric that is required by the government is based on the number of jobs created or saved. We believe that is going to change.”

Soon governments will be able to track performance measurements to figure out improved traffic flow, improved public safety, increased educational opportunities and improved healthcare. “There’s going to be a growing emphasis on what we can actually accomplish by spending those dollars,” Howard said. At the same time, economic forecasting, used at the beginning of budget cycles to estimate the future condition of the economy, will become more accurate and inexpensive. Howard said this would be possible because specific projects and spending data is available at a granular level. In the past, most econometric models were dependent on statewide figures.

Not only will there be a greater number of economic impact reports, based on reports from the last few years, officials will be able to see where they are likely to get the biggest bang for their buck in next year’s spending, Howard indicated.

Last, but certainly not least, is the answer to a $250 billion dollar question. Under the Recovery Act, over $250 billion has been given to state and local organizations through federal competitive grants. And according to a joint survey between Accenture and the National Association of State Auditors, Comptrollers and Treasurers (NASACT), high-level competition for grants is here to stay. Being able to submit the most comprehensive grant application possible is something a lot of state and local governments have had practice doing with the stimulus package. Though no state has formally adopted a centralized grants management strategy, Howard said.

“Most states coordinate grants through luck and connections, not through conscious strategy.”

Still, there remains an incredible amount of opportunity – for government to improve accountability and service delivery – and for the private sector to tap newly formed revenue streams.

The Recovery Act money will stop flowing in 2012, but the business of government and its associated transparency challenges promise to stay far beyond that timeline.

“At a minimum, that level of transparency [created by ARRA] will be the norm,” Howard concluded.

Laying the groundwork and internal controls for Recovery Act spending may go down in the history books as an overnight affair. But for those states listed in a new national survey of ARRA transparency websites, it has been arduous journey in a time of technological explosion and shrinking budgets.

The states of Maryland, Kentucky and Connecticut were the top three states for Recovery Act transparency, according to the national research group Good Jobs First. In their second report on the subject, Show Us the Stimulus (Again) indicates that most states have made headway in providing online tools to help show citizens details about stimulus funds in their areas.

“Some states are making great strides in fulfilling President Obama’s promise that the Recovery Act would be carried out with an unprecedented level of transparency and accountability,” said Good Jobs First executive director Greg LeRoy in a statement accompanying the report.

The Washington, D.C.-based non-profit gave the highest rankings to those states who not only provided detailed information on federal spending programs, such as grants and contracts, but they also put an emphasis on data relating to jobs and the geographic distribution of spending within states.

Maryland scored an B+ with an 87 out of a possible 100. And Kentucky was a ‘Cinderella’ state – due to their low ranking (47th) in July, when the first assessment was first published – receiving a score of 85. The two states were only part of a handful of states that juxtapose the geographic distribution of spending with patterns of economic need within the state. The study also found that a majority of states, 28, utilize geospatial tools to indicate project details like dollar amount, recipient name, status and the text of the contract or grant award. However, ten states lack any mention of jobs, despite the ready availability of such information, the report said.

Authors of the report recommend that those states lacking key information about ARRA spending move to provide general spending flows to the help users begin to understand what the Recovery Act is all about. They also recommend that more states provide greater detail on individual projects, while showing how overall stimulus amounts are being spent among counties around the state.

“At a time of intense public concern about the effectiveness of government spending designed to mitigate the economic crisis, states should be maximizing their use of online tools,” Philip Mattera, research director of Good Jobs First and principal author of both reports, concluded.

In a survey of over 130 counties, the National Association of Counties (NACo) found the economic recession is widespread and impacting counties of all sizes, in all regions. The report also says money from the American Recovery and Reinvestment Act has yet to impact many of the survey’s respondents.

The survey of 138 counties from 34 states confirms what many city and state budget directors already know – it’s the worst budget crisis since the early 1990s, NACo executive director, Larry Naake, said in a statement. And with more unemployed workers in the private sector, county resources are thinning by the day.

“The great challenge for counties of all sizes in the months and years ahead is continuing to provide essential services to residents who are relying more on county services and programs,” Naake added, echoing the concerns of states and city governments that they cannot afford to meet the needs of the growing ranks of jobless residents.

Many counties across the country started their fiscal year with revenues dwindling. Fifty-six percent of county respondents said their fiscal year would end up south of $10 million in projected shortfall. Most counties blame the lack of revenue on property taxes (52%) and reductions in state or federal funding (50%), with sales taxes coming in a close third (46%).

To combat these revenue shortfalls, counties are taking a multi-pronged approach, with most delaying purchases and repairs and implementing pay freezes for county employees. Many counties are also using hiring freezes, delaying capital investments or dipping into their rainy day reserve funds. At least ten percent of counties have required employees to take unpaid leave, through furloughs.

According to NACo’s numbers, thirty-five percent of counties anticipating stimulus funds had yet to receive their cut of the $787 billion package. On November 1, the Recovery Accountability and Transparency Board released numbers from stimulus recipients at Recovery.gov, finding that 640,000 jobs were created or saved. The update also indicated that little more than one-fifth of the money awarded to state and local governments has been spent, according to data available on Recovery.gov.

Since the $787 billion American Recovery and Reinvestment Act was passed in February, just over $36.6 billion has actually made its way to state and local recipients in the form of loans, grants and contracts. Survey respondents said that most of that money, coming into counties, were for transportation projects (49%) or Community Development Block Grants (50%).

“Our grave concern is what happens to state and county budgets when the federal economic stimulus dollars end next year?” Naake said.

The Obama administration is doing better in its execution of stimulus objectives, overall, but there is still much room for improvement, says a leading research firm. Washington, D.C.-based INPUT found the administration has made strides in three of four key recovery areas, while receiving another “incomplete” in Job Creation.

Since INPUT issued its first report card in June, which measured the first 100 days of ARRA implementation, the firm said Contracting Effectiveness, Transparency & Reporting and Speed of Spending improved. However, the category of Job Creation still has too many unknowns, issuing a grade of “incomplete”.

“The federal government has continued to dispense stimulus money at a record pace,” Timothy Dowd, CEO of INPUT, said in a statement. “However, questions still remain about how that spending is translating into new jobs.”

According to INPUT, the administration spend, on average, $3.6 billion per week, keeping pace with the June report card. At that pace, the administration will achieve 87% of its previously stated goal of $350 billion by September 2010, garnering the report’s highest grade of B+.

Contracting effectiveness also received relatively high marks, raising its grade from a C- to a B, INPUT said. This grade was awarded based on the increased percentage of contracts issued as fixed price and competitively bid contracts. Additionally, small businesses have been much more involved since the June report card, receiving 27 percent of the stimulus dollars.

The third category of measurement was on Transparency & Reporting. INPUT gave the administration the lowest rating on the report for transparency, C- , despite the rollout of a revamped Recovery.gov and the relatively successful integration of information from FederalReporting.gov. The key area of concern for INPUT remained from the June report, which centered on the lack of transparency surrounding applications for many of the grant programs funded by stimulus money.

Mr. Dowd encouraged the administration to rethink its approach to grant application publication, urging more citizen involvement before grants are awarded. “By allowing citizens access to grant applications before the awards are made and the opportunity to comment on those applications, federal agencies could truly be taking a proactive approach to combating fraud, waste and abuse.”

As with the June assessment, though, jobs creation remained somewhat of an unknowable. Due to the unverifiable calculations used to determine saved jobs, and the inordinate amount of public sector jobs that are dependent solely on stimulus money, INPUT gave the administration an Incomplete for Job Creation.

“While INPUT’s latest report card points to some noteworthy areas of improvement in the Administration’s execution on the stimulus, there is still much work to be done to address shortcomings across all key recovery areas,” Dowd concluded.

The Recovery Act of 2009 Report Card II: Recipient Reporting is available on INPUT’s Web site, by clicking here

How many jobs does $36.6 billion buy?

That was the question many were hoping to answer as the Recovery Accountability and Transparency Board released reports detailing how and where stimulus dollars were being spent. According to data released on Friday, the answer is roughly 640,000, with the White House claiming closer to one million.

Since the $787 billion American Recovery and Reinvestment Act was passed in February, just over $36.6 billion has actually made its way to state and local recipients in the form of loans, grants and contracts. But many stimulus projects are in various stages of completion and most of the money awarded has yet to be spent.

Little more than one-fifth of the money awarded to state and local governments has been spent, according to data available on Recovery.gov. Furthermore, just over thirteen percent of all the money set aside for contracts, grants and loans, for the life of the stimulus, has been spent. And nearly half of all projects underway are “less than 50% complete,” with seven percent (4, 110 of the nearly 57,000 projects) deemed “complete.” Still, White House officials say the first round of reporting indicates the stimulus is working and that Obama administration targets are being met.

“These reports are strong confirmation that the Recovery Act is responsible for over one million jobs so far and we are on-track to create and save 3.5 million jobs through the Recovery Act by the end of next year,” Vice President Joe Biden said in a statement released by the White House Friday.

The White House contention is that 640,000 jobs were created or saved as a direct result of the federal government having “contract authority,” to hire for projects. But when tax cuts, small business lending, entitlements and indirect jobs (e.g. suppliers for stimulus projects) are considered, over a million jobs have been created by the Recovery Act since February.

In a related report (.pdf), the White House also said that stimulus money was going, in large part, to those states who needed it most. The report claims that the five states with the highest unemployment before the Recovery Act was passed, received more money – and have seen more jobs created per capita - than the national average. Additionally, due to extended unemployment benefits and increased payments, more indirect jobs were created than could be captured in the recipient reports that were released on Friday.

In addition to the jobs report, Recovery.gov itself was the focus of much attention. Recovery Board Chairman Earl E. Devaney announced new features that allow users to search with more detail, summarize state and territory spending, and download data in XML and XLS formats.

“I’ve often said that Recovery.gov is a work in progress and will only get better as we continue pressing to develop a premier government website,” Mr. Devaney said in comments posted to Recovery.gov. “Quite frankly, we are listening to our users, and are making changes and adding new features as fast as we can.”

In a blog posting Friday, OMB Watch Senior Policy Analyst of Federal Fiscal Policy Craig Jennings agreed there is room for improvement – praising the summaries page, but blasting the search and data download functions.

“Bottom line: the new functionality moves the ball forward and we are getting a better Recovery website. Of course we’d like to see more, but things are moving down the field,” Mr. Jennings wrote.

A panel of data management and warehousing experts gathered Tuesday at the National Press Club in Washington, D.C. to discuss the role of technology in achieving transparency in government. Executives from Teradata, Dow Jones and noted author and reporter Stephen Baker said the fundamental challenge facing government was turning unstructured, static data into usable information.

“For the first time we’re starting to see on the Hill a light bulb going off about the real benefits of data and data analytics…for government transparency,” Tim Day, vice president for government affairs at Teradata, said in his opening comments during the luncheon. “We’re at the very beginning in terms of the volumes and the depths of the data that we’re gonna have access to,” Teradata Chief Technology Officer Stephen Brobst added.

Among the main topics of discussion was the use of data analytics in the fields of healthcare and financial services. According to Mr. Brobst, healthcare analytics could predict which individuals will represent the bulk of healthcare costs over the next few years as well as understand what kind of interventions should be implemented to help cut down those costs. For banks and the financial services sector, Steve Horne, vice president of Master Data Management and Integration Services at Dow Jones, said the government needs to move away from audit-based accounting methodology.

“Audits equal autopsies,” Mr. Horne said. “By the time you audit, the patient is dead. The money is already out the door.” He said too much time and effort is wasted in compiling regulatory filings and not enough time is spent turning that data into information. Tens of thousands of documents and regulatory filings are being shelved, but the information in those documents is not being leveraged to proactively prevent fraud, waste and abuse, Mr. Horne said.

One seemingly contradictory concept that pervaded Tuesday’s discussion was that true transparency occurs when people outside the organization have access to the data without compromising a certain level of security. In healthcare, leveraging data analytics could lead to new ways of predicting the onset of Alzheimer’s disease or could determine how much you pay for health insurance, based on your buying and eating habits. It could also create privacy vulnerabilities in unforeseen ways, Stephen Baker, author of “The Numerati” said.

In the House of Representatives, Congresswoman Carolyn Maloney (D-N.Y.) and Peter King (R-N.Y.) are pushing a bill, H.R. 1242, that requires the creation of a centralized, web-accessible public database system in a consistent, standardized format within the Department of Treasury, so that TARP funds will be easily visible and traceable. So far, H.R. 1242 has been referred to the House Committee on Financial Services, though little action has been taken since March.

Despite fears of privacy, the assembled panel agreed that data-driven technology had a big role to play in making government more transparent and accountable. “Data is the story of the coming decade,” Mr. Baker, “Numerati” author, said. And there was universal agreement that the same technology that allows Visa credit card holders to be notified within seconds of suspicious transaction could be applied to government projects funding with Recovery Act money.

“By using the information and technology being applied today in the private sector…it can lead to tremendous savings for government,” Mr. Horn said.