Agencies Favor More Flexibility in Using Unobligated Funds
By Chuck Conlon
CQ BUDGET TRACKER NEWS
May 18, 2006
Federal agencies agreed at a Senate hearing Thursday that they would like to have greater flexibility in the use of unobligated funds before they must be returned to the Treasury.
The hearing before the Homeland Security and Government Affairs Subcommittee on Federal Financial Management, Government Information, and International Security brought together top budget officials from five major federal departments - Defense, Justice, Health and Human Services, Transportation, and Veterans Affairs. Chairman Tom Coburn, R-Okla., called the hearing to examine the extent to which agencies carry large balances of unspent funds and how those funds affect each agency's operations, as well as the annual budget and appropriations process.
Coburn noted there was no government-wide system for monitoring or reporting on unspent appropriations, pointing out that OMB does not track the funding but leaves it up to individual agencies - all of which use different systems and standards. "With OMB responsible for the overall budget request process, it sure would be helpful if they set some systemic standards about how to define, measure and report unspent funds at all agencies," he said, also expressing disappointment that OMB declined to send an official to testify at the hearing.
Subcommittee staff's best estimate is that about $430 billion exists in unspent funds government-wide, Coburn noted. That includes $376 billion in multi-year or "no year" accounts (in which the funds remain available to be obligated for a set number of years, or indefinitely in the case of no-year accounts) and $54 billion is sitting in "expired" accounts. Most appropriations must be obligated (i.e., committed to be spent, such as by signing a contract) in the year for which they were appropriated. If they are not obligated they are categorized as "expired" though they remain available for another five years to modify existing contracts. At the end of that five-year period the funds are classified as "canceled" and are supposed to be returned to the Treasury. Coburn said the Treasury had estimated that $16.4 billion in funds were returned by agencies at the end of fiscal 2005 - though that represented both expired funds and obligated but unspent funds.
While Coburn's opening statement focused on the question of whether unobligated funds could be better used and whether canceled funds intended to be returned to the Treasury are instead used by Congress for earmarks and other activities, the hearing quickly turned to a comparison between federal agencies of their budget authorities and how they could more efficiently use funds appropriated to them by Congress.
Agency Differences
As each agency budget chief outlined how their individual department handled the carryover of unobligated funds from one year to another, it became apparent that procedures are largely dependent upon the characteristics of the agency's mission.
The Transportation Department's Phyllis F. Scheinberg noted that because the majority of that budget funds multi-year transportation infrastructure projects, monies must be available for a number of years. She also highlighted how obligation limitations in annual appropriations bills prevented the obligation of some highway contract authority each year, leading to large carry-over balances (representing $23 billion of the $34 billion in unobligated highway funds at the end of 2005.)
The VA's Robert J. Henke and HHS' Charles E. Johnson, meanwhile, said the vast majority of their carry-over balances resulted from entitlement programs funded through "no-year" accounts. For the VA, $19.2 billion of the $21.6 billion the department carried over into 2006 was entitlement program funding.
Budget officials also discussed their individual agency authorities to reprogram funds within appropriations accounts or to transfer funds between those accounts. An agency's ability to reprogram or transfer funds is usually set by the individual appropriations bill that provides the agency's funding, and each appropriations subcommittee has its own standards.
But a unique authority granted to the Justice Department quickly became the envy of the other budget officials. As described by Justice's Lee L. Lofthus, the fiscal 1992 Commerce-Justice-State Appropriations law (PL 102-140) allows Justice to transfer certain expired balances to a special "no year" Unobligated Balance Transfer Account within Justice's Working Capital Fund - instead of returning the funds to the Treasury. Lofthus pointed out that it enabled the department to use a large number of small unobligated balances for major departmental expenditures, including FBI and Federal Prison System improvements.
The other budget officials said they would like to have similar authority. HHS' Johnson called it "a tremendous idea." DOT's Scheinberg said he was "taking copious notes on this program because this would help out quite a bit at DOT." She and others noted they also often had a large number of small unobligated balances, but little or no flexibility to use them because of their size and limits on their use.
* Subcommittee Web site
Greater Efficiencies?
Coburn said it might be worth giving other departments similar authority, since by allowing them greater ability to use already appropriated funds it would enable the agencies to reduce future budget requests. Justice's Lofthus agreed. "The greatest advantage in . . . the authority is that it allows us to maximize the use of the appropriations we receive and diminishes the need for us to ask for new money."
Coburn also asked whether agencies had a "use it or lose it" mentality under which they try to obligate all their funds before the end of the fiscal year so Congress won't think the agency doesn't need the funding and therefore cuts their budget the next year. The panel's ranking Democrat, Tom Carper of Delaware, said he had seen that occur in local government, and VA's Henke noted that some accounts had a two-year limit precisely to avoid that situation. Johnson said that when he was at EPA where they had two-year authority, he never saw it occur, but at HHS with one-year money "there is a rush to obligate" and when there is such a rush funds may not be spent on the highest priorities.
Lofthus said Justice's flexibility in using expired funds helps prevent "the zeal to spend down at the end of the year" and "provides a built-in incentive to our program managers to have excellent stewardship over those funds because the agency can really put them to good use" later.
Coburn also asked whether requiring that unobligated funds be returned to the Treasury after five years was appropriate. John Roth of the Defense Department said that time period did not cause a problem for military operating accounts that spent out more quickly, but that for large capital accounts such as shipbuilding "it is on the razor's edge" because some bills could come in for payment late. He suggested that a longer time period would be useful in such situations.
The requirement to return unobligated balances after five years was enacted by Congress as part of the fiscal 1991 Defense Authorization Act (PL 101-510) in response to the Air Force's use, without express Congressional authorization, of $1 billion in "surplus" funds for contract modifications to the B-1B bomber program in the late 1980s. Before the law was enacted, agencies were allowed to indefinitely collect unobligated funds in so-called merged surplus and "M" accounts.
