Treasury struggled to help states and cities with COVID reporting

The confusing requirements, the tight deadlines and the computer problems at the Treasury Department have been a grind for state and local governments trying to comply with federal reporting requirements detailing how they’ve used their share of the billions in COVID-19 funding.

Administering the $350 billion in American Rescue Plan Act grants to states and localities has also been a challenge for the Treasury Department, the Government Accountability Office said in a report last month.

The short-staffed department struggled to respond to state and local employees with questions or seeking clarification on requirements. For a time last year, the department had to stop taking phone calls and answer fewer of the questions being emailed to them. Even when they managed to get through, it would take a long time to get an answer. Sometimes, state and local officials would never hear back.

The report on the Treasury’s oversight and administration of State and Local Fiscal Recovery funds was compiled by speaking with budget officials from 18 states: Arizona, Arkansas, California, Connecticut, Florida, Illinois, Maine, Maryland, Michigan, Minnesota, Nebraska, Nevada, New York, North Carolina, Pennsylvania, Texas, Washington and Wyoming. GAO investigators also spoke with officials from one town or city in each of those states. 

While the department has made improvements, particularly after the GAO discussed its findings with them last month, the department hasn’t done all that they should, the report said. It will be critical for the Treasury to make more progress, the GAO concluded, as states and localities have until the end of the year to decide how they will allocate their unspent funds. After that, they have another two years to spend the money.

One immediate issue for the department is that it still hasn't assessed how much staff it needs for the remaining two years of the program. The Treasury told GAO investigators that they are working on an assessment. They also said that they were originally hampered by a lack of funding to run the contact center.

Among the issues raised to investigators was that filing quarterly reports was a burden for smaller governments. States and larger cities were mostly able to increase staff, create new offices to focus on administering the money or hire consultants. But many smaller governments struggled.

The town council in Glen Echo, Maryland, for example, considered hiring a consultant to help manage the program. But when it decided the cost wasn’t “feasible,” the burden fell on the town manager despite being the government’s only full-time employee. In Murdock, Nebraska, two part-time volunteers who help run the town government took on the task despite having never received a federal grant before. “Treasury’s reporting guidance is complex and the volunteers do not have a solid understanding of the reporting requirements, given their limited experience,” the report said.

But beyond capacity, state and local officials said that just understanding the regulations was difficult.

One big issue was deadlines. Governments have until 2026 to spend the grants, but they have to say how they will spend the money by the end of the year. “Officials in some selected states told us they needed additional clarity from the Treasury on how to obligate state employee salaries and remain in compliance with the December 31, 2024, deadline for obligating funds,” the report said.

Maine, for instance, operates on a two-year budget cycle covering 2024 and 2025. “The state’s 2026 and 2027 budget will likely not be approved until after the obligation deadline of December 31, 2024,” according to the report. “[Maine] cannot obligate anticipated staff salaries for 2026—the year in which recipients are required to liquidate their [grant] obligations—prior to the obligation deadline.”

The Treasury has addressed the concerns raised by Maine and others, clarifying that states and localities could use the money after the 2026 deadline for costs associated with managing or complying with the reporting requirements. The Treasury also said that governments could use the money obligated before the 2024 deadline later to hire staff or contractors.

In addition, those interviewed by the GAO complained that the Treasury would often change the requirements for reporting information a month before they were due. 

Officials from Arizona, California, Connecticut, Maryland, Michigan, Pennsylvania, Texas and Washington said, “Having to report all required information within a one-month period is burdensome.” 

Denton, County, Texas, officials said they had to “play catch-up” during nights and weekends to collect different data they had just learned they had to report.

States and local governments are also supposed to report on the performance of the projects they are funding, but the questions they had to answer sometimes didn’t seem relevant. 

Minneapolis officials, for instance, used part of the city’s COVID funds to improve conditions at homeless encampments. But a question they were supposed to answer was how many housing units were created or preserved. The city worried that answering “zero” would sound like the program wasn’t effective.

The Treasury in November clarified after speaking with the GAO that “recipients may report a zero ​​value for the performance indicator.”

An online portal that the Treasury set up to enter the reports also caused frustration. 

Washington state and Minneapolis officials said they received error messages when they tried to upload bulk documents. “For the officials in Minneapolis, this resulted in their having to use considerable staff time to manually enter data for 50 to 60 projects,” the report said.

The GAO report makes four recommendations to the Treasury. In addition to recommending that it “comprehensively assess staffing needs for the contact center,” the GAO has also recommended that the department issue timely management decisions that give states and localities a reasonable time to respond, conduct timely systematic reviews of recipient audit reports to better track the funds, and update and implement the agency’s documented policies and procedures for monitoring recipients’ use of grants to reflect lessons learned from reviewing recipients’ project and expenditure reports.