Stimulus Fraud and Weak Jobs Pose Threat to Obama
Policy + Politics

Stimulus Fraud and Weak Jobs Pose Threat to Obama

iStockphoto/The Fiscal Times

Almost from the time it was enacted in 2009 to help dig the country out of the recession, the federal stimulus program has been under siege.

Republican Sens. Tom Coburn of Oklahoma and John McCain of Arizona have lambasted the $825 billion legislation as a waste of money that has fostered scores of unnecessary or foolish programs, while others have questioned whether the program actually produced meaningful or permanent jobs.  In his latest compilation of the 100 most wasteful government projects issued last year,  Coburn cited four   stimulus programs:

• $14 million for an ill-conceived and  poorly executed energy efficiency project involving  three radar stations at  Hobbles Air Force Base in  Alaska 
• $936,818 to  develop an  on-line soap opera starring Billy Dee Williams
• $96,000 to purchase iPads for kindergartners in Maine that their parents objected to
• $60,000 for a tree census in suburban Las Vegas.

Now, in what is shaping up as another troubled chapter in the saga of the Obama Administration’s signature economic stimulus program, the Justice Department is investigating whether billions of dollars worth of federal highway and transportation programs are rife with fraud and abuse.

About $48 billion of the overall $825 billion stimulus spending authorized  by Congress and the administration under the 2009 American Recovery & Reinvestment Act (ARRA) went to support existing highway and transit infrastructure projects, like the massive Fulton Street Transit Center project in lower Manhattan. Eighty-eight percent of those funds have been spent, and nearly 80 percent of the projects have been completed as part of the government’s efforts to create new jobs

But federal investigators have uncovered widespread financial management problems with many of the projects. As of early March, federal authorities were investigating 66 cases of alleged false statements, bid rigging, fraud and embezzlement, according to a report by Calvin L. Scovel III, the Department of Transportation’s inspector general. Justice Department lawyers are scouring 47 of those cases for potential prosecution, according to Scovel.

Twenty-five of those cases involve alleged fraud by minority-owned or operated enterprises that received preferential treatment in the awarding of the contracts, while 22 involve allegations of false claims. Investigators are also looking into nine cases of alleged violations of the prevailing wage law, three involving corruption and one case involving embezzlement, according to a report Scovel presented to the House transportation appropriations subcommittee on March 29. A spokesman for Scovel’s office declined to provide further details of the ongoing investigation, but stressed, “We take very seriously any allegations of waste, fraud, abuse or violations of the law.”

An aide to the subcommittee chairman, Rep. Tom Latham, R-Iowa, described the probe as an “ongoing investigation” and said subcommittee members have not yet been briefed on the details. “Hopefully the report will be coming shortly from the inspector general,” the aide told The Fiscal Times.

The investigations into a signature Obama administration economic program could add to President Obama’s political headaches as he campaigns for reelection this fall. Republicans on the  House  Transportation and Infrastructure Committee already are  planning hearings later this month into a General Services Administration scandal that brought down the agency’s administrator, Martha N. Johnson,  and two of her senior deputies earlier this week. The resignations were prompted by a scathing GSA inspector general’s report issued Monday that detailed GSA’s  misuse of $823,000 of funds to finance an extravagant employee training conference  in Las Vegas in October 2010.

Moreover, all of this bad news comes at a time when the economic recovery appears to be slowing – a development that could greatly add to Obama’s problems in winning a second term.  Recent improvements in the nation’s employment picture slowed substantially in March as employers expanded payrolls by only 120,000 jobs, according to the Labor Department. That figure  was well  below  what economists had estimated  and marked the first time since November that new jobs creation fell below 200,000.

The massive economic stimulus program was passed by Congress and signed into law by President Obama  in  the depths of the worst U.S. recession in modern times. The president and his Democratic allies say the program was essential to prevent the economy from tipping into a Depression, and advocates claim the stimulus package “created or saved” an estimated 2 million jobs. Many Republican leaders and conservative analysts dispute the administration’s claims about the overall benefits and say it has had little residual benefit.

The program has been dogged for years by reports of  fraud and wrongdoing in the areas of housing, transportation, environmental cleanup and the Treasury’s fire-time home buyers program.

As the inspector general of the Transportation Department, Scovel manages a staff of over 400 while monitoring all DOT programs and offices to identify cases of fraud or abuse and ensure that the department adheres to its mission. Scovel’s staff  performs audits and investigations of DOT spending and safety programs involving everything from bridges and tunnels to aircraft maintenance.

During his congressional testimony March 29, Scovel said the Federal Transit Administration (FTA) and the Federal Highway Administration (FHWA) have taken significant action to oversee the stimulus projects during the past three years, including creation of national review teams to identify management weaknesses. But the federal agencies “remain challenged to ensure remaining funds are spent appropriately” and that projects are kept within budget, on schedule and “free from fraud, waste and abuse,” he said.

Scovel’s report doesn’t identify any of the transportation projects under investigation for possible wrongdoing, but notes that some like the Fulton Street transit project in New York are over budget and far behind their original construction schedules.  

The massive glass and steel transit center was designed to draw together a tangle of subway lines that converge in the blocks east of the World Trade Center site and to offer 70,000 square feet of retail space. When the design was first unveiled in 2004, the center was scheduled to be completed in 2007 at a cost of $750 million. The schedule now calls for its completion in 2014 at a cost of $1.4 billion, according to the New York Times.

About $423 million of stimulus funds were pumped into the Fulton Street project – the largest single award for any of the Federal Transit Administration’s stimulus projects. “The FTA increased its project oversight and risk assessments, and implemented robust recovery plans to prevent additional cost increases and delays,” according to Scovel. “However, years of complex work remain, and  the FTA will need to sustain a high level of oversight to ensure prudent and timely expenditure of ARRA funds.”

The inspector general’s office voiced particular concern about the potential for fraud within the so-called  Disadvantaged Business Enterprise program, which is aimed at increasing the number of government contracts awarded to minority-owned businesses. “There is a preference given to minority and female-owned firms and it’s to level the playing field, so to speak,” said the Inspector General’s spokesman.

A “typical scheme” involves a prime contractor  persuading a minority firm to front for it in obtaining a major federal contract and then receiving a kickback of a set percentage of the overall contract, according to the spokesman. The IG’s report also stressed the need for vigilant oversight of the Transportation Investment Generating Economic Recovery (TIGER) discretionary grant program that includes stimulus funds. In February 2010, the Office of Secure Transportation (OST)  awarded $1.5 billion in stimulus funds for 51 TIGER grants throughout the country. Those grants are for roads, rail, transit and port projects that promise to achieve critical national objectives.

“ARRA funding and significant ongoing construction activity emphasize the need for DOT and our office to continue to aggressively pursue counter-fraud efforts,” Scovel said in his report. “We have worked with DOT to deter fraud schemes through ongoing outreach and targeted assessments of projects with fraud risk indicators, as well as investigated criminal and civil complaints.”