Curbing the Surge in Year-End Federal Government Spending: Reforming “Use It or Lose It” Rules—2016 Update

The “use it or lose it” phenomenon refers to the propensity of US government agencies to spend unused financial resources toward the end of the fiscal year out of fear that leftover resources will be returned to the Department of the Treasury and will prompt future congressional budget cuts for the agency. While anecdotes and media stories of year-end spending surges are widespread, empirical support for such surges or the motivation behind them is significantly less available.

The question remains: If such spending is indeed wasteful, what can be done to reduce it? One idea expressed in the literature and discussed previously in this paper is to allow agencies limited rollover (also known as carryover) authority for funds not spent by the end of the fiscal year.

These reforms may create undesirable new administrative burdens and could disrupt existing budgeting practices. However, we think that the short term costs would be outweighed by the long-term benefits of relieving government agencies of (a) a perceived pressure to spend resources at the end of the fiscal year to protect their budgets from cuts and (b) the wasteful expenditures associated with that pressure.

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