An Early Christmas in Washington | Citizens Against Government Waste

An Early Christmas in Washington

The WasteWatcher

Fiscal year (FY) 2013 just ended and federal agencies enjoyed a shopping spree.

This spending binge occurred because at the end of every fiscal year agencies are incentivized to spend the remaining money in their budgets in order to justify a similar or increased budget for the following year.  This phenomenon, known as “spend it or lose it,” leads not only to wasteful spending, but to poor investments and awful management at the federal level.

A November 19, 2010 Harvard study showed that spending in the last week of the fiscal year is 4.9 times higher than the average of all the other weeks in the year.  The authors noted, “Construction-related goods and services, furnishings and office equipment, and I.T. services and equipment all have end-of-year spending rates that are significantly higher than the average.”  Taxpayers are footing the costs of furniture and office equipment while federal agencies solicit more unobligated funds on an annual basis.

Citizens Against Government Waste partnered with Govini, a data analytics firm, to study the spending patterns of three of the government’s larger agencies: The Department of the Army, The Department of State, and The Department of Veterans Affairs. We found that from FY 2009 to FY 2012 the Department of the Army drastically increased its spending and the amount of contracts purchased during the final quarter of the year.  In 2012, first quarter spending was a little less than $30 billion, while fourth quarter spending totaled more than $40 billion. 

The Department of State shows a similar trend.  In 2012, first quarter spending at the State Department was about $1.5 billion, while expenditures in the fourth quarter totaled more than $4 billion.  Furthermore, when considering all federal contracts in FY 2012, first quarter spending added up to more than $100 billion, while fourth quarter outlays rose to around $160 billion.  Also, the government completed 641,389 contracts in the first quarter, compared to 916,300 contracts in the fourth quarter, a 43 percent increase.  In the areas and agencies analyzed by Govini, fourth quarter spending outpaced the other three quarters of the year.

The Department of Veterans Affairs displayed a rather unique spending pattern that slightly differed from the other two agencies.  While the final quarter spending spike was present at the VA, the higher spending levels also continued into the first quarter of the following fiscal year before tapering off in second.  Regardless of the difference in spending per quarter, there was still a clear “stair step” pattern that displays an almost predictable spike in spending to push dollars out the door in the final quarter and often in the final weeks of September.

Several recent examples of problematic fourth quarter spending exist.  An August 8, 2013 Washington Times article reported that in the last months of 2012 “the Pentagon purchased or attempted to purchase a number of items that seem less than necessary to its main mission of defending the United States.”  The Army National Guard purchased coffee mugs for recruitment that totaled $18,000, and the Air Force requested 40 televisions for dormitories, volleyball equipment, and an e-book platform.

The Washington Times article also highlights recent controversies regarding frivolous spending by the Internal Revenue Service (IRS), which funded a $4 million conference in California in 2010.  Acting IRS Chief Danny Werfel stated, “Yes, there was extra money available and clearly in this case that money wasn’t deployed to the highest and best use.” Importantly, the funds used for the conference were requested toward the end of that fiscal year – a clear link to the “spend it or lose it” mindset.

A September 30 Wall Street Journal article also confirms the trend, pointing to a September 2013 paper published by the National Bureau of Economics Research, that bolsters the plethora of anecdotal evidence on spending with hard data.

The papers’ authors examined contract-level information on 14.6 million purchases, totaling $2.6 trillion in government expenditures, from 2004 to 2009.  Additionally, they checked the performance of 686 major information-technology projects, accounting for $130 billion in spending. Their research found that spending in the last week of the year is almost five times higher than the average week during the rest of the year.

Congress’s dysfunction only enables this erratic spending.  Due to its chronic failures to adhere to the normal budget process, the federal government has been forced to run on continuing resolutions (CRs), which fund the various agencies at the same level as the previous year.  These CRs oblige agencies to first focus on funding current projects and paying salaries, meaning there is little room for financing future worthwhile investments. 

The federal budget shows the enormous amount of unobligated funding carried by most agencies.  The Department of Agriculture has an estimated $9.7 billion in unobligated funds;   the Department of Housing and Urban Development has an estimated $35.9 billion; and the Department of Energy has an estimated $10.1 billion in unobligated funds in FY 2014.  While unexpended balances of the expired annual appropriations are carried forward for five years to pay old bills, the large amount of unobligated funds only encourages agencies to increase their spending toward the end of the fiscal year.

The Government Accountability Office also documents these inefficient budgeting practices.  Its most recent report, released on September 30, 2013, indicates that “Carryover balances in fiscal year 2012 were $2.2 trillion, of which about $800 billion had not yet been obligated.”   

From agency to agency, the contagious practice of “spend it or lose it” dominates the fiscal process.  There are reasonable measures that should be taken to prevent the increased spending.  For example, to avoid the habit of spending funds on unnecessary items, agencies should be prohibited from disbursing more than 30 percent of their budget in any quarter of the year, or they should be penalized for doing so.  Federal managers who control these funds should be rewarded for saving money, instead of spending it.  These commonsense ideas would go a long way toward promoting greater fiscal discipline.

  -- Matt Brown

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