Clock Ticking on Energy Recovery Fund Use

E-newsletter Issue #88 | March 15, 2012

In the early stages of the Recovery Act, one particular program—the $3.1 billion State Energy Program—had more than its share of controversy. South Carolina Gov. Mark Sanford made headlines by rejecting stimulus dollars tied to the program, classifying it as fiscally unsustainable.

In Alaska, then-Gov. Sarah Palin turned down stimulus funds for energy efficiency. She vetoed $28.6 million in funds, saying she wouldn’t accept money that would require local governments to adopt specific building codes. Eventually, however, every state and territory accepted the funds, but some have been slow to spend it. Now, the clock is ticking: States have until April 30 to spend their remaining balances.

The State Energy Program provided financial and technical assistance to states through formula and competitive grants. The program is designed to allow states to use their formula grants to develop state strategies and goals to address their energy priorities, like increasing energy efficiency to reduce energy costs and consumption, cutting reliance on imported energy and shrinking energy impacts on the environment. According to the U.S. Department of Energy, the State Energy Program “emphasizes the state's role as the decision maker and administrator for the program activities within the state.”

On the national level, 75 percent of total funds allocated to the State Energy Program had been spent as of March 5, 2012, leaving more than $782 million. Multiple reasons might explain why the program was slow to get off the ground and why states have had difficulties spending their allocated funds, according to Brydon Ross, director of energy and environment policy at The Council of State Governments.

“Like many programs authorized in the Recovery Act, the State Energy Program faced its own set of initial impediments and delays,” said Ross. “The controversial Davis-Bacon Act, prevailing wage provisions, and the National Environmental Policy Act review processes were applied for the first-time ever for these projects.”

The Davis-Bacon Act applies to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration or repair of public buildings or public works, according to the U.S. Department of Labor. Under the act, contractors and subcontractors must pay their laborers and mechanics employed under the contract no less than the locally prevailing wages and fringe benefits for corresponding work on similar projects in the area.

According to a Department of Energy Inspector General Report, the additional environmental review process under the National Environmental Policy Act added two to three months to federal project approval, which slowed down the entire process.

“Plus, to access funds, states were required to try and change their building codes as well as implement decoupling rate methodologies to encourage energy conservation by utilities and customers,” said Ross.

Ross said the sheer size and scope of the funding increases were almost impossible for small state staffs to manage—a major reason states still have so much of their funding leftover.

“The Recovery Act pumped over $3 billion into a program that historically only received about $25 million in total federal funding,” said Ross.

Six states—Idaho, Indiana, Mississippi, Nevada, Pennsylvania and Wisconsin—have spent 90 percent of more of their allocated funds. Alaska has been the slowest state to spend its funds, with more than 70 percent of the $28 million it received left to be spent. Kansas, however, is not too far behind, with just under 70 percent of its allocated funds remaining.

Check out the chart below to see where your state stands:

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