Budget Bacchanal

This column was published in Politico
http://www.politico.com/story/2013/08/the-summer-budget-bacchanal-95811.html?hp=r13

While most people are enjoying vacations, government agencies and their contractors are spending your tax dollars faster than ever.

That’s right — it’s peak shopping season for the U.S. federal government. Despite automatic budget cuts known as “sequestration,” the fourth quarter of the fiscal year remains the time for Uncle Sam’s annual spending spree. Why is that? Because over the course of July, August and September, agencies must spend the balance of their fiscal year budgets or suffer having their requests for budget increases being second-guessed by the Office of Management and Budget and the appropriating committees in Congress.

And spend they do. Each year around this time, potential savings evaporate in an orgy of expedited procurements and other spending during the mad dash to spend every penny before midnight on Oct. 1. No celebrations of frugality here; agencies would rather guard their budgetary turf than save money for taxpayers.

Each year, on average, executive branch departments and agencies spend only two-thirds of their discretionary money by June 30, the end of the third fiscal quarter. By the fourth quarter, there’s pent-up demand and a rush to spend. One-third of government spending typically happens in the fourth quarter. (In fiscal 2011, the peak was less dramatic. At the start of the fourth quarter, the federal procurement system had spent approximately 70 percent of its contracting dollars.)

The OMB provides program-specific fund tracking to federal executives around mid-July on what is left to spend. Agency officials view this OMB tracking report on “use or lose” spending as the “starting gun” for wanton expenditures of dubious value.

The government’s contractor accounting system, Deltek, also sends out fourth-quarter program and agency-specific opportunities to the vendor community. Government contractors, with long-term service arrangements, known as Indefinite Delivery, Indefinite Quantity, make beelines to their agency contracting officers to discuss immediate ramping up of expenditures. It is one of the dirty little secrets of how Washington really operates.

This year, some private firms started the fourth-quarter spending promotion in June, conducting business outreach sessions. One of their fliers heralds, “Once again federal spending has been delayed until the 4th quarter” and asks, “Do the agency people know you and your company?”

The flier [http://govconectx.com/June_13_Outreach.html] provides a list of participating agencies, “with more being added every day!” In this season of accelerated spending, there is something for everybody, except American taxpayers.

Imagine if Washington’s incentives mirrored the real world, where saving money still means something. Imagine if Congress passed a fourth-quarter spending restriction that mandated agencies spend only 25 percent of their budget in the fourth quarter.

To calculate the potential savings, let’s use the 33 percent average in fourth-quarter spending occurring across the executive branch. The 8 percent difference would save $104.8 billion in the next three months.

That amount in savings is larger than the $71.4 billion sequestration cuts for FY 2013. The key difference is that, instead of draconian across-the-board cuts, this amount is fully focused on last-minute arbitrary spending. These last-minute buys are for things agencies have lived without for the entire fiscal year. This is not spending to keep our military planes flying or national parks open; it’s money spent on optional conferences and nonessential services. The GSA and IRS conferences that attracted so much recent concern were part of previous year-end spending bonanzas.

Such waste provides another reason to curtail this long-standing budget bacchanal. Agency officials will scream, while American taxpayers will breathe a sigh of relief.

Scot Faulkner is former chief administrative officer of the U.S. House of Representatives.

The Budget Bunker

President Obama has the Republicans, and the nation, right where he wants them. Everyone is talking about how budget cuts hurt people.

Obama has embraced the advice given by his first chief of staff, Rahm Emanuel, “You don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.” The Sequester was not supposed to have happened. Now that it has, Obama and the Democrats are doing all they can to eradicate opposition to government’s eternal growth.

The Sequester was supposed to be the “mutually assured destruction” of sacred cows for both Democrats and Republicans. This intentional apocalypse was designed to force all sides in the budget debate to find common ground. However, in the summer of 2011, both sides assumed they would completely triumph in the November 2012 elections. This would have given either side the ability to move their agenda unfettered by their opponents. The electorate voted to maintain the status quo, leaving gridlock and the Sequester to move all sides to a crisis of their own making.

The Democrats figured out how to make gourmet lemonade from this pile of lemons, while the Republicans retreated into their Budget Bunker.

Democrats had the home field advantage. They had just spent two years painting Republicans as only interested in protecting the very wealthy. They also spent months building their case that the only thing wrong with the Federal Government was that it did not have enough money. The expiration of the Bush era tax cuts on January 1, 2013 allowed the first post-election battle to occur on turf most friendly to Democrats. Republicans were forced to give ground or lose all their ground on the revenue issue.

Sequester visuals also favor the Democrats. There are plenty of compelling back drops for scaring people into believing soldiers, first responders, teachers, daycare workers, and park rangers are going to vanish. Even though the actual Sequester legislation, the Budget Control Act of 2011, only sets general budget targets, both sides agreed to implement the bureaucratic equivalent of losing weight by cutting off fingers instead of dieting.

Republicans could have countered all of this. They had the capability. Senator Tom Coburn’s annual Waste Book detailed many ways to reduce hundred of billions in government spending without pain. Agency Inspector Generals and the Government Accountability Office (GAO) publish over 9,500 reports a year detailing over $650 billion in waste, fraud, and abuse. However, the GOP remains in their Budget Bunker, content to fall into the sequester impact trap by scrabbling to move funds around and making overly vague pronouncements about spending.

There are other missed opportunities. The Executive Branch normally has attrition of 60,000+ employees a year. Much of this occurs due to retirement. Currently, the Office of Personnel Management (OPM) has a retirement processing backlog of 41,103. There were an additional 20,374 retirement applications just in the month of February. This acceleration of aging and retiring federal civilian workers provides an historic opportunity to rethink positions and reduce costs. Does every retired worker need to be replaced? Is every layer of management (up to 23 layers in some agencies) really needed in the 21st Century? Can functions and offices be consolidated as staffs dwindle and information age technology improves span of control for supervisors?

The answer to all these questions is yes. However, only a few Republicans, notably Senators Tom Coburn and Rand Paul, are drawing attention to vacancies being posted since the Sequester. However, even here Republicans miss the point. They offer up low level front line positions for a hiring freeze when they should also be blocking new senior executives and managers who would not be missed and generate far more savings.

Republicans are squandering their precious few on air moments. There is no message discipline. What common points they do make either offer up conspiracy theories, blamestorming, or finding ways to protect the Defense Department. They refuse to admit that the Defense Department is just another bloated bureaucracy. By spending time protecting DOD waste they prove Obama’s case that any cut, not matter what size, is harmful.

Obama is playing the long game. He is not just looking at shaping the 2014 battlefield or even the 2016 one. Obama and the Democrats are using Sequester, and all the other budget battles, to reverse the Reagan Revolution. Reagan strategically shifted America’s political landscape when he declared, "Government is not the solution to our problem; government IS the problem." With every comment, every action, every minute, Obama and the Democrats are countering this with “Government is not just the solution to our problem it is our salvation for everything.”

Republicans need to leave their bunker and start offering up ideas and solutions that appeal to common sense and common ground.

Fear & Loathing in Washington, DC

The Executive Branch refuses to acknowledge that it has broad latitude on how to implement the Sequester. This may be good politics, but it is a disservice to our country. Gaming the system will not solve America’s fiscal problems or promote collaboration over combat.

[1] Gaming the system - Level 1
Under the Budget Control Act, the Federal Government can ignore the Sequester, for now.

The Sequester only happens if, at the end of a fiscal year, spending exceeds designated levels under the Budget Control Act. Therefore, the Sequester does not happen on March 1, 2013 but later, when it is necessary to, “eliminate a budget-year breach”. There are six months to cut spending and avoid the Sequester.

[2] Gaming the system - Level 2
There is no immediate “day of reckoning”.

The impact of the Sequester will not be felt until July for most jurisdictions and late August when schools start their next academic year. Federal funds for teachers, police, and many grant programs are sent to the states annually or quarterly. State governments then disburse these funds, matched with state and county contributions, to these services. States, counties, municipalities, and school districts start their fiscal year on this coming July 1, 2013 not last October 1, 2012.

[3] Gaming the system - Level 3
The “day reckoning” can be avoided using normal OMB methods.

Agencies spend their funds unevenly as contracts, travel, and personnel actions occur sporadically during the fiscal year. If everything was evenly paced, 25% would be left unspent on July 1 (to cover the final three months of a fiscal year - July, August, September). Unevenly paced spending can leave as much as 40% unspent in some agencies on July 1.

OMB provides budget guidance in June telling each agency how much they have left to spend. Agencies accelerate their fourth quarter spending to spend everything they have. If they don’t do this the excess money is returned to the Treasury, and the agency may have trouble justifying future spending increases. Imagine if remaining balances exceeding 25% were returned to the Treasury on July 1 – Sequester solved!

[4] Gaming the system - Level 4
A budget sweep could prevent Sequester now and for the next six years.

OMB could at any time conduct a budget sweep to reclaim unexpended civilian balances among revolving funds and contingency funds. That would bring $687 billion back to the Treasury for the current fiscal year. That is over half the entire ten year Sequester or 13 times more than the current fiscal year Sequester. Sequester solved!

[5] Gaming the system - Level 5
OMB could enforce its own guide lines and avoid the Sequester completely.

OMB uses a Current Services Analysis for modeling what it costs to maintain exactly the same level and scope of services in the next year’s budget. For decades agencies have been funded well above their CSA levels. The budget battles are always over how much to increase spending. They are never about cutting or even maintaining CSA levels. In the current CSA the Sequester actually creates a net $110 billion increase in federal spending over the next ten years. Enforce CSA levels and Sequester solved!

[6] Gaming the system - Level 6
Freezing federal hiring would meet all budget limits and end the Sequester!

By properly managing personnel actions the Budget Control Act targets could be reached in three years instead of ten with no furloughs. Currently there are over 4,900 vacancies among domestic agencies and our government still operates. There is currently another 1,358 civilian vacancies in the Department of Defense and we are safe. Salaries and benefits for just these vacancies total approximately $62 billion/year for domestic agencies and $17.4 billion/year for Defense. In a typical year an additional 29,000 positions become vacant government-wide. This means that over $350 billion in personnel costs could be avoided if hiring was frozen. Some positions may be deemed critical and necessary for filling, but the vast majority of federal vacancies serve Americans better by remaining vacant.

As each hour passes, politicians and pundits are ratcheting up their rhetoric. They need to stop pointing fingers and wringing hands. It is time to make real decisions based on facts.

It is time to be statesmen, not showmen.

Scot Faulkner is a former chief administrative officer for the U.S. House of Representatives. His articles on government reform appear at citizenoversight.blogspot.com