December 10, 2017

The Annual Federal Spending Frenzy Is a Terrible Year-End Tradition

Veronique de Rugy

Senior Research Fellow

What do you do if you wind up with a little extra money in your household budget at the end of the year?

Perhaps you pay down your credit card debt or save it for an earlier retirement. Maybe you replace old appliances or go on a much-needed but unplanned vacation. One thing is clear: Because you're spending your own cash, you make sure to get as much out of it as possible.

You might expect our tax dollars to be treated the same way. You would be mistaken. The end of the fiscal yearSeptember 30triggers a spending frenzy in Washington, where the driving order isn't "do something worthwhile" but rather "make sure nothing is left." Because agencies can't carry over any part of their operating budgets into the next fiscal year, politicians and bureaucrats spend to the last dime, knowing that leftover resources will be returned to the Department of the Treasury. They also worry Congress will reward frugal agencies with cuts to their future allotments.

As a result, every October, newspapers brim with shocking stories about wasteful and possibly corrupt spending behaviors. Think military vehicles driving in circles to drain the last pennies of their gas allowances, or hundreds of thousands of dollars for booze and party favors.

These aren't just anecdotes. Empirical evidence confirms the sharp spike in end-of-year consumption. Jason Fichtner, my colleague at the Mercatus Center, has shown that a remarkably large percentage of federal contract spending occurs near the end of the fiscal calendar. Contracting expenditures represent only 11 percent of the overall budget, but due to their more robust transparency requirements they are the only ones we can easily track.

For executive branch departments, Fichtner shows that on average, 16.3 percent of contract expenditures happen in September. This is twice as much as the 8.3 percent of the annual budget you would expect to be spent in a given month if the money were split evenly across the year. The State Department and the Department of Housing and Urban Development are even worse, consistently spending a third of their total contracting budgets in September.

This happens regardless of administration, party control of Congress, or type of budget resolution. And it is not new. Back in 1978, the Government Accountability Office sounded the alarm with a report finding that agencies on average spent 21 percent of their budgets in the final two months of the fiscal year.

How much money are we talking about? In 2017, federal agencies excluding the Department of Defense spent $11.1 billion in the final week of September. Despite Trump's big promises to find cost savings, the Office of the President alone spent $21.8 million on furniture, electrical hardware, supplies, and flooringfour times as much as Barack Obama spent during the same period a year earlier.

OpenBooks.com's Adam Andrzejewski provides some juicy examples of what certainly looks like reckless end-of-year spending in Forbes, such as $7.3 million by nonmilitary agencies on guns, ammo, and related equipment (including $306,617 by the Department of Agriculture on wares from Glock Inc. and $1.5 million by the Department of Health and Human Services). The government also apparently had a sudden furniture shortage requiring $83.4 million in expenditures, not counting the $23 million on office supplies and equipment. Some $18.6 million went to public relations, $11.7 million to market research and public opinion, and $5.5 million to communicationsjust in the last week of September.

But does a spike in and of itself mean the funds were wasted? There is substantial evidence suggesting that the rush to spend leads to less efficient acquisition outcomes than at other points in the fiscal year. A well-known 2010 study of federal information technology (I.T.) expenditures, for instance, shows a correlation between lower-quality I.T. projects and end-of-year spending.

In the private sector, entrepreneurs brag about managing to achieve their goals at lower costs than planned. That means more money will be left over for customers, shareholders, and workers. In government, no incentives exist for doing more with less.