NC State Economist Mike Walden – Spending the Budget

Mary Walden:  “Mike, one of the long time criticisms of government agencies is that they will always spend their budgets.  Some worry that this motivates wasteful spending.  Has there been any analysis on whether changing the rules might help this situation?”

Mike Walden:  “And Mary, this is the attitude of ‘spend it or loose it’.  Lets say you have a $100 million budget but you’re getting towards the end of the year and you’ve only spent $80 million. Are you going to simply send that $20 million back, or are you going to rush and spend it?  Or, are you simply going to give that $20 million back?  And the motivation is going to be to rush and spend it, because you’re worried that your budget will be cut from $100 to $80 million.

There’s been some recent analysis of this kind of behavior, especially by government bureaus. And the studies do confirm what we might expect; when government agencies rush out and spend a bunch of money in a quick period of time, usually the quality of that spending goes down.  We’re not just saying the money is wasted, but the benefits of that spending tend to be much lower than when the government agency has time to evaluate projects.  So, this is an issue.

I think one option is to allow government agencies to roll over unspent funds from one fiscal year to the next, that way, perhaps, that will lessen their motivation to hurry up and spend all the budget.  And there’s some evidence indicates that this would increase the overall quality of government spending.”'

A native of the Texas Panhandle, Rhonda was born and raised on a cotton farm where she saw cotton farming evolve from ditch irrigation to center pivot irrigation and harvest trailers to modules. After graduating from Texas Tech University, she got her start in radio with KGNC News Talk 710 in Amarillo, Texas.