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Thread: Is There An Alternative to "Use or Lose" Funding?

  1. #1
    Curmudgeon OtakuLoki's avatar
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    Default Is There An Alternative to "Use or Lose" Funding?

    One of the common dramas that plays out with many places that operate on annual budgets, is the phenomenon of the "Use it or lose it" money. In the US it's axiomatic for almost all government spending, and many places in private sector, as well.

    The way it works is, let's just say you're in charge of the flibber department for your county government. Flibbering is important and involves a certain amount of specialized equipment, which costs money to both operate and maintain; it required two or three flibber techs to operate the equipment, and there are certain administrative costs associated with running the flibber equipment that also must be covered.

    So, you look at your figures from last year, and find that for reasons beyond your control, flibbering was down. It could be that it can only happen in certain weather conditions, or that the areas for flibbering were otherwise occupied, or it might even mean that demand for flibbering is going down.

    Whatever the reasons, you've got 20% of your annual budget left, just before the end of the fiscal year. So what do you do with it? In the US, most of the time there begins a race to find any semi-legitimate way to spend that money so that the next year's budget won't be deducted the amount of your overage this year.

    In an ideal world, it would make sense to adjust future budgets based on prior usage and need, but in the real world - it seems to act to encourage ever growing spending.

    And I really don't have a quick answer for it. Anyone else got ideas?

  2. #2
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    The only thing I can think of is to have the bean-counters examine spending and identify "use it or lose it" spending, which (a lot of times at least) isn't all that hard.

    Of course, I've never seen such a thing, given that the climate around here these days is one of constantly decreasing spending. I have fewer co-workers than I've ever had before, and some state departments have had situations where, for instance, they couldn't order any more paper for six weeks until the fiscal year ended.

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    Curmudgeon OtakuLoki's avatar
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    Actually, locally every town DPW is starting roads projects before the end of the year - because we had a relatively snow-free winter. So all the money budgeted for snow plowing has to find other places to be spent.

    ETA: and some of the projects actually are long delayed projects of merit.
    Last edited by OtakuLoki; 16 Apr 2010 at 07:10 PM.

  4. #4
    Clueless but well-meaning Hatshepsut's avatar
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    This is a big problem in the international aid business. A project budget is written and agreed to ... but then the project is slower to get off the ground than originally hoped, due to circumstances beyond anyone's control (no one with the right skill set is available to do some crucial work until six months later than expected; the local government counterparts respond too slowly; a natural disaster diverts everyone's attention into other channels; the original plan was too optimistic...the possibilities are endless).

    So, after lengthy delays the project finally gets all geared up and ready to go, but then their funding gets cut back because they didn't spend all their money the previous year. At this point, they will have a basic operating structure in place (managers, an office, etc.) but probably need to spend money on one-time extras in order to get anything interesting done - hire specialists to come out and train, buy some equipment or hold a conference, etc. However, their funding is cut back so all they can do is pay the rent and the manager's salary, and NOT do all the interesting one-off activities. So, they don't spend too much money, and the next year their funding is restricted again...you see how it goes.

    I don't know that there is a one-size-fits-all answer, other than to build in common sense and discretion into the budgeting and planning process. Funds earmarked for a certain purpose that do not get spent in year 1 should remain available in year 2, assuming that rational human beings can agree it is the correct thing to do.
    Last edited by Hatshepsut; 28 Apr 2010 at 01:21 AM.

  5. #5
    Administrator CatInASuit's avatar
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    It's a very common occurance in Britain for February and March to be the silly season for councils to try and spend the last of their budget before the 5th April (end of Tax year) in order to ensure their budgets are not cut.

    We get a lot of road "improvement" works that way.

    The problem is that every department has to overspend just to show that they need an increase in budget next year.

    My suggestion would be the following:

    Allow some of the budget to be kept as an emergency fund which can be used for specifically that, unexpected circumstances.

    If a council wants to put a part of their budget aside to finance a project which will take two or three years, allow them to do so, instead of forcing them to try and pay for a large project in one hit.
    In the land of the blind, the one-arm man is king.

  6. #6
    Elen síla lumenn' omentielvo What Exit?'s avatar
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    I think CatItASuit has hit on the easiest reform. People are encouraged to budget large expenses, why not the government. Somehow I suspect that setting accountants loose to hunt down "Use or Lose" funding will only waste even more money in the end.

  7. #7
    my god, he's full of stars... OneCentStamp's avatar
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    My ex-wife once worked for a company that had a novel approach to this: her manager received an annual bonus based on how far under budget the department came in. The result was predictable: he was absurdly tight-fisted on necessities such as consumables and equipment maintenance, and things like birthdays or going-away celebrations were strictly potluck. The company loved it, obviously, and the manager made out like a bandit, but employee morale was not the best.
    "You laugh at me because I'm different; I laugh at you because I'm on nitrous."

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    Porosity Caster parzival's avatar
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    Is there any company or field that uses a time scale of greater than a year? Not that I think this is necessarily the best way to set up funding, but it seems to me that in many cases, some averaging method that is less susceptible to recent spikes would avoid this problem. What I don't know is whether the resistance to actual sudden change that this would result in ends up being more harmful, but I think in some areas of work, it'd be better than the frantic activity that 'use it or lose it' results in.

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