“It Takes Time to Coordinate”

We’ve written about the headaches associated with the supplemental SWCAP process that states must use in order to recover some of their costs associated with administering federal stimulus dollars. But we thought that given the importance of this issue to the states, a little more background was in order. We turned to Clark Partridge, the helpful state comptroller in Arizona to take us through the story.

“In March, [2009]” he explained, “we had a conference of state comptrollers for NASACT. Very quickly it became clear and apparent that there was a major strategic weakness embedded in ARRA: there was money for the Recovery Activity and Transparency Board and for OMB, but not money to do these central oversight things at the state level.”

States worked with OMB to rectify that problem, but still didn’t receive guidance on how to apply SWCAP to stimulus dollars until mid-May 2009. As with any big program, that initial guidance had some wrinkles that needed to be ironed out before it could be effective. It wasn’t until summer that the situation was fully clarified, says Partridge.

AZ State Capitol Building

Of course, by that time, many state operations were already rolling. That created a problem not only in trying to adequately track how much time and resources were being spent managing the Recovery Act  prior to clear guidance—awfully hard when you aren’t sure exactly how you’ll be asked to track those expenditures—but also because, as Partridge explains, many state agencies were pushing money out the door quickly. So quickly, in fact, that Partridge figured all that money would be spent long before his office could recover their supplemental SWCAP costs. Much of the money would be spent within a year, while the reporting and managing could take three. (OMB finally agreed that estimated ARRA-specific costs could be “pulled forward” into the current year.)

What’s more, state agencies were often dealing with guidance that conflicted with what they were hearing from OMB. “They were receiving instructions from their federal agencies,” says Partridge. “Some of that was not the top of the federal agencies who were working with OMB. Some was from regional federal agency offices–quite a ways removed from the OMB.”

“It takes time to coordinate all those things,” he explains, “they are all brand new issues.”

When all was said and done, Arizona’s supplemental SWCAP plan was finally submitted in August and approved in October. And that isn’t the end of the story.

Just days before the state’s plan was approved, the federal Department of Education made some adjustments in allowable state expenses. Arizona didn’t even find out about those changes until December and was still trying to sort things out in the new year.

“It didn’t seem worth going through that headache. . . .”

All the money going to states for the federal stimulus needs to be managed, tracked, and reported. That oversight costs money. The federal government did come up with one means for recovering some of that overhead. But the states aren’t all so happy about it.

The so-called supplemental Statewide Cost Allocation Plan, or SWCAP (it rhyme with skycap) allows states to shift a portion of the programmatic federal funds they receive to cover the cost of administering those funds. It’s not a huge chunk of cash: only one-half of one-percent of the total spending.

SWCAP has actually been around awhile as a way for states to recoup the dollars spent administering federal programs. But when it comes to the stimulus process, it’s particularly problematic. For one thing,  there’s no prior experience on which to base estimates of these expenses, unlike most other federal programs. What’s more, because of the narrow window of time in which ARRA will exist, working out how to deal with over- or underestimates two years down the line could give state administrators nightmares.

And states can’t simply switch the funds from the program bucket to the oversight bucket. They need to get federal approval for their administrative costs. And that process can be onerous—so much so that some states have chosen not to do it. Mike Schaub, of Washington state’s Office of Financial Management, explains that recovering the administrative expenses through SWCAP would have meant more paperwork and changing a lot of timekeeping and other practices in his office. “It didn’t seem worth going through that headache,” he told us

Don Winstead

Even states that are going through the SWCAP process have mixed feelings about it. Florida stimulus czar Don Winstead said, “SWCAP is not a very satisfactory solution for us, but it is the only option available. I’m not a big fan of taking money away from services to spend on administration.”

That might sound a bit like sour grapes—these are, after all, all funds that Florida wouldn’t have had otherwise. But because of the transaction costs of the SWCAP process itself, states using SWCAP are really trading a dollar worth of programs for less than a dollar of administrative funds. And that fact makes us a good deal more sympathetic to Winstead’s point.

We wonder if this problem will grow more challenging as states turn their attention from managing spending to measuring the impact of the dollars spent. If counting jobs and building websites pushes states to the limit, how will they have the capacity and wherewithal to measure programmatic and social outcomes? “Could you put together a sophisticated analysis?” asks Wyoming’s Lynne Boomgaarden. “Sure, but it would take resources and people.”

[Stay tuned: In the coming weeks we’ll likely have a piece or two on how the SWCAP process was chosen for ARRA oversight cost recovery and why the timeline itself dissuaded some states from applying for supplemental SWCAP funds.]