Tracking the Stimulus

Tracking the Stimulus

August 28, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

With stimulus monies flowing, how will the government keep track of it all? While it's a sophisticated system bound to be fraught with problems, the Obama administration is nonetheless committed to ensuring that the process is transparent and above board.

The American Recovery and Reinvestment Act of 2009 is, in fact, the largest ever government infusion into the economy. With several dozen avenues from which the money is released to thousands of recipients that range from private companies to local jurisdictions, the task before those who will monitor the situation is enormous.

"Only through transparency can the public, analysts, and the news media ascertain whether federal spending has not been wasted on profiteering, pay-to-play arrangements, or unseemly executive compensation," says the Coalition of Accountable Recovery, which represents a cross section of ideologies.

According to Recovery.gov, the website the Obama administration has set up to provide information that the public will need to make such assessments, about $154 billion of the $787 million allocated under the measure has so far been committed. However, not all of that has begun matriculating.

The aim has never been to unleash billions into the marketplace without first scrutinizing every project to ensure worthiness. And beyond establishing calm and creating an aura of certainty, the funds are also intended to build a clean technology-based economy over time -- all without being wasteful. Toward that end, the auditing process must describe the precise nature of the projects, the amount of money requested and who gets what. But it does not require recipients to say what subcontractors that they are paying.

The oversight mechanisms involve leadership: People need to be trained and the resources must be available so that the ideas actually reach fruition. Outside of the process hurdles, there are the eventual policy questions -- the ones involving business development, tax policy and energy laws. At stake are job creation and whether the development of green energy resources will also mean that the associated products are manufactured, installed and maintained in the areas where the fuel forms are harnessed.

The vast sums of money involved to make it happen should not be viewed as a "magic pot of gold," says Chris Rissetto, partner in the Washington, D.C., office of the law firm of Reed Smith. "It's merely another appropriations bill" -- a vehicle to allow the administration to correct problems in the economy. Along those lines, he is predicting more such money will come, perhaps as stand-alone spending measures.

"It is not just a matter of sending in a postcard and the government will then send you a check," says Rissetto. "As the monies are competed and awarded, they will have fiscal, contractual and accounting obligations tied to them."

Potential Mandates

Utilities, understandably, have an innate interest in not just the process but also the overall objectives of the stimulus measure. About $83 billion in tax incentives, loan guarantees and government grants for investments in energy efficient technologies and renewable energy programs are being made available. An additional $4.5 billion is targeted to intelligent utility projects that allow for two-way communications between power companies and their companies as a way to reduce energy consumption and increase reliability.

Those government efforts, no doubt, are only the beginning of what many say will become mandatory investments in the green economy. With the legislative debate heating up on Capitol Hill over carbon emission reductions, utilities are looking at those federal incentives and grants as a way to offset investments in costly infrastructure projects, says a report by PricewaterhouseCoopers.

The global consulting firm adds that government anticipates spending $74.5 million to conduct federal and state audits of approved stimulus projects. An additional $84 million of that stimulus money will be spent on the oversight activities of the Recovery Accountability and Transparency Board that has been created to prevent waste, fraud and abuse. Utilities must therefore understand the relevant compliance and tax procedures.

"Without the proper compliance structure in place, a utility could be excluded from receiving (stimulus) grants or risk having grant payments suspended before a project is complete. Failure to meet any of the complex reporting, accounting, and compliance requirements could cause an award to be terminated and result in unwanted publicity," writes the firm's utility practice leader David Etheridge.

Key elements of the bidding process involve calculating the allowable costs, properly estimating labor expenses and ensuring that cost-sharing formulas are right, he says. The numbers must be furthermore backed by sound historical data. At the same time, state and local governments need to be able to properly report the monies they get.

Consider West Virginia: It is implementing fresh training procedures as well as a new computer system to safeguard the nearly $38 million it will receive to weatherize homes. The funding, which includes about $7,500 for each of the 3,000 homes that will be made more energy efficient, considers labor, equipment and vehicle costs, the state says. All items must be accounted for wherever they are on the supply chain.

It's a cumbersome process that will invariably have problems. While critics maintain that the sheer size of the largesse will only compound the issues, the White House says that it must give the economy a boost while also carefully considering the most valid ideas -- projects that require a steady stream of funding in the years to come. The public is paying attention. But so too is the utility sector, which wants to tap those federal dollars to offset infrastructure costs.