Chicken Little squawked about the sky falling. Pundits warn about the Fiscal Cliff. But federal agencies nearly every year hold up the sky while walking on the edge of a cliff. This is the world of Continuing Resolutions and Government Shutdowns.
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This article originally appeared on the IBM Center for the Business of Government’s blog.
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In only four cases since 1975 has Congress passed all appropriation bills before the beginning of the fiscal year. In some years, like 1996, inaction led to agencies suspending operations. This year, Congress adopted a six-month Continuing Resolution for all fiscal year 2013 appropriation bills, delaying final decisions until March 31st. What do these kinds of delays mean for how agencies manage their monies and operations? And what effect does it have on grantees and contractors?

Dr. Philip Joyce, a budget expert at the University of Maryland, examines the impact of late budgets on the efficiency and effectiveness of government operations over the past 37 years and identifies useful coping strategies and offers recommendations on how to soften the adverse effects of budget uncertainty.

His report for the IBM Center, The Costs of Budget Uncertainty: Analyzing the Impact of Late Appropriations, is a timely primer for federal managers and provides a useful context based on historical examples of how agencies have responded to Continuing Resolutions and so-called Government Shutdowns in past years.

Just What Is a Continuing Resolution? The President sends his proposed budget for the coming fiscal year to Congress each February. The fiscal year starts about eight months later, on October 1. The Congress divides the budget proposal into 12 separate appropriation bills, so technically, there isn’t one budget, but rather 12 separate budgets that must be passed by Congress and signed by the President before October 1.

If any one of the appropriations bills is not passed, then the agencies and programs covered by a particular bill is potentially subject to “shutdown” if there is not a Continuing Resolution to provide temporary funding. Sometimes Congress is close on an agreement, so a Continuing Resolution (also called a “CR”) may be for only a few days until it passed a bill and the President signs it. Sometimes the CR is extended multiple times. And sometimes there is a longer-term CR, even covering the remainder of the fiscal year.

A CR oftentimes just continues the funding levels and programs from the prior year, but there are instances where Congress includes special provisions, for example the Department of Veterans Affairs, because of rising hospital and benefit caseloads, would be permitted to spend at a higher level.

Appropriations have been late and CRs have been used for more than 135 years. Prior to 1980, even if they were not enacted, agencies would typically operate under the assumption that Congress did not actually intend for the government to shut down. But that year, an attorney general decision concluded that continued operations were unconstitutional, so CRs became more important.

There are cases where Congress and the President cannot agree on a CR and in those cases, agencies and programs covered by an appropriation bill that has not yet been signed into law are affected. In some relatively rare instances, agencies must suspend all or some of their operations. This is called in the press a Government Shutdown. But it actually is not that stark. Exceptions include soldiers, border guards, and hospital doctors on duty, etc. In 1995-1996 two separate shutdowns occurred, totaling 26 days. Not all agencies were affected because some appropriation bills had been passed. But, the second of the shutdowns, lasting three weeks, resulted in 284,000 (out of 1.9 million) employees being placed on furlough without pay.

How Do Federal Agencies Cope with CRs? Joyce examines studies of the effects of past shutdowns and CRs. He found that the 1995-96 shutdown (1) affected the morale and productivity of federal employees, (2) effected the delivery of public services, such as stoppage in toxic waste cleanups by EPA, and (3) imposed a financial cost of about $1.4 billion in lost productivity, service delays and backlogs (like unprocessed mortgage loans) and back pay for furloughed employees.

But the CRs also have negative impacts because of the uncertainty they pose for agency operations. Because agency managers cannot plan for spending beyond the timeframe of a CR, they have developed ways to cope with the uncertainty and delay. Several of their coping strategies include:

• Hiring freezes, to control personnel costs. As positions become vacant, agencies leave them unfilled.
• Furloughs, especially in cases where agencies fear a shutdown. Since notices have to be sent out in advance, even if a furlough does not occur, this creates staff turmoil and causes some to seek alternate employment.
• Personnel shifts are stopped, even if an agency is shifting its mission priorities to another area. For example, the Bureau of Prisons could not maintain or improve the ratio of correction officers to inmates, as the inmate population increased.
• Training and travel delays, which oftentimes cannot be made up at a later date.
• Delays in operations such as Veterans hospitals delaying regular maintenance and the Bureau of Prisons bringing additional prison capacity on-line because of the inability to hire staff.
• Shorten contract competitions because agencies have limited time left in a fiscal year, however this means they are not able to fully compete and award contracts and this results in less competition and a rush to obligate funds before they lapse at the end of the shortened fiscal year.
• Use shorter-term contracts and grants so the duration of the contract or grant does not exceed the duration of a CR. This increases contract and grant transaction costs and more frequent transactions can lead to errors in the contracting process since procurement and grants personnel are stretched to meet a higher workload.
• Forgo maintenance in order to conserve funding for other costs that are harder to defer, such as payroll or utilities. However, forgoing maintenance oftentimes leads to higher future costs because of deterioration of ships, roads, or buildings needing maintenance.
• Targeted reductions of programs or activities that are planned but not yet begun. This is increasingly being used instead of the more typical across-the-board reductions of all programs.
• Delayed implementation is another way to save monies in the short term, but this can have an effect on operations, for example a new air traffic control tower was built in State College, PA but sat empty in the spring of 2011 because FAA could not hire the air traffic controller to staff it.
• Delayed payments can occur, as well. For example, President Obama announced that the scheduled pay increase for federal employees would be deferred, at least for the duration of the fiscal year 2013 CR.

The use and mix of these coping mechanisms will differ, depending on whether the CRs are short-term and multiple, or if they are longer-term covering several months.

What Are Some of the Adverse Effects of CRs? While none of the various coping mechanisms noted above are optimal ways of running an agency, there are other adverse effects caused by the use of CRs that increase costs to agencies:

• An inability to terminate activities that have been determined to be unnecessary. Because CRs typically require ongoing activities to be continued, and new activities are prohibited, there are some cases where agencies must continue funding operations that were slated to be closed.
• Time wasted preparing for shutdowns and CRs. Agency budget officers and managers are required to prepare for contingencies that may not happen and as a result, they develop shutdown plans, furloughs, etc. that oftentimes are a waste of time.
• Time wasted revising budget execution plans. Even when a CR is enacted, agency budget execution guidance and reporting becomes necessary to ensure agencies adhere to whatever constraints are in the new law. For example, days after the latest CR, OMB issued guidance on how agencies must implement the new law. The guidance was longer than the CR itself!
• Increasing procurement workloads occur when agency procurement officers must enter into shorter-term contracts or exercise contract options to reflect the duration of a CR. Joyce cites instances where agencies have been forced to break up a one-year contract into weekly or monthly contracts. The same happens with grants, as well.

Joyce says that there are similarly adverse effects on contractors and grantees. For example, the Northeast Missouri Community Action Agency opted to close five satellite offices because of uncertainty as to when or whether it would receive federal funds it had been promised. One effect on the contracting community is that some firms forego doing business with the federal government because of the uncertainty, and as a result there is less competition for federal projects and costs are potentially higher as a result.

Interestingly, Joyce says that CRs have become more challenging in recent years. He says that in the past, the uncertainty created by CRs was over timing – when the money would be available. Now, he says, a parallel uncertainty is the level of funding – how much money would ultimately be available. The combination of these twin uncertainties makes it even harder for agencies to manage.

While there are no easy solutions, Joyce offers some advice to agencies to better manage in an environment of budgetary uncertainty, such as agencies hiring earlier in the year, and delaying renewals of non-recurring contracts and competitive grant awards to the second half of the year. His key advice, though, is “The Congress should prohibit itself from using continuing resolutions!”