Year-End Government Spending and Its Implications
As the US Federal Fiscal year draws to a close each September, a peculiar phenomenon grips government agencies across the United States. Known colloquially as “The Big Flush,” this annual event sees a dramatic surge in government spending as departments rush to exhaust their remaining budgets. This practice, driven by the “use it or lose it” mentality, raises important questions about fiscal responsibility, government efficiency, and the delicate balance of power between the legislative and executive branches.
The Appropriations Process and Legal Framework
To understand the year-end spending surge, we must first examine the federal budget process. The U.S. Constitution grants Congress the “power of the purse,” giving it ultimate authority over government spending. This power is exercised through the annual appropriations process, where Congress determines funding levels for various federal agencies and programs.
The Congressional Budget and Impoundment Control Act of 1974 (ICA) further refined this process, establishing procedures for congressional budgeting and placing limits on the executive branch’s ability to withhold appropriated funds. This legislation was a direct response to President Nixon’s attempts to impound funds allocated by Congress, a practice the Supreme Court later deemed unconstitutional in Train v. City of New York (1975)[2].
Under the ICA, the President is required to spend all appropriated funds unless specific procedures are followed to request rescissions (i.e Cancel spending) or deferrals (i.e. Delay spending). For rescissions, the President must propose them to Congress, which then has 45 days to pass a rescission bill. If Congress fails to act within this timeframe, the President must release the funds as originally appropriated[5]. Deferrals, which temporarily delay spending, can be overturned by either house of Congress passing a resolution of disapproval[1].
The “Use It or Lose It” Phenomenon
The legal requirement to spend appropriated funds, combined with the annual budget cycle, has given rise to the “use it or lose it” mentality among government agencies. This phenomenon refers to the tendency of departments to rapidly spend their remaining budget allocations in the final weeks of the fiscal year, fearing that unspent funds will be returned to the Treasury and potentially lead to budget cuts in subsequent years[1].
Research has empirically demonstrated the existence of this year-end spending surge. A study by economists Jeffrey Liebman and Neale Mahoney, cited in the National Bureau of Economic Research (NBER) working paper, found that federal agencies spend an average of 4.9 times more in the last week of the fiscal year than in a typical week[1]. This dramatic increase in spending raises concerns about the quality and necessity of last-minute spending.
Implications for Taxpayer Money and Government Efficiency
The year-end spending surge has significant implications for the efficient use of taxpayer money. Critics argue that this practice encourages wasteful spending on low-priority or unnecessary items simply to meet (exhaust) budgets. The rushed nature of these purchases may lead to poor decision-making, inadequate vetting of contracts, and reduced value for money.
Liebman and Mahoney’s research supports these concerns, suggesting that the quality of spending decreases during the year-end surge. They found that many of these last-minute expenditures fall below the social cost of funds, effectively meeting the definition of wasteful spending[1].
The social cost of funds is an important concept in evaluating government spending. It refers to the total cost to society of using public resources for a particular purpose, including both direct costs and indirect costs such as economic distortions caused by taxation[13]. When year-end expenditures fall below this threshold, it means that the societal benefits derived from the spending are less than the overall cost to society of providing those funds[1].
Moreover, this pattern of spending can distort the overall allocation of resources within the government. Agencies may prioritize easily executable, short-term expenditures over more strategic, long-term investments that could yield greater public benefit but require more time to plan and implement.
The Executive Branch Conundrum
While the ICA and subsequent court decisions have reinforced Congress’s power of the purse, this strict approach to budget execution creates a conundrum for the executive branch. On one hand, the President and federal agencies are legally obligated to spend appropriated funds as directed by Congress. On the other hand, this requirement may hamper the executive branch’s ability to respond flexibly to changing circumstances or to implement more efficient spending strategies.
The executive branch, with its day-to-day management of government operations, may be better positioned to identify areas where spending could be reduced or reallocated more effectively. However, the current system provides limited flexibility to do so without going through the cumbersome rescission or deferral processes outlined in the ICA. The bottom line is rarely do planning estimates (Congress Appropriations) match the real world actual expenses.
This tension between compliance and efficiency creates a challenging environment for agency leaders. They must balance their legal obligation to spend appropriated funds with their responsibility to use taxpayer money wisely. The fear of budget cuts in future years if funds are left unspent further complicates this balancing act, potentially incentivizing suboptimal spending decisions in order to protect budget.
Congressional and Judicial Support for the Power of the Purse
Despite these challenges, both Congress and the courts have consistently upheld the legislative branch’s primacy in budgetary matters. The Supreme Court’s decision in Train v. City of New York (1975) effectively removed the presidential power of impoundment, reinforcing Congress’s control over spending[2].
This stance is rooted in the constitutional separation of powers and the principle that the power to appropriate funds is a fundamental check on executive authority. If the executive branch could unilaterally decide not to spend appropriated funds, it would effectively nullify Congress’s constitutional power to levy taxes and borrow money[9].
However, this strict interpretation of the power of the purse creates a paradox. While it aims to prevent executive overreach and ensure that the will of Congress (and by extension, the people) is carried out, it may inadvertently promote inefficiency and waste in government spending.
Mechanism for Improvements
While the Tax Project does not make policy recommendations, it is clear that Process improvements and new mechanisms could improve overall results. Potential improvements could include a more flexible system with ongoing budget feedback loops, allowing for more dynamic allocation of resources throughout the fiscal year. Additionally, a mechanism by which the executive and Congress could work together more closely on budget execution could be beneficial. This could involve tying budget flexibility to legislative outcomes achieved by the executive team, rather than focusing solely on the amount spent[9].
Furthermore, consideration could be given to mechanisms that support longer-term projects. The current annual budget cycle can make it challenging to plan and execute multi-year initiatives effectively. A system that allows for better management of funds across fiscal years for approved long-term projects could lead to more strategic investments and reduce the pressure for year-end spending[9].
Conclusion
The “big flush” of year-end government spending highlights the complex interplay between fiscal responsibility, government efficiency, and constitutional principles in the United States. While the current system, rooted in the Congressional Budget and Impoundment Control Act, aims to uphold Congress’s power of the purse and prevent executive overreach, it also creates incentives for potentially wasteful spending practices.
Addressing this issue requires a delicate balance. Any reforms must respect the constitutional separation of powers and Congress’s fundamental role in determining government spending. At the same time, they should aim to promote more efficient and effective use of taxpayer money throughout the fiscal year.
As the debate continues, it is clear that finding this balance is crucial for ensuring good governance and fiscal responsibility in the modern era. The challenge lies in developing a system that maintains strong legislative control over spending while providing the flexibility needed for efficient and responsive government operations. Only through careful consideration and bipartisan cooperation can meaningful reforms be achieved to address the “big flush” phenomenon and improve the overall management of federal resources.
Citations:
[1] https://www.mercatus.org/research/federal-testimonies/curbing-wasteful-year-end-federal-government-spending-reforming-use-it
[2] https://en.wikipedia.org/wiki/Congressional_Budget_and_Impoundment_Control_Act_of_1974
[3] https://lyldenlawnews.com/2023/10/02/at-the-court-congress-and-the-power-to-spend/
[4] https://oversightproject.org/2022/05/31/the-problem-of-determining-the-problem-the-problem-with-year-end-spending/
[5] https://www.gao.gov/products/095406
[6] hhttps://crsreports.congress.gov/product/pdf/R/R46827
[7] https://nyujlpp.org/wp-content/uploads/2019/11/Yoo-Closing-the-Black-Fiscal-Hole-Alternatives-to-the-Spend-it-or-Lose-it-Policy-for-Agency-Discretionary-Spending-20nyujlpp339.pdf
[8] https://www.congress.gov/bill/93rd-congress/house-bill/7130
[9] https://constitutioncenter.org/the-constitution/articles/article-i/clauses/756
[10] https://www.mercatus.org/students/research/research-papers/curbing-surge-year-end-federal-government-spending
[11] https://www.govinfo.gov/content/pkg/GPO-RIDDICK-1992/pdf/GPO-RIDDICK-1992-34.pdf
[12] https://www.yalejreg.com/nc/the-overlooked-conundrums-of-impoundment-by-mark-thomas/
[13] https://www.imf.org/external/pubs/ft/pam/pam48/pam4801.htm
