We're generally pretty happy with the new Open Government Directive on federal spending transparency. Specifically, we're pleased to see that the administration is moving to comply with the Federal Funding Accountability and Transparency Act of 2006 (FFATA). Among other things, FFATA required sub-award reporting information on USAspending.gov, the government's spending website, as of 2009. But for more than a year, the Obama administration has not complied with this aspect of the law (in defense of the current administration, the Bush administration also did nothing to add sub-award data onto USAspending.gov, making this a bi-partisan screw-up). The new memo changes that, and mandates that agencies submit sub-award data to USAspending.gov starting October 1 of this year.

The only problem is that the Open Government Directive memo limits the reach of this sub-award reporting. Here's the definition of a sub-award according to the new memo [Emphasis mine]:

A sub-award generally means a monetary award made as a result of an award to a grant recipient or contractor to a sub-recipient or sub-contractor, respectively. The term includes first-tier sub-awards, and does not include awards made by a first-tier sub-recipient or sub-contractor to a lower tier sub-recipient or sub-contractor.

By limiting the definition of sub-award to only the first-tier of sub-recipients, the memo drastically curtails FFATA's reach. If USAspending.gov only includes the prime and first-tier recipients, the public won't be able to see the full scope of federal spending.

For instance, the Directive gives the example of the federal Department of Energy giving a grant to the state of Arizona, which then sub-awards to the city of Phoenix. According to the new memo, that is as far as the data trail goes. Arizona must report on its sub-award to Phoenix, but Phoenix does not have to detail how it uses or sub-awards the funding.

Coming on the heels of the Recovery Act, which provides for another level of reporting (sub-recipient vendors must report under the Act, which isn't another full tier of reporting, but is better than nothing), stopping the data collection at the first-tier seems leaves in the same rut Recovery Act reporting does: we don't know who is receiving the money.

In the Arizona example above, Phoenix will likely hire a contractor to upgrade the city's grid. That contractor may very well hire sub-contractors to dig the ditches or install new high-tech meters. The meter installer company -- third-tier sub-recipient -- may be owned by the Arizona governor's brother-in-law. Under the memo issued yesterday, we'd never know about this deal. This is a critical flaw in the new reporting requirements.

The memo mentions that more guidance on this issue is forthcoming; to provide meaningful transparency, it must extend past just the first-tier of sub-awards to the ultimate recipient of federal funds.