I was pleased to be invited for a discussion with Philip Candreva and Frederico Bartels hosted by the Heritage Foundation. Philip is a senior lecturer of budgeting at the Naval Postgraduate School and author of the book National Defense Budgeting and Financial Management. Fred is the senior policy analyst for defense budgeting at Heritage and has written an interesting new paper, Changing current ‘use it or lose it’ policy would result in more effective use of defense dollars.
Listen to the podcast. Download the full-text transcripts.
Fred argues that the current budgetary incentives cause financial managers in government to accumulate resources and then try to obligate the entire sum before they expire at the end of the year. The 80/20 rule was intended to address this problem by restricting organizations to obligating 20% of their funds in the last two months, but that created yet another deadline. Making the time crunch even worse, Congress passes defense budgets three months late on average.
Fred provides three major recommendations: (1) Providing carryover, perhaps 5% of the budget, into the first quarter of following fiscal year; (2) Reduce restrictions obligation rates like the 80/20 rule; and (3) Speed up reprogramming of funds.
Philip also has a great paper exploring the issue: A Critical Look at “Use or Lose”. He argues that if an organization cannot manage its budget by the end of September, he doesn’t have faith they can manage it any better by December. To use a sports analogy, a football team’s red-zone offense is different than when they are further back. Organizations won’t get into crunch time for obligating until the deadline is upon them.
Moreover, Philip argues that the rollover might exacerbate the problem by quantifying and justifying cuts to the on-coming year’s budget. He recommends keeping the fiscal year constraints, but providing some flexibilities including: (1) speed up reprogramming in last quarter of the fiscal year, such as automatically approval if no action is taken by Congress in 10 session days; (2) allow for more anticipatory contracting, even if the money isn’t there yet; and (3) create a mechanism to resurrect expired, but not-yet canceled, funds.
PPBE Reform
Fred: Mr. Lofgren from your work I would assume that the way to tackle ‘use it or lose it’ would be to manage for bigger portfolios that allow trade-offs between from different projects within that fiscal year. Is that a fair description of your thinking?
Eric: Yeah, you hit the nail on its head in terms of my thinking on this. When I look at use it or lose it, reprogramming authorities, continuing resolutions — a lot of the problems that we keep finding in these are actually symptoms of a much larger problem… I think, the key to this portfolio concept is, have high level mission command, an ability to leave the execution to the people involved who might know the best, but then have a rigorous way for checking up on what were the spending allocations what did we get for those things.
And here is Philip’s response to the PPBE reform topic:
First thing to do to approve PPBE probably would be to be in PowerPoint. Because it’s just a horrible communication mechanism. But seriously, I think it needs to be faster with fewer people involved. There’s too much analysis for too little change. Only about 10% of the budget is really in play in any given budget cycle… we then reprogram two or 3% during the year of execution.
So I think we try way too hard to find something optimal when it’s not possible, because optimal requires that everybody agree on an objective and we don’t all agree on the objective. Optimal is not even possible. So we should ban that word from our vocabulary.
Oversight
Philip sees the need for a balance between flexibility and control in Congressional power over the purse:
You can go too far with that oversight, if you go back and look at the 1980 defense authorization bill, it’s 18 pages long. If you look at the 2020 defense authorization bill, the table of contents alone is 39 pages — a total of 1,120 pages. So do we need 62 times more oversight and the authorization and build in 2021 than we did in 1980, when we actually had a hollow force?
And I add:
I agree, but I would frame it slightly differently because the first thing I would want, folks to understand, especially in Congress is. We’re not trying to reduce oversight. We’re trying to change the game of what oversight is… I don’t care what the cost growth is on a program, honestly. It’s what was the starting base cost? What were the alternative choices of programs that could have been. Could we have done it for cheaper in a different way? These are the questions that matter. Not whether you executed something that you said you would execute to 10 years ago.
And Fred adds color:
It’s always going to be a judgment on your ability to predict things, not on your actual ability to execute anything… Based on your 2010 plan, you said that you’re going to weight 110 pounds. Now your weigh 115. So you have the five pound over run over there.
Thanks Fred and Philip!
I’d like to thank Frederico Bartels for hosting this event and stimulating a great conversation, as well as Philip Candreva for his excellent insights into defense budgeting. Fred’s bio and papers are available at his Heritage webpage, watch him on Government Matters, and follow him on Twitter @FredericoBF. You can find more about Philip at his NPS webpage, watch his YouTube videos here, read more of his papers here and here.
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