The chief watchdog for spending from the $787 billion stimulus package says it's guaranteed there will be waste and fraud.
Earl Devaney, tapped by President Obama to track the giant spending plan, also said it will be at least a year before the government gets recovery.gov, the Web site the administration has touted as a key part of its transparency, up and running properly.
"I'm afraid that there may be a naive impression that given the amount of transparency and accountability called for by this act, no or little fraud will occur. My 38 years of federal enforcement experience tells me that some level of waste and fraud is unfortunately inevitable," Mr. Devaney told state officials charged with coordinating the spending.
"Obviously the challenge for all of us, especially those charged with oversight, will be to significantly minimize such loss."
The White House hosted the state officials yesterday in an eight-hour conference designed to answer their questions and get their thoughts on how to manage the spending. But federal officials were also clearly worried about how the money would be spent, repeatedly telling them that the future of all federal grants to states rests on their performance.
"Six months from now, if the verdict on this effort is that we've wasted the money, we built things that were unnecessary, or we've done things that are legal but make no sense, then, folks, don't look for any help from the federal government for a long while," said Vice President Joseph R. Biden Jr.
Mr. Biden said he and Mr. Obama on Friday will announce new rules to prevent goof-ups in spending, including limiting spending even beyond what would normally be allowed by law.
"A little hint: No swimming pools in this money," Mr. Biden said.
The state officials were worried about the pace of spending and complained that they aren't getting enough information out of the federal government.
Gene Dodaro, the federal government's acting comptroller general, said two-thirds of the stimulus package's money will be going to just 16 states and the District.
The states are: Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania and Texas.
Meanwhile, Mr. Obama brought his call for responsibility straight to the nation's top business leaders, telling the Business Roundtable, the chiefs of the nation's largest businesses, that the rot in the economy runs much deeper than just Wall Street, and said the only solution is to end the "bubble and bust" economic cycle that has dominated in recent years.
The president said he believes strongly in a free market, but told the business leaders it's "fallen out of balance."
Still, it wasn't clear Mr. Obama's message about a new type of economy got through to the leaders. In the final question, one leader asked the president to help restore consumer confidence in order to open up consumers' wallets.
Mr. Obama, while saying confidence is already returning, warned overheated, credit-fueled consumer spending is what created the bubble economy he's fighting against.
"The one thing I don't want to do is replicate the false confidence that was premised on bubbles. And I think we've really got to think through, and all of you as critical captains of industry have got to think through, how do we prevent this froth that builds up, and go back to steady growth," he said.
Mr. Obama also ruled out suggestions from some Democrats in Congress that the Bush tax cuts on high-income taxpayers be repealed early, saying "nobody" will see a tax increase until the end of 2010.
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