BY ELAINE McCUSKER
The thought of canceled funding may immediately prompt concerns about management or inefficiency, but the findings in this week’s Government Accountability Office (GAO) report on unspent federal funding instead indicate that updating the rules and regulations governing federal funds could quickly reduce the amount of funding that reverts to the US Treasury.
The ultimate goal of any federal agency is to fully use appropriated funds for intended purposes and emerging priorities and opportunities. This goal is not always achieved for a variety of reasons. As conveyed by the case studies in the GAO report entitled: “Federal Budget: A Few Agencies and Program-Specific Factors Explain Most Unused Funds,” the structure and period of availability of federal appropriations — and the framework surrounding the use of public funds — means that, without changes to this governance, some level of expiration and cancelation will likely always occur.
Importantly, the report does not indicate the rate of unused funds is cause for any concern or that it signals budgets are too high. In fact, only about 1.6 percent of the total available budget authority government-wide was canceled from the fiscal year 2009 through the fiscal year 2019. Additionally, as the time parameters of the funding are expanded, the rate of cancellation decreases to 0.6 percent for accounts that received additional time to disburse their funds beyond the statutory five-year period and to 0.2 percent for funding without a spend-by date. The GAO report also notes there are procedures in place to limit the amount of funding that eventually cancels and is returned to the Treasury.
However, given the size of the federal budget, an average of nearly $24 billion per year of funding gets canceled. Of this, 48.5 percent is from the Department of Defense (DoD). Critics see this as evidence that the Pentagon is wasteful or has too much money. In reality, none of these dollars are wasted, as they are simply returned to the Treasury. Furthermore, if appropriated funds are not being spent due to the fact that they are tied up in statutory restrictions on their use or are no longer needed for intended purposes (as noted by GAO), this is actually a sign of good stewardship in not spending simply to spend. These funds do, nevertheless, present an opportunity to examine root causes and develop solutions so these dollars can go to the highest needs.
According to the GAO report, the key factors that cause funds to go unused are program needs being less than originally estimated, program funding being marked only for specific purposes and periods of availability, and the unpredictability of some program costs. In three of the six case studies, which span three agencies including DoD, canceled appropriations arose when actual program needs were less than initially estimated, much of the time due to evolving circumstances. These root causes of canceled appropriations signal that simplification and updating of the rules surrounding this funding could help make the most of the money provided.
For example, DoD is strictly limited in the amount of money it can move among its accounts during the year of execution. Moving money that is no longer needed in one place to another area which presents an opportunity to accelerate a capability can be a long process that includes congressional notification. The lack of agility results in funds that expire and then eventually cancel.
The Department of Defense and Congress have an important opportunity to modernize the budgeting and execution process to better harness all of the buying power of public funds. Enacting annual appropriations on time, reducing the number of different appropriations, updating reprogramming thresholds, and creating more responsive appropriations that allow programs to rapidly move through iterative development, testing, and production are just a few examples of potentially positive changes that could make the most of funds provided and reduce canceling funds.