The Bottom-Line Impact of “Use It or Lose It” Acquisition Budgeting

This post, written by David Wyld, originally appeared on Public Spend Forum

Anyone who had been involved with public sector procurement at any level of government knows the fiscal year-end drill. 30 days, 10 days, 7 days, 2 days out from the end of the fiscal year, budget unit executives and staffers alike know that they “have to” spend the money allocated to them or else it will disappear at midnight on the last day of their fiscal year. Even worse, as budgets are reviewed at higher levels, across the board, agency leaders often make the same presumption about the leftover, unspent procurement funds available to them. These executives often surmise that if the acquisition monies are left unspent, then budget unit X did not really need Y amount, and so we can reduce their budget by that same amount of dollars for the next fiscal year.

Knowing this only intensifies the race to have nothing left in acquisition accounts at the end of each fiscal year for agency line personnel and procurement staffers at the federal, state and local levels. And thus, this “use it or lose it” budgetary trap simply rolls on and on in perpetuity, costing taxpayers untold amounts every year in what could be considered “rushed” spending at best and unnecessary and wasteful expenditures at worst.

So, when a major research report is published confirming this phenomenon’s existence, one might scoff at it as a wasteful effort, much like studies that confirm that kids like the taste of chocolate and that taller individuals tend to earn more basketball scholarships than their shorter counterparts. However, such a study on year-end acquisition spending was just released – and it does have interesting implications for policymakers – especially in light of the current budget impasse in Washington.

Recently, the National Bureau of Economic Research (NBER) issued a a working paper entitled “Do Expiring Budgets Lead to Wasteful Year-End Spending?: Evidence from Federal Procurement.” The study springs from a collaboration of two prominent academics at two of the leading universities in the country. Jeffrey B. Liebman is the Malcolm Wiener Professor of Public Policy in the John F. Kennedy School of Government at Harvard University and Neale Mahoney is an Assistant Professor of Economics and Robert King Steel Faculty Fellow in the Booth School of Business at the University of Chicago. Together, the pair has authored a monograph that looked at five years of federal acquisition spending (2004-2009) from the, which encompassed approximately 14.6 million purchases totaling $2.6 trillion in spend outlays.

Is the “Surge in Spending” Real or Imagined?

First, their analysis found that there is indeed a “surge in spending” across almost all federal agencies and acquisition categories during the end of September. Liebman and Mahoney began with the presumption that if one allocated federal procurement spending evenly during the course of a 52 week fiscal year, 1.9 percent of acquisition spending should take place each week. However, what the researchers found was that the end of the fiscal year indeed sparked a buying frenzy under the “use or lose it” budget rules. In fact, spending in the last week of September averaged 8.7 percent of total annual procurement outlays, meaning that spending during this final week of the fiscal year was five times as much as the weekly average!

Read the rest of this piece here.

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