[Senate Hearing 114-127]
[From the U.S. Government Publishing Office]
S. Hrg. 114-127
PRUDENT PLANNING OR WASTEFUL BINGE? A LOOK AT THE END OF THE YEAR
SPENDING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL SPENDING
OVERSIGHT AND EMERGENCY MANAGEMENT
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 30, 2015
__________
Available via http://www.fdsys.gov
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Keith B. Ashdown, Staff Director
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
Laura W. Kilbride, Chief Clerk
Lauren Corcoran, Hearing Clerk
SUBCOMMITTEE ON FEDERAL SPENDING OVERSIGHT AND EMERGENCY MANAGEMENT
RAND PAUL, Kentucky, Chairman
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Brandon Booker, Staff Director
Dahlia Melendrez, Minority Staff Director
Rachel Nitsche, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator Paul................................................. 1
Senator Baldwin.............................................. 2
Senator Lankford............................................. 10
Senator Ernst................................................ 17
WITNESSES
Wednesday, September 30, 2015
Jason J. Fichtner, Ph.D., Senior Research Fellow, The Mercatus
Center at George Mason University.............................. 5
Dean W. Sinclair, Changing the Culture of Washington............. 7
Philip G. Joyce, Ph.D., Professor of Public Policy and Senior
Associate Dean, University of Maryland School of Public Policy. 9
Alphabetical List of Witnesses
Fichtner, Jason J., Ph.D.:
Testimony.................................................... 5
Prepared statement........................................... 23
Joyce, Philip G., Ph.D.:
Testimony.................................................... 9
Prepared statement........................................... 62
Sinclair, Dean W.:
Testimony.................................................... 7
Prepared statement........................................... 60
PRUDENT PLANNING OR WASTEFUL BINGE? A LOOK AT THE END OF THE YEAR
SPENDING
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WEDNESDAY, SEPTEMBER 30, 2015
U.S. Senate,
Subcommittee on Federal Spending,
Oversight and Emergency Management,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Rand Paul,
Chairman of the Subcommittee, presiding.
Present: Senators Paul, Lankford, Ernst, and Baldwin.
OPENING STATEMENT OF SENATOR PAUL
Senator Paul. I call this hearing to order. Today we are
going to be discussing wasteful spending. I think it is
particularly appropriate since we have just gone through an
escapade or a situation where we have basically continued to do
more of the same without any changes, a continuing resolution
(CR). And I think what we have failed to do through doing that
is we have failed to look at particular problems like this one.
The problem we are going to look at today will not balance
the budget, but it would certainly be something that we ought
to start somewhere with trying to cut out wasteful spending.
So we are going to look today at the end-of-the-year
government spending binge and how spending goes up at the end
of the year. Today is the last day of the fiscal year (FY), and
I think this should be of some concern.
All last week, and even all month, Federal agencies have
been ramping up their spending. Many studies have shown this.
One of the witnesses, Dr. Fichtner, has shown September
spending will be nearly double that of August. Another study
shows spending jumps nearly 500 percent over average in this
last week. And in a clear effort to spend as much as possible,
today's spending will move west in order to gain a few more
hours in fiscal bingeing. West coast spending will be 70
percent higher today compared to spending in the east.
Today we are going to hear some examples of wasteful end-
of-year purchases, and I will start with one that we have in
our little Committee here. When I took over this Subcommittee
and we moved into the new office, we found printer cartridges
stacked almost to the ceiling for a printer that was years out
of date. So we asked: ``Why would someone with the knowledge of
this buy all of this stuff? And why would it be still sitting
around?'' We found out that a previous Chairman, several
Chairmen back bought the toner as part of an end-of-the-year
spending binge, and that Senator has now been gone for years,
but the toner still remains.
This practice will not continue under my chairmanship. This
year I am again going to turn back in nearly half a million
dollars from my own personal office budget. We are going to
turn back money here in this Subcommittee as well. More than
just talking about problems, we want to find solutions.
I have a possible solution or a way to help to end some of
the wasteful spending, and this is called ``Bonuses for Cost-
Cutters Act.'' What it would do is reward Federal employees for
identifying excess funds and to actually turn those funds back
into the Treasury.
As you can imagine, appropriators from both parties are
opposed to my bill, but we think it would be another way to go
forward with trying to actually reduce some spending by giving
people bonuses. If you are in the private marketplace and you
can save money for your employer, you often get a bonus. Why
don't we give people, instead of having the perverse incentive
to spend it all at the end of the year, why don't we actually
give you a bonus if you will turn it back in?
We have had a great deal of discussion on the floor about
controlling the power of the purse and how having a continuing
resolution does nothing to really exert our power of the purse.
There are too many, though, I think, who often do not care what
we buy or how much we spend of their money.
So another idea I have other than giving Federal employees
bonuses is why don't we give contractors bonuses as well for
coming under budget instead of having programs where we simply
add cost plus whatever it takes to get a project finished. I
think really it is important, if Congress is to assert its
authority of the power of the purse, that we look in every nook
and cranny of the budget and look for ways to save money. To
me, even when I was not in office, we often heard at every
level of use it or lose it, get rid of it, spend it, or you
will not get it next year. And I think this still happens in
government, and it has happened for a long time. And I for one
hope that this Committee hearing will go a ways toward trying
to stop this.
With that, I would like to recognize the Ranking Member,
Senator Baldwin.
OPENING STATEMENT OF SENATOR BALDWIN
Senator Baldwin. Thank you, Mr. Chairman.
Good afternoon. I want to welcome everyone here today. We
are here today to discuss end-of-the-year spending at agencies
throughout the Federal Government. I want to thank our
witnesses who are here today, which we all know is the last day
of the Federal fiscal year. I look forward to your testimony
that I think will help put these spending patterns that will be
talked about into some perspective.
The title of today's hearing is, ``Prudent Planning or
Wasteful Binge?'' It suggests that this is the day that Federal
agencies work through to spend what is left in their budgets,
either as the result of managing funds to sustain unexpected
costs or by any means necessary before the funds expire. And I
imagine that if we were to check in with budget directors at
Federal agencies this afternoon, they would have something else
on their minds, and that is, whether the Federal Government
will be open tomorrow.
No doubt that they are examining resources and preparing
their operations for any number of scenarios, including a
shutdown, no matter how close leaders in the House and Senate
say they are to passing and reaching a final deal. I know we
did our work in the Senate earlier today, but it is not done
yet. That is because the end of the fiscal year--presents a
deadline for Congress as well. Political games have resulted in
another manufactured crisis that is driving us to the brink of
yet another government shutdown. These are problems that we
have seen before.
Hardworking families in my State of Wisconsin and across
the country expect and deserve better from the Congress of the
United States. The people we represent get up every day and do
their job, and it should not be too much to expect that we do
ours by keeping the government open for business and working
together to get things done for the American people.
This afternoon we will examine if spending at the end of
the fiscal year is, in fact, a source of waste in the Federal
Government. But I think we already know that planning for a
possible shutdown and operating on continuing resolutions are
most definitely a source of waste. Even after a CR is passed,
agency budget officers must spend time planning for the short
term. Drifting from one budget crisis to the next makes our
government less efficient and more expensive for taxpayers.
The 2013 government shutdown not only wasted resources and,
frankly, weeks of productivity, it cost $24 billion in lost
economic output. Our full Committee described the failure to
pass appropriations bills on time as part of ``crisis
budgeting'' when in 2013 it looked at the costs and impacts of
operating through continuing resolutions, the threat of
shutdown, and across-the-board budget cuts to Federal programs
through sequestration. Two years later, not much has changed.
And so how do Federal agencies deal with the uncertainties
of crisis budgeting? In areas where they have discretion to
delay spending money, they do. And that is no different than
anyone balancing their household budget would do.
With all of this uncertainty, it is a reasonable response
for budget directors to wait until later in the year when it is
clear how much funding is available for staff training or staff
generally, let us say. Agencies issue shorter grants and
contracts with increased overhead costs and delay contracts
until later in the fiscal year because it takes time for
contracting officers to do their work. Squeezing contracts,
grants, and purchases into the last few months of the fiscal
year can certainly lead to inefficiency.
When the Government Accountability Office (GAO) surveyed
agencies about the impact budget uncertainties have on their
operations, the Bureau of Prisons Field Acquisition Office
admitted that when a CR is in place, trying to complete their
contracts of more than $100,000 each by the end of the fiscal
year negatively affects the quality of competition.
Resolving crisis budgeting may not reduce pressure to ``use
it or lose it,'' as it is called, but it would certainly
restore some certainty, some predictability. To only refer to
money obligated in August or September as ``a spending rush''
or ``wasteful binge'' assumes that at the end of the fiscal
year a Federal agency would do just about anything to pad their
budget. But as we all know, the need for staff training and
technology are inexhaustible, and in our current budget
environment, there are simply fewer resources for low-priority
purchases. GAO found this to be true for most discretionary
programs in their 1998 report on year-end spending and would
likely find the same, I would say, in 2015.
In my home State, we have a work ethic that is really
second to none, and we pinch our pennies. And our people expect
the same with their taxpayer dollars that we invest in their
future. So when we find egregious instances of wasted taxpayer
dollars, it is our job to act no matter at what point in the
fiscal year that money is spent. The fact is that far too many
Wisconsin families and individuals, despite their hard work, do
not have extra money left in their own budgets at the end of
the month or the end of the year. Stories about government
spending their tax dollars on a truckload of flower pots or
other such examples to avoid budget cuts are simply
indefensible.
I expect that we will have time this afternoon, Mr.
Chairman, to talk not only about what happens at the end of a
fiscal year, but also continue the dialogue that the Chairman
and I have begun earlier this year about finding solutions to
the problems of wasteful government spending. And I want to
thank Chairman Paul for once again providing us an opportunity
to root out wasteful spending. I look forward to our
conversation about the incentives built into our budget process
and the extent to which they lead to decisions that waste
taxpayer dollars.
Senator Paul. Well, thank you, Senator Baldwin.
I think that it is important to note that there is some
agreement. I think continuing resolutions are a terrible way to
run government. But I think it is also important to point out
that this has been going on for a decade under Republicans and
Democrats. It is both parties that have been a huge failure,
and it is part of the reason why there is about an 11-percent
approval rating for Congress because we do not do our job.
End-of-the-year spending will not balance the budget if we
were to fix it. It is a phenomenon, and we should fix it. But
we do not fix anything around here with a continuing
resolution. Nothing gets better. We never examine bad spending
or good spending, and nothing gets better. So I am very
frustrated with the process of the continuing resolution and
will continue to fight against that.
At this point, I would like to introduce our first witness,
Dr. Jason Fichtner, who is a senior research fellow at Mercatus
Center at George Mason University. His research focuses on
Social Security, Federal tax policy, Federal budget policy,
retirement security, and policy proposals to increase savings
and investment. Previously he served in several positions at
the Social Security Administration, including as Acting Deputy
Commissioner of Social Security. Most relevant today, he is the
lead author of a paper published just last year entitled,
``Curbing the Surge in Year-End Federal Government Spending:
Reforming `Use It or Lose It' Rules.'' The Committee would like
to at this point welcome Dr. Jason Fichtner.
TESTIMONY OF JASON J. FICHTNER, PH.D.,\1\ SENIOR RESEARCH
FELLOW, THE MERCATUS CENTER AT GEORGE MASON UNIVERSITY
Dr. Fichtner. Thank you, Senator. Good afternoon, Chairman
Paul, Ranking Member Baldwin, Senator Lankford. Thank you for
inviting me to testify today.
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\1\ The prepared statement of Dr. Fichtner appears in the Appendix
on page 23.
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My testimony focuses on two issues: first, the extent to
which perception of a year-end spending problem is reality;
and, second, how various reforms would improve the efficiency
of spending by Federal Government agencies and departments.
From this discussion, I hope to leave you with the
following two takeaways:
First, while anecdotes and media stories of year-end
spending surges are widespread, empirical evidence for year-end
spending surges and use-it-or-lose-it spending--or the
motivation behind the spending--is significantly less
available. However, my research and recent research by other
scholars is beginning to demonstrate empirical evidence that a
year-end spending phenomenon is real and potentially wasteful.
Second, allowing Federal agencies limited rollover or
carryover authority could reduce wasteful year-end spending
splurges. Similar reforms at the State level and
internationally have shown promise, but more research is still
needed.
The use-it-or-lose-it phenomenon refers to the propensity
of U.S. Government agencies to spend unused financial resources
toward the end of the fiscal year. This spending is usually
driven by fear that leftover resources will be returned to the
Department of the Treasury and will prompt future congressional
budget cuts for the agency.
Economists Jeffrey Liebman and Neale Mahoney analyzed data
from the Federal Procurement Data System and the White House's
IT Dashboard to show that not only is there a surge in Federal
spending at the end of the year, but also the spending is of
lower quality. According to Liebman and Mahoney, at the end of
the fiscal year, ``the prospect of expiring funds'' causes
agencies to spend all their remaining resources, ``even if the
marginal value is below the social costs of those funds.'' The
International Monetary Fund found that year-end spending surges
are a ``commonly observed phenomenon in government
administrations.'' Such surges have occurred in Canada, Taiwan,
and the United Kingdom, just to name a few.
My research analyzed publicly available data from
USASpending.gov related to spending on prime contracts awarded
by executive departments. My analysis focused on this type of
spending--which comprised roughly 12 percent of total 2013
Federal spending--because the data are readily available
throughout the USASpending data archive.
My research shows that a remarkably large percentage of
Executive Branch contract spending occurred near the end of the
fiscal year. If an agency were to spread its contract authority
evenly over a 12-month period, roughly 8.3 percent of spending
would occur in each month. However, in the last month of fiscal
year 2013, the Department of State spent 38.8 percent of its
contract expenditures, and the Department of Health and Human
Services (HHS) spent 28.7 percent.
Now, not all agencies exhibited a year-end spending surge.
For example, the Department of Energy (DOE) spent only 6
percent of its annual contract expenditures in September. But
as the data show, most Federal agencies were well above 8
percent, and many were above 16 percent. Between 2003 and 2013,
of the data I looked at, across all executive departments, 16.9
percent of obligated contract expenditures occurred during the
month of September. That is more than twice what we would
expect if spending were split evenly over 12 months at 8.3
percent per month.
It is important to point out that the pattern of fiscal
year-end spending surges is evident across all fiscal years
analyzed and it is not unique to the current administration or
the past few Congresses, as Senator Paul referred to. Year-end
spending surges have become the norm, regardless of
administration, party control of Congress, or delays in
finalizing agency appropriations.
Academic research and some anecdotal evidence suggests that
the current budget rule of use it or lose it is not optimal and
may be encouraging wasteful spending of taxpayer dollars. The
question remains: If such spending is indeed wasteful, what can
be done to reduce it?
One idea is to allow agencies limited rollover authority--
also known as carryover--for funds not spent by the end of the
fiscal year. The Federal Government could begin with a pilot
exercise to test the merits of limited rollover authority.
Within certain Federal departments, agency subcomponents could
be given the authority to roll over up to 5 percent of the
contract budget authority into the next fiscal year.
To avoid lengthy delays in the spending of rollover funds
and to discourage large accumulation of such rollover funds,
such funds should be spent within 2 years. Department or
agencies that wish to participate in the pilot could submit a
request to Congress, which could then direct the Government
Accountability Office to oversee, audit, and evaluate the
program.
Executive departments should be required to submit midyear
budget reviews to Congress and the GAO. These reviews would
detail, by agency subcomponent, the anticipated expenditures
for the remainder of the fiscal year, the anticipated surpluses
at the end of the fiscal year, and the reasons for these
surpluses. Midyear reports with similar components have yielded
success in reducing use-it-or-lose-it pressures and year-end
spending surges when tried at home in Oklahoma and overseas in
Taiwan. A pilot program that gives limited rollover authority
to several departments, combined with congressional and GAO
oversight of rollover accounts, would be a useful experiment to
see whether these changes to the Federal budget process would
reduce wasteful year-end spending.
Thank you for your time and this opportunity to testify
today. I look forward to your questions.
Senator Paul. Thank you, Dr. Fichtner.
Our next witness is Dean Sinclair of Changing the Culture
in Washington. Mr. Sinclair was a long-time Federal employee
overseeing multi-million-dollar contracts. This was
particularly the case when he was the Executive Director of the
Iraq Scientists Engagement Program for the Department of State
in Baghdad. Mr. Sinclair is keenly aware of the use-it-or-lose-
it phenomenon and is deeply troubled by it.
I am looking forward to hearing more about your experiences
and getting your insights. Mr. Sinclair.
TESTIMONY OF DEAN W. SINCLAIR,\1\ CHANGING THE CULTURE OF
WASHINGTON
Mr. Sinclair. Thank you, Chairman Paul, Senator Baldwin,
and the Subcommittee. Thank you for letting me join you today.
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\1\ The prepared statement of Mr. Sinclair appears in the Appendix
on page 60.
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I have a lifetime of experience working both sides of the
fence as a contractor and as a direct hire for the U.S.
Government, both in the military, in the army, and in the
Department of State. I will start with the story that you
referred to, Senator Baldwin.
There was an ambassador in Africa who asked his facility
manager to order four flower pots, and thinking about it, he
came back to that facility manager and said, ``Hey, it is the
end of the year. I have a big budget there. Why don't you buy a
truckload of flower pots for us?'' And the facility manager,
who I spoke to personally firsthand, hated himself for having
to do that. He was disgusted with the whole process, but, of
course, he did it because he was asked.
So he got the flower pots in Africa. Who knows where they
came from? When they showed up, they took four of them out, put
them around the embassy where they were needed, and the rest
were put behind a building and left just to rot in the sun,
because you cannot let them go, you cannot give them away
because of the rules, you cannot sell them. You had to keep
them.
Now, you have to wonder. That was an ambassador. I am sure
he or she sometimes risked his or her life in the course of
their duty, like I was doing in Iraq for 9 years, just to do
our job. It was often a very insecure thing. We are doing
things that are for the benefit of America. Oftentimes it has
direct impact on our national security. These are not disloyal
people. These are not people who are out to just do evil things
to America. If that is the case, then what is happening? What
causes a person to make such an egregious decision about
wasting money at the end of the year?
My thought, after all these years, is that they do not have
any incentive to do it. At the end of the year--and let me give
it to you clearly. There are three steps that I think need to
take place on this end of it. For the employees themselves to
voluntarily come forward and not waste the money but spend it
effectively and efficiently, three things need to happen.
One, at the end of every year, they are evaluated. They get
an employee evaluation form. You will not find on that form a
good statement that says, ``Have you spent your money that has
been budgeted?'' And if you did and completed your program,
well, that is one of the best check marks you can get.
However, if you happen to complete your mission and return
surplus money to the Treasury, well, that should be the highest
check mark an employee gets on their annual evaluation. Notice
you do not have to build a bureaucracy. You do not have to come
up with a new program. You just need to put it in there, and it
is not--if you check--and I have--it is not in there in a way
that effectively evaluates employees that way.
Another one, with no bureaucracy, no extra programs
attached to it, simple public recognition is one of the most
effective motivating tools for employees, and if at the end of
the year they turn money back and that is surplus money, they
should get, like I did, I got two plaques for having an
outstanding program in Iraq from an Under Secretary and from
the Ambassador himself. You better believe I worked hard for
those. And at the end of the year, if people have turned money
back in, why not just give them the plaque, ``Hey, that is what
we wanted,'' do it in front of the whole organization, and put
it in their personnel record, and probably in the local news
source for that agency. I was written up in the agency--it was
the U.S. Army Corps of Engineers (USACE) magazine. It was the
proudest moment of my life just to see that news article.
So the third one, Senator Paul, is exactly what you said. I
know you did it in a bipartisan effort with Senator Mark
Warner, and that is, why not give people a bonus of some sort?
And I am not saying a large one, but I personally turned back
$1 million when I was running an $8.5 million program. And when
I did that, the people I was working for, they looked at me
like a deer in the headlights, ``I have never seen this
before.'' What if they had just given me a little bonus for
doing the right thing?
Those are the three things that you need to do to get the
people on board to support not wasting money at the end of the
year.
Senator Baldwin. I would like to take the opportunity to
introduce Dr. Philip Joyce and add my personal thanks to you,
Dr. Joyce, for being here today.
Dr. Joyce is associate dean and professor of public policy
at the University of Maryland and has spent more than 30 years
practicing and studying budgets at the Congressional Budget
Office (CBO), the Illinois Bureau of the Budget, and the
Illinois Department of Corrections. He is the author of a
report detailing the costs of budgeting uncertainty based on
his research and interviews with current and former government
officials. That report describes the effects of late
appropriations on Federal agency operations over the last 35
years and explains how Federal budget officers have attempted
to address greater levels of uncertainty every year. That
report is relevant today as Congress votes to keep the
government open.
Dr. Joyce testified before our full Committee in 2013 and
talked about year-end spending in the context of budget
uncertainty, and I am delighted to welcome you to the panel
here today to provide us with your insight. Thank you, and we
await your testimony.
TESTIMONY OF PHILIP G. JOYCE, PH.D.,\1\ PROFESSOR OF PUBLIC
POLICY AND SENIOR ASSOCIATE DEAN, UNIVERSITY OF MARYLAND SCHOOL
OF PUBLIC POLICY
Dr. Joyce. Thank you very much. Thank you, Chairman Paul,
Senator Baldwin, Senator Lankford, Members of the Subcommittee.
I am very happy to be here today.
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\1\ The prepared statement of Dr. Joyce appears in the Appendix on
page 62.
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My message to you today is a relatively simple one; that
is, I think end-of-year spending is real, I think it is
potentially a problem to the extent that funds are wasted. I do
not think in the overall scheme of things it is perhaps the
highest priority problem that we have. But if end-of-year
spending is real, I do want to point to something else that is
real as well, and that is the uncertainty that is created by
the dysfunction of the appropriations process.
I think end-of-year spending to some extent is a
predictable and understandable response by Federal agencies to
the incentives that they face, and that creating more certainty
in the process would actually do far more to curb waste and
inefficiency in government than trying to rein in end-of-year
spending.
But first I want to acknowledge that spending, particularly
for contracts and other types of non-salary items, is
backloaded, at least in relative terms. And this, by the way,
is not peculiar to the Federal Government, as has been
suggested. There are lots and lots of governments where this is
an issue. I started my career as a budget analyst in the
Illinois State budget office. The fiscal year started on July
1. June was a very busy month. So this is not something that is
peculiar to the Federal Government.
A lot of this at the Federal level has to do with the laws
that govern Federal spending. Agencies cannot overspend their
appropriations because of the Anti-Deficiency Act. On the other
hand, they are supposed to spend the funds that have been
appropriated because of the anti-impoundment statutes. So it is
quite prudent for agencies to set aside funds until they know
that they have the money. To that extent, end-of-year spending
could be a prudent response to the incentives that they face.
But that is not to suggest that agencies do not sometimes
spend money just to avoid losing the funds and that they also
do not sometimes spend money in order to protect their
budgetary base for a future fiscal year.
So it is not an excuse for wasting funds on unneeded
expenditures, not only at the end of the year but any other
time. But if one is to get a handle, I think on the real
problem, I think it is important to be clear about the
distinction between end of year and wasteful, because the two
are not synonymous. The key question here has to do with the
quality of spending, not necessarily the timing of spending.
And if one looks at the GAO high-risk list, for example, there
are a whole lot of examples of fiscal exposure, larger fiscal
exposures than end-of-year spending. For example, there is the
$80 billion annual cost for Medicare and Medicaid improper
payments, which I would say substantially dwarfs the cost of
end-of-year spending.
So in relative terms, I would say we are not talking about
a lot of money, but to the extent that some spending is wasted
at the end of the year, it may be useful to curb the practice.
Among other things, it actually does a lot of damage to the
credibility of the Federal Government when these kinds of
examples come to light.
But how? That is where I think budget uncertainty comes in.
Two years ago, as Senator Baldwin said, I testified at a
hearing held by the full Committee designed to highlight the
harmful effects of budget uncertainty. We know what happened
this year, but this year is not unusual. There have only been
four times in the last 40 years that the appropriations process
was completed on time. And it is a good thing to avoid
government shutdowns, but government by CR is no prize either
in the sense that it creates a lot of uncertainty and that
uncertainty itself causes waste. Late appropriations push many
contract renewals to later in the year. That creates a greater
potential to make mistakes. It increases the cost of contracts,
either because savings cannot be locked in or because
contractors sometimes exact a risk premium for dealing with the
Federal Government because of the uncertainty that they face.
In addition, agencies waste a great deal of time and,
therefore, money preparing for potential government shutdowns
and also interpreting what they are permitted to do and not do
under a continuing resolution.
The effects of budget uncertainty, of course, are also felt
by recipients of Federal funds, such as State and local
governments and private contractors.
All this suggests that our normal dysfunctional way of
doing business creates a lot more waste and compromises the
effectiveness of government far more than does end-of-year
spending. And no State or local government could get away with
this. Chronic funding delays would result in lower bond ratings
and increased borrowing costs and a lot of political fallout.
So my purpose here is not to defend waste. Wasteful
spending, regardless of the magnitude or the timing, should be
avoided. It is that end-of-year and wasteful are not
synonymous, and that in the current fiscal environment, end-of-
year spending practices are an entirely understandable--even
reasonable--response to the dysfunction and unpredictability of
the appropriations process. I think making that process work
better would not only reduce end-of-year spending, but would
also improve the overall effectiveness of government.
I thank you very much for your attention.
Senator Paul. Thank you. Senator Lankford.
OPENING STATEMENT OF SENATOR LANKFORD
Senator Lankford. Thank you. Thanks, Mr. Chairman. Ranking
Member, thank you. I appreciate that.
Dr. Joyce, let me pick up where you just left off there,
and that is this broken process. As you mentioned, I believe
you said four times in the last 40 years, appropriations have
been done on time and in order with the 12 appropriation bills
at the scheduled moment. That is not just a broken process;
that is a shattered process, and it has got to be fixed.
Dr. Joyce. Right.
Senator Lankford. One of the ideas that is being floated is
some way to be able to build in an incentive. Congress only
seems to get stuff done when they have to get it done.
Dr. Joyce. Right.
Senator Lankford. And at that point, even at the last
moment, to build in some sort of process that would create
certainty in two areas. One is that the appropriations process
will be done, and the other one is that we do not have
shutdowns.
So one idea being floated is that at the end of a fiscal
year, we would have an automatic short-term CR that would kick
in for 30 days, but that there would be a cut in the budget for
the legislative branch, both the House and the Senate, and our
committees, and the White House Executive Office, just limited
to those folks that actually do the negotiation, we would have
a small budget cut. That budget cut would increase the next
month and the next month to push Congress to actually get its
work done. That is not damaging other agencies. They are still
functioning. But it is not trying to create an arbitrary
deadline but to put it on Congress, there is really no
difference between October 1 right now and December 11. We have
just created another deadline. But there is nothing going to
change between the two. So I am trying to find some sort of
pressure point to create and do that.
Have you heard of that kind of idea? I agree CRs are a
terrible way to do it, but if we trip over into October 1, I do
not want to have the instability as well. I want us to get to
the appropriations process. I would be interested in your
input.
Dr. Joyce. I think that any kind of incentive that you
create, if you believe that it would work, would be a good
thing. I do think that what might end up happening in that case
is that the real deadline, to the extent there is one, would
just shift from being October 1 to November 1; that is, the
point at which somebody believes that something that matters to
them is actually going to happen is the point at which someone
will actually get down to doing the job.
Senator Lankford. Correct.
Dr. Joyce. And when I interviewed people for this 2013
study, one of the striking things that I found is a lot of
people out there in Federal agencies--and this I think accounts
partially for the movement of contracting toward the end of the
year--actually do not believe they are going to get an
appropriation on October 1 and, therefore, they view normal as
January 1 because they have experienced that.
Senator Lankford. Right. And so that is the fixable moment
that we have to find a way to be able to add leverage basically
to Congress and to the White House that in our negotiations all
three parties can get together and try to get this done on time
and try to get us back to that.
Dr. Joyce. Correct.
Senator Lankford. So we will continue to explore that
together in the days ahead.
Let me ask this group as well, the idea about floating a
cap of what you can do in contract spending or in total
spending. As you mentioned before, the 8.3 percent would be the
normal in the process. If you did a cap saying that you could
do no more than 12 percent of your budget in the final 2
months, would that make a difference? Or would that basically
instead, being September now, you would have this big massive
spending in July?
Mr. Fichtner. I think, Senator, you already hit the
perverse incentive in your question, which is one of the
things--the problem we have is there is a deadline that forces
agencies to spend without being able to roll over any sort of
authority to the next fiscal year. If you moved that one month
up, my guess is you would see the data show that that one month
up would then be a spending splurge as well. So the idea is not
necessarily changing the date, but how do you change the
incentives with the structure of the budget process to give
them a different incentive to roll over money and spend it more
prudently.
Senator Lankford. Right, because the key really here is
oversight and to make sure that things are done well, and that
when there is wasteful spending, rather than just they were
being careful with budgets and making sure they did not go
over, that is understandable to be able to leave that. The
problem is, at the end of it, leftover funds need to be
returned to the taxpayer and to what is happening in debt
reduction rather than spent on flower pots.
Mr. Sinclair. Another thing that happens is when you come
up with rules like that, then people, they work to the rule.
And what it does not address is that cultural mindset of
wasteful spending, that is acceptable. And if you change that,
then you will not need to worry as much about those caps.
Senator Lankford. OK. One last question as well about the
carryover authority. Oklahoma has that in some of our agencies
and within the State has the ability to be able to do
carryover. Again, how does that not just incentivize agencies
to carry over and then spend twice as much, I guess?
Mr. Fichtner. Again, Senator, the point is changing the
incentives, and you also mentioned the idea of congressional
oversight. This cannot be done in a vacuum. So one of the
things I recommend is a pilot that looks to the States where
they were successful, and part of that success is having
midyear reports.
Senator Lankford. Do you have an agency that you would
recommend as a pilot on that?
Mr. Fichtner. Right now I would start with the Department
of State and also the Department of Health and Human Services,
sir.
Senator Lankford. Why? Because they spent 38 percent in the
final month?
Mr. Fichtner. That is part of it. They are the two biggest
outliers, and I think they are also the two biggest examples
with the anecdotes that show where waste is. So we could
control waste and also then change the incentives by the same
time. It could be a double win.
Senator Lankford. Thank you.
I yield back. Thank you.
Senator Paul. Thank you, Senator Lankford. And the only
thing I would add to that is if you are going to cut someone's
budget as an incentive, if you actually cut salaries, that
might be more of an incentive.
Now I would like to recognize Senator Baldwin.
Senator Baldwin. Thank you. I know, Mr. Chairman, you
yielded to Senator Lankford because he has another obligation.
Senator Paul. Go ahead.
Senator Baldwin. Well, thank you all for your testimony. I
very much appreciate it.
I know we are focusing in on the Federal Government and, in
particular, the Executive Branch. Dr. Joyce, you said in your
testimony that year-end spending is not unique to the Executive
Branch of the Federal Government, nor is it unique to
government at any level, and perhaps not even to government.
There may be examples of use-it-or-lose-it within the private
sector operating on fiscal year calendars.
I am sure if there was a silver bullet answer to the
problem, you would have offered it in your testimony, but are
there examples of budget directors outside of the Federal
Government finding useful tools that we should be looking at to
address the waste that can be present in year-end spending?
Dr. Joyce. Well, I think there are--two things I would say.
The first is that the premise of your question, which is that
this is a phenomenon that exists across lots and lots of
organizations, is absolutely correct. And the reason for that
is because most organizations have budgets that are time
limited; that is, most organizations have some point in time
when the fiscal year ends, and anytime you have that situation,
you are going to create incentives for those people to try to
use the money that they have before it disappears, unless there
is some way to incentivize them to not do that.
So the only thing that I am aware of is trying to exercise
more oversight; that is, if you think that end-of-year spending
is actually a problem and that the spending at the end of the
year might tend to be for less high priority items, that you
create some additional checks.
For example, when I worked in the Illinois Budget office,
when agencies were trying to spend a lot of money at the end of
the year, they actually had to get our approval in order to do
that if it occurred in the last quarter of the year for some
things where they did not have to get that approval if they had
spent the money earlier in the year. Just as an example.
Senator Baldwin. Just out of curiosity, I came from local
and then State-level government prior to the Congress of the
United States. Wisconsin had a 2-year budget.
Dr. Joyce. Right.
Senator Baldwin. And you talked about the propensity for
backloading these expenditures just because you get a budget
and it takes you awhile to begin to implement competitive bids
for contracts, et cetera. Have you had the opportunity to
examine others that do a 2-year budget? And I am not
necessarily a proponent of that, but how does it change
behavior? Do you see less backloading in different budget
lengths?
Dr. Joyce. Dr. Fichtner may have looked at that. I have not
looked at it. I think logically what one would think would
occur under a 2-year budget--and I have some reservations for
other reasons about a 2-year budget, but in terms of----
Senator Baldwin. As do I.
Dr. Joyce [continuing]. This specific question, I think
that the incentives would occur half as often if what happened
was that you had funds available for 2 years as opposed to
having funds available for only one year.
Senator Baldwin. I want to explore further, Dr. Fichtner,
your comment or your ideas about rollover authority. You talk
about the Federal agencies being allowed to keep a portion of
their unobligated funds to reduce the incentives created under
use it or lose it. What safeguards would you propose be in
place to ensure that these funds, which would arguably be
subject to less oversight once they were removed from the
regular appropriations process, so that these funds do not
become more susceptible to wasteful spending once rolled over?
Dr. Fichtner. Senator, that is an excellent question. In
fact, I would actually give them more scrutiny, not less, in
the congressional process, including having GAO monitor it. One
of my concerns--and I think you probably are showing this as
well--is if you give an incentive to an agency to have rollover
authority, they may purposely not spend money that Congress has
authorized and appropriated for the funds intended, just to
show they can get a bonus or just to show they have saved money
and roll it over.
So what I would do is have a pilot in which they apply to
Congress so that Congress can have a chance to have witnesses,
ask them: Why do you think your program is best suited for
rollover authority? How do you plan to do it? Then have midyear
reports that go to Congress. GAO evaluates it to make sure that
they are spending it appropriately and not just putting it in
what is called the ``rathole.'' That is very insightful, and
that is how I would put some protections on it, Senator.
Senator Baldwin. Do you have any other comments on that,
Dr. Joyce?
Dr. Joyce. Well, on rollover authority, actually going back
very far into history, when Vice President Gore was Vice
President, there was a reform called ``Reinventing
Government,'' and one of the specific recommendations of
Reinventing Government was that agencies be able to keep 50
percent of the money that they saved at the end of the fiscal
year. The trick from an agency perspective is that they have to
believe that in the executive process the Office of Management
and Budget (OMB) will not take that money out of their base for
the next fiscal year. So they have to believe that they will
actually get to keep and spend it as opposed to it will just
become a reduction in next year's budget. So everybody has to
sort of agree to play along in order for the game to work.
Dr. Fichtner. And the congressional process as well.
Dr. Joyce. Correct.
Senator Baldwin. Right. Points that you have both made.
Thank you.
Senator Paul. I would like to have this question really for
the panel. We have put forward a bill that Mr. Sinclair
mentioned, and it is a bill to basically give incentives. We
have talked about incentives for your budget or for our general
budget, but I think people respond best to incentives that
actually have to do with themselves.
In our bill basically we put forward--and someone has to
approve that they have done what they were told to do.
Basically your agency has a mission, and I believe we have the
chief financial of course, and an Inspector General (IG), both
have to certify that you have performed your mission.
But, see, I think throughout an enormous government that
spends $3.8 trillion that, the cartridges that are piled up in
our room back here, that somebody, if they thought they were
getting a $1,000 bonus by not ordering $10,000 worth of printer
toners, they probably would not have done it. And this does
work.
And as far as end-of-the-year spending, it would only work
in a corporation or happen in a corporation where there is not
good oversight and where it is so big and bureaucratic that it
is somewhat like government. In a well-run business, it would
never happen because the incentives would exist throughout, and
you would want to be pleasing your boss to get a promotion to
save money. You would be telling your boss, ``Hey, I ordered 30
percent less toners this year, so we saved the company money.''
And you would expect something for that.
But I would like to know, just each of you individually,
what you think of the idea of giving a personal incentive. I
personally do not think much of carrying the money over to the
next year. It might help a little bit not to have the crunch of
everybody trying to get rid of it. But it really does not give
anybody the incentive to give it back to the people whose money
it is, which is the taxpayer.
Why don't we start with Jason and work our way down?
Dr. Fichtner. Thank you, Senator. I think that your idea in
the bill is a very good idea. What I would also do is couple it
with the rollover spending, because one of the things you want
to do is make sure incentives align. You give the employees an
incentive, but the management does not have an incentive to
rollover authority. Then basically they might look at their
employee poorly and say, ``Hey, you just gave money back.
Congress is going to take it away next year, and you have
ruined my career.'' That is one of the things Mr. Sinclair was
pointing out. So I would look at this as a tandem idea of
giving the incentive to the employee to identify fraud and
wasteful spending with a dollar award, and the manager as well.
Senator Paul. Well, one thing on that, you could sort of
share the incentive and make everybody part of a team where the
guy at the very top or the woman at the very top is also
getting a piece of the action as well. So I think there could
be something where the whole agency could even take a little
small portion of the savings, and the guy or the woman who
found the big savings gets a bigger percentage chunk, but then
it is spread throughout the whole agency. People just react to
stuff that affects them personally.
Dr. Fichtner. I agree, Senator. The other thing I would
mention, because I have mentioned this to Mr. Sinclair and we
have talked about this, is changing the incentives for the
Senior Executive Service (SES). They have performance reviews
every year which are based on some qualities and assessments,
and one of them is business acumen. That category should
include something that says if fiscal dollars are not spent
appropriately, are you going over too much or are you on
budget, not going over or not going under, if you are carrying
over too much and not spending, or you are spending at the end
then you cannot get a salary bonus award.
Senator Paul. Yes, I like that idea, and I think maybe we
should look at our bill to see about adding that to our bill
about the way we review employees. I think that would be good
as well.
Dr. Fichtner. Thank you, sir.
Mr. Sinclair. Senator, I looked at your bill, too, and I
liked what I saw. It had protections in there so that there
would be review, because there was also the possibility of
abusing that system, ``Let us pad my budget so I can turn some
money back and get a bonus at the end of the year.'' That would
be a hardship----
Senator Paul. But they do not create their budget. We
create the budget, right?
Mr. Sinclair. Well, but they would tell you what they need,
so, ``Let me expand on what I think I need so that I can get a
bonus.''
Senator Paul. I think that already occurs without the
bonus. [Laughter.]
Mr. Sinclair. Essentially what I am saying I am agreeing
with you that since you have protections in there, that is a
good thing. Money is one of the three motivations that I
recommended. It is not the top one, though. I think it is an
excellent one if you do not make it--like, if I have saved $1
million, how much should I receive for that as a bonus? Well,
in my mind, $1,000, $2,000? Is that a good bonus for the
government to save $1 million? That seems fine. That is just a
suggestion.
Senator Paul. Right.
Mr. Sinclair. I would like to point out, though, that we
pretty much agree here on this panel on everything except
probably one thing, and that is, the magnitude of the problem.
It is a serious, hugely important problem. I think it is an
unseen problem, and the reason I say that is because people who
have this mindset that they have to get rid of that money
throughout the year are making bad decisions about that money.
And some of those decisions have to do with things like our
national security, and notice the recommendations that I have
said. I am not talking about eliminating agencies or anything.
I want every agency to work well.
Senator Paul. I think one other point I would make is that
even if it is not 50 percent of the budget or 50 percent of the
problem----
Mr. Sinclair. Correct.
Senator Paul [continuing]. If it is one percent, if you
take one percent savings across the board and you compound it,
it adds up to real savings. I mean, you actually can balance
your Federal budget, as bad as it is now, with one percent real
compounded savings over a 5-year period.
I would like to have Dr. Joyce comment, and then I will be
done.
Dr. Joyce. The only comment I could add is that you do not
provide Federal agencies and programs with money as an end in
and of itself. You provide agencies and programs with money
because there are particular missions and jobs that you want
them to do. So the only thing that I would add in is that you
would have to make sure that the saving of money was not an end
in and of itself, but that you also factored in what did you
accomplish with the money that I provided you; and if you can
accomplish what you are supposed to accomplish and
simultaneously save money, then I think you are really on to
something.
Senator Paul. Right. I would appreciate it if all of you
would look at our bill. We do have that in there, a safeguard
to try to make sure you are accomplishing your mission. But if
you will all look at the bill--it is a very short bill--I am
open to suggestions, and from Senator Baldwin as well. We need
more Democrats on this. We have one Democrat right now, so we
need more. I do not think we are going to get any
appropriators. They just do not care, I mean, and that is just
sad to say. But I would appreciate any kind of influence from
you that says that we could change the bill in one way, and we
will look at that. And we would also look at it from Senator
Baldwin--if you would come on board, we are willing to take
suggestions. Senator Ernst.
OPENING STATEMENT OF SENATOR ERNST
Senator Ernst. Thank you, Mr. Chairman. I appreciate it.
Gentlemen, thank you for being here today. And, Dr. Joyce,
I will echo what you said about all levels of government. I
started my elected career as a county auditor, and, of course,
we saw some of these same issues at a much smaller scale at the
county level.
One of the things--of course, we had the contract spending
at the end of the year, but one of the things that we
implemented to try and control that end-of-year spending,
something that we can think about at the Federal level, have
discussions on. But when the budget was set for the fiscal
year, at the beginning of the year--of course, ours was a July
1 fiscal year as well. At the beginning of that fiscal year,
our county supervisors would only authorize a certain percent
of the budget, and when you hit that mark, then that department
would come back in and then justify the rest of their spending
going forward. That might be cumbersome, but it did slow down
that end-of-year and unwarranted expenditure. So that was
something that we utilized, and it did help.
I do want to go back to some of your testimony, Dr.
Fichtner. You provided some graphs and charts in your
testimony--thank you for doing that--on the agency contract
expenditures, and this is a big issue. The State Department, I
cannot believe it, at the end of every year, and HHS, well
above the average with other contract spending authority
compared to other agencies. And so what is the State Department
spending 38 percent of its entire contract budget on in that
last month of the fiscal year? Can you explain to us what that
is?
Dr. Fichtner. Senator, I wish I could in detail. There are
anecdotes about them wasting money on $1 million grant statues,
$5 million----
Senator Ernst. Lovely.
Dr. Fichtner [continuing]. For stemware for the embassies.
This report was a year ago. It was based on fiscal year 2013
data. Because I was testifying today, just over the weekend I
played around with USASpending.gov just to look at the State
Department, because someone asked, ``Well, how much is done
last year in the entire fiscal year? How much is done today?''
I thought, well, that is an interesting question. So I pulled
up just the State Department fiscal year 2014 contract data,
and of the entire year, there are roughly 19,500 contracts that
they manage and sign. At the end of the fiscal year, just on
the last day of the fiscal year, there were 2,000 contracts
signed. Now, that is only 0.2 percent of all contracts. Big
deal. However, the dollar magnitude was 8.4 percent of the
entire dollar amount for the fiscal year.
Senator Ernst. Oh, my gosh.
Dr. Fichtner. So to get to the point is this a wasteful
binge or prudent spending, I would argue a little from Column A
and a lot from Column B. It is a problem. The question is: What
can we do about it? And that is the issue.
Senator Ernst. Right. Very good.
Yes, Dr. Joyce.
Dr. Joyce. If I could just add, one of the things that I
found when I was talking to people in Federal agencies about
this research that I was doing a couple years ago is that
agencies have responded to the delays in the appropriations
process by making sure that contracts do not come up for
renewal during the early part of the fiscal year because they
do not want contracts to come up for renewal at a point where
they do not know how much money they are going to have. So I
have not looked at the data to the extent that Dr. Fichtner
has, but a lot of this is why I focused on the uncertainty of
the appropriations process. A lot of what occurs in terms of
incentives for Federal agencies pushes them to try to renew
contracts later in the year just because they do not know
whether they are going to have the money or they do not know
how much money they are going to have.
Senator Ernst. Right. Very good. And it is not just the
State Department. It is not just HHS. I am going to hit one
other agency that I think has the potential to do so much good
for so many men and women that have put their hand up and sworn
to defend and uphold our Constitution and defend our freedoms
here in the great United States, and that is, the Department of
Veterans Affairs (VA). It really could do so much more for us,
and yet what we have seen in recent years is just scandal after
scandal with the Veterans Administration. And they are going
through some tough times, I would say right now. They bring
that on themselves. I am not going to offer any excuses for
them.
This is for everybody on the panel. Do you think an agency
like the VA should be spending $562,000 on art work in one
week?
Dr. Fichtner. So, Senator, what I would say is, as you
pointed out, part of the comment is the Department of Veterans
Affairs has a lot of problems right now. Some of it also is
leadership, in which the culture of the agency from the staff
level is trying to report to Congress with similar activities,
and they are getting pushback by the managers, executives. I
think that should be somewhere where Congress could focus on
how to help those employees stand up and report to Congress on
the abuse that is happening.
Senator Ernst. Exactly. Thank you.
Mr. Sinclair. May I add something else?
Senator Ernst. Yes, go ahead, Mr. Sinclair.
Mr. Sinclair. It took time and energy to waste that money.
A lot of time and energy.
Senator Ernst. Of course it did.
Mr. Sinclair. I can give you an example from the Department
of State. That is who I worked for. The $1 million that I was
ready to turn back was--they told me in August, ``We need you
to spend this by the end of September.'' Well, my program had
been one of the most successful in the embassy, but it took a
lot of work to get it there. And the reason I said I cannot do
it right now is because my program will be hurt if I try to
spend that money. Let us put it in the budget for next year. I
think we could do something reasonable with it. But that was
not an acceptable answer.
Senator Ernst. That is not the right answer in today's age,
is it? And that is very unfortunate.
Going back to the art work at the VA, there was a
Washington Post article from 2 years ago that outlined some of
the spending that the agencies are doing in those last few
weeks, and this is just one of those examples. We have some
great therapeutic programs for our veterans. They do art work.
Why are we not using that art work in our VAs? Wasteful,
wasteful spending. We have to do better for our taxpayers. We
certainly should be doing better for our men and women in
uniform and those veterans.
So thank you, Mr. Chairman.
Senator Paul. Thank you.
We have mentioned a little bit about giving incentives to
Federal employees. I think there also could be a similar type
financial incentive program for contractors, and maybe there is
and I am not aware of it. But while we are talking about the VA
and waste--and we could go on and on--the veterans hospital in
Aurora, Colorado, is going to cost $1.8 billion. It is a 182-
bed hospital. It is nearly $10 million per hospital room. It is
outrageous. It ought to be wallpapered with gold to have cost
that much.
But I am wondering whether or not we could do something
similar with contractor money, that if you were contracted and
you were given $1 billion and you were told $50 million of it
was profit for you and the rest was the cost of building
something, couldn't we say that if you can do it for $800
million and you save the government $150 million, that maybe
you get a percentage of the savings instead of what we do, the
opposite, we give you just whatever your costs are, we will
give you cost-plus whatever the profit margin is? But I really
think that we could work in incentives into the contracting
process as well.
If each of you will comment on whether or not you know if
any of that exists or what you think of the idea?
Dr. Fichtner. So, Senator, I am not sure it exists in the
Federal Government. I know in the private sector there are a
lot of examples. They try to give incentives to contractors,
and what they do is there are performance bonuses for finishing
early, not just on time but early, in budget and in quality.
And so you could do something in the Federal Government that
basically----
Senator Paul. You do it on time and you could do it coming
in under budget.
Dr. Fichtner. Right.
Senator Paul. And then you get a percentage of what----
Dr. Fichtner. So the only thing you want to avoid is a
perverse incentive for a contractor to then pad the estimate.
But if you have a very competitive process, that should
eliminate that.
Senator Paul. Exactly.
Anybody else?
Mr. Sinclair. I just agree with that. I think it would be
useful. It would only be one tool, though, and I think a bigger
problem probably is the plus-ups that the client, the Federal
Government, would give to the contractor over time, and also
the continuing resolution problem. When you do not know when
your contract starts, you always have to add money to it. So I
like your idea, but it is only one element that we need.
Dr. Joyce. Yes, I want to followup directly on that. I do
not want to hit the same note over and over again, but I think
the uncertainty is really a big issue for contractors as well.
So I think if you are going to try to rein in waste in terms of
contractors, I think contractors also would benefit from a lot
more certainty in the budget process.
I will say that I have not studied this at the Federal
level, but I was involved in a study of the 50 State
governments and their management processes a few years ago, and
there was a wide variation in terms of the States in the extent
to which they did what Dr. Fichtner was describing, which is
really performance contracting. So, a performance contract
basically says we are going to write into the contract up front
what those incentives are, and we are going to talk about
quality, and we are going to talk about timeliness, and we are
going to talk about cost, and we are going to create some
incentives for you to come in with a high-quality product on
time and under cost. And unless you do that up front, I do not
think you can hope that it is just going to happen on its own.
Senator Paul. Well, thank you, and if you have any ideas,
like I say, we are open on this, too. I think there is a
contractor problem, and we have to figure out how to say that
it is not acceptable to spend $1.8 billion on a 180-bed
hospital. Thank you. Senator Baldwin.
Senator Baldwin. The last time that the GAO took a look at
year-end spending was in 1998, and I have two questions based
on that last exam. When the GAO looked at it Dr. Fichtner,
USASpending.gov did not exist, and part of their report
mentioned inadequate data on the timing of spending in Federal
agencies. And I believe that the website does much to increase
transparency, but it has certainly been criticized in some
quarters that OMB must address underreporting and inconsistency
in the website.
So I have a wide-open question for you. What did you think
of it? What were its limitations, its inconsistencies? How
could we do better?
Dr. Fichtner. Well, Senator, thanks for the question
because as researchers, we are always looking for better data,
and, again, you have to give credit where credit is due for
President Obama putting this information out for the public and
for researchers to use it, because that is what transparency is
about, is putting this information out.
Senator Baldwin. Yes.
Dr. Fichtner. And I know GAO is working heavily with OMB
and others to improve the data set. I think the data is useful,
but it does have limitations. One is that there are constant
updates going on. So if I download data today from last year--
so it is year-old data--and I look at it again one week from
now, the numbers are different. There might just be very small
changes, but there are still changes. So there are reporting
changes going on where agencies say, ``We found some late
contracts that came through.'' There are a lot of reasons why
realistically there could be changes, but there still are
changes. So you always have to question how clean the data is.
There are refunds that go on as well. So I do my best sometimes
to go through it, but, again, there are 20,000 contracts a year
for State, so you try to find the big ones that could affect
the numbers in large areas.
So I think just sort of, again, having Congress look at and
say how do we improve it, how do we make it more clean, getting
researchers in who have used it and say this is great but how
do we make it better, I think is a great idea, Senator. I
appreciate you looking into this as well.
Senator Baldwin. Thank you.
And, Dr. Joyce, a different question about that GAO report.
When they last looked at the issue, it found that procurement
reforms were helping to safeguard against improper or
unnecessary contracts that had been associated with a rush to
spend funds at the end of the fiscal year. It has been quite
some time since that report, and Congress has made and there
have been other changes made to the procurement system. So I am
wondering, has anything in your work demonstrated that further
changes in law or practice may be necessary, especially in this
procurement reform arena?
Dr. Joyce. I have not looked at that, Senator,
specifically. I mean, I know that OMB has an Office of Federal
Procurement Policy, and I know some folks over there, and I
know that this is the kind of thing that they are focused on.
And I think that, one of the things that that would do, one of
the things that we should think about, is moving beyond the
data. I mean, for example, it is one thing to say that the
State Department spent 38 percent of their money; it is another
thing to then go into it and say, well, what did they spend the
money on? And how can we differentiate between what we think is
wasteful and what we think is not wasteful? I mean, that is not
a criticism of what Dr. Fichtner did. It is just saying that
peeling away additional layers of that onion in order to answer
the why and what did we actually get for that money I think is
the next step in this process.
Senator Baldwin. Exactly.
Mr. Sinclair. I can answer part of that question. Again,
working for the Department of State, the only way I could have
spent that $1 million was on equipment, because you can do
equipment purchases in a day. All right? I did not need
equipment because I had already gone through almost every
laboratory around Iraq, and I saw every laboratory full of new
equipment sitting in the box unopened that had already been
placed there by either the Department of State or the
Department of Defense (DOD). They could not use it, and yet we
were willing to spend more money on equipment.
So, right, that is an issue that is there, and it needs to
be corrected.
Senator Baldwin. Thank you. Thank you to all of you. Great
hearing.
Dr. Fichtner. Senator, I would also just add real quickly,
since you have a little bit of time left, because Dr. Joyce has
it in his written testimony: The one thing that can really put
a focus on agency spending is congressional oversight. Having
this hearing is one example. Call up some of the agencies. Have
them come, have them tell you why they spent the money, what
were these contracts for. Have them explain it. That is part of
the oversight job.
Senator Paul. And if there were repercussions, your
appropriations would actually go down, which would mean we
would have to have an appropriations process. But I want to
thank Senator Baldwin for being part of this and the panel for
being part of this today and reiterate that I am open to
suggestions on any of this. I do not think this is a partisan
issue. I think that everything that everybody has said has some
validity to it, and we have at least the one bill, Bonuses for
Cost-Cutters, that we are open to suggestions to make the bill
better, and that we do not yet have a bill but we are open to
suggestions on something to do with contracting. But we want to
do the same thing. We want some kind of financial--it can
include other things, but we do want at least part of the bill
and probably the main focus of the bill to be financial
incentives for people to come in under budget on things that
they contract. But thank you for being part of this today.
The record will remain open until October 14 for the
Members to submit additional questions or comments, and with
that, the hearing is adjourned. Thank you.
[Whereupon, at 3:35 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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