This year, some extraordinary pressures have come to bear around federal spending. There’s the seeming chaos in Washington, with the new administration failing to fill hundreds of mid- and senior-level jobs. There’s the dire sense in most agencies that next year’s budget will be smaller. And there’s the fog and uncertainty that come with operating under a series of continuing resolutions.
A change of party in the White House typically puts the brakes on spending at least temporarily, as agencies sort out their new priorities. This time around? Double it, with an administration that governs by tweet and a POTUS who appears to thrive on keeping agencies off balance. The chaos inside the Beltway is bipartisan and cuts across every agency not focused on security or defense.
Despite these factors, observers say, the fourth quarter of fiscal 2017 is shaping up to be business as usual. “The No. 1 reason you get cut is if you don’t spend the money that you have,” said David Berteau, president and CEO of the Professional Services Council. “So the proposed cuts give people an incentive to spend, and those forces outweigh the uncertainty.”
The spending landscape
There’s no doubt that a change in administration and attendant disorganization have complicated federal spending. As President Trump approached his 200th day in office on Aug. 7, he had nominated just 255 people for the 1,100-plus positions requiring Senate confirmation, according to a tracker kept by the Partnership for Public Service and The Washington Post. Just 51 had been confirmed.
“People are gun-shy about awarding contracts in support of programs without having a political appointee in place, knowing the next appointee could come in and want to rescind it or try to kill it.” - Jason Fichtner
The lack of senior leadership has made this an unusually chaotic transition. That fact, combined with the president’s tendency to fire off policy statements via Twitter, “has made the planning and execution of budgets this year exceptionally difficult,” said Adam Hughes, a director on the public sector team at Grant Thornton.
That has repercussions. “Because of the lack of political appointees, people don’t know how to move forward on programs. People are gun-shy about awarding contracts in support of programs without having a political appointee in place, knowing the next appointee could come in and want to rescind it or try to kill it,” said Jason Fichtner, senior research fellow at the Mercatus Center, George Mason University. “I am not going to stick my neck out if it’s going to get chopped off.”
The administration’s slow start has impacted more than just hiring. For much of the year, the money hasn’t been there to spend.
“When you look at the budgets, nothing became official until halfway through the government’s fiscal year. That has been an incredible challenge to leaders in the public sector,” said Mike Smoyer, president of the Digital Government Institute.
Analysts point to the continuing-resolution phenomenon as a sub-species of this complication. It’s hard to budget for an agency’s needs without an actual budget.
“The CRs essentially rejigger what you did last year. They don’t go down to the account level and actually allocate funds based on actual results and priorities. So it doesn’t allow for folks to plan. It’s just status quo budgeting, which can be paralyzing to agencies,” said Gordon Gray, director of fiscal policy at the American Action Forum.
A former Senate Budget Committee staffer, Gray sees life under CR as a stumbling block to the kind of thoughtful planning that might avert a year-end spree. “Ideally you’d have appropriations language to fund programs and missions based on deliberation and review. When you get money that doesn’t reflect that, all you can do is kind of make do,” he said.
Making do often means doing without, at least in the short term.
“If you are under a continuing resolution, you are generally precluded from signing long-term contracts. So by definition you are going to have more year-end spending,” Fichtner said. “You have to have the money in place to sign those contracts.”
Then there are the looming budget cuts, and the president’s call for a reorganization of executive branch agencies. That ought to have a chilling effect.
“If you know you are going to be forced to retire a system because the program is going away, you will be hesitant to upgrade that system. If people feel their programs are in limbo they will be reluctant to spend on those programs,” said Shawn McCarthy, research director, IDC Government Insights.
Some read it the opposite way: If cuts are coming, spend it while you can.
“The signal from OMB is that you are going to get less money, and OMB is going to be mindful of the ways that comes into practice,” Gray said. Tools like reclassification and reprogramming that have helped agency heads to shift funds in the past may not be available anymore. “That means that if you have the money now, you will want to spend it. If tough times are coming and you are going to have less flexibility, you might as well spend it if you’ve got it.”
The Q4 fallout
With all these factors at play, one might expect to this exceptional political and administrative situation to be reflected in an unusual and possibly hairy spending pattern. It seems probable that the Q4 spending spree would, like all things predictable and conventional in Washington these days, give way to something weird and exotic.
For better or worse, that’s not going to happen. This year’s Q4 contacting bonanza will likely roll out unabated. Agencies posted over 25,000 solicitations on FedBizOpps in July, a pretty good sign that the coffers are open.
Another solid indicator comes from the Q1-3 numbers provided by the Professional Services Council.
Start with 2016 for context. In FY16, for all federal civilian agencies, contract spending in the first three quarters of the fiscal year totaled $91.6 billion, or an average of $30.5 billion per quarter. Q4 contract spending was $45.5 billion or 50 percent higher than the average for Q1-Q3. That’s the spending spree.
And this year? The Q4 figures aren’t in yet, but Q1-3 buying totaled $93.6 billion — not just on par but actually up a bit compared to the prior fiscal year. Despite all the factors described above, the federal government has been doing all its shopping just as it always does, and that’s a pretty good indicator that Q4 contracting will clock in at pace.
“You need to focus on agency priorities and missions. You focus on services to citizens, you focus on modernization and IT infrastructure.” - Mike Smoyer
While the spree itself appears to be on course, however, the goods themselves may vary this year. Given the vast uncertainties, experts say agencies would do well to be conservative in the kinds of buying they pursue. “It’s the functional equivalent of putting gas in the car,” Gray said.
In practical terms, agencies should buy toward concrete needs. “You need to focus on agency priorities and missions,” Smoyer said. “You focus on services to citizens, you focus on modernization and IT infrastructure.”
At the same time, agencies likely will shy away from spending that supports the initial phases of long-range programs, especially if those programs are in doubt. “As an agency head, if I don’t know whether I am going to have the budget resources to support something, I may want to put that kind of effort on hold,” Fichtner said.
“How do you spend money efficiently, wisely? You spend it on things that are the least controversial,” he said. “You spend it on technology upgrades, that is something that will last for a few years. And you spend it on training because you get that back in productivity and morale.”
Spending Spree 2017
- 25,000: Solicitations filed in July ’17
- $91.6B: Q1-3 2016 spending
- $45.5B: Q4 2016 spending
- $93.6B: Q1-3 2017 spending
- $46.8B: Projected Q4 2017 spending
What goes on here?
A reasonable person might wonder how it can be that agency spending is on track, and that Q4 will likely fall in line. Agencies are flying blind: no budget, no appointees, for many a looming sense of budget cuts to come. And yet the great doughnut machine keeps stamping out Boston crème-filled crumpets. How can this be?
In physics, inertia is described as the tendency of matter to just keep on doing what it’s already doing. That’s the story in a nutshell.
“It gives you hope for America,” Berteau said. “Most of the government program managers and the budget people and the contracting officers — they all know what their job is, they get up in the morning and do that job. They are not waiting for a memo. We are seeing a manifestation of the solidity and the perseverance and the continuity of our governing structure.”
Surely that same reasonable person might also ask: Is continuing to shove a disproportionate amount of federal spending into the last three months of the fiscal year really a national triumph?
Some say not. Analysts have for years decried the practice, saying it reflects either poor planning on the part of agencies, or else an ineffective budgeting process in Congress. Either way, they say, a Q4 contracting blitz is no way to run a government.
Fichtner encourages agencies to advocate for a rule change: They should be able to roll over unspent funds into the coming year.
“Instead of rushing their buying at the end of the year, I’d rather give them a month or two to allow them to be more careful with their contracts, more prudent in their due diligence,” he said.