NCPA - National Center for Policy Analysis

Federal Spending Spree at End of Fiscal Year

October 1, 2014

Yesterday marked the end of the 2013-2014 fiscal year. And because agencies cannot carry their funds over from year to year, explains Brianna Ehley of the Fiscal Times, federal agencies tend to spend September 30th on a shopping spree, spending the rest of their funds before they lose them.

In 2013, federal agencies spent $50 billion in the last week of the fiscal year -- the Department of Veterans Affairs purchased $562,000 worth of artwork, while the Department of Agriculture bought $144,000 in toner. The Department of Defense spent $5.5 billion on September 30, 2013, sending emails to employees telling them to spend the rest of their funds.

This year, spending has again exploded. Already in September, the IRS has purchased $2.4 million in toner, while the Department of Homeland Security spent more than $15,000 on two pianos. The American embassy in New Delhi, India, bought $20,362 in alcohol.

According to a study by a pair of Harvard and University of Chicago researchers that analyzed spending from 2004 to 2009, 8.7 percent of all federal spending takes place during the last week of a fiscal year. Additionally, the researchers found that the last-minute purchases (those that took place during the last week of the year) were between 2.2 and 5.6 times more likely to be lower quality products, likely due to the hasty decision making associated with the hurried spending.

Diana Furchtgott-Roth of Economics21 explains the incentives behind the spending. Not only can agencies not roll over their annual funding dollars, but failure to spend what was allocated to them in the federal budget could lead to future spending cuts. As a result, agencies try to justify their funding by spending it all, each year. Furchtgott-Roth suggests a different approach:

  • For all unspent funds, agency employees could be given a bonus equal to 10 percent of their salaries or half of the entity's unspent dollars, whichever is smaller. Agency administrators would be responsible for denying their employees bonuses if they instead chose to spend the rest of their funds.
  • Or, she suggests that agency employees receive pay increases or decreases as a result of increased savings or spending from year to year, encouraging employees to compete to cut costs.

Efforts should be made to align the incentives of agencies with the interests of taxpayers.

Source: Diana Furchtgott-Roth, "Federal Workers Are Rewarded When They Waste Your Money," Economics21, September 30, 2014; Brianna Ehley, "Reckless Federal Shopping Spree Could Squander $50 Billion," Fiscal Times, September 30, 2014.


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