Federal Workers Are Rewarded When They Waste Your Money

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The federal government's fiscal year ends on September 30, concluding the month-long spending spree known as "use it or lose it" season in Washington--resulting in a slew of questionable purchases this month:

• The IRS spent $2,410,000 on "toner products" in a single purchase.

• The Department of Homeland Security paid $251,016 for "Aeron Mesh Task Chairs" and $15,198 for two pianos. Music to sooth Russia's President Putin, perhaps?

• The State Department obligated $24,969 for a "50 inch LED HD TV" for the embassy in Kabul, Afghanistan, while the embassy in New Delhi, India, made a $20,362 alcohol purchase. This brought the total booze tab for the State Department to nearly $100,000 for the month of September.

• The Department of Veterans Affairs spent over $1.8 million on artwork, including $375,000 for a "Lobby Piece" and $285,000 on a "parking structure facade project" for the Public Artwork Commissioned Project at the Polytrauma & Blind Rehabilitation Center in Palo Alto.

But it does not have to be that way. If federal workers were rewarded on the basis of saving taxpayer dollars rather than on spending them, some of these expenditures could be eliminated.

Of course, these purchases are a drop in the bucket compared to our total 2014 budget deficit, which the nonpartisan Congressional Budget Office estimates will come in at about $506 billion ($3 trillion in revenue and $3.5 trillion in outlays). The year 2014 is an improvement upon 2013, when the deficit was $680 billion ($2.8 trillion in revenues and $3.45 trillion in outlays). The deficit is driven by entitlement spending, not pianos and paintings.

Even so, there should be a way to save last-minute unspent dollars, rather than spending them.

Funds appropriated to federal agencies must be obligated before October 1 or be forfeited to the Treasury. Agencies are encouraged to spend every last dime in their budgets to justify their current funding levels, in an attempt to avoid becoming a target for future spending cuts in Congress.

This results in a predictable rush for agencies to spend the rest of their budgets in the days before the end of the fiscal year. A 2013 National Bureau of Economic Research study by Harvard professor Jeffrey Liebman and Stanford professor Neale Mahoney found that federal spending on contracts in the last week of the year is five times higher than the weekly average.

Here are two suggestions for how to align bureaucratic incentives with those of taxpayers.

Agency employees could receive a bonus from a pool of funds equal to the smaller of half of the agency's unspent funds, or ten percent of employee salaries. (This cap would avoid the cancellation of an aircraft carrier turning federal workers into millionaires.) Pity the poor administrator determined to spend all of an agency's funds, thereby denying every employee a bonus.

Alternatively, all employees could receive an additional 1-step pay increase in the agency with the greatest savings as a percentage of its budget. All employees with the greatest increase in spending year-over-year would receive a 1-step pay decrease. Again, agency employees would compete to see who can cut costs the most.

The next Congress could make these changes and send a bill to President Obama for his signature.

Many of the purchases made during September are emblematic of government waste. Last year, the State Department spent $5 million on crystal glassware for several embassies from the Vermont manufacturer Simon Pearce and $1 million on a granite art installation for the embassy in London. The Washington Post reported that the notorious IRS Star Trek parody video and the "lavish conference" it was screened at resulted from the 2010 use it or lose season.

Poorly vetted I.T. purchases made during use it or lose it season can have a lasting impact. In 2010, Liebman and Mahoney found that I.T. projects signed at the end of the year were about six times more likely to be of a lower quality than projects undertaken during the rest of the year.

Wasteful purchases are hardly restricted to the final months of the fiscal year. The State Department spent $400,000 on a statue entitled "Camel Contemplating Needle" for the Islamabad Embassy, in a contract order dated March 7, 2014. On June 6, 2014, the Department spent $125,199 on a Fourth of July celebration at the embassy in Ottawa, Canada.

The year-end federal spending spree will last right up until midnight September 30 as federal workers try to use up valuable unspent taxpayer dollars. The rush to spend in the month of September is a case study on the misalignment of the interests of taxpayers and federal bureaucrats. With a little resourcefulness, such as bonuses for reduced spending, Congress could encourage agencies to save money, rather than spend it.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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