Use It or Lose It

The end of every fiscal year creates something of a spectacle in Washington: Merchants and contractors camp outside government offices in the hopes that a few million federal dollars might flow their way, and East Coast branches call their managers in California, to sneak in a few last-minute purchases before midnight Pacific Standard Time. Federal contracting data show a 75 percent spike in West Coast spending on small contracts on the last day of the fiscal year. (Bulk ballpoint pens, anyone?)

In the U.S. government, expiring budgets — that is, budgets for which the money won’t roll over into the next year — are still the norm. A recent National Bureau of Economic Research paper by Jeffrey Liebman and Neale Mahoney examines some of the unintended consequences of this use-it-or-lose-it system.

Not only did they find a jump in the amount of last-minute spending — looking at contracting data from 2004 to 2009, they found that 8.7 percent of all spending occurred in the final week of each year — they also found there’s a drop-off in spending quality. Liebman and Mahoney note that contracts made in the last week of the year were 5.7 times more likely to be subpar than money spent earlier in the cycle.

Despite attempts at reform, it appears "the end-of-the-year spending surge is alive and well," the authors write. Forget Black Friday — when it comes to a real national shopping spree, this is the End of Fiscal Year Fiesta.