Study: Budget uncertainty has a cost — more spending

Even if Washington doesn’t go over a “fiscal cliff” of tax increases and spending cuts on Jan. 2, and Democrats and Republicans reach a deficit-reduction deal, years of hand-wringing in Washington over federal budgets have had serious consequences:

More spending.

According to a new report by the IBM Center for the Business of Government, a Washington think tank, every day Congress misses deadlines to pass budgets takes a financial toll on taxpayers. And the current impasse, which started last year and almost led to a government shutdown, is just a recent example of a wasteful pattern author Philip G. Joyce calls “dysfunctional” in “The Costs of Budget Uncertainty.”

The fight between Democrats and Republicans on Capitol Hill over whether to raise the country’s debt ceiling in 2011 — which led to a law that could trigger $108 billion in domestic and defense cuts on Jan. 2 — “highlighted the increasingly dysfunctional nature of the federal budget process,” Joyce concludes.

“For many participants in the process, and for those affected by it, this was simply an extreme form of business as usual.”

Joyce, a professor at the University of Maryland School of Public Policy, notes that in the last 37 years, Congress has passed budget bills just four times before the start of a new fiscal year.

What should be the exception is now the norm. Federal agencies lurch from month to month with stop-gap budgets and continuing resolutions that leave managers so uncertain about what they have to spend to carry out their missions that they are forced into inefficiencies. Put another way, the impact of late appropriations is a lot of unnecessary spending.

Federal contractors, for example, often build a risk premium into their bids to guard against budget uncertainties, Joyce writes. Agencies sign month-to-month contracts instead of annual ones. Managers do not know when or whether they will be able to staff new projects, and are sometimes forced to make hasty or unnecessary hires.

Hiring freezes, another result of stop-gap budgets, can result in vacancies in important programs. And in some cases, programs that Congress had agreed to stop live on for months because there’s no new appropriation to reflect the decreased spending on them.

All of these factors mean more costs, both administrative and legal.

The Washington Post took a look at some of these consequences during the government shutdown threat last year.

The threat looming now of drastic automatic spending cuts, known as a sequester, puts furloughs on the table at many agencies, depending on how long it takes Congress to agree on a package of tax increases and spending cuts. Furlough threats are so destabilizing for employees that some seek other jobs, and take them when they find them, Joyce writes. 

The longest periods the federal government went without a budget were in 2007 and 2011, when the entire fiscal year was covered by continuing resolutions. Congress passed five of them this year, the last one before the presidential election, when it was clear that lawmakers needed to buy yet more time while they bicker over the federal budget. 

 

 

Lisa Rein covers the federal workforce and issues that concern the management of government.

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Lisa Rein · December 14, 2012