Spike in fiscal year-end spending driven by use-it-or-lose-it mentality

The federal government’s fiscal year begins on Oct. 1 and ends on the following Sept. 30. Meanwhile, 46 state governments begin their fiscal years in July and end in June, the National Conference of State Legislatures told GovPro.com.

For county governments, it’s about a 50-50 split, with half of the 3,034 counties ending their fiscal years in June and the other half in December, according to the National Association of Counties (NACo). A small percentage of counties have fiscal years that run from time periods such as October to September or March to March.

The International City/County Management Association (ICMA) told GovPro.com that among 3,742 cities, towns and other local governments that responded to the ICMA’s 2006 Municipal Form of Government Survey, a total of 1,185 said their fiscal years started in January, while 1,622 reported their fiscal years started in July. Another 598 said their fiscal years started in October.

According to the U.S. Census Bureau’s latest Census of Governments, there are 19,431 city/municipal governments and 16,506 township governments in the United States.

GovPro.com asked experts if they see an acceleration in purchasing before government agencies’ fiscal years come to an end. Here is a small sampling of responses.

Dave MacLean, vice president, federal government business, for Staples National Advantage—“Yes, absolutely, absolutely. The rate of spending increases by at least 50 percent during the last couple of months in agencies’ fiscal years at the federal level. Just knowing human nature, I would absolutely surmise that it would be the exact same issue at state and local governments, because if they are not spending their budget, they are going to lose it.”

Rita Gunther McGrath, associate professor at the Columbia Business School at Columbia University and co-author of two recent business texts available from the Harvard Business School Press—“In a former life, I ran purchasing systems for the New York City Department of General Services. While I don’t have current statistics, I can guarantee you that the looming end of the fiscal year (at which time the unspent budget goes back into the general fund) always drives last-minute, panic buying.

“I vividly recall people rushing into my office pleading for fast-track treatment for proposed purchases because ‘the fiscal year is ending!’ I would point out to them that the fiscal year for the city of New York has ended on June 30 every year since the city’s incorporation in 1861, and that this hardly counted as an unexpected crisis.

“It’s understandable why governmental organizations behave this way, unfortunately. In the first half of the fiscal year, they’ll be conservative about spending in case something comes up that they didn’t anticipate, so that they can address any emergency. In the second half, the threat of losing the money causes them to accelerate spending—sometimes even for things they didn’t plan on buying, just to keep the funds in the budget.

“This is for two reasons: One, if you didn’t need all the budget you had last year, the reasoning goes, the government will cut your budget for next year, and two, if you have money left over, it’s a missed opportunity to buy or invest in something that could help future performance.”

Mark Amtower, a nationally known government sales consultant—“There is a minor spike in spending in federal agencies in August-September. For state and local governments, the spending spike happens in May-June each year.”