March 11,2010

Grassley asks more questions about Cash for Clunkers costs

WASHINGTON – Senator Chuck Grassley today is following up on the response hereceived from the Secretary of Transportation about the costs of the 2009 Cash for Clunkersprogram.

Grassley said he is seeking more information about data provided by the Department ofTransportation, which said the program created or saved 60,000 jobs, as well as more detailregarding the Department’s responses on agreements with contractors and other agencies.

The senator said he appreciated the response he got from the Secretary to his Januaryinquiry. “The additional questions I have today are focused on completing the picture in theinterest of transparency and accountability,” he said. The federal Cash for Clunkers programspent $3 billion in about one month. “If there’s another short-term program along these lines inthe future, policy makers and administrators should have the benefit of knowing what happenedwith Cash for Clunkers, both good and bad,” Grassley said.

The text of both of Grassley’s letters to the Transportation Secretary is below. TheJanuary 25, 2010 letter from Secretary Raymond H. LaHood is attached and posted with thisnews release at http://finance.senate.gov and http://grassley.senate.gov.

March 11, 2010

The Honorable Raymond H. LaHood
Secretary
U.S. Department of Transportation
1200 New Jersey Ave, SE
Washington, DC 20590

Dear Secretary LaHood:

Thank you so much for your prompt and comprehensive response to my January 5, 2010letter regarding, among other things, administrative costs and information technology problemswith the Cash for Clunkers (CARS) program. I appreciate your taking time to address thequestions and concerns raised in my letter.

Throughout my career, I have believed that as a member of Congress I have an obligationto conduct oversight into how our government conducts the people’s business and spends theirmoney. I have and continue to work to fulfill this obligation through both Republican andDemocratic administrations. While I appreciate the considerable time and effort the Departmentof Transportation (DOT/ Department) and the National Highway Traffic Safety Administration(NHTSA) have put into implementing the CARS program, I remain concerned with a number ofthe responses that I received. (attached)

A. Economic Impact

Your letter states that the CARS program had “…facilitated the purchase of more than677,000 new, more fuel efficient vehicles:…created or saved over 60,000 jobs; andincreased the gross domestic product by approximately $3.8 to $6.8 billion (p. 1).”(emphasis added) It seems to me that the Department’s determination may overstate the impactof the CARS program in at least two respects.

First, the 677,000 figure reflects the total number of vehicles potentially eligible toreceive a voucher. Numerous studies show this figure includes many vehicles that would havebeen sold anyway and therefore does not reflect the net effect of the CARS program. Forexample; auto industry analyst, Edmunds.com, calculated that only 125,000 of the vehicle saleswere incremental, stating that the rest would have happened anyway. Edmunds then goes on tosay U.S. taxpayers spent about $24,000 for each net new vehicle sold.[1] I am not in a position tojudge the veracity of the Edmunds’ analysis, however I am interested in how the Department’sfigures were calculated. Accordingly, please:

1) Provide the Department’s estimate of the net effect of the CARS program on the totalnumber of vehicles sold and the taxpayers’ cost per net new vehicle sold. Your estimateshould include source data and an explanation of the methodology.

Next, Congress appropriated $3 billion for the CARS program. Your estimate of the60,000 jobs created or saved and the $3.8 to $6.8 billion increase in GDP assumes a “multipliereffect” whereby each $1 of government spending results in $1.27 (3.8/3) to $2.27 (6.8/3) ofadditional economic activity. Again, it seems to me that such estimates ignore the fact that thegovernment must get its money from somewhere. Those who gave the government $3 billion –either through taxes or purchasing U.S. securities – no longer have their money, so they cannotspend it. Therefore, the jobs and GDP they would have created is redistributed to the CARSprogram. The net effect on an economy-wide basis is likely to be zero at best, or negative ifgovernmental intervention causes inefficiencies. Accordingly, please:

2) Provide the Department’s estimate of the net effect of the CARS program on jobs andGDP for the entire economy. Your estimate should include source data and anexplanation of the methodology.

In addition, unemployment figures from the Department of Labor show thatunemployment rates rose in July, August and September from 9.4 percent to 9.7 percent to 9.8percent respectively.[2] The automobile industry also reported that September auto sales fell 41percent following the end of the CARS program.[3] So, again you can see why I am having agreat deal of difficulty understanding the actual impact of the CARS program on unemploymentrates in the United States. Accordingly, I would appreciate receiving a response to the followingquestion:

3) Given that funding for the CARS program lasted just one month instead of the fourmonths originally projected, please document how many of the 60,000 jobs allegedlycreated and/or saved still exist today?

B. Contractors and Award Fees

Your response provided a list of 32 companies and governmental entities that receivedfederal contracts or executed inter-agency agreements to administer the CARS program. I wouldappreciate receiving the following information based on the information already provided:

1) Copies of all contracts and interagency agreements, including modifications, for each ofthe entities listed in the Department’s response.

It is my understanding that one of the companies used by the Department was StefaniSolutions, LLC. Our research indicates that Alexis Stefani previously served as AssistantSecretary for Budget and Programs and Assistant Inspector General for Auditing and Evaluationat the Department. In light of this connection, please provide the following:

2) The amount paid and remaining to be paid to Stefani Solutions, LLC.

3) Specific information regarding the services Stefani Solutions, LLC provided as aninternal control consultant including a description of the contracts that Stefani Solutions,LLC received before Congress passed the CARS Program legislation.

The footnote on the bottom of page 10 in your letter referred to a consultant, but onlyidentified the consultant by previous positions held in the Administration. Accordingly please:

4) Identify the consultant by name and previous positions held by the individual in theAdministration.

5) Identify the specific services the consultant provided and the amount of money paid tothis individual/company.

In my previous correspondence I requested information regarding bonuses paid tocompanies providing services to the CARS program. I was informed that no bonuses were paid,but that two companies, Oracle and Citibank, were eligible for award fees. Therefore, I amrequesting the following information regarding award fees:

6) The amount of award fees paid and yet to be paid to all entities either contracted orotherwise eligible to receive the award fees.

7) The performance measures used to determine the amount of award fees.

8) Documentation that the performance measures established were fully met.The Department’s response also stated that, “NHTSA conducted market research todetermine the best contractor to support transaction processing (p. 5).” In light of this please:

9) Provide the market research materials received and a description of how it was used in theselection process.

Again, thank you for your assistance with this and the previous request for information.

Sincerely,

Charles E. Grassley
United States Senator
Ranking Member of the Committee on Finance

cc: The Honorable Calvin L. Scovel, III
Inspector General
U.S. Department of Transportation
--------------------------------------------------------
[1] Jeannine Fallon and Chintan Talati; “Cash for Clunkers Results Finally In: Taxpayers Paid $24,000 per VehicleSold, Reports Edmunds.com”; http://www.edmunds.com/help/about/press/159446/article.html; accessedFebruary/March 2010.
[2] U.S. Department of Labor, Bureau of Labor Statistics; “Labor Force Statistics from the Current PopulationSurvey”; http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LNS14000000; accessed March 2010.
[3] Kevin Krolicki, David Bailey and Taiga Uranaka; “U.S. September auto sales plunge; GM, Chrysler hit hard”;http://www.reuters.com/article/idUSTRE59066D20091002; accessed March 2010.

For Immediate Release
Tuesday, January 5, 2010

Grassley seeks accounting of Cash for Clunkers administrative costs

WASHINGTON --- Senator Chuck Grassley is asking the Secretary of Transportation tofor an accounting of the administrative costs for the $3 billion “Cash for Clunkers” program setup on a temporary basis last year to help consumers buy new, more fuel efficient cars.

Grassley said he based his request on consultation with the Inspector General for theDepartment of Transportation. “Cash for Clunkers was set up very quickly, and there hasn’tbeen an accounting of the administrative costs of the program. There also hasn’t been publiclyavailable information about how contractors were picked to process the thousands of transactionsthat the program generated. My concern is the waste, fraud and abuse that may have resultedfrom the vulnerabilities that can come with such a quick start,” Grassley said.

Grassley also asked the Secretary of Transportation to say when or if the Departmenttook recommendations from the Inspector General about problems with the way the informationtechnology system was set up in the Cash for Clunkers program. Recommendations were made,but it’s not known if they were implemented.

“It seems taxpayers deserve a full report for the money that was spent on this program inthe event that a similar program, maybe for a different purpose, is set up in the future,” Grassleysaid.

The text of Grassley’s letter of inquiry is below.

January 5, 2010

The Honorable Raymond H. LaHood
Secretary
U.S. Department of Transportation
1200 New Jersey Ave, SE
Washington, DC 20590

Dear Secretary LaHood:

Recently, my staff spoke with the Office of the Inspector General (OIG) to discuss the“Cash for Clunkers” program. As Ranking Member of the Committee on Finance (Committee),it is my constitutional duty to conduct oversight into the actions of the Executive Branch,including the activities of the Department of Transportation (DOT).

The Consumer Assistance to Recycle and Save Act of 2009 (CARS/Program) was passedas part of the Supplemental Appropriations Act of 2009 that was introduced in Congress on May12, 2009 and signed into law on June 24, 2009. In essence, CARS was intended to helpconsumers pay for new, more fuel efficient cars or trucks from a participating dealer when theytraded in less fuel efficient vehicles. This legislation originally provided for $1 billion for autodealers and on August 7, 2009 the President and Congress appropriated an additional $2 billionfor CARS.

Pursuant to the legislation, the DOT had only 30 days after the date the legislation wasenacted into law to engage contractors and stand up the Program before the first rebates wereissued. It is my understanding that the original legislation provided $50 million to cover thecosts of these contracts, but no specific funding provision for the contractors was included withthe additional $2 billion that was provided for the Program. To date the Administration has notprovided an accurate accounting of the administrative costs related to the Cash for Clunkersprogram and I believe that the American taxpayer deserves more information, not less, and thatinformation needs to come sooner rather than later.

A. Contracting

In addition to auditing the individual transactions of the Cash for Clunkers program, I aminterested in the corporations and executive branch agencies that received contracts from theDOT to process thousands of transactions generated by CARS. It seems to me that theAdministration chose an inherently risky approach to developing and implementing the Cash forClunkers program and spent millions to get it up and running in record time with little regard forproper oversight and accountability; thus creating an environment ripe for waste, fraud andabuse.

It is my further understanding that the DOT contracted with the followingcorporations/agencies to support either directly or indirectly the Cash for Clunkers program:

• Citibank, N.A.;
• Vangent;
• Affiliated Computer Services (ACS);
• the Internal Revenue Service (IRS); and the
• Federal Aviation Administration (FAA) in Oklahoma City, OK.

In light of this, I have the following questions about the contractors and the contract(s)they received pursuant to CARS. For each question throughout this letter, please respond by firstrepeating the enumerated question followed by the appropriate answer:

1) Please confirm that the list above is complete and if not please provide a completelist of the contractors and executive branch agencies that received funds to assistin the implementation of the Cash for Clunkers program?

2) Please set forth how much each of these contractors received to date and theanticipated total that they will receive once the books are closed on CARS?

3) What type of contract did the contractors receive? (e.g. time and materialcontracts, fixed price contracts, cost and cost plus contracts, or all otherscontracts)

4) Please explain whether or not other types of contracting vehicles were consideredand what was the reasoning for choosing one type of contract over another?

5) Please describe in detail the process used to select the corporations/agenciesidentified in the response to question 1 above?

6) What, if any, bonuses were (are being) paid to the contractors upon completion oftheir respective contracts?

B. Vulnerabilities to the CARS IT System

The CARS legislation also included a provision requiring the Secretary of Transportationto consult with the OIG to “establish and provide for the enforcement of measures to prevent andpenalize fraud.” It is my understanding that the OIG pointed out a number of possiblevulnerabilities, especially with the IT system, which experiencedsignificant problems in the Cash for Clunkers program. In light of this please respond to thefollowing questions:

1) What was the overall effect of the IT disruptions on the implementation of the program?

2) Please provide documentation of the DOT’s IT vulnerability and testingrecommendations.

3) Please describe in detail the criteria the DOT used to determine allowed costs versusdisallowed costs for the IT system?

C. OIG Recommendations and Related Implementation

Furthermore, it is my understanding that the OIG made a number of recommendationsand pointed out many additional program vulnerabilities. However, I am concerned that theDOT may not have fully complied with the OIG consultative provision as the CARS programwas being implemented. Therefore I would like clarification of the role the OIG played and theactions taken by the DOT to respond to those recommendations.

1) What vulnerabilities were identified for the DOT by the OIG?

2) At what point in the process did the DOT ask for this information from the OIG andhow was it requested?

3) How were the OIG concerns and recommendations incorporated into the Cash forClunkers program as it was being implemented? Please be specific.

In cooperating with the Committee’s review, no documents, records, data or information related tothese matters shall be destroyed, modified, removed or otherwise made inaccessible to the Committee.

Sincerely,

Charles E. Grassley
Ranking Member

cc: The Honorable Calvin L. Scovel, III
Inspector General
U.S. Department of Transportation
1200 New Jersey Avenue, SE
Washington, DC 20590