You Can't Bank On It

When a state or local agency has money left at the end of the year, a spendthrift mentality tends to take over.
 

A friend of ours works for a program funded by New York City's Board of Education. One of the nice things about her job is that she gets summers off. This year, however, her boss insisted that she work several extra weeks in June and July. Not that there were assignments her boss wanted her to take on. Rather, there was money left over in the program's budget, and he wanted to keep her on payroll so he could use it up.

It's common knowledge that some government agencies spend down saved money at year's end rather than turn it back to the budget office. In addition to extending work days, they may invest in training or make purchases that they hadn't budgeted for.

These disbursements can be a good thing, if the agency plans the spending judiciously. However, it frequently isn't done that way, and dollars are spent on office supplies that won't be used for three years--or ever. The spendthrift mentality is fueled by the fear that once budgeters discover a surplus in an agency's budget, those dollars will be deducted from the agency's allocated funds the next year.

The folks with whom we have chatted about this issue in the past have always spoken about it in theory. So hearing about our friend's experience this summer made us feel like paleontologists who find a dinosaur bone in their backyard, right behind the rhododendron.

One way to rein in this year-end spending spree is to allow agencies and departments to hang on to a portion of the unspent money. That way, they can use it sensibly the next year. We've always thought this seemed like a really good idea, but it doesn't seem to get a lot of attention.

This was confirmed in a conversation with Scott Pattison, executive director of the National Association of State Budget Officers. Pattison, a former budget director for Virginia, thinks it's a fine idea to "get away from the end-of-the-year fiscal frenzy." However, he also told us that the topic "rarely comes up, even among the budget nerds."

That's too bad. On the brighter side, though, there are some states-- Washington and Kansas, among them--that have not only brought up the issue, they're actually working on it.

In Washington, agencies keep 50 percent of general fund appropriations they haven't spent, as long as that money is not tied to an entitlement program. They can use the leftover dollars on one- time things--training, customer improvement, technology and equipment. The money can't, however, be used to start a new ongoing program.

"I think it provides an antidote to the 'spend it or lose it' mentality," says Candace Espeseth, assistant director of Washington's budgeting division. "There's a benefit to underexpenditure that wasn't there before."

In Kansas, the state's Savings Incentive Program also has worked to keep agencies in a fiscally practical state of mind. Duane Goossen, the state's budget director, tells us that agencies no longer say, "Oh my gosh. We've got money left, let's go out and buy everything in sight so we can get rid of this."

After more than five years, in fact, the program has been so thoroughly accepted by the legislature that it is surviving the pressures to squeeze every dollar possible out of agencies. The legislature has not, Goossen reports, tried to "steal the funds that have been saved."

Like Washington, Kansas limits the kinds of things the saved resources can be used for to items such as bonuses for employees, technology and training. And that has, in part, been the program's saving grace. Policy makers know that the money isn't going to be spent on something completely frivolous.

Not surprisingly, these savings programs have their skeptics. Some observers are suspicious that they will ultimately be misused. Says one budget director from a Southern county, "People learn how to game the system. You inflate your budget, and then you have the discretion to spend." Even on the agency side, there's concern that the programs will backfire, that high-level budgeters will let agencies keep their savings one year--and then scoop that money out of their budgets the next year. While Kansas officials acknowledge these concerns are real, they also note that the state audited its program and determined that the potential problems did not outweigh the benefits.

Of course, right now, many budgeters believe savings plans are a low- priority indulgence at a time when they need every dollar they can find. And it's hard not to be sympathetic to anyone trying to balance a budget while revenues fall through the floor. But it seems to us that even in hard times, these savings plans make sense. We think it's better to have agencies conscientiously returning half their savings, while using the other half for useful purchases, than to have them looking for ways to go through extra dollars--especially if that means keeping people on the payroll who would rather be at the beach.

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