University of Chicago economics professor Neale Mahoney and Harvard Kennedy School professor Jeffrey Liebman have an idea that they think could prevent wasteful end-of-year spending as agencies scramble to use the last of their expiring dollars: allow their budgets to roll over. I recently spoke to Mahoney about the idea. Our exchange has been edited and condensed.
Can you describe the “use it or lose it” agency spending pattern?
Agencies are cautious. They want to hold back spending early in the year in case there’s a natural disaster or something that requires them to spend a lot of money. Then, as it gets toward the end of the year and this crisis hasn’t occurred, there’s a “use it or lose it” mentality. Agencies also want to spend this money because Congress might say, “You didn’t spend your money, so we’ll give you less.” When agencies spend a lot quickly, they often spend it on lower-quality stuff. What we’re trying to accomplish in our model is to show that if you allow for rollover, you fix both problems. You fix the first problem, of agencies holding back on spending early in the year to build up a rainy-day fund, because they already have one. And you fix the problem of them draining the rainy-day fund because they can just carry it over. They also then theoretically won’t rush to spend on things that are of lower quality.