The Adminstrative Costs of Congressional Earmarking: The Case of the Office of Naval Research
April 30, 2009
by: Professor James Savage

Government WasteWatch, Spring 2009

Congressional earmarking of the federal budget remains a staple of American politics. 

Despite newly passed ethics and transparency legislation, earmarks continue to proliferate in the federal government’s 12 appropriations bills.  Congressional scholars explain that earmarks help members to gain reelection, while some academics also approvingly report that members employ earmarks to “grease the wheels” of the legislative process.

Press coverage of earmarking and a voluminous Congress-directed lecture in political science, however, generally ignore the administrative costs and demands placed on executive branch agencies that are required to manage these congressionally mandated projects.

This study attempts to redress the inattention to these administrative costs by analyzing the effect of the earmarking on one federal agency, the U.S. Navy’s Office of Naval Research (ONR).  What we find by examining the ONR is that earmarking does indeed place extensive political, budgetary, and programmatic demands on the agency, requiring it to absorb a number of opportunity, transaction, and direct costs, with little or no compensation from the navy or the Department of Defense (DOD), and certainly not from Congress.

The Costs of Earmarking

The cost of earmarking is typically associated with the funding level provided for a given project in an appropriations bill or report.  Yet each ONR project brings with it an allied set of transaction and opportunity costs that occur during its political, budgetary, and programmatic management.  The direct appropriations cost of the project is most often identified in a conference committee report.  For example, included in the conference list of FY 2007 earmarks added to the navy’s Research, Development, test, and Evaluation budget, with no other information, is $3 million for a project titled “Thermal management systems for high density electronics” (U.S. House 2006, 276).  The processing of that earmark throughout the appropriations process and by the DOD and the navy also imposes transaction costs that are not covered by the amount listed in the report.  Transaction costs include the time, energy, and resources devoted to searching for and obtaining information, the costs of bargaining and coordinating agreements among actors, and the costs of monitoring and achieving contractual compliance between principal and agent.  Opportunity costs reflect the trade-off in costs and the loss of potential gain by investing time, energy, and resources in one alternative as opposed to another, as when for instance, government funds are allocated for one activity rather than another.  The $3 million appropriated for the thermal management earmark instead could have been appropriated to fund the navy’s identified priorities, including the ONR’s seven core science and technology departments.  These departments, such as Sea Warfare and Weapons and Naval Air Warfare and Weapons, conduct and fund the basic research and technology used to support the activities of the U.S. Navy and Marine Corps.  In the absence of offsetting resources, these externally imposed transaction and opportunity costs will be absorbed by agencies that are forced to bear them.

For FY 2007, the ONR was staffed to administer its $1.7 billion core budget and programs, with no new staff or administrative funding to manage the additional $535 million in congressional earmarks.  Describing this added burden, a senior ONR officer noted, “We cannot budget to perform congressional earmarks.  We can only budget our internal services to match what is in our presidential budget submission.  So when congressional work comes in, it’s loaded on top of what everyone else in this building has to do: whether it’s our comptrollers who process the financial part, our program people, or our contract shop. We do not budget to do that work.”

The ONR’s budget for FY 2007 was $2.235 billion.  Approximately a quarter of this figure, $535 million, funded more than 250 congressionally earmarked projects.  Though some of these earmarks were as large as $20 million to $30 million, the great majority of projects were less than $10 million in size, with many in the range of $1 million to $5 million.

Earmarking the ONR Budget:  The Earmarking Process

An ONR earmark comes to life with its approval by the House and Senate Defense Appropriations Subcommittees. The earmarking process of the ONR or any agency’s budget consists of seven basic steps.  First, constituents, lobbyists, and interested parties seeking earmarks submit their requests to their members in mid-to late February.  There is no formal limit on the number of requests that can be sent to a member, although some members may establish their own restrictions on the number of requests a particular constituent can submit.  Second, these constituent requests, which often number in the hundreds, particularly for large-state senators, then must be processed and evaluated by the member’s staff, and ultimately approved by the member.

Third, members then must submit their requests to the relevant committee.  In the case of the defense earmarks, members must submit requests to both the Armed Services Committee and the Defense Appropriations Subcommittee in their respective chamber.  Though defense earmarks are funded by the appropriations subcommittee, requests must also be sent to the authorizers, as well as the appropriators in deference to the authorizations committee.  Each committee and subcommittee employs its own unique form.

Fourth, subcommittee staff process, organize, and provide some initial prioritization of the forms for the subcommittee chair’s review.  Fifth, the chair determines the dollar value and number of earmarks that will be funded, and the specific projects that will be supported, which are identified in the subcommittee’s report.  Sixth, differences between the House and Senate are resolved in a conference committee, where many new earmarks are added to the total number in a process that members and lobbyists call “air dropping.”  Seventh, the final list of earmarks appears in the conference report. Committee reports reflect congressional intent and are technically advisory in nature, whereas the actual appropriations bill is signed by the president and constitutes appropriations law.  Nonetheless, agencies understand that they need to comply with these reports or face budgetary retaliation by the appropriators.  Appropriators, if pressed, may also simply include their earmarks in the bills themselves, rather than rely on the reports.

The earmarking process thus creates transaction and opportunity costs for all participants, but especially for the appropriations subcommittee staff.  Interviews with staff reveal that they spend significant time processing and evaluating earmark requests.

When a senior Senate defense appropriations staffer, one of the seven professional staff on the subcommittee, was asked which title proved to be the most burdensome, the staffer replied,

“The R&D accounts are probably the most time consuming.  Difficult, technical information.  Technical data.  Very large account.  May not be the largest account in terms of dollar amount, but it is the amount of detail, the number of funding lines, the number of efforts being funded by that account.  It is also the account for which we receive the most numbers of requests.  So it is the most time consuming, compiling and evaluating all those member requests.”

Requests are submitted to the subcommittee in late February or March, with their processing taking place primarily in March and April.  According to the staffer, “I’d say that over that two-month period, we spend about 50 percent of our time evaluating requests.”

Thus, at a time when the nation is engaged in a global war on terror, much of the time, energy, and resources of the appropriations subcommittees responsible for the oversight and funding of that war, as well as for other defense policy issues, are spent processing and monitoring earmarks.

The ONR’s Political Management of Earmarks

The DOD operates government relations units at virtually all of its major command levels and units, many of which are involved in the political management of congressional earmarks, which are commonly called “plus-ups” within the DOD.

When the ONR budget earmarked by Congress, each of these respective government relations units, in varying degrees, must devote staff time and effort to discover, monitor, and report on these projects.

A discovery process is necessary because the DOD, as with other executive branch agencies, is rarely informed about what the earmarks Congress approves until after the House-Senate defense appropriations conference report is completed.  Even after the report is released, the recipients, full title, and the purposes of the project are often unknown to the DOD.  The project’s title, moreover, may reveal nothing about the actual substance of the earmark.  This information is obviously necessary if the various projects are to be directed to the proper command, service, and unit for their management. Working with appropriations subcommittee staff, the report must be carefully reviewed by Financial Management and Budget (FMB) staff to discover the existence, recipient, cost, and purpose of each earmark.  The staff provide information on whether the earmark originated in the House or Senate and which member of Congress requested the project, as well as the name, contact information, nature of the project, and its cost.  The Office of Legislative Affairs (OLA) at every level will work closely with the congressional staff throughout the life of the earmark.

The product of the discovery and identification process is the development of an “information paper,” also referred to as a “white paper,” which is the form that follows the project throughout its life in the DOD.

The political sensitivity associated with these projects must not underestimated.  They represent the wishes of influential constituents who have gained the favor of their members, to the extent that members have used political capital to obtain federal funding for their benefit.  The members, therefore, respond, often angrily, to complaints by these earmark-receiving constituents who, for whatever reason, are dissatisfied with the ONR.  As one ONR OLA senior staffer noted, because contractors receive their funding from the sponsoring members, “the people who get the earmark don’t think they work for the executive branch, but for the legislative branch.”

The ONR’s Budgetary Management of Earmarks

Earmarking imposes a variety of budgetary management and budget execution burdens on the navy and the ONR.  First, earmarking poses a release problem for all levels of the DOD, but particularly for the local commands directly managing a project.

Before the dollars flow, the DOD must engage in an internal funding release procedure before a funding release request is submitted to the Office of Management and Budget (OMB).

The single-year spend-out rate for earmarks places unusual burdens on budget offices managing earmarks because any delay in gaining funding release authority through the chain of command delays initiating the project, thus delaying the actual outlay of funds and distorting the normal spend-out rate.

To compensate, the ONR comptrollers and contract officers are under great pressure to obligate and spend their earmark dollars as quickly as possible…Congress once included language in a defense appropriations bill threatening to fire comptrollers if they did not promptly release earmarked funds.

An additional budgetary burden of earmarking, in the form of direct and opportunity costs is that in order to protect itself politically, the ONR may find it necessary to draw down on core funds to support incomplete or flawed earmarked projects.  Those projects that are ill conceived, impractical, or simply inconsistent with navy plans and programs may require special attention and budgetary support to make them some value to the navy.  The ONR normally diverts core dollars to only about three or four projects, at substantially lower levels of funding.  Yet in order to find the core funds for this purpose, program managers delay execution of their regular projects, diverting sufficient dollars during the life of these projects to support the plus-ups.  This practice promotes programmatic inefficiencies and opportunity costs.

The ONR’s Programmatic Management of Earmarks

Once an earmark has been assigned to the ONR by the FMB, it is then, depending on the type of project, assigned to one of the ONR’s seven science and technology departments, such as Ocean Battlespace Sensing or Warfighter Performance.  The earmark is then assigned by the department’s program head to a program officer, who then typically faces two challenges in managing the earmark.  First, the program officer must educate the earmark beneficiary, who is now a navy contractor, about how to prepare and use DOD/navy contracts, proposals, and other paperwork to alleviate, among other concerns, the problem of distorted spend-out rates.  This is a common event for new earmark recipients.  As one program officer explained, “Many of these people have not worked for the government before.  Many of them have to be taught.  The contractor has to be taught to write the proposal and the reports.  We have to teach them to do the paperwork.  Many of these people go to Congress because their proposals failed in the regular review process…How to work with Government 101, is the first thing you do [with contractors], and it can last for months.”  Not all such contractors are pleased to engage the DOD’s paperwork and bureaucracy.  Contractors do complain, and some of these complaints reach the sponsoring member.  The program officer must avoid the complaints, if possible, because eventually accountability and or blame will rest with the officer.  As a result, the program head must take care in assigning projects to program officers.  Said one program head, “[Earmarks] often require the best of my people because they are the ones who are the most sensitive, the most patient, the most technically savvy to deal with the issues, and have the most experience.  The best contract negotiators, the best program officers, are the ones who spend most of the time with these earmarks, at the expense of the work they should be doing.”

“We get more problems with the congressional [earmarks], just by nature,” reported a senior ONR administrator.  “Someone convinced their congressman, senator, they can do something.  Not necessarily always the case.  What they want to do might not fit.  What we have to do is mold them into giving us something that is useful…Frankly, I get very few phone calls about our regular business dealings with the ONR programs.  Most of the phone calls I get are about our congressionals.”  This “molding” of the earmarks into something useful for the ONR requires the officers to divert scarce time and resources, including travel time and expenses visiting contractors, from their regular projects to the earmarked ones.  These efforts often test the diplomatic skills of the program officers as they attempt to encourage contractors to change what may be significant aspects of their projects.

The costs of earmarking exceed the direct financial cost of the projects themselves, as earmarking creates externalities in the form of transactions and opportunity costs throughout the legislative and administrative process.  For example, although the activities of congressional staff, even professional staff, may be viewed as part of the regular political process, congressional appropriations staff do spend significant time reviewing member requests, participating in their allocation, monitoring these projects as needed to help constituents, and working with the ONR to identify these projects.  Transaction costs include the time, energy, and resources devoted to searching for and obtaining information, the costs of bargaining and coordinating agreements among actors, and the costs of monitoring and achieving contractual compliance between principal and agent.  In the case of the ONR, transaction costs are imposed to coordinate the political, budgetary, and programmatic management of earmarks between members, committees, constituents, ONR, and other elements of the navy and the DOD. Opportunity costs reflect the costs and resources in one alternative as opposed to another.  In the case of the ONR, opportunity costs are imposed as congressional and the ONR staffs focus their attention on earmarks rather than policy making, oversight, and other legislative and administrative tasks.  Regular core budgets are diverted in some cases to supplement the funding of earmarks.  Earmarking alters personnel assignments, distorts budgetary spend-out rates, redirects internal resources, and diverts ONR from most efficiently executing and implementing its science and technology missions.  In all these ways, extensive transaction and opportunity costs are imposed through the ONR’s political, budgetary, and programmatic management of earmarks.

One policy conclusion from this study is that the executive branch should make these costs transparent, as they remain largely hidden from public discussion and the consideration of the federal budget.

This study also raises the question of how extensive such costs are throughout the federal government. In other words, how generalizable and representative are these findings about the ONR?

The Department of Education’s Fund for the Improvement of Higher Education program consists of $20 million in core grants and $100 million in earmarks.  “For us it’s a huge deal,” observed a senior education officer, “because I have staffing for a $20 million program, and so you are increasing the portfolio five times with a $100 million in earmarks.  I essentially double the load for my program officers.  And, of course, earmarks don’t come with more salary and expense money.”  As in the case of the ONR, the agency received no additional staffing or funding to administer its assigned earmarks.  The same is true for the Department of Transportation, where several of its major research program budgets are more than half earmarked.

Clearly, earmarking is more than an issue for the press and congressional scholars; it should also be the careful study of students of public administration and public policy.

James Savage is a Professor in the Department of Politics at the University of Virginia.  He is also the author of Funding Science in America:  Congress, Universities, and the Politics of the Academic Pork Barrel (Cambridge Univ. Press).  This excerpt appears with his permission.  The entire article can be viewed in its entirety in the May/June, 2009 edition of Public Administration Review.