Washington Had Christmas Yesterday: $50 Billion Goes Out The Door At Fiscal Year-End

By Brianna Ehley at The Fiscal Times

Today marks the end of the federal government’s fiscal year. It’s also the biggest one-day shopping spree of the year-- the day when federal agencies rush to spend the last of their money before October 1, before anything left over is returned to the Treasury.

Since agencies cannot carry over unspent funds, the idea is “use it or lose it.” If they don’t spend the money, Congress may not allocate as much the following year. The system typically creates panic for federal workers scrambling to spend millions of dollars before they run out of time. It also means a huge payday for contractors scoring big awards.

Related: Government Blatantly Wastes $30 Billion This Year

Last year, the government spent about $50 billion the week before October 1, according to NPR’s Shankar Vedantam. That total included apparent impulse buys like artwork worth $562,000 for the Department of Veterans Affairs, and toner cartridges worth $144,000 for the Department of Agriculture, as noted last year by The Washington Post. It also included $178,000 worth of “Cubicle Furniture Rehab” for the U.S. Coast Guard.

The Pentagon alone spent about $5.5 billion on the last day of the fiscal year. DOD officials even sent an email encouraging employees to spend as much as they could.

“It is critical in our efforts to [spend] 100 percent of our available resources this fiscal year,” said budget officer Sannadean Sims and procurement officer Kathleen Miller in the email obtained by The Post. “It is also imperative that your organization meets its projected spending goal for June.”

This is nothing new. An analysis by Harvard’s Jeffrey Liebman and the University of Chicago’s Neale Mahoney using data from 2004 to 2009 found that 8.7 percent of total federal spending occurs in the last week of the fiscal year.

Related: More FEMA Screw Ups Cost Taxpayers $12 Million

Since the government spends so much money in such a short amount of time, some people have concerns that hasty purchases could result in problems down the road – like poor product selection.

The same researchers tried to answer that question by reviewing contract performances from nearly 700 major federal information technology projects worth a total of $130 billion. After examining them, they concluded that projects awarded in the last week of the fiscal year were 2.2 to 5.6 times more likely to be of lower quality, according to the analysis.

The researchers, along with other budget reformists, say this issue could be resolved if agencies were allowed to roll over their unused funds to the next fiscal year.

The Obama administration actually offered a similar proposal in 2010. The proposal would have allowed agencies to roll over a certain percentage of their unused budgets with the remainder going toward reducing the deficit, though Congress never took it up.

Many who support this idea point to the Justice Department, which has been excused from the rules since 1992 and is able to roll over up to 4 percent of its annual revenue into a special fund for IT projects. Liebman and Mohoney reviewed DOJ’s spending records and found no signs of a jump in spending toward the end of the year, and “no accompanying decline in the quality of year-end projects.”

- See more at: http://www.thefiscaltimes.com/Articles/2014/09/30/Reckless-Federal-Shopping-Spree-Could-Squander-50-Billion#sthash.S86JzmHn.dpuf

Today marks the end of the federal government’s fiscal year. It’s also the biggest one-day shopping spree of the year-- the day when federal agencies rush to spend the last of their money before October 1, before anything left over is returned to the Treasury.

Since agencies cannot carry over unspent funds, the idea is “use it or lose it.” If they don’t spend the money, Congress may not allocate as much the following year. The system typically creates panic for federal workers scrambling to spend millions of dollars before they run out of time. It also means a huge payday for contractors scoring big awards.

Related: Government Blatantly Wastes $30 Billion This Year

Last year, the government spent about $50 billion the week before October 1, according to NPR’s Shankar Vedantam. That total included apparent impulse buys like artwork worth $562,000 for the Department of Veterans Affairs, and toner cartridges worth $144,000 for the Department of Agriculture, as noted last year by The Washington Post. It also included $178,000 worth of “Cubicle Furniture Rehab” for the U.S. Coast Guard.

The Pentagon alone spent about $5.5 billion on the last day of the fiscal year. DOD officials even sent an email encouraging employees to spend as much as they could.

“It is critical in our efforts to [spend] 100 percent of our available resources this fiscal year,” said budget officer Sannadean Sims and procurement officer Kathleen Miller in the email obtained by The Post. “It is also imperative that your organization meets its projected spending goal for June.”

This is nothing new. An analysis by Harvard’s Jeffrey Liebman and the University of Chicago’s Neale Mahoney using data from 2004 to 2009 found that 8.7 percent of total federal spending occurs in the last week of the fiscal year.

Related: More FEMA Screw Ups Cost Taxpayers $12 Million

Since the government spends so much money in such a short amount of time, some people have concerns that hasty purchases could result in problems down the road – like poor product selection.

The same researchers tried to answer that question by reviewing contract performances from nearly 700 major federal information technology projects worth a total of $130 billion. After examining them, they concluded that projects awarded in the last week of the fiscal year were 2.2 to 5.6 times more likely to be of lower quality, according to the analysis.

The researchers, along with other budget reformists, say this issue could be resolved if agencies were allowed to roll over their unused funds to the next fiscal year.

The Obama administration actually offered a similar proposal in 2010. The proposal would have allowed agencies to roll over a certain percentage of their unused budgets with the remainder going toward reducing the deficit, though Congress never took it up.

Many who support this idea point to the Justice Department, which has been excused from the rules since 1992 and is able to roll over up to 4 percent of its annual revenue into a special fund for IT projects. Liebman and Mohoney reviewed DOJ’s spending records and found no signs of a jump in spending toward the end of the year, and “no accompanying decline in the quality of year-end projects.”

http://www.thefiscaltimes.com/Articles/2014/09/30/Reckless-Federal-Shopping-Spree-Could-Squander-50-Billion

 

Federal Workers Are Rewarded When They Waste Your Money

Federal Workers Are Rewarded When They Waste Your Money

The federal government's fiscal year ends on September 30, concluding the month-long spending spree known as "use it or lose it" season in Washington--resulting in a slew of questionable purchases this month:

      • The IRS spent $2,410,000 on "toner products" in a single purchase.
      • The Department of Homeland Security paid $251,016 for "Aeron Mesh Task Chairs" and $15,198 for two pianos. Music to sooth Russia's President Putin, perhaps?
      • The State Department obligated $24,969 for a "50 inch LED HD TV" for the embassy in Kabul, Afghanistan, while the embassy in New Delhi, India, made a $20,362 alcohol purchase. This brought the total booze tab for the State Department to nearly $100,000 for the month of September.
      • The Department of Veterans Affairs spent over $1.8 million on artwork, including $375,000 for a "Lobby Piece" and $285,000 on a "parking structure facade project" for the Public Artwork Commissioned Project at the Polytrauma & Blind Rehabilitation Center in Palo Alto.

But it does not have to be that way. If federal workers were rewarded on the basis of saving taxpayer dollars rather than on spending them, some of these expenditures could be eliminated.

Of course, these purchases are a drop in the bucket compared to our total 2014 budget deficit, which the nonpartisan Congressional Budget Office estimates will come in at about $506 billion ($3 trillion in revenue and $3.5 trillion in outlays). The year 2014 is an improvement upon 2013, when the deficit was $680 billion ($2.8 trillion in revenues and $3.45 trillion in outlays). The deficit is driven by entitlement spending, not pianos and paintings.

Even so, there should be a way to save last-minute unspent dollars, rather than spending them.

Funds appropriated to federal agencies must be obligated before October 1 or be forfeited to the Treasury. Agencies are encouraged to spend every last dime in their budgets to justify their current funding levels, in an attempt to avoid becoming a target for future spending cuts in Congress.

This results in a predictable rush for agencies to spend the rest of their budgets in the days before the end of the fiscal year. A 2013 National Bureau of Economic Research study by Harvard professor Jeffrey Liebman and Stanford professor Neale Mahoney found that federal spending on contracts in the last week of the year is five times higher than the weekly average.

Here are two suggestions for how to align bureaucratic incentives with those of taxpayers.

Agency employees could receive a bonus from a pool of funds equal to the smaller of half of the agency's unspent funds, or ten percent of employee salaries. (This cap would avoid the cancellation of an aircraft carrier turning federal workers into millionaires.) Pity the poor administrator determined to spend all of an agency's funds, thereby denying every employee a bonus.

Alternatively, all employees could receive an additional 1-step pay increase in the agency with the greatest savings as a percentage of its budget. All employees with the greatest increase in spending year-over-year would receive a 1-step pay decrease. Again, agency employees would compete to see who can cut costs the most.

The next Congress could make these changes and send a bill to President Obama for his signature.

Many of the purchases made during September are emblematic of government waste. Last year, the State Department spent $5 million on crystal glassware for several embassies from the Vermont manufacturer Simon Pearce and $1 million on a granite art installation for the embassy in London. The Washington Post reported that the notorious IRS Star Trek parody video and the "lavish conference" it was screened at resulted from the 2010 use it or lose season.

Poorly vetted I.T. purchases made during use it or lose it season can have a lasting impact. In 2010, Liebman and Mahoney found that I.T. projects signed at the end of the year were about six times more likely to be of a lower quality than projects undertaken during the rest of the year.

Wasteful purchases are hardly restricted to the final months of the fiscal year. The State Department spent $400,000 on a statue entitled "Camel Contemplating Needle" for the Islamabad Embassy, in a contract order dated March 7, 2014. On June 6, 2014, the Department spent $125,199 on a Fourth of July celebration at the embassy in Ottawa, Canada.

The year-end federal spending spree will last right up until midnight September 30 as federal workers try to use up valuable unspent taxpayer dollars. The rush to spend in the month of September is a case study on the misalignment of the interests of taxpayers and federal bureaucrats. With a little resourcefulness, such as bonuses for reduced spending, Congress could encourage agencies to save money, rather than spend it.

http://www.economics21.org/commentary/federal-workers-are-rewarded-when-they-waste-your-money

 

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.

- See more at: http://www.thefiscaltimes.com/Articles/2014/09/30/Reckless-Federal-Shopping-Spree-Could-Squander-50-Billion#sthash.S86JzmHn.dpuf

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.

Get Access