Budget Issues: Effects of Budget Uncertainty from Continuing Resolutions on Agency Operations
Published: 2013-03-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress annually faces difficult decisions on what to fund among competing priorities and interests with available resources. Continuing resolutions (CRs) can create budget uncertainty, complicating agency operations and causing inefficiencies. In all but 3 of the last 30 years, Congress has passed CRs to provide funding for agencies to continue operating until agreement is reached on final appropriations.
GAO was asked to provide a statement based on findings from its 2009 report on managing under CRs ( GAO-09-879 ). This statement focuses on (1) a history of CRs and the provisions that Congress includes within them and (2) the effects of CRs on agency operations and actions that federal agencies have taken to manage these effects. GAO's 2009 report reviewed six federal agencies within three cabinet-level departments selected based on factors such as the length of time spent managing under CRs and the types of services they provided. These six case study agencies were the Administration for Children and Families and the Food and Drug Administration within the Department of Health and Human Services; Veterans Health Administration and Veterans Benefits Administration within the Department of Veterans Affairs; and Bureau of Prisons and Federal Bureau of Investigation within the Department of Justice. Under CRs that provide funding for the remainder of a fiscal year, agencies obtain certainty about funding. Therefore, CRs that spanned the months remaining in a fiscal year were not the focus of GAO's report.
GAO did not make recommendations in the 2009 report.
section_title: What GAO Found
paragraphs: Because CRs only provide funding until agreement is reached on final appropriations, they create uncertainty for agencies about both when they will receive their final appropriation and what level of funding ultimately will be available. Effects of CRs on federal agencies differ based in part on the duration and number of CRs and may vary by agency and program. CRs include provisions that prohibit agencies from beginning new activities and projects and direct agencies to take only the most limited funding actions. Congress can provide flexibility for certain programs and initiatives through the use of legislative anomalies, which provide funding and authorities different from the standard CR provisions.
Officials from all six case study agencies reported that they delayed hiring or contracts during the CR period, potentially reducing the level of services agencies provided and increasing costs. After operating under CRs for a prolonged time, agencies faced additional challenges executing their final budget as they rushed to spend funds in a compressed timeframe. All case study agencies reported performing additional work to manage within CR constraints, such as issuing shorter term grants and contracts multiple times. Agency officials reported taking varied actions to manage inefficiencies resulting from CRs, including shifting contract and grant cycles to later in the fiscal year to avoid repetitive work, and providing guidance on spending rather than allotting specific dollar amounts during CRs to provide more flexibility and reduce the workload associated with changes in funding levels.

section_title: Letter
paragraphs: I am pleased to submit this statement on our work on continuing  resolutions and the costs of budget uncertainty. As you know, Congress  annually faces difficult decisions on what to fund among competing  priorities and interests with available resources. Frequently, final funding  decisions are postponed to allow additional time for deliberations. In all  but 3 of the last 30 years Congress has passed continuing resolutions  (CRs) to provide funding for agencies to continue operating when their  regular appropriation bills have not been enacted before the beginning of  the new fiscal year. While CRs provide funding that allows agencies to  continue operations until agreement is reached on their final  appropriations, they also create uncertainty for agencies about both when  they will receive their final appropriation and what level of funding will  ultimately be available. This presents challenges for federal agencies  continuing to execute their missions and plan for the future.
Uncertainty is further created in years when it is unclear whether  disagreements can be resolved before a CR expires. For example, in  2011, agencies prepared for a potential funding gap and an orderly  shutdown of government operations. The shutdown was averted in the  final hours through the April 9 passage of a continuing resolution. Such a  funding gap last occurred in fiscal year 1996. Budget uncertainty is not  new and not only the result of CRs. Most recently, agencies are  managing and planning around the uncertainty associated with the  automatic, across-the-board reductions (sequester) to their budget  scheduled under the Budget Control Act (BCA) of 2011. While there was  extensive discussion earlier this year about if and to what extent such  reductions would take place, a sequestration of discretionary and direct  spending was ultimately ordered earlier this month—reducing federal  agencies’ 2013 budgets five months into the fiscal year.
This statement will focus on: (1) A history of CRs and provisions  Congress includes within them and (2) the effects that CRs have had on  agency operations and actions that federal agencies have taken to  manage effects of CRs. This statement is primarily based on a 2009 GAO  report that reviewed six federal agencies within three cabinet-level  departments selected based on factors such as the length of time spent  managing under CRs and the types of services they provided. The  agencies were Administration for Children and Families (ACF) and the  Food and Drug Administration (FDA) within the Department of Health and  Human Services (HHS); Veterans Health Administration (VHA) and  Veterans Benefits Administration (VBA) within the Department of  Veterans Affairs (VA); and Bureau of Prisons (BOP) and Federal Bureau  of Investigation (FBI) within the Department of Justice (DOJ). Although it  is difficult to isolate the effects of CRs and none of the agencies we spoke  to said they tracked the time or resources explicitly devoted to CRs, we  asked agencies to discuss, quantify where possible and provide  examples of the effects of regular appropriations being enacted after the  start of the fiscal year—October 1. Under CRs that provide funding for the  remainder of a fiscal year, agencies obtain certainty about funding.  Therefore, CRs that spanned the months remaining in a fiscal year were  not the focus of our report.
We conducted our work in accordance with generally accepted  government auditing standards. and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings based on our audit objectives.
subsections: section_title: CRs Provide Interim Funding for Agencies and Programs
paragraphs: We conducted our work for GAO-09-879 from September 2008 to September 2009 and  updated the analysis of the number and duration of continuing resolutions from February  to March 2013. until agreement is reached on final appropriations, they create uncertainty  for agencies about both when they will receive their final appropriation  and what level of funding ultimately will be available.
The effects of CRs on federal agencies differ in part on the duration and  number of CRs. As the examples in my statement will illustrate, shorter  and more numerous CRs can lead to repetitive work. Longer-term CRs  allowed for better planning in the near term, however, operating under the  level of funding and other restrictions in the CR for a prolonged period  also limited agencies’ decision-making options and made tradeoffs more  difficult. As shown in figure 1, the duration and number of CRs has varied  greatly between fiscal years 1999-2013, ranging from 1 to 197 days. The  number of CRs enacted in each year also varied considerably ranging  from 2 to 21, excluding the current fiscal year.
The effects of CRs also vary by agency and program. Not all federal  agencies, for example, are under CRs for the same amount of time. In our  2009 report we found that agencies covered by the Defense, Military  Construction, and Homeland Security Appropriations Subcommittees  operated under CRs for about 1 month on average during fiscal years  1999-2009, whereas other agencies operated under CRs for at least 2  months on average. More recently, for fiscal year 2013, all federal  agencies are operating under a CR scheduled to expire on March 27,  2013.
Congress includes provisions applicable to the funding of most agencies  and programs under a CR. These provisions provide direction regarding  the availability of funding within a CR and demonstrate the temporary  nature of the legislation. For example, one standard provision provides for  an amount to be available to continue operations at a designated rate of  operations. Since fiscal year 1999, different formulas have been enacted  for determining the rate for operations during the CR period. The amount  often is based on the prior fiscal year’s funding level or the “current rate”  but may also be based on a bill that has passed either the House or  Senate. Depending on the language of the CR, different agencies may  operate under different rates. The amount is available until a specified  date or until the agency’s regular appropriations act is enacted, whichever  is sooner. In general, CRs prohibit new activities and projects for which  appropriations, funds, or other authority were not available in the prior  year. Also, so the agency action does not impinge upon final funding  prerogatives, agencies are directed to take only the most limited funding  actions and CRs limit the ability of an agency to obligate all, or a large  share of its available appropriation during the CR. In 2007, Congress  enacted the furlough provision in the CR for the first time. This provision  permits OMB and other authorized government officials to apportion, or  distribute amounts available for obligation, up to the full amount of the  rate for operations to avoid a furlough of civilian employees. This authority  may not be used until after an agency has taken all necessary action to  defer or reduce nonpersonnel-related administrative expenses.
Recognizing the constraints inherent in a CR, Congress has at times  provided flexibility for certain programs and initiatives through the use of  legislative anomalies, which provide funding and authorities different from  the standard CR provisions. While uncommon, the majority of the  anomalies provided either (1) a different amount than that provided by the  standard rate of operations or (2) an extension of expiring program  authority. In some cases, CRs provide full-year appropriations for a  program or activity, to help agencies manage funds. For example, in fiscal  year 2009, the CR appropriated an amount to cover the entire year for  Low Income Home Energy Assistance Program (LIHEAP) payments.  LIHEAP provides assistance for low-income families in meeting their  home energy needs and typically 90 percent of LIHEAP funding is   In addition to  obligated in the first quarter to cover winter heating costs.the anomalies, multiyear appropriations and advance appropriations can  help agencies manage the effects of CRs. For example, agency officials  stated that multiyear appropriations, which provide the authority to carry  over funds into the next fiscal year, can be helpful in years with lengthy  CRs because there is less pressure to obligate all of their funds before  the end of the fiscal year, thus reducing the incentive to spend funds on  lower priority items that can be procured more quickly.
section_title: Delays and Increased Workload Affected Agencies’ Ability to Carry Out their Missions Efficiently and Effectively
subsections: section_title: Continuing Resolutions Affected the Level, Cost, and Quality of Services
paragraphs: Case study agency officials contacted for our 2009 report said that,  absent a CR, they would have hired additional staff sooner for  government services such as grant processing and oversight, food and  drug inspections, intelligence analysis, prison security, claims processing  for veterans’ benefits, or general administrative tasks, such as financial  management and budget execution. While agency officials said that it  was difficult to quantify the effect that hiring delays related to CRs had on  specific agency activities given the number of variables involved,  agencies provided examples that illustrated the potential adverse effects  including:
An FDA official said that deferring the hiring and training of staff  during a CR affected the agency’s ability to conduct the targeted  number of inspections negotiated with FDA’s product centers in areas  such as food and medical devices and that routine surveillance  activities (e.g., inspections, sample collections, field examinations,  etc.) were some of the first to be affected.
BOP officials said that deferring hiring during CRs had made it difficult  for BOP to maintain the ratio of corrections officers to inmates as the  prison population increased.
VBA officials cited missed opportunities in processing additional  benefits claims and completing other tasks. Because newly hired  claims processors require as much as 24 months of training to reach  full performance, a VBA official said that the effects of hiring delays  related to CRs were not immediate, but reduced service delivery in  subsequent years.
Several case study agencies also reported delaying contracts during the  CR period, which could reduce the level of services agencies provided  and increased costs. For example, BOP reported delaying the activation  of its Butner and Tucson Prison facilities and two other federal prisons in  2007 during the CR period to make $65.6 million available for more  immediate needs. According to BOP, these delays in the availability of  additional prison capacity occurred at a time when prison facilities were  already overcrowded. BOP officials also said that delaying contract  awards for new BOP prisons and renovations to existing facilities  prevented the agency from locking in prices and resulted in higher  construction costs and increases in the cost of supplies. Based on  numbers provided by BOP, a delay in awarding a contract for the  McDowell Prison Facility resulted in about $5.4 million in additional costs.  In some instances, delaying contracts resulted in additional costs in terms  of time and resources. For example, officials from BOP, VHA, and VBA  said that they sometimes had to solicit bids a second time or have  environmental, architectural, or engineering analyses redone.
Some agency officials said that contracting delays resulting from longer  CRs also affected their ability to fully compete and award contracts in the  limited time remaining in the fiscal year after the agency had received its  regular appropriation. VHA and ACF reported that the application time  available for discretionary grants may also be compressed by a longer  CR. Further, VA stated that this compressed application time adversely  affected the quality of submitted applications. Similarly, BOP’s Field  Acquisition Office, which is responsible for acquisitions over $100,000,  said that trying to complete all of its contracts by the end of the fiscal year  when a CR lasts longer than 3 to 4 months negatively affects the quality  of competition.
According to some representatives of nonprofit organizations and state  and local governments, federal grant recipients could temporarily support  programs with funds from other sources until agencies’ regular  appropriations are passed; however, it was more difficult to do so during  periods of economic downturn such as the one they recently experienced.  An ACF official told us that nonprofit organizations providing shelter to  unaccompanied alien children have used lines of credit to bridge gaps in  federal funding during a CR. However, in March 2009, a shelter in Texas  informed ACF’s Office of Refugee Resettlement that its credit was at its  limit and it was in immediate need of additional funds to sustain  operations for the next 45 to 60 days. The Office of Refugee  Resettlement made an emergency grant to this organization to maintain  operations with the CR funding remaining.
Case study agencies reported that they continued to feel the effects of the  delays caused by CRs even after the agencies had received their full year  appropriations. In general, longer CRs can make it more difficult to  implement unexpected changes in agencies’ regular appropriations,  because agencies have a limited time to do so. In addition, longer CRs  can contribute to distortions in agencies’ spending as agencies rush to  obligate funds late in the fiscal year. For example, agency officials said  that if hiring was delayed during the CR period, it was particularly difficult  to fill positions by the end of the fiscal year after a longer CR period.  Agency officials said that if the agency does not have enough time to  spend its funding on high-priority needs (such as hiring new staff)  because of a lengthy CR, the agency ultimately may spend funds on a  lower priority item that can be procured quickly.
section_title: Increased Workload Stemming from Continuing Resolutions Diverted Resources from Competing Priorities
paragraphs: In addition to delays, all case study agencies reported having to perform  additional work to manage within the constraints of the CR—potentially  resulting in hundreds of hours of lost productivity. The most common type  of additional work that agencies reported was having to enter into shorter  term contracts or grants multiple times to reflect the duration of the CR.  Agencies often made contract or grant awards monthly or in direct  proportion to the amount and timing of funds provided by the CR. In other  words, if a CR lasted 30 days, an agency would award a 30-day contract  for goods or services. Then, each time legislation extended the CR, the  agency would enter into another short-term contract to make use of the  newly available funding. In 2009, agencies reported that the time needed  for these tasks may be minimal and vary depending on the complexity of  a contract or grant, but the time spent is meaningful when multiplied  across VHA’s 153 medical facilities and roughly 800 clinics, FBI’s 56 field  offices, BOP’s 115 institutions, and the thousands of grants and contracts  awarded by our case study agencies. For example, at the time of our  study, VHA estimated that it awarded 20,000 to 30,000 contracts a year;  ACF’s Head Start program awarded grants to over 1,600 different  recipients each year; and FBI placed over 7,500 different purchase orders  a year. While none of the agencies reported tracking these costs, VHA  estimated that a 1-month CR resulted in over $1 million in lost productivity  at VA medical facilities and over $140,000 in additional work for the  agency’s central contracting office. These estimates were based on  agency officials’ rough approximations of the hours spent on specific  activities related to CRs multiplied by average cost of the salary of the  federal employee performing the task.
This time estimate does not include the additional work required to issue multiple grants. activities related to managing during the CR such as weekly planning  meetings and monitoring agency resources and requisitions.
In general, numerous shorter CRs led to more repetitive work for  agencies managing contracts than longer CRs. Numerous shorter CRs  were particularly challenging for agencies, such as VHA and BOP, that  have to maintain an inventory of food, medicine, and other essential  supplies and could result in increased costs. For example, absent a CR,  BOP officials said that prison facilities routinely contracted for a 60- to 90- day supply of food. In addition to reducing work, this allowed the prison  facilities to negotiate better terms in delivery order contracts by taking  advantage of economies of scale. However, under shorter CRs, these  facilities generally limited their purchases to correspond with the length  and funding provided by the CR. Thus, the prison made smaller, more  frequent purchases, which BOP officials said could result in increased  costs.
section_title: Agencies’ Strategies to Manage Inefficiencies Resulting from CRs Varied
paragraphs: Agency officials told us they took various actions to manage inefficiencies  resulting from CRs, including delays and increased workload. For  example, to avoid the types of hiring delays often associated with a CR,  during the CR period in 2009 FBI proceeded with its hiring activities  based on a staffing plan supported by the President’s Budget. This  helped FBI avoid a backlog in hiring later in the year and cumulatively  over time, but the agency assumed some risk because it could have  received a regular appropriation that did not support the hiring plan it had  implemented. Had this happened, FBI officials stated that FBI likely would  have had to suspend hiring for the remainder of the fiscal year and make  difficult cuts to other nonpersonnel expenses.
To reduce the amount of additional work required to modify contracts and  award grants in multiple installments, ACF and FDA reported shifting  contract and grant cycles to later in the fiscal year. An agency’s ability to  shift its contract cycle depends on a number of factors, including the type  of services being acquired.annual contracts for severable services, such as recurring janitorial  services, are executed in the third and fourth quarters of the fiscal year  when agencies are less likely to be operating under a CR. Further, FBI  reported it generally entered into contracts based on the rate for  operations for the period covered by the CR. Previously, each time  Congress extended a CR, FBI renewed its contracts to make use of the  additional funds that became available, and FBI’s Finance Division  provided a requisition for the renewal. Under FBI’s new streamlined  process, the Finance Division committed enough funds to cover a full- year contract at the beginning of the fiscal year.
An agency can shift its contract cycle so that  To reduce the administrative work required to subdivide funds from each  CR to different offices, programs, or both, VBA and VHA reported that  they did not allot specific dollar amounts during a CR but rather provided  guidance that all offices operate at a certain percentage of the previous  year’s appropriations. According to agency officials, this provides the  agency with more flexibility during the CR period and reduces the  workload associated with changes in funding levels. VHA officials said  that this also allows each facility to manage its funds to meet priorities  identified at the local level.
We have not reviewed agency operations under CRs since we issued our  2009 report. However, studies issued after our report was released have  highlighted similar themes.
This concludes my statement for the record.
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