Forget the Fiscal Cliff; Indecision Is Always Expensive

The U.S. House of Representatives chamber in Washington Photograph by Brendan Hoffman/Getty Images

The U.S. will stop short of the fiscal cliff. Most likely, however, the solution won’t come as a budget deal, but as a promise to work out a budget in the near future. Crisis averted. But repeatedly driving up to the cliff and slamming on the brakes exacts a cost, too. Whatever happens in the next two months will not fix a much longer-term problem—one that costs the federal government money, even when there’s no catastrophe.

That’s because Congress rarely submits its work on time.

According to the Congressional Research Service, Congress since 1952 has completed all its appropriations acts by its own statutory deadlines in only four years (PDF)—1977, 1989, 1995, and 1997. In 1974, Congress decided to give itself an additional four months every year to come up with a budget. This is why the federal fiscal year now begins on Oct. 1. The move merely postponed the predictable: America is run on continuing resolutions.

When Congress hasn’t yet agreed on what to buy for the coming year, but believes it can figure it out with a little more time, it passes a continuing resolution, a promise to keep paying for federal programs until an appropriations bill passes. Fiscal year 2011, all 365 days of it, was paid for with continuing resolutions. Though a heated year on Capitol Hill, it was by no means exceptional. Since 1977, an average of 178 days of every year have been funded through a continuing resolution. Basically, half the time there is no budget.

This is disappointing, given that spending money is the most basic constitutional responsibility of the legislative branch. It’s also expensive for the taxpayers—us—who fund government. Last week the IBM Center for the Business of Government released a report by Philip Joyce, a professor at the Maryland School of Public Policy. Joyce spoke on background to 25 current and former federal budget officials and contractors representing six different federal agencies.

Government officials, says Joyce, now routinely expect that the appropriations process will produce a delay in funding, and they adjust every year’s spending habits to accommodate the delay. That is, agency staff are are now building uncertainty into their funding predictions by habit. And uncertainty—in the public as in the private sector—costs money.

Agencies freeze hiring until the year’s budget is nailed down, which hits important projects—such as the ones hiring people—the hardest. Under a continuing resolution, agencies can find easy savings in travel and training, but there’s a difference between pinching pennies and deciding not to conduct necessary travel at the start of the year because you don’t know when you’ll be able to pay for it, or whether you’ll be able to pay for it when you do know. Sometimes the uncertainty will continue for so long that, when the appropriations finally come in, agencies can’t spend fast enough and are left at the end of the fiscal year with a surplus.

Government contracts now get signed later in the fiscal year, after appropriations are certain. Joyce points to a 2009 finding by the Government Accountability Office that continuing resolutions lasting longer than three or four months reduce competition on contracts, driving up price. Agencies sign contracts month-to-month, rather than year-by-year, increasing basic administrative costs. And both contractors and government officials agreed that suppliers apply what Joyce calls a “risk premium” to federal contracts. Because suppliers, too, can’t predict the future even 12 months out, they charge this uncertainty back to Washington.

This problem predates the stylized, permanent budget fight of the last Congress. But the work by Joyce and the GAO shows that even when negotiations don’t shut government down, they make it less effective and more expensive. The innovation of the current Republican House—picking a fight around the debt ceiling, in addition to that over the appropriations process—compounds the problem. If Congress can’t ever stand down and agree to at least wait a year for its next budget fight, government can never hope to achieve even the most basic efficiencies of the private sector.

Some arguments are never over. But there’s an opportunity cost to argument. While holding out for the right decision, Congress is failing to save money by making some decision, any decision—even  the wrong decision—that will let agencies move forward. Members of Congress don’t ever have to pay this bill. Taxpayers do, while Congress holds out for perfection.

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