Improving Performance Series

The Costs of Budget Uncertainty

Analyzing the Impact of Late Appropriations

Philip G. Joyce
University of Maryland

 Improving Performance Series

The Costs of Budget Uncertainty:
Analyzing the Impact of Late
Appropriations

Philip G. Joyce
Professor of Management, Finance, and Leadership
Maryland School of Public Policy
University of Maryland

2012

 THE COSTS OF BUDGET UNCERTAINTY: ANALYZING THE IMPACT OF LATE APPROPRIATIONS
www.businessofgovernment.org

Table of Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Shutdowns and Continuing Resolutions: Why, When, and How? . . . . . . . . . . . . . . . . . . . 9
Historical Context—Fiscal Years 1977 through 2010 . . . . . . . . . . . . . . . . . . . . . . . . 11
Budget Uncertainty since the 2010 Midterm Elections . . . . . . . . . . . . . . . . . . . . . . . 15
Budgetary Uncertainty’s Impacts on Federal Agencies . . . . .
Delayed Hiring and Personnel Actions and Morale Issues
Training and Travel Delays . . . . . . . . . . . . . . . . . . . . . .
Changes in Agency Contracting Practices. . . . . . . . . . . .
Increasing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduced Effectiveness and Efficiency . . . . . . . . . . . . . .

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. 20
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. 25

Impacts of Funding Uncertainty on Other Sectors and Actors . . . . . . . . . . . . . . . . . . . . . 30
State and Local Governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Federal Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Recommendations . . . . . . . . . . . . . . . . . . . . . . . .
Benefits of an Improved Appropriations Process .
Recommendations . . . . . . . . . . . . . . . . . . . . .
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . .

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. 34
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References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Key Contact Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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Foreword
On behalf of the IBM Center for The Business of Government,
we are pleased to present this report, The Costs of Budget
Uncertainty: Analyzing the Impact of Late Appropriations, by
Philip G. Joyce, Professor of Management, Finance, and
Leadership, Maryland School of Public Policy, University of
Maryland.
This report comes at an especially opportune time, calling
attention to the increasingly unpredictable federal budget process and the many challenges it creates for efficient and effective management of federal operations. But even in this
environment, federal managers must still deliver services and
programs as effectively and efficiently as possible. What steps
can they take to do so?

Daniel J. Chenok

By analyzing historical events and interviews with participants,
Dr. Joyce describes the effects of late appropriations on federal
operations over the last 35 years, and explains how federal
managers have attempted to address increasingly greater levels
of budget uncertainty. He also describes in compelling detail the
effects—and costs—on government operations of the recent
congressional practice of relying on continuing resolutions (CRs)
to temporarily fund government for increasingly longer amounts
of time.
This report is a very helpful guide for federal managers; state,
local, and non-profit grant recipients; and federal contractors to
understand the background behind continuing resolutions and
how they operate, as well as the different impacts of CRs and
government shutdowns.

5

Luanne Pavco

 THE COSTS OF BUDGET UNCERTAINTY: ANALYZING THE IMPACT OF LATE APPROPRIATIONS
IBM Center for The Business of Government

Joyce points out that the current approach to continuing resolutions actually drives up the cost of government and reduces
its effectiveness and efficiency. He offers several recommendations to the Congress, the President, and agencies on ways to
ameliorate the adverse effects of continuing resolutions on
agency operations.
We hope that this timely report will be read carefully by decision-makers both in Congress and the executive branch as they
consider ways to address the effects of late appropriations and
continuing resolutions.

Daniel J. Chenok
Executive Director
IBM Center for The Business of Government
chenokd @ us.ibm.com

Luanne Pavco
General Manager
IBM Global Business Services
luanne.pavco @ us.ibm.com

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 THE COSTS OF BUDGET UNCERTAINTY: ANALYZING THE IMPACT OF LATE APPROPRIATIONS
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Introduction
The debacle accompanying the 2011 legislative debate to increase the federal government’s
debt limit highlighted the increasingly dysfunctional nature of the federal budget process. For
many participants in the process, and for those affected by it, this was simply an extreme
form of business as usual. Federal agencies, state and local governments, federal contractors,
and other recipients of government funds planned for increased costs and disruptions as they
anticipated the prospect that the federal government, for the first time in its history, would be
unable to pay its bills. This was made all the worse by coming on the heels of the first credible threat of a government shutdown since 1996, which had been averted only months earlier.
Government shutdowns, or the real threat of them, have become relatively rare. Between
1996 and 2011 it was assumed that, however ugly the budget process might become, there
would be no interruptions in funding. What is not rare, however, is the uncertainty surrounding
the timing of the federal budget process. In only four of the last 37 years have all appropriation bills become law prior to the fiscal year. This may lead some to conclude that the costs of
these funding delays are relatively low, certainly compared with the cost of government shutdowns. It is the premise of this report that funding delays, like government shutdowns, are
disruptive events that carry costs, both financially and in terms of the effectiveness of federal
agencies and recipients of federal funds.
When budgets are adopted late, what is the effect on the efficiency and effectiveness of government? Based on past research into federal practices and more recent interviews with key
participants in various federal agencies conducted for this report, there are a number of
adverse effects on agency operations, both on the cost of providing services and the quality of
those services. These include effects on personnel management, including hiring delays and
problems with morale, recruitment, and retention. Agencies also cut back on needed travel
and training, with a resulting cost in their programs’ effectiveness. Moreover, agencies often
make wasteful and inefficient changes in their budget execution practices to manage through
short-term appropriation. A clear example, but not the only one, is the common practice of
engaging in short-term (month-to-month or even week-to-week) contracting. A final and
related effect is that agencies operate less efficiently and effectively because they:
VË Pay higher costs to receive some services
VË Are required to continue services that have outlived their effectiveness
VË Delay certain activities (such as maintenance), creating higher costs in the future
In addition to these direct agency costs, anyone who receives monies from the federal government feels the pinch of late funding. Contractors may face uncertainty about whether their
operations in support of a given agency will be interrupted or halted altogether. Budget planning
at the state and local government level is affected by the uncertainty surrounding the timing
and continued receipt of federal funds. The delays can even be felt in the broader economy,

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 THE COSTS OF BUDGET UNCERTAINTY: ANALYZING THE IMPACT OF LATE APPROPRIATIONS
IBM Center for The Business of Government

not only as the budget affects contractors but also as it affects funds flowing to individual
recipients.
This report reviews the causes of late funding and some of the history surrounding it, especially since 1980 when a Department of Justice legal opinion raised the stakes by ruling that
agencies could not continue to operate in the absence of an appropriation. Based on a review
of the research and new interviews, it summarizes the effects of budget uncertainty on federal
agencies, contractors, and state and local governments. Finally, it reviews some proposals for
reforms to improve current practice and offer some conclusions based on the research, in an
effort to mitigate the effects of this ongoing problem.

Study Methodology
The information concerning the experiences of federal agencies, contractors, and state/local
governments included in this report comes from multiple sources. First, a number of reports by
both the Congressional Research Service (CRS) and the Government Accountability Office (GAO)
were examined. These covered the effects of funding delays and government shutdowns through
approximately 2010. A 2009 GAO report, which focused on the effects of late appropriations on
the management of federal agencies, was particularly helpful.1
In addition, there were a number of journalistic accounts, particularly covering the period in
2011 when first appropriations delays, and then a potential debt default, threatened an interruption of funding for some governmental activities. These journalistic accounts were used as a
source for specific examples.
Third, the author interviewed approximately 25 individuals who are current or former federal
budget officials or contractors. Some of these interviews were one-on-one, while others were
done in a group setting (of two to four). They included individuals from six different federal agencies and two different government contractors. Each of these individuals was promised anonymity, both for themselves and for their agencies. Therefore, they cannot be named here or in the
body of the paper. These interviews were particularly important for capturing the full effects of
appropriations delays and shutdowns (or potential shutdowns), and for documenting current
practice and effects.

1.
Government Accountability Office (2009). Continuing Resolutions: Uncertainty Limited Management Options and Increased
Workload in Selected Agencies, September.

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Shutdowns and Continuing
Resolutions: Why, When, and How?
Under the U.S. Constitution, the Congress has what is referred to as the power of the purse.
Specifically, Article I, Section 9 states that “No Money shall be drawn from the Treasury, but
in Consequence of Appropriations Made by Law.” This means, specifically, that federal
employees and contractors cannot be paid if appropriations have not been enacted.
While it would be unconstitutional for the government to make payments without appropriations, it may be permissible to enter into contracts or otherwise commit the government to
future spending in the absence of appropriations. According to Brass, however, “(t)he so-called
Antideficiency Act … prevents this … The act prohibits federal officials from obligating funds
before an appropriations measure has been enacted, except as authorized by law … Therefore
the Antideficiency Act generally prohibits agencies from continued operations in the absence of
appropriations. Failure to comply with the act may result in criminal sanctions, fines and
removal” (Brass, 2011).
While this would seem clear, federal agencies prior to 1980 would continue to operate under
the assumption that the Congress did not actually intend for the government to shut down.
Thus, while the Congress routinely was late in enacting appropriation bills, the consequences
of late appropriations were limited. All of this changed with the Civiletti opinion, which has
since been the statement of authority for closing down the government. On April 25, 1980,
Attorney General Benjamin Civiletti stated that “(i)t is my opinion that, during periods of
‘lapsed appropriations,’ no funds may be expended except as necessary to bring about the
orderly termination of an agency’s functions, and that the obligation or expenditure of funds
for any purpose not otherwise authorized by law would be a violation of the Antideficiency Act
(31 USC 665)” (McGrath, 1997).
After the Civiletti opinion, the question of exceptions first surfaced. Clearly, even in the absence
of appropriations, certain functions of the government needed to continue. Soldiers in the field
would not cease to defend the country and doctors in veterans’ hospitals would not refuse to
save the lives of patients. But the same sense of urgency did not apply to national parks and
museums, passport applications, or agricultural extension services. Therefore, some definition
of services (and employees) exempt from a government shutdown had to be established.
Initially, exceptions were made for emergencies, defined as cases where there is “some reasonable and articulable connection between the function to be performed and the safety of human
life or the protection of property” (Brass, 2011). This definition proved to be a bit broad and
subject to a bit too much interpretation, and the definition was later tightened under a 1990
amendment to the Antideficiency Act. Under this revision, the Act was amended to clarify that
the term “emergencies involving the safety of human life or the protection of property do not
include ongoing regular functions of government …” (McGrath, 1997).
While it had more or less always been true, therefore, that appropriations were necessary prior
to spending, the consequences of failed budgets became much more real after 1980, and
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 THE COSTS OF BUDGET UNCERTAINTY: ANALYZING THE IMPACT OF LATE APPROPRIATIONS
IBM Center for The Business of Government

thus continuing resolutions (CRs) to keep government operating became increasingly necessary. CRs had been around for a long time; the first one was actually enacted in 1876
(Meyers, 1997). While the failure to enact them had little practical consequence prior to the
Civiletti opinion, after 1980 the failure to enact these short-term appropriations could literally
bring significant portions of the government to a grinding halt.
A continuing resolution is nothing more than a short-term appropriation. Taken literally, it is
the authority to continue operating, and early CRs were fairly simple and to the point, permitting agencies to continue spending at the current (prior fiscal year) level into the new fiscal
year. These relatively simple CRs have given way, over the years, to more complicated ones,
many quite lengthy. Among the issues now routinely addressed in CRs include:
VË Differing definitions of what constitutes the appropriate rate of spending. This could, for
example, be defined as a percentage of the current year’s level (e.g., 90%), or the lowest
of the House-passed or Senate-passed appropriation bill, or the level specified in a bill
reported out by committee.
VË Prohibition of engaging in “new starts”—that is, activities anticipated (perhaps in the
President’s budget) that are not occurring in the current fiscal year. Agencies are also
typically prohibited from engaging in these new activities or from obligating funds to a greater
extent, or for a longer period, than is necessary (Government Accountability Office, 2009).
VË The inclusion of legislative language as part of the CR. Because CRs are must-pass
legislation they may attract policy riders, which go far beyond just continuing funding to
legislating how funds can be spent.
VË Specific allowance for anomalies, or exceptions to the general rate of spending. For
example, if the population receiving veterans’ health benefits is growing, the CR may
permit the Department of Veterans Affairs to spend at a level above the current level.
In a 2009 report on the effects of CRs, the Government Accountability Office (GAO) looked
at the anomalies in continuing resolutions passed between fiscal year 1999 and fiscal year
2009, identifying a total of 280 anomalies enacted in that 11-year period. According to this
GAO research, there appears to be a relationship between the length of CRs and the number
of anomalies enacted. Exceptions, or anomalies, have also increased over time. In the five fiscal years between fiscal year 1999 and fiscal year 2003, the number of anomalies per year
held constant at approximately 10. In the subsequent five fiscal years (2004 through 2008)
the average per year doubled to approximately 20. The fiscal year 2009 CR, which lasted
almost six months, included more than 50 anomalies. According to GAO “over two-thirds of
the anomalies enacted since 1999 fell into two categories:
VË A different amount than that provided by the standard rate for operations
VË Extensions of expiring program authority” (GAO, 2009)
GAO found some cases where the anomaly actually provided a full year’s appropriation for a
program or activity. This occurred, for example, with the Low Income Home Energy Assistance
Program (LIHEAP) in fiscal year 2009. This made unnecessary the prior practice of OMB providing the program a seasonal apportionment (as opposed to, for example, one that divided
budget authority evenly across the four quarters).
Other examples of anomalies:
VË Extension of the authorization of programs that would have expired during the period
covered by the CR, including the National Flood Insurance Program, affordable housing,
and the free lunch program
VË Extension of authority to collect and obligate fees and copayments (such as for mining
royalties or copayments from veterans)
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VË Permission of activities not undertaken in the current year, or restriction on activities
undertaken in the current year
The more complicated CRs become, the more difficult it is to negotiate them. The House may
want, for example, a CR that reflects its proposed spending level, while the Senate may prefer
its own. The inclusion of policy riders (banning use of funds for abortions, or prohibiting facilities from being closed) can create controversy. It may be difficult to decide which, if any,
anomalies to include. Thus, not only is it difficult to enact the appropriation bills themselves
(thus making the CR necessary) but it is increasingly difficult to enact the CRs.
Failing to enact either appropriation bills or continuing resolutions can lead to a government
shutdown. The term shutdown, however, is not entirely accurate for the following reasons:
VË Some employees will be engaged in work that is exempted from the shutdown.
VË As pointed out by the Office of Legal Counsel, Department of Justice: “… a majority of
current expenditures occur under multi-year, permanent or indefinite appropriations that do
not lapse on the expiration of the current fiscal year” (McGrath, 1997).
VË Some agencies engage in activities permitting them to enter into obligations in advance of
receiving an appropriation (Covington and Burling, LLP, 2011).
VË Even when appropriation bills have not been enacted prior to the beginning of the fiscal
year, often this will mean only some bills, and not all. In this case, those employees not in
positions excepted from a shutdown will be on the job if the appropriation bill covering
their agency has been enacted prior to the beginning of the fiscal year.

Historical Context—Fiscal Years 1977 through 2010
Until fiscal year 1977, the federal fiscal year ran July 1 to June 30. The Congressional Budget
and Impoundment Control Act of 1974 changed the federal fiscal year to begin on October 1,
in part of accommodate the additional demands on the calendar from the step in the budget
process (the budget resolution) that had been added by that law, and (ironically, in retrospect)
in part because of the difficulty that the Congress had in meeting the July 1 deadline. In fact,
between fiscal year 1962 and fiscal year 1976, 96 percent of appropriation bills were
enacted late, and 53 percent were enacted more than three months after the start of the fiscal
year (Meyers, 1997).
The change in the timing of the fiscal year did not, however, improve the timeliness of the
appropriations process. While fiscal year 1977 saw all regular appropriation bills enacted on
time (there were two continuing resolutions, but they covered items outside of the regular
appropriations process) this would become the last time for more than 10 years that the
appropriations process operated as it was drawn up on paper, as indicated in Table 1. Not
only were there continuing resolutions in each year for the 11 fiscal years between fiscal years
1978 and 1988, but (usually) short partial government shutdowns became routine. In only
two years (1981 and 1986) of these 11 was there no interruption in funding. Early in the
period, these funding gaps were relatively long—16 days (two separate funding gaps) in
1978, 17 days in 1979, and 11 in 1980. The six shutdowns that occurred between 1982
and 1988, however, were short (an average of three days).
After 1988, while the phenomenon of late appropriations did not change, shutdowns became
more of an anomaly. In fact, between fiscal year 1989 and fiscal year 1995 (seven fiscal
years) there was only one partial government shutdown—lasting three days—in fiscal year
1991 (as President Bush and the Congress engaged in the Andrews Air Force Base “budget
summit” of 1990). While this was the only shutdown, fiscal years 1990 through 1994 saw
annual continuing resolutions, averaging 75 days per fiscal year.
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IBM Center for The Business of Government

Table 1: Continuing Resolutions and Government Shutdowns: 1977–2012 (Calculated from
Tollestrup, 2011)
Number of
CRs

Days Covered
By CRs

Length
of First
Funding Gap

Length of
Second
Funding Gap

Full YR CR?

1977

2

213

10

12

No

1978

3

365

8

8

Yes

9-Dec

1979

1

365

17

Yes

18-Oct

1980

2

365

11

Yes

20-Nov

1981

3

365

Yes

5-Jun

1982

4

362

2

1

Yes

31-Mar

1983

2

365

3

3

Yes

21-Dec

1984

2

365

3

2

Yes

14-Nov

1985

5

365

1

Yes

12-Oct

1986

5

365

Yes

19-Dec

1987

5

365

1

Yes

30-Oct

1988

5

366

1

Yes

22-Dec

1989

0

1990

3

51

1991

5

36

1992

4

240

Yes

1993

1

5

No

1994

3

41

No

1995

0

1996

13

1997

0

1998

6

57

No

1999

6

21

No

2000

7

63

No

2001

21

82

No

2002

8

102

No

2003

8

143

No

2004

5

123

No

2005

3

69

No

2006

3

92

No

2007

4

365

Yes

2008

4

92

No

2009

2

162

No

2010

2

79

No

2011

8

365

Yes

15-Apr

2012

5

84

Yes

23-Dec

Fiscal Year

Enact Date
Full Year CR

No
No
3

No
1-Apr

No
365

5

21

No
No

15-Feb

Note: Prior to the issuance of the Civiletti opinion in 1981, funding gaps did not result in full or partial government
shutdowns. Rather, agencies continued to operate without an appropriation. After 1981, however, funding gaps and
government shutdowns became synonymous.

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For fiscal year 1995, the Congress and the presidency were both in the hands of the
Democrats. This, coupled with a desire to move the appropriations process along to clear the
way for President Clinton’s signature health care reform, resulted in only the second time since
1977 that all appropriation bills had become law prior to the fiscal year.
The fiscal harmony was short-lived. The takeover of the Congress by the Republicans in the
1994 midterm elections ushered in an era of budgetary warfare unprecedented in the 20 years
since the Congressional Budget Act was enacted. House Republicans, who had pledged in their
Contract with America to make substantial changes in many entitlement programs, held appropriation bills hostage pending an agreement by President Clinton to put forth a plan to balance
the budget in seven years, using economic and technical assumptions from the Congressional
Budget Office (Joyce, 2011).
The ensuing fight led to two separate government shutdowns, totaling 26 days. The first lasted
from November 14, 1995 to midnight on November 19, 1995. This shutdown and the accompanying furloughs occurred because of the expiration of a CR (PL 104-31) enacted on
September 30, 1995 (through November 13, 1995) and by Clinton’s veto of a second CR and
a debt limit extension bill. The six-day shutdown resulted in the furlough of 800,000 federal
employees. Four appropriation bills had been enacted prior to the November 14th shutdown;
therefore there were no furloughs in departments covered by those enacted appropriation bills.
This first shutdown ended when an agreement between President Clinton and GOP leaders was
announced, extending government funding through December 15, 1995 while they worked out
the details of other budget legislation. It also paid employees retroactively for furloughed days
(McGrath, 1997).
The disagreements between President Clinton and the Republican Congress continued, however, and hopes for budgetary harmony faded. The major conflict occurred not over appropriations but over congressional plans to enact a reconciliation bill making significant reductions to
mandatory spending programs. By far the largest and most high-profile of these was a plan to
cut $270 billion over 10 years from baseline levels of Medicare spending. The Congress
insisted that President Clinton go along with them on this reconciliation legislation as a cost of
getting the remaining appropriation bills enacted (Joyce, 2011). This did not occur, and a second, much longer, shutdown commenced on December 16th, 1995, and lasted for three weeks
until January 6, 1996. This second shutdown furloughed 260,000 (later 284,000) federal
employees; the number was reduced mainly because several appropriation bills had been
enacted in the interim (McGrath, 1997).
Effects of the 1995–1996 shutdown. A 1997 study by the Congressional Research Service
cited several effects of the shutdown. First, there was an effect on the morale and productivity
of federal employees. In some agencies a significant percentage of employees were furloughed,
meaning they had been officially classified as “nonessential.” An accounting of the number of
furloughed employees by agency (excluding DOD) indicates that in the second shutdown,
284,621 employees were furloughed and 475,608 were excepted from furlough. For example, the Department of Veterans Affairs had almost 33,000 employees on furlough, but more
than 203,000 excepted from furlough. On the other hand, almost 20,000 out of the total of
approximately 22,000 NASA employees were furloughed (McGrath, 1997).
There is some indication that employees believed they were being used as pawns in the larger
budgetary battles between the President and the Congress. Moreover, the self-esteem of some
employees designated as nonessential reportedly took a bit of a hit as this designation did not
match their own image of their job’s significance (McGrath, 1997). In fact, after this shutdown the term “nonessential” ceased to be the official designation, giving way to the more
benign terms “excepted” (from furlough) and “non-excepted.”
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Second, and arguably more important, were the effects on the delivery of public services.
Many programs were affected, including the following (McGrath, 1997):
VË EPA stopped toxic waste cleanup work at 609 sites and 2,400 superfund workers were
sent home.
VË Each day during the shutdown, an estimated 212,000 Social Security card requests and
10,000 Medicare applications went unattended to. This was in addition to 360,000 office
visits not made and 800,000 toll-free calls not answered.
VË $800 million worth of mortgage loans for moderate and low-income families were delayed.
VË Unemployment assistance was suspended by 11 states and the District of Columbia
because of a lack of federal funds.
VË The National Park Service closed 368 sites, affecting seven million visitors.
VË The State Department could not process 200,000 applications for passports, and 20,000
to 30,000 requests for visas.
VË Veterans were substantially affected by the shutdown. Many experienced delays in the
processing of medical, education, and insurance claims. Payments to veterans for compensation and the GI bill education loans were delayed. Medical, vocational rehabilitation, and
counseling appointments were cancelled.
The federal government doesn’t only provide services directly, of course. Many contracted services were also disrupted by the shutdown. Over 500,000 small companies experienced delays
in federal payments. The Washington, D.C. area was particularly hard-hit, since “hundreds of
local companies, whose contracts with the federal government were suspended, sent their
employees home without pay.” One specific example of this involved the effects that the closure
of the Minerals Management Service had on oil and gas companies, and therefore production.
The agency estimated that 10,000 barrels of oil a day were “shut in,” and the agency was
“deluged with a mountain of mail” from industry (about 32 buckets or boxes and 400 express
mail packages) upon conclusion of the shutdown (McGrath, 1997).
The third type of effect was financial, although these estimates are quite imprecise and largely
represent productivity losses (that is, paying people for work that was not done), as opposed to
additional costs. Preliminary estimates made by John Koskinen, then deputy director for management at OMB, put the cost of the November 13–19 shutdown at $700 to $750 million,
with $400 to $450 million of that representing payroll costs. Later, OMB estimated the cost of
both shutdowns at “over $1.4 billion,” in addition to the various service delays and backlogs
(McGrath, 1997).
This 1995–1996 shutdown was notable in retrospect as it represents the last time to date that
there has been any interruption in funding. The negative political fallout from this shutdown led
all sides to pledge never to let this happen again. While continuing resolutions remained the
norm, there was a general consensus that funding interruptions were a thing of the past. In
fact, budgetary peace returned the following year (fiscal year 1997), which represents the last
year to date in which all appropriation bills have been enacted on time. Between 1998 and
2010, a span of 13 fiscal years, there were an average of six continuing resolutions per year,
averaging 111 days of CRs per fiscal year. This includes fiscal year 2001, when there were 21
CRs; excluding that year, the average number of CRs falls to four per year.
The bottom line is that the era between 1977 and 2010 can be divided into two distinct periods:
VË The period between 1977 and 1988 is characterized by consistent funding interruptions,
and routine continuing resolutions, many of which were ultimately enacted for a full year.

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VË The period from 1989 to 2010 had relatively few funding interruptions (the short one in
the fiscal year 1991 process and the longer, more acrimonious one in the 1996 process
are the exceptions) but experienced continuing resolutions, many of which lasted well into
the fiscal year.

Budget Uncertainty since the 2010 Midterm Elections
The 2010 midterm Republican takeover of Congress profoundly changed the political dynamics
in Washington. The budget was front and center in this conflict. When the 112th Congress convened in January of 2011, it was faced with the unfinished business of the fiscal year 2011
appropriations process. The resolution of this presumably would have been relatively routine if
one-party government had continued into 2011. Suddenly, however, all bets were off. The new
Republican majority was emboldened by a large number of new members who had been elected
with Tea Party support, and reducing federal spending was an article of faith for them.
FY11 Appropriations Uncertainty. Because the House and the Senate were now in the hands of
different parties, it was widely assumed that the fiscal year 2011 budget process would be difficult. This expectation seemed to be confirmed when, by the end of July 2010, only two appropriation bills had passed the House and none had passed the Senate (in fact no regular
appropriation bills were to pass either house after this point, either). When it became clear that
the appropriations process could not be completed in time, the Congress passed a two-month
CR funding the government through December 3. This was followed by two more CRs in calendar year 2010 (expiring on December 18 and December 21, respectively). This was in turn followed by another roughly two- and one-half-month CR taking the government through March 4,
2011; that CR was followed by two more, expiring on March 18 and April 8, respectively. As
the April 8 deadline approached, it appeared less and less certain that there would be an agreement either on another CR or on a final omnibus appropriations bill in time to avert a government shutdown. As the deadline neared, it appeared to many observers that a shutdown was
imminent (Kettl, 2011), and agencies prepared to carry out contingency plans that had been
prepared at the direction of OMB.
Finally, on April 9, 2011, with two hours to spare before a shutdown of the federal government,
Speaker John Boehner and President Obama reached agreement on an omnibus appropriation
bill that would fund the government for the remainder of fiscal year 2011. It included a reported
reduction of $38 billion, but did not include many restrictions that had been sought by House
rank-and-file members, including those covering environmental regulations and abortions (Hulse,
2011).
Debt Ceiling Uncertainty. While appropriations were approved and presumably this would
result in uninterrupted funding until September 30, 2011, a second dispute over the need to
raise the federal government’s debt ceiling threatened to once again make federal agencies
unable to pay their bills. This was a very different and unique situation that potentially affected
a much broader set of activities than the typical government shutdown might. The crisis that
would have been caused by failure to enact a debt ceiling increase would be one of liquidity,
rather than legal capacity. As such, it would have had a number of potential differences:
VË It could have affected all federal spending, not just appropriated spending.
VË Even if agencies were operating under multi-year or no-year appropriations, the Treasury
might have lacked the cash to make good on these obligations.
VË Contractors, state and local governments, and other recipients of federal funds might have
found themselves in possession of legally binding commitments that the government did
not have the capacity to meet.

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In practice, a failure to enact a debt ceiling increase would have required the Treasury to prioritize its payments, choosing who would be paid and who would not, and when. While the
situation was often described as a debt default, in fact holders of federal debt would have
been among the first to be paid. It was much more likely that federal employees, contractors,
state and local governments, and individual recipients of federal payments would have seen
those payments delayed, perhaps by weeks or months.
In the past, while getting there might have been an ugly process, there had never been any
question about whether the government would eventually enact the debt limit increase. The
failure to do so would have seen as the ultimate act of fiscal irresponsibility—the equivalent of
failing to pay a mortgage after buying a house or failing to pay the credit card bill after taking
a vacation. In the summer of 2011, however, an increasing number of members of Congress
began to argue that they would refuse to vote for such an increase as a way to promote
spending reductions. The most charitable face that can be put on this was that it was a negotiating strategy to encourage future spending reductions, since the debt limit increase was
necessary to pay for spending that had already occurred.
Ultimately a default was avoided in August 2011 by signing of the Budget Control Act (BCA) of
2011, which included an immediate increase in the debt limit and a new set of ceilings (caps)
on appropriated spending through fiscal year 2022. The BCA also promised future deficit reduction, as a result of the deliberations of a new Joint Select Committee on Deficit Reduction (the
“supercommittee”).This committee was to come up with $1.5 trillion in additional deficit reduction to be enacted before the end of 2011. Perhaps predictably, this committee ultimately was a
dismal failure. Under the BCA, this failure is to result in a sequestration (an across-the-board cut)
of $1.2 trillion to take effect in January 2013. Half of the savings required to meet sequestration
targets are to come from defense, with the remainder coming from non-defense discretionary
spending and some mandatory spending programs. The effect of the combination of the caps and
the sequestration was to create limits on discretionary spending that (not counting war spending,
which is excluded from the caps) would require cuts of approximately 15 percent annually from
inflation-adjusted levels for both defense and nondefense spending over the 10 years. This is a
reduction in real spending, meaning that it invariably would lead to substantial adjustments in
overall program spending—in other words, the federal government could not meet these targets
without having to stop doing—or substantially cut back on—many things that it does now.
FY12 Appropriations. The fiscal year 2012 appropriations process was a bit more typical, and
featured five continuing resolutions covering various time periods and various appropriations
bills. Some of these covered brief periods (October 1 through October 4, or December 17
through December 23) while others covered longer periods (the longest extended from October
5 through November 18). The House passed six of 12 appropriations bills for fiscal year
2012, while the Senate did not pass any. On December 23rd, 2011, the Consolidated
Appropriations Act of 2012 (P.L. 112–74) became law. This law was an omnibus appropriations bill funding the government through the end of fiscal year 2012.
FY13 Appropriations. The fiscal year 2013 appropriations process has also been characterized by more normal delays in getting appropriation bills enacted. By the time the Congress
adjourned for its August 2012 recess, not a single appropriation bill had been signed into law.
The House had passed six out of 12 bills (Commerce/Justice/Science; Defense; Energy and
Water; Homeland Security; Legislative Branch; and Military Construction/Veterans). The
Senate had not passed any. The appropriations committees had done their work, with 11 of
12 bills being reported by the House Appropriations Committee and 11 of 12 also reported by
their Senate counterparts. Just before adjourning for the August recess, however, Speaker
Boehner and Senate Majority Leader Harry Reid (D-NV) announced an agreement to enact a
six-month CR that would fund the government through the end of March 2013. This CR was
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Table 2: Discretionary Spending in CBO’s August 2012 Baseline
2012

2013

2014

2015

2019

2022

Defense
Inflation-Adjusted Spending

554

562

573

587

658

714

Reductions to Meet Caps

-16

-17

-21

-42

-53

Sequestration

-55

-55

-55

-55

-55

War Spending*

115

118

119

121

132

141

Total, Defense

670

609

621

633

694

746

Difference**

116

47

48

46

36

32

506

515

525

538

605

658

Reduction to Meet Caps

-14

-15

-18

-39

-53

Sequestration

-39

-38

-38

-34

-33

22

23

23

23

22

25

528

484

495

506

554

597

22

-31

-30

-32

-51

-61

Nondefense
Inflation-Adjusted Spending

Exclusions from Caps
Total, Nondefense
Difference**

*Excluded from caps
**Total budget authority permitted, less inflation-adjusted
Source: Congressional Budget Office, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022
(August 2012), p 14.

approved by the Congress in September 2012, and actually permits a small increase in appropriated spending over the fiscal year 2013 level. This increased level is consistent with the
level of spending permitted by the discretionary caps in the Budget Control Act of 2011.
Threat of Sequestration Uncertainty. The FY13 budget process, however, must be considered
against the backdrop of the looming threat of sequestration. If sequestration kicks in at the
beginning of January as the law currently requires, it would presumably lead to an immediate
adjustment by OMB to FY13 apportionments, requiring federal agencies to begin cutting back
immediately on FY13 spending. Table 2 summarizes the effects of the caps included in the
Budget Control Act, as well as sequestration on both defense and nondefense discretionary
spending. The table shows that, while defense spending would grow slightly faster than inflation between 2014 and 2022, nondefense discretionary spending would be about 10 percent
lower than inflation-adjusted levels in the same year.
For many agencies, there will be a substantial difference between spending levels permitted in
a CR and those that would be permitted in a post-sequestration world. There are two options
for avoiding sequestration. The first would be to enact spending cuts (more likely) or tax
increases (less likely, at least in the current political environment) to substitute for sequestration. The second would be to turn off or delay sequestration, arguing in effect that “we didn’t
really mean it” or at least “we didn’t mean it now.”
If sequestration is not averted, the other two options would both require substantial reductions in appropriated funding for at least some federal agencies. Thus, while the enactment
of a six-month CR gives federal agencies some certainty in terms of the timing of funding,
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How Does Sequestration Work?
The Budget Control Act (BCA) of 2011, enacted as part of the agreement to increase the debt limit in
August 2011, established the Joint Committee on Deficit Reduction. The joint committee (the “supercommittee”), was required to recommend at least $1.2 trillion in spending reductions, covering 10
years. In order to provide the supercommittee with an incentive to come up with these reductions, the
law also created a fallback procedure, called sequestration, which directed the Office of Management
and Budget (OMB) to make automatic reductions in spending if the supercommittee deliberations did
not result in the required cuts. The BCA also separately established statutory limits, or caps, on discretionary spending for fiscal years 2013 to 2021.
Under the sequestration procedure, of the total of $1.2 trillion in deficit reduction, $984 billion represent program cuts, while the other $216 billion consists of interest savings. Since the BCA requires
that the program cuts be evenly distributed across the nine years (2013–2021), this means that
$109.3 billion will need to be cut annually in order to meet the targets. Under the law, half of this
($54.7 billion annually) is to come from defense and half from nondefense. The nondefense portion
represents a combination of mandatory and appropriated spending. In 2013, $16.2 billion (30 percent) of the cuts are from mandatory programs, with the remaining 70 percent ($38.5 billion) from
nondefense discretionary programs.
Since the supercommittee failed to reach agreement, and no legislative action has been taken to
either enact the required cuts or to modify or eliminate the sequestration requirement, sequestration
will first take effect in January of 2013. The 2013 sequestration process works differently than the
process for 2014 through 2021. In 2013, the law requires OMB to order across-the-board reductions
of most discretionary accounts to implement sequestration. Some non-defense programs, such as
most veterans funding and Pell college loan grants, are exempt from sequestration. In all, the defense
budget would experience a 7.5 percent funding reduction in 2013, while non-exempt nondefense
discretionary accounts would be reduced by 8.4 percent.
For 2014 and beyond, there is no across-the-board cut of all discretionary accounts. Instead, the
BCA provides for a further reduction in the caps. For defense, this means that for each year (2014
to 2021) the cap would be $54.7 billion lower than the BCA would otherwise require. This would
represent a 7.5% reduction from the caps in 2014, but only 5.4 percent by 2021. For nondefense
spending, because the mandatory cuts represent a percentage of projected future spending (for
example, Medicare payments to providers and health insurance plans are reduced by two percent
annually), the amounts to be cut differ from year to year. By 2021, the mandatory portion represents
$22.6 billion, while the discretionary portion is $32.1 billion. Nondefense discretionary spending
would also be 5.4 percent lower than the current capped level in 2021.
Source: Richard Kogan, How the Across-the-Board Cuts in the Budget Control Act Will Work, Washington:
Center on Budget and Policy Priorities, April 27, 2012.

and enables them to plan more effectively within that timeframe, the threat of sequestration
(or cuts to substitute for sequestration) would mean that they have less certainty than normal
regarding the eventual level of funding. In many past years, the spending levels permitted by
a CR represented a lower level than agencies believe they will eventually receive, since budgets often include adjustments for salary increases and inflation, if not for program expansions. For FY13, however, there is the very real possibility that appropriations will end up
being lower than for FY12. With or without sequestration, this pattern seems likely to continue for the foreseeable future. The caps under the BCA do not permit appropriations to
grow with inflation; any sequestration or substitute would involve even greater reductions.
Federal agencies and recipients of government funds are moving into an age of the new normal—a world in which they are much less assured of receiving a baseline or current-services
level of funding than in the past. In that environment, effective planning requires decisions to
be made in a timely manner. The combination of late appropriations and funding uncertainty
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would create an environment in which agencies were forced to implement budget cutbacks
not in an informed and deliberate manner, but in a rushed and haphazard one. This no longer
appears to be a world where late appropriations are just an inconvenience to be managed
around—that characterization only applies if agencies are relatively certain of a funding level,
but have to guess about timing. If both timing and level are uncertain, agencies and funding
recipients are placed in an untenable situation.

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Budgetary Uncertainty’s Impacts
on Federal Agencies
Shutdowns cause their own problems. It would be
wrong, however, to suggest that the budget process
Negative Impacts of
is only dysfunctional when it leads to a government
Budget Uncertainty
shutdown. At this point, given the history, agencies
now seem to understand that “they will probably
VË Delayed Hiring and Personnel
Actions and Morale Issues
begin most years with a CR instead of their regular
appropriation” (Juszczak, 2011). While agencies by
VË Training and Travel Delays
and large seem to have adjusted to a certain level of
VË Changes in Agency Contracting
delay and uncertainty, CRs are still problematic.
Practices
Government officials interviewed are unanimous in
VË Increasing Costs
saying that normally a funding delay resolved during
VË Reduced Effectiveness and
the first quarter of the fiscal year does not create
Efficiency
major problems, because they have made adjustments to normal budget execution practice to
account for this kind of delay. This is not to say that
these have no costs, but that they have become so
expected that most agencies just accommodate for them, and are pleasantly surprised when
these adjustments are unnecessary.
Two things make CRs harder to deal with for federal agencies. One is when CRs continue far
into the fiscal year. The second is when there are a larger number of short-term CRs. It goes
without saying that a combination of the two—for example, where there are eight to 10 CRs
and they continue into the next calendar year—is particularly problematic.
Because CRs often affect some agencies and not others, it is useful to consider which agencies (or at least which appropriations subcommittees) are most likely to experience CRs. In
GAO’s study of CRs (GAO, 2009), the agencies under the Labor/HHS and related agencies
appropriations subcommittee experienced an average of 96 days under CRs, followed by
Commerce/Justice (later Commerce/Justice/Science) with 89. On the other hand, agencies
under the jurisdiction of the Homeland Security and Defense subcommittees experienced less
than a month (21 days and 27 days, on average) under CRs. Table 3 presents the data, by
appropriations subcommittee, from this GAO report.

Delayed Hiring and Personnel Actions and Morale Issues
Because personnel costs are such a substantial portion of many agency budgets, it is difficult
to manage delays in funding, particularly if CRs require agencies to spend at the prior year’s
level or lower without affecting personnel.
Hiring Freezes. Hiring freezes are often employed as a means of controlling personnel costs.
As positions become vacant, agencies leave them unfilled anticipating the possibility of insufficient
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Table 3. Average Annual Duration of CRs by Appropriations Subcommittee
Subcommittee

Average Duration (Days)

Homeland Security

21

Defense

27

Military Construction

37

Veterans Affairs

66

Legislative Branch

67

Interior

69

Energy/Water

71

Agriculture

79

Housing and Urban Development

81

Transportation

81

Treasury

83

District of Columbia

84

Foreign Operations

88

State

89

Commerce/Justice

89

Labor/HHS

96

Source: Government Accountability Office, Continuing Resolutions: Uncertainty Limited
Management Options and Increased Workload in Selected Agencies, p. 7.
Original note from GAO: The number and jurisdiction of appropriations subcommittees changed
over time. Adjustments were made to account for changing appropriations subcommittee
jurisdictions.

funding to get the agency through the entire fiscal year. These hiring freezes can be “hard”
(that is, official) freezes, meaning agency subunits are prohibited from hiring without specific
authorization. In early 2011, the Marine Corps, the Navy, and the Justice Department each
had established hiring freezes in response to appropriations delays (Sullivan, 2011; Brannan,
Cavas, and Majumdar, 2011). Separately, agencies often experience what one agency official
refers to as a soft hiring freeze, where agency officials are being cautious and leaving some
positions unfilled because of fear of some future funding shortfall.
At least two problems can be created by hiring freezes. First, holding back on hiring during
any year in which funding is eventually received at a rate above that permitted by a CR can
actually generate a surplus in personnel expenditures. In the end, this means that agencies
may have held down the level of service as a result of failing to fill positions that ultimately
would have been affordable. Second, vacancies do not occur uniformly across an agency and
they do not necessarily occur in the areas of lowest priority. This means that a hiring freeze
can end up robbing the agency of personnel working in higher priority programs, or can have
an unintentional differential effect if vacancies are concentrated in particular programs, projects, or activities.
Furloughs. In cases where funding delays lead to concerns that a shutdown may follow (as
occurred in 2011) agencies may be required to prepare furlough plans and to send out furlough
notices to employees. This can have unintended consequences, especially in cases where the
furloughs are unlikely to actually take effect. Employees may respond to furlough notices by
spending otherwise productive time seeking other employment. One agency official says that,
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during the shutdown of 1995 and 1996, furlough notices went out to more than one-third of his
agency. Many who received these notices took other jobs. Those who end up leaving (this group
may not only include those who receive furlough notices, but those who are just fed up) are
those who were just hired or who have other options. In either case, they are not necessarily the
ones an agency would choose to terminate if the focus was on performance considerations. At a
minimum, this process creates tremendous productivity and morale challenges. One agency official notes that during the 2011 shutdown threat “people freaked out. They were not prepared.”
An actual shutdown, or even a credible threat of one, can push people out the door. It can also
be one factor that discourages people from wanting to work for the federal government.
Personnel Shifts. Continuing resolutions also create problems in cases where agencies are
attempting to shift priorities to respond to some immediate challenge facing them. A CR
freezes past priorities in place. Therefore if an agency has identified a need to shift personnel
from one area to another, to address some area of immediate concern, this can delay its ability to respond. This is complicated further by the sheer amount of time that it can take to fill a
position. One agency official notes that a position approved in February might not be filled
until August. By that time, the fiscal year would be almost over.
The 2009 GAO report, consisting of a series of agency case studies, highlighted the personnel
actions of agencies in response to CRs. GAO stated that “(a)ll of the (GAO) case study agencies
reported not filling some new or existing positions during the CR period because they were
uncertain how many positions their regular appropriation would support or to meet more immediate funding needs during the CR period.” (GAO, 2009). Among some specific examples:
VË The Federal Bureau of Investigation (FBI) delayed filling existing positions in order to fund
annual pay raises, annualize pay for previous year’s hiring, or to cover increased costs of
retirement, health insurance, or other employee benefits.
VË The two GAO case study agencies within the Department of Health and Human Services
(the Administration for Children and Families and the Food and Drug Administration) did
not begin the hiring process in some years because they feared that it would result in
wasted time if they were not ultimately able to fill the positions.
VË It is hard to quantify the effects of these hiring delays, but they certainly affected the
number of food inspections (FDA), the ability to maintain or improve the ratio of corrections officers to inmates given the increase in the inmate population (the Bureau of Prisons,
with the Department of Justice) and the ability to process claims for veterans benefits in
subsequent years (the Veterans Benefits Administration, within the Department of Veterans
Affairs).
Other Personnel Issues. Two additional personnel issues can complicate funding even further.
First, if any agency has added positions late in the prior fiscal year, funding the agency at the
current rate (meaning the rate for the previous year) can leave the agency well short of what
is necessary to fund personnel on board for the next fiscal year. Second, if pay increases are
scheduled to take effect in the next fiscal year the current level will not accommodate these
increases. In either of these cases, agencies may have to freeze or cut back on hiring to make
up the difference between funds available and those needed to fund current personnel at current salary levels.

Training and Travel Delays
In addition to controlling personnel costs, agencies operating under conditions of funding
uncertainty turn to other alternatives for saving funds. These options have one characteristic in
common—they represent areas in which the agency has discretion to delay or forego funding.

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Travel and training are perhaps the areas most likely to experience cutbacks or delays. One
agency representative reports that the agency simply avoided sending staff to training in the
first quarter of the calendar year. The later that the final appropriation is received, the more
training budgets (and therefore training) are likely to be reduced. For example, if there is a sixmonth CR and training does not occur during those six months, it is unlikely that (even if
funding is ultimately available) all training can be compressed into or available in the remaining six months.
While training is valuable for employees in many positions in many agencies, it is arguably as
important in the Department of Defense (DOD) as it is anywhere in the government. In DOD,
training and the agency’s key challenge of maintaining force readiness are inexorably related.
The various forms of budget uncertainty (the threatened government shutdown, the debt ceiling debacle) led to measurable reductions in DOD training. The Air Force predicted that CRs
and planning for a shutdown would reduce flying training hours by 10 percent (Philpott,
2011). Active duty personnel interviewed in 2011 reported that the near-shutdown in 2011
led to the cancellation of training exercises (Company Command, 2011). Travel is a little different in that many employees need to travel to do their jobs. The FBI cannot very well tell its
agents not to travel during the first quarter, or first half, of the year without severely compromising mission success.
Travel and training are also areas with substantial room for interpretation of precisely what the
current spending level is. Some agency officials interpret the language very strictly to mean
that if a particular training program, or a particular trip, was not taken the year before, then it
is not permissible under a CR. This is probably an overly strict interpretation—the relevant
question should be, “Did your agency conduct training for this purpose last year?”

Changes in Agency Contracting Practices
Because late appropriations have become the new normal for agencies, spending patterns
have been adjusted to accommodate the situation. Perhaps the most significant of these
adjustments is in contracting. At one time, many contracts were structured to run concurrent
with the fiscal year. As late appropriations became the norm, however, it became standard
practice for recurring contracts to be renewed later in the year, under the presumption that by
this point it will be clear what level of funding is available. This is specifically permitted in
spite of the fact that appropriations are generally available to finance bona fide needs of the
current fiscal year; a specific exception to the bona fide rule permits agencies to “obligate
recurring contracts for 12 months or more at any point in a given fiscal year” (Juszczak,
2011, 42).
Delays in Operations. The agencies interviewed by GAO in 2009 each reported that they
delayed contracts. The Veterans Health Administration reported that it did not start nonrecurring maintenance projects, but instead waited until the regular appropriation was received. The
Bureau of Prisons (BOP) delayed bringing additional prison capacity online. In 2007 specifically, BOP “reported delaying the activation of its Butner and Tucson Prison facilities and two
other federal prisons … to make $65.6 million available for more immediate needs.” (GAO,
2009).
Less Competition. In addition to delaying operations, agencies were not able to fully compete
and award contracts because of the limited time left in the fiscal year at the time the appropriation was enacted. BOP reported to GAO that a CR lasting longer than three to four months
typically has a negative effect on the quality of competition. Delays can also lead to a rush to
obligate at the end of the year, thus exacerbating a trend that already exists. “In 2006, VHA

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obligated 60 percent (about $248 million) of its $424 million nonrecurring maintenance budget in September, the last month of the fiscal year” (GAO, 2009). This rush creates a greater
potential for mistakes, possibly leading to adverse audit findings.
Shorter Contracts. In regard to delaying contracts, many agencies also are forced to enter into
contracts for a much shorter time period, so that the duration of the contract can more or less
match the duration of the CR. This creates two kinds of problems:
VË There are transaction costs associated with each contract, and more contracts means more
work. Thus CRs increase the administrative cost of contracting.
VË The chance of an error being made, leading to an audit finding and/or a waste of funds, is
greater the more transactions are involved. A series of 12 one-month contracts for $1
million per month is not the same as a single yearly contract worth $12 million. When
audit time comes, operating under a CR is not an excuse for violations that are uncovered.
Information technology (IT) contracts may be particularly good candidates for delay, since
presumably the deferral of an IT system, or the replacement of personal computers for
agency personnel, would not lead to disruption in service. Such a delay could, however,
contribute to reductions in productivity, or opportunity costs in terms of foregone productivity gains.

Increasing Costs
In addition to these changes in spending practices (or sometimes because of them) there is
the issue of CRs causing increased costs for federal agencies. Before getting into this, it is
important to acknowledge that the annual appropriations process, even if it worked well,
would create some uncertainty that would lead to increased costs compared to what might
happen if funding were guaranteed for a longer period of time. Inefficiencies that currently
exist for federal agencies because of the annual appropriations process could potentially be
eliminated in a world of predictable multi-year funding.
Continuing resolutions do have a clear impact on costs. For example, some agencies reported
to GAO that the delay in contract awards led to higher prices than would have occurred without the CR. BOP said that awarding contracts later prevented the agency from locking in
prices and therefore increased costs. In one case (the McDowell Prison facility in West
Virginia) this resulted in about $5.4 million in additional costs (GAO, 2009). The precision of
this estimate is exceptional, in that GAO case study agencies were generally not able to confirm cases of increased costs caused by CRs, although they argued such costs did exist.
A 2011 Heritage Foundation report on the effects of CR-driven funding delays at DOD makes
the point that any time a procurement schedule is delayed, there are potentials for cost
increases as well as decreases in effectiveness. If defense procurement plans are based on
assumptions regarding the timing of acquisition, development, and manufacturing, a slippage
in funding makes those milestones impossible to achieve. A defense official says that the
effect of this would be that there would be “increases in cost in every year, because you have
basically (broken) a program” resulting in less efficient production (essentially, a reduction in
economies of scale) (Eaglen, 2011).
Cost of Foregone Maintenance. Another type of cost increase relates to the cost of foregone
maintenance. There is little question that failing to properly maintain any asset reduces its useful
life. This can have two possible impacts. It could simply take the asset in question out of service, thus depriving citizens of the benefits that would otherwise be received. Perhaps more
likely, it will lead to future costs as the asset needs to be replaced quickly. A very clear example
of this potential comes from the 2011 funding delay, when the Navy cancelled seven ship-repair
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contracts at a savings of $62 million (McCabe, 2011). Even if these repairs occurred in a later
fiscal year, their deferral could clearly have operational and cost implications.
Along these same lines, it seems quite likely that many contractors dealing with the federal
government include a “risk premium” in the rate that they charge for contractual services,
because they cannot negotiate reliable multi-year commitments without fear of funding interruption. Moreover, this premium likely applies government-wide. In other words, federal agencies pay more for services than an equivalent private firm would pay for the same service.
While many interviewees—inside government and with consulting firms—acknowledge the
probable existence of such a premium, all agree that it is difficult, if not impossible, to estimate it with any precision.
Inability to Terminate Activities. In addition to increased contracting costs, CRs require ongoing activities to be continued, in spite of decisions that may have been made to discontinue
them. In other words, in addition to prohibiting agencies from doing new things, CRs also prohibit them from ceasing to do old things. Recently, the Department of Justice, for example,
had decided to stop funding the National Drug Intelligence Center in Johnstown, Pennsylvania.
Since the Justice Department could not plan for a specific date to cease operations, the passage of a CR required it to continue operating until the regular appropriation became law.

Reduced Effectiveness and Efficiency
Aside from increasing costs, continuing resolutions and funding delays invariably create additional work and cause agencies to take actions that compromise their efficiency and effectiveness. The issue of cost, then, is much broader than is typically considered. Roy Meyers puts it
well in an article in which he refers to the costs of the 1995—1996 government shutdown,
but his argument could also apply to reductions in effectiveness that occur because of funding
delays (Meyers, 1997):
Though it is common to focus on the outlay effects of federal budget policies, it is
reasonable to wonder if the lost government revenue is properly valued at its input
cost. Consider the Bureau of Economic Analysis and the Bureau of Labor Statistics,
which had to postpone and reduce data collection and economic conditions and
release this data later than usual. Was the cost to the government only the salaries
and expenses of collecting the data, or was it greater? Did delayed IRS revenue collections cost more than the bill for paying auditors to take a long Christmas break?
What were the costs to those citizens who had to delay their enrollment for benefits,
or those who changed their vacation plans due to closed national parks or unavailable
passports?
Preparing for Shutdowns. Understanding the reductions in effectiveness begins with understanding the process of preparing for shutdowns and for living with CRs. Staff in federal agencies,
OMB, and the Congress spend a non-trivial amount of time preparing for things that usually do
not happen (in the case of shutdowns) or which do happen, but which result in wasted time
attemping to lessen their counterproductive effects (in the case of a CR). In 2011, which is the
only time since 1996 that OMB actually asked agencies to prepare a shutdown plan, both the
OMB and federal agencies spent a great deal of time developing these plans and reviewing them
(they can be viewed on the OMB website), which (in retrospect) has to be seen as a waste of
time. The only good news is that OMB did not (as they could have) require these every year in
which appropriations were not enacted on time; the implicit assumption in these years was that
a shutdown was so unlikely that such planning was unnecessary. One of the reasons that OMB
did not require such a shutdown plan in these prior years was that OMB is not any more anxious to spend time in this way than agencies are.
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Preparing for CRs. Preparing for CRs can also frequently be time-consuming. One of the most
time-intensive processes involves dealing with anomalies. Since, by definition, these anomalies
are exceptions to the general rules governing a CR, many agencies invariably think that their
peculiar circumstances deserve exceptional treatment. It is often quite difficult, however, to get
the Congress to go along with anomalies. This leads to lots of conversations between OMB
and agencies negotiating over which things can and cannot be appropriately be included as
anomalies.
Revising Budget Execution Plans. These inefficiencies do not stop the moment that the CR is
enacted. Agency budget offices and OMB are involved in lots of conversations around budget
execution once the CR is law. Many of these discussions are designed to determine what can
and cannot be done, and when something is a continuation of a current activity and when it
represents something new. As Juszczak points out, the language included in most CRs to
guide federal agencies is relatively ambiguous. Section 109 of the FY11 CR included this typical language stating that “only the most limited action of that permitted in the Act shall be
taken in order to provide for the continuation of projects and activities.” Some agencies take
this to mean that they should not do anything that is discretionary, therefore they cancel all
training and stop hiring. Others take it to mean that they cannot do anything that they didn’t
do last year. (Juszczak, 2011).
Agency budget officials often have to spend inordinate time responding to inquiries about what
is and what is not permitted under a CR. The GAO case study agencies indicated that there
were four types of administrative tasks most often affected by CRs (GAO, 2009):
VË Issuing guidance to programs and offices
VË Providing information to Congress and OMB
VË Creating, disseminating and revising spending plans
VË Responding to questions and requests for additional funding above the amount allotted
There are no precise estimates of the costs of these tasks. VHA estimated that a one-month
CR results in over $1 million in lost productivity at VA medical facilities and over $140,000
in additional costs for the VA contracting office (GAO, 2009).
Increasing Procurement Workloads. GAO reported that the most common type of workload
increase caused by CRs was the necessity to enter into new contracts or exercise contract
options to reflect the duration of the CR. Agencies were often forced by CRs to enter into multiple short-term contracts (for example, of 30 days or less in duration) as opposed to one
yearly contract. For example, BOP awarded a contract in 1997 to an optometrist to provide
care in a prison. Under a regular appropriation, this would have been a one-year contract.
Instead, there were three contracts covering only the first quarter of the year: 1) October 1 to
November 16; 2) November 19 to December 14; and 3) December 17 to December 21.
These roughly corresponded to the duration of the CRs for that fiscal year. This was similar to
the experiences of other agencies. Generally,
shorter and more numerous CRs led to more repetitive work for agencies managing
contracts than longer CRs did. Numerous shorter CRs were particularly challenging for
agencies, such as VHA and BOP, which have to maintain an inventory of food, medicine, and other essential supplies. For example, under longer CRs—or with their regular
appropriation—BOP officials said that prison facilities routinely contract for a 60-to-90
day supply of food. In addition to reducing work, this allows for prison facilities to negotiate better terms through a delivery order contract by taking advantage of economies of
scale. However, under shorter CRs, these facilities generally limit their purchases to
correspond with the length and the funding provided by the CR (GAO, 2009).
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Delaying Payments. More recently, the fiscal year 2011 CR caused DOD to delay 75 projects
that DOD argued would cost more when they resumed. Among these were some support and
maintenance contracts not made in the usual yearly installments but instead broken down into
shorter, more labor-consuming pieces. Former Deputy Defense Secretary William Lynn told the
Senate Appropriations Committee in March 2011 that “(t)here’s no question that we will spending more money for the same goods if we don’t receive the money in a timely way” (Sullivan,
2011).
Shorter-Term Contracts. The problems caused by CRs and accompanying shorter-term contracts were echoed by contractors interviewed for this report. One gives an example of a contract with a federal agency that was to have a five-year term. Normally, because of the annual
appropriations process, this would have resulted in a base year and four follow-on, one-year
contracts. Instead, because of uncertainty associated with CRs, the agency ended up awarding
contracts with a base month and 59 one-month options. The paperwork cost, for the government and the contractor, of such an arrangement is substantial. The contractor may, in this
case, have to “eat” this cost—it cannot say that the cost of the total contract is x percent
higher because of the funding mechanism.
Shorter-Term Grants. GAO reported that the issues for grant awards were similar. ACF said
that it issued multiple grants to a single grant recipient because of the CR period, instead of
making annual or quarterly awards. This resulted in additional work, and the more CRs there
were, the more work was generated. Agency staff interviewed for this report also indicate that
most grants have been structured so that grant funds are distributed in the third or fourth
quarter. This means that there is no disruption as long as the CR does not last longer than six
months, and if the eventual level of funding is known with some certainty (GAO, 2009).
This latter qualifier is necessary because if the eventual level of funding is unknown, or in serious question, it can compromise the grant process by encouraging grant applicants to apply
for grants that they are unlikely to receive. The preferred practice of many agencies seems to
be to proceed with the grant application process even while operating under a CR, but to wait
to make grant awards until a final appropriation has been received. This is a process that has
worked fairly well in a world in which only the timing of funding is at issue, not the existence
or funding level of the program in question. Increasingly, it appears as if uncertainty is likely to
concern both funding and timing.
Compressed Timeframes. Compressing the timeframe for the evaluation of grant proposals
also has the likely effect of decreasing the quality of the evaluation of grant proposals. A May
18, 2012 memo from OMB encouraged the use of evidence and evaluation in the review of
grant proposals (Office of Management and Budget, 2012). This is a much more time-intensive
process, and is difficult to do for grant programs that exist on one-year money. CRs make this
situation even worse.
Regardless of the duration of a CR, agencies must develop spending plans for the fiscal year, or
the portion covered by the CR. Absent some kind of specific guidance, many prudent agencies
base their spending plans on the President’s budget, but plan to spend less than 25 percent
(perhaps significantly less, depending on how conservative they want to be) of the amount that
would have been available for the whole year. In the case of multiple CRs, this may need to be
done multiple times. In the case of a CR that lasts for the whole year, especially where it does
not permit spending to keep pace with inflation and salary increases, it may require agencies to
cut back or defer some activities. In fact, the Obama administration announced in August 2012
that it was deferring the scheduled pay increase for federal employees at least for the duration of
the fiscal year 2013 CR. This action may have been, in part, politically motivated, but it presumably does have the effect of making the CR easier for agency budget officials to manage.
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Targeted Reductions. If there are planned cost increases but no money to fund them, this may
lead to the broader strategies (such as hiring freezes and delays in training or travel) listed
above, or it could result in the cancellation of particular programs or activities. One former
agency official decries the approach taken by many of cutting a small amount from many programs, describing the results as the “walking wounded.” The preference of this official is to cancel particular lower-priority activities. (This assumes, of course, the flexibility to make such
cancellation decisions, which may be proscribed by statute.) Another former agency budget official agrees, arguing that there is no particular reason to believe that the most appropriate
response to funding problems caused by a CR is to distribute the pain evenly across the agency.
A specific example of a targeted funding reduction in 2011 was the layoff, by the Department
of the Army, of hundreds of workers performing Humvee restoration work in Pennsylvania and
Texas, in direct response to the continued failure of the Congress to pass the fiscal year 2011
defense appropriations bill. The layoffs in Pennsylvania represented a reduction of 288 full-time
equivalent contract positions, which represented 10 percent of the total staff for the Letterkenny
Army Depot, and approximately 25 percent of all the contract staff (McGarry, 2011).
Delayed Implementation. Sometimes, in addition, officials may delay the implementation of program enhancements or need to take extraordinary actions to respond to changing emergency circumstances because of funding constraints of CRs. In the case of the FBI, the Data Loading and
Analysis System was delayed. This meant that the desired improvements in data sharing for
counterterrorism, counterintelligence, and cyber intrusion were not able to take place as scheduled. In addition, for agencies like the FBI that must respond to immediate law enforcement
demands (such as those created by the Oklahoma City bombing in 1995 and the events of
September 11, 2001), CRs make it even more difficult to free up those resources. Since these
emergencies are an immediate priority this, at least in the short run, puts even more pressure on
other agency activities.
The fiscal year 2011 budget delay, leading up to a final agreement that was not reached until
April 2011, is illustrative of the compromised government effectiveness that can occur. Because
DOD needed to raid procurement budgets in the first half of the year in order to fund pay and
benefits, it resulted both in deployed troops not getting needed equipment, the cancellation of
20 ship overhauls by the Navy, deferred aircraft maintenance, and even the transition from military to civilian authority in Iraq. Such effects were not only felt in DOD; the Commerce Department
deferred the purchase of satellite technology designed to assist in hurricane forecasting (Sullivan,
2011). In State College, Pennsylvania, a new air traffic control tower, built at a cost of $7.5 million, sat empty in the spring of 2011 because the Federal Aviation Administration lacked the
funding to hire the air traffic controllers necessary to staff it (Sullivan, 2011).

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Short and Longer-Term Continuing Resolutions
CRs can differ substantially in duration. Many years have seen multiple short CRs, while in other years
(like fiscal years 2012 and 2013) CRs have been enacted that last six months or more. Each has its
own drawbacks. Multiple short CRs create substantial additional workload for agencies, which are forced
to take actions such as making multiple, short-term contractual agreements instead of longer-term ones.
In addition, the shorter the CR, the greater the probability that some agency official will do something
that violates the letter or the spirit of the law.
Longer-term CRs do not have these problems, but they create other ones. To the extent that agencies are
implementing any changes from last year’s status quo, longer-term CRs (if they are followed by a regular
appropriation that is not received until six months or more into the fiscal year) make it difficult to carry
out these changes. Agencies are required to wait for apportionments from OMB, and many also have to
wait for the approval of spending plans by Congressional appropriations committees. These processes
and approvals compress the time available for actual implementation to an even greater extent. The end
result is that an agency receiving its final appropriation six months into the fiscal year may only have
three or four months to execute that budget. This can make it literally impossible to hire staff, negotiate
contracts process grant applications or make other changes to the status quo before the end of the fiscal
year. The potential effects here are not just on the ability to get things done, but on the quality of the
work itself. As contracting officials rush to get contracts in place, they are less able to focus on whether
they are getting the best work for the best price (Sullivan, 2011). The failure to spend all available
money has the additional effect of making it appear as if the agency did not need the money to begin
with, which affects its ability to compete for resources in the future.
The 2009 GAO report stated the effect clearly: “Agencies reported that CRs inhibited them from hiring
staff and providing a higher level of services than if they were operating under a regular appropriation.
When the CR period is long, the time for planning and program execution is compressed, which can be
especially challenging when trying to implement new programs or program enhancements” (GAO, 2009).
As an example of the compromise in effectiveness that can accompany delays in funding, a 2009 study
by the Congressional Research Service of the effect of the fiscal year 2009 CR on federal research and
development funding argued that, because “new starts” would be prohibited, agencies would have difficulty meeting R&D milestones. According to this report, this would be true even if the eventual appropriation was enacted providing a substantially larger dollar amount than the CR because of the “shortened
timeframe for obligating funds for these programs.” This report questioned, given the long timelines often
necessary for obligation, whether some of the funds could be obligated in time for them to deliver results
during fiscal year 2009 at all (Shea and Morgan, 2008). This is not an effect peculiar to 2009. The
fiscal year 2011 impasse also resulted in cuts to R&D funding, which led to termination of long-term
research projects with a coincident loss of institutional knowledge (Sullivan, 2011).
At least, however, no one dies (at least immediately) because of delays in research and development
spending. One of the most striking characteristics, on the other hand, of the 2011 budget impasse is
that it actually resulted in delays in getting resources to the troops in the field. As a specific example,
the Air Force had planned to purchase 48 MQ-9 Reaper unmanned aircraft in fiscal year 2011 in order
to increase the number of combat air patrols in Afghanistan to 65 patrols. Under the CR, however, they
could purchase no more than 24 such aircraft, which resulted in delays in getting this capability to
active war fighters (Brannan, Cavas, and Majumdar, 2011). These wartime CR effects placed the 2011
debacle in sharp contrast to what had happened in most of the prior decade, where defense appropriation bills were almost always passed on time.

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Impacts of Funding Uncertainty
on Other Sectors and Actors
Federal agencies are not the only ones affected by continuing resolutions and other funding
delays. Those who rely on the federal government for resources—state and local governments,
federal contractors, and other recipients of federal funds—also experience the effects of these
delays in ways that affect their operations and the quality of service delivery for federal programs. This report will highlight two of these effects—those on state and local governments
who receive federal funds and those on federal contractors.

State and Local Governments
To a certain extent, state and local governments have adjusted to chronic late appropriations
in much the same way that federal agencies have. Funding delays are so normal that a prudent state or local government simply plans for them. This was certainly true of those GAO
case study agencies that made grants. They reported to GAO that their grant making process
was normally not delayed by CRs of relatively short duration (three months or less). The
Administration for Children and Families (ACF) and the Veterans Health Administration (VHA)
both said that their grants are typically awarded later in the FY after the agency had received
its regular appropriation. “However, an ACF official said that lengthy CR periods—particularly
those that extend beyond mid-February, like the ones that ACF operated under in 2003 and
2009—delay discretionary grant announcements. The official said the delay causes a shift in
the grant cycles, pushing back the application review period, which in turn pushes back the
final award date.” (GAO, 2009)
Grants are sometimes cancelled or delayed because of delays in receiving funding. A number
of examples from the fiscal years 2011 and 2012 budget processes:
VË Delays in funding from the U.S. Department of Agriculture (USDA) delayed the groundbreaking for a new rural hospital in Angola, Indiana (IndianaBusiness.com, 2011).
VË Groundbreaking for a new tornado shelter, to be financed mostly by funds from the Federal
Emergency Management Agency (FEMA) was delayed in late 2011 because of delays in
the fiscal year 2012 budget process (Schultz, 2011).
VË The Northeast Missouri Community Action Agency (NMCAA) decided to close five satellite
offices because of concerns over the level of Community Service Block Grant funds that
would ultimately be received. Even though the eventual level received was better than
NMCAA had initially anticipated, the decision to close the offices had already been made
(Memphis Democrat, 2011).
VË Delays in passing the fiscal year 2011 federal budget were blamed for delays experienced by
the Health Resources and Services Administration (HRSA) in sending out HIV/AIDS funding
to be made available in the summer of 2011 under the Ryan White Act (Sun, 2011).
In addition, a longer CR period can compress the application time available. This can have the
effect of decreasing the quality of applications, and can also discourage some governments
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from applying for grants out of fear that they will have insufficient time to prepare grant applications, which can be complicated and time-consuming. Reduced competition can decrease
the effectiveness of the grant programs, as some governments that would have been particularly good candidates for grant awards do not even apply.
Agencies awarding grants must decide, if operating on a long-term (more than three months
but less than a full year) CR, whether to suspend grant application processes until an appropriation is received or to go ahead with them pending a final appropriation. In the former
case, there may not be enough time available for potential recipients to prepare applications
and for agencies to process them in the second half of the year. So what appears to be a
delay may result in a cancellation of the grant program, at least for the current year. In the latter case, there is a risk that, if the funds are not ultimately provided, the agency could be in a
position of cancelling a program after they have applications in. This occurred in fiscal year
2011 with the Department of Education’s Teaching American History program, which was
ultimately cancelled.
Many federal agencies have adjusted their grant making schedules, as they have already done
with their contracting schedules, so that many grant competitions do not occur until the second half of the fiscal year. This means that a six-month CR (one that lasts through the end of
March) does not cause much trouble for grant making, provided that agencies do not suspend
the application process.
For ongoing (non-competitive) programs, the ability of agencies to continue funding to state
and local governments is dependent on their ability to receive apportionments that provide
sufficient flexibility to operate under a CR. The Department of Education’s Impact Aid program
(which provides funds to local education agencies to compensate them for a federal presence,
such as military installations, in local areas) has been able to receive an apportionment that
permits it to provide funds for 30 days at a time, even when there is a short CR or a series of
them. A similar accommodation has been made for the Department of Health and Human
Service’s Low Income Home Energy Assistance (LIHEAP) program, where the nature of the
program dictates that a higher percentage of funds are spent in the first half of the fiscal year.
While state and local governments may have adjusted to the reality of late federal appropriations, this does not mean that they have no effect. States have recently been attempting, with
performance budgeting and other reforms, to engage in more long-term planning. The shortterm, haphazard nature of the federal budget process interferes with that effort, since states
and localities cannot be assured of a reliable flow of federal funds.

Federal Contractors
It is not surprising that, when stories began to emerge in 2012 that speculated about the
effects of sequestration, the first effects that were discussed were the impacts on federal contractors. This is partially because contractual employees do not have the types of protections
enjoyed by federal employees, and because many contractors work under much more stringent
cash flow constraints than exist for federal agencies. Since many contractors are required to
provide employees with 90-day notice prior to termination, the threat of sequestration will be
felt, at least apparently, by those contractors first. (It must be acknowledged that there is an
additional motivation for those contractors to make apparent the costs of sequestration, as it
might encourage the delay or cancellation of these across-the-board cuts.)
Like federal agencies and other recipients of federal funds, contractors tend not to be affected
by late appropriations of one quarter or less, since these are so typical and since many contract

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renewals do not take place until the latter part of the fiscal year. A CR that goes beyond the
first of the calendar year may begin to cause problems for contractors, partly depending on
when contracts are up for renewal. If contractors believe that an actual shutdown, or contract
cancellation, is imminent, on the other hand, they have difficult questions to address concerning whether or not to continue work, and how long they can afford to keep employees on
board (McKenna, Long and Aldridge, 2011).
Whether late appropriations will ultimately lead to layoffs depends on the contractor, and particularly on the rate of turnover. For many contracting agencies, turnover is relatively high, so
the effect is more likely to be that positions will not be filled in a timely fashion, rather than
that layoffs will occur. There certainly are cases, especially for small contractors, where layoffs
are necessary. In 2011, for example, Penn State University’s Applied Research Laboratory,
heavily funded by a contract with the Navy, reported having to lay off 13 engineers due to
funding reductions from the Navy associated with federal budget delays (Sullivan, 2011).
Contractors can face the dilemma of having to meet payroll without the assurance of a future
funding stream, while at the same time not wanting to let employees go because of an
assumption that the work will continue and that existing employees, with experience working
on these contracts, will be necessary to deliver quality work (Corrin, 2011).
Many contractors work not only for the federal government but have substantial commercial
operations as well. Those firms with a lot of commercial business are more insulated from the
effects of late appropriations (and, by extension, from sequestration). The effects will be felt
more acutely by firms with the following characteristics:
VË Small businesses that may have less of a cushion against the delay in funding for an
apparently small contract. A 2011 report (Sullivan, 2011) suggested that smaller businesses are less likely to have the capacity to “ride out the uncertainty” associated with
funding delays.
VË Firms that work only for the government
VË Firms that are funded from agencies that have primarily one-year money
VË Firms funded by agencies that are more likely to receive late appropriations (for example,
given the GAO findings above, DHS contracts carry less potential for delay than HHS
contracts do)
VË Contractors that are (especially within DOD) in the delivery stage of a given project (as
opposed to development) because delivery involves more manpower
While federal agencies (and certainly federal employees) may see government shutdowns as
ultimately less damaging than delays in appropriations manifested by multiple CRs (for reasons outlined above), the same is not true for contractors. Contractors are going to see a shutdown as more costly than a CR, since if the federal government shuts down (at least
historically) federal employees will be paid, but contractors have not historically been paid for
work missed. (Brodsky, 2011). Companies have a responsibility to shareholders, so they can’t
afford to employ people who aren’t working. This means that even the credible threat of a
shutdown can create significant problems for contractors. For contractors preparing for a
shutdown is not as simple as a division between “essential” and non-essential employees.
Contractors can be fairly sure that they will not be compensated for work done during a shutdown even if they are supporting agencies that have a high percentage of essential employees.
According to contractors who deal with both sectors, the biggest difference between commercial
and federal work is that for commercial work the contractual firm can make long-term commitments, whereas with a federal agency the commitment is year to year. For a commercial contract, for example, a firm might do a 10-year contract with the possibility of mutually agreed
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upon changes over the course of the agreement. To the extent that there are capital costs,
those can be captured with certainty over a three-to-five year timeframe. A federal contract,
conversely, may be a base contract with 10 one-year options. In that case, it is necessary to
have a different cost recovery structure, which invariably means that a federal agency is being
charged more for an equivalent service than a private firm would be. The uncertainty of future
funding makes it likely easier, and less costly, for firms to deal with agencies that have multiyear money than those with one-year appropriations.
A 2007 study regarding Department of Defense contracting delays found that nine out of 12
companies included in the study experienced a decline in company stock values as a result of
contracting delays (Leskowich, 2007). More recently, a Federal Times article from 2011
reported that the existing continuing resolution had underfunded the Army’s AH-64 Apache
helicopter upgrade while simultaneously requiring the Army to spend $1 billion on Humvees
that it did not need and had already decided not to purchase (Brannan, Cavas, and Majumdar,
2011).
Larger firms, and firms that receive substantial funding from sources other than the government, can often afford to take a longer view when it comes to the continuation of services
when there may be a delay in funding. That is, while they can choose to stop work, they may
also choose to continue to provide services in order to maintain good relations with the federal
agency in question. They do this even though they have no assurance of being compensated
for the full value of the services provided. In addition, however, they are likely not to continue
to attach their most highly valued, highly skilled employees to contracts with uncertain funding streams. Thus, the quality of service provided by the contractor, and received by the client,
is reduced by budget uncertainty.
The brinksmanship over the debt ceiling created a wholly different, and unusual, situation for
contractors. Contractors are used to dealing with CRs, but the notion that the government
might run out of money and not be able to make legally binding payments was a completely
new notion. This was no longer about how much money, or when, but about whether the government was going to pay, and pay on time. Companies have adjusted to the normal practice
of CRs, but they do not like uncertainty of the type that led to the debt ceiling debacle, and
they certainly don’t like the uncertainty that led to sequestration. That makes them nervous.
There is some chance that this nervousness will affect their later pricing structure.
The effect of budget reductions, or funding uncertainty, is likely to be felt to a much greater
extent by subcontractors than by prime contractors. If a contractor takes a 10-percent cut in a
contract, the cuts will likely not pass on in the same percentage to subcontractors. Instead,
prime contractors may protect themselves and pass on all or most of the reductions to their
subcontractors. This may be particularly true in cases when subcontractors are competitors.
The subcontractors, however, are more likely to be small businesses and a funding interruption
could put them out of business, as opposed to just causing some layoffs.
In the end, it is true that, in general, government work tends to be more risky than commercial work. It is made even more risky in cases where there may be some interruption in funding as a result of a shutdown or default. Since federal agencies may respond to CRs by
reducing funds to some contractors, late appropriations also carry with them some risk to contractors. It is likely that contractors build that risk into their pricing structure and that, the
greater the perceived risk, the greater the premium. Even without this explicit premium, it is
likely that there are a significant number of contractors who are unwilling to work with the
government, thus reducing competition and increasing costs.

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Recommendations
Benefits of an Improved Appropriations Process
The extent to which federal agency officials have simply adjusted to the reality of late appropriations is striking. It is, in a sense, difficult to get many of these officials to even think about
how much better their world might be if funding were received on schedule. It is hard, however, to argue with the “senior Navy official” who, when interviewed concerning the effects of a
2011 funding delay of six months said that “(i)t is not a good situation to be in. It forces you
into stupid management decisions” (Brannan, Cavas, and Majumdar, 2011). It seems, from
reviewing the research and from interviewing current and past federal officials, that routine
timely appropriations would have many positive effects on budget formulation and execution.
1. Improve Planning. If appropriations were timely, it would improve budget planning for
future years. Late appropriations make planning for future fiscal years difficult. The clearest
example of this has to do with the President’s budget; if the current year appropriations are
not enacted by around mid-December, it is virtually impossible to have reliable information
on which to base proposed funding for the next budget year.
2. Better Decisions. If decisions in budget execution did not have to be made in such compressed time frames, it would lead to better decisions since agencies would not be (at least
to the same extent) rushing to make choices on contractors, grants, etc.
3. Timely Hiring. Agencies could begin to plan for hiring earlier in the year. Given how long it
can take to fill a position, this increases the chance that they will have a full complement
of staff available to deliver priority services.
4. Timely Training. Employee training would be able to be provided in a deliberate, planned
manner. This would enable agencies to better invest in their most expensive resource—
their people. This training has fallen off because of funding delays and also because
high-profile scandals, such as the one at GSA, have resulted in much training being
unfairly characterized as wasteful.
5. Improved Contracts. Both the cost of contractual services and their quality would be
improved if appropriations were received in a timely manner. Predictability would enable
agencies to negotiate contracts at a lower price and contractors would be encouraged to
leave employees with experience on that contract in place, as opposed to moving them to
some other assignment.
While historically the problem with late appropriations has been more one of timing than of
uncertainty of the eventual funding level, recently federal agencies have found themselves in a
position where both the timing and the amount are in serious question. Under divided government, the House and Senate may have substantial disagreements about the level of funding,
and at least one of these may be significantly at odds with the President’s budget. The threat
of the Budget Control Act’s sequestration reductions ratchets up this level of uncertainty.
Independent of sequestration, the need to reduce federal debt will result in less than a zerosum game for federal agencies; having sufficient time to plan for these budget reductions will
be even more important than ever.
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Sequestration places the quandary for agencies in stark relief. They have two options, both
with operational consequences. They could assume that sequestration will not occur. In the
event that sequestration does occur, they will have to make the changes necessary to comply
over a period lasting less than three-quarters of the fiscal year. On the other hand, they could
on their own initiative plan for the eventuality that sequestration will occur. If they do this,
and it does not, this will mean that they have unnecessarily taken the initiative to reduce services.
In the end, the obvious conclusion is difficult to ignore. That is: Given all the negative consequences of late appropriations, the Congress should fulfill its constitutional responsibility
and routinely enact appropriations before the beginning of the fiscal year. It is hard to imagine that the roughly eight months between the delivery of the President’s budget and the
beginning of the fiscal year would not provide sufficient time to enact appropriation bills if the
Congress viewed it as a significant priority. Even though the federal government is a large,
complicated enterprise, and the federal budget process is a complex process, it does not
excuse this lack of action. Meyers correctly observed that the appropriations process is partially a victim of the same ultra-partisanship that plagues U.S. politics more generally; part of
the reason that the appropriations process is chronically late is because it involves so many
decisions with political consequences (Meyers, 1997).
To begin and end with a conclusion that the Congress should just do its work, however, seems
particularly unhelpful. For this reason, it is useful to consider some recommendations that
start from the assumption that the congressional appropriations process will not become more
(or at least much more) timely. If departments and agencies continue to face late appropriations, what can be done to minimize their effects? The following recommendations are appropriate based on this review of the effects of federal funding delays.

Recommendations
Recommendation One: The Congress should make more funding available on a multi-year
or no-year basis.
At present, many agency salary and expense budgets are provided using one-year money. If
agencies had the flexibility to obligate funds over multiple fiscal years, many of the specific
problems caused by late appropriations would be reduced. This is not to suggest that all
appropriations should permit multi-year or no-year obligations, but it would be useful to specifically review current practice with an eye toward increasing the percentage where such
multi-year obligations are permitted. This might assist, in particular, those agencies with significant amounts of grant and contract funding. Those agencies with more multi-year funding
have routinely reported that they have fewer problems navigating continuing resolutions.
Many have also advocated biennial budgeting as a means of introducing more certainty into
the budget process. Biennial budgeting would not address only the availability of funding, but
also the frequency with which budget decisions are made. A full consideration of biennial budgeting is beyond the scope of this report, but certainly it would make federal agencies better
able to plan for future spending. Absent a full biennial process, making more federal spending
available over multiple years would be a step in the right direction. Thus we might be able to
get some of the flexibility offered by biennial budgeting without having to change the frequency with which budget decisions are made.
Recommendation Two: The Congress should prohibit itself from using continuing resolutions.
This may seem like an odd recommendation, as it increases the probability of a government
shutdown. In fact, it flies in the face of a more common recommendation, which is that failure
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to enact appropriations should result in an automatic continuing resolution (ACR). The problem with that recommendation is that ACRs may just become the norm; that is, this might
reduce the urgency of enacting appropriations even further. Given the problems created by
CRs as outlined in this report, this would not be a good outcome. Conversely, prohibiting CRs
turns up the heat. It means that the options are either a full-year appropriation or a government shutdown. The point here is that if there were more urgency in enacting appropriations,
it would increase the odds of their being enacted.
Recommendation Three: The Congress should enact CRs that permit inflationary increases to
the prior year level.
For those members of Congress and Presidents who believe that spending should be frozen or
reduced, this would provide incentives to reach agreement on appropriations in a timely manner, since the reversion level would be a higher level of spending. For federal agencies, however, this would reduce the necessity of counterproductive actions having to be taken in order
to live within a CR that requires spending at the prior year level. As long as agencies do not
receive a final appropriation, it seems unnecessary to force them into actions that only
increase costs and reduce effectiveness. This recommendation would also reduce, but not
eliminate, the need for anomalies, which should be held to a minimum in the interest of lessening the substantial effort that goes into identifying and negotiating them.
Recommendation Four: The Congress should avoid micromanaging the budget execution
process, particularly if late appropriations are to continue to be the norm.
Requirements imposed on some agencies to have spending plans approved by congressional
committees are, in the context of late appropriations, a costly luxury in terms of congressional
oversight. If appropriations were timely, such a review could potentially be justified. In cases
where a final appropriation is not received until three to six months into the fiscal year, there
is no justification for the additional delay that such a requirement imposes on federal agencies
and their ability to manage funds.
Recommendation Five: The Congress and President should limit CRs to only one or two per
year and they should not extend past the end of the calendar year.
It is important to recognize that all CRs are not created equal. The length of individual CRs
and the duration of the total period that agencies are required to operate under a CR matter.
Consistently, this report identifies more problems with two kinds of CRs—those of short duration and those that extend far into the fiscal year. In the former case, short CRs (especially
where there are multiple CRs lasting days or weeks, as opposed to months) create all sorts of
problems for federal agencies that increase the odds of agency officials unwittingly violating
some law or engaging in counterproductive management practices. In the latter case, the
problems created by attempting to manage through CRs lasting four months or six months (or
more) are well documented. If CRs are to be enacted, it is important for them to be enacted
in a way that minimizes their negative effects.
Recommendation Six: The Congress and President should not allow salary increases for
federal employees to take effect during a CR.
Salary increases that take effect during CRs both make budget management more difficult
(potentially reducing options available for final appropriations), and result in out-year costs
that must be managed. Unlike inflation for other line items, which cannot be controlled, salary increases are optional, and it seems prudent to delay them pending approval of a final
appropriation.

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Recommendation Seven: Federal agencies should continue the practice of delaying renewal
of non-recurring contracts and competitive grant awards to the second half of the year.
One striking, and consistent, finding of virtually all reviews of late appropriations is that federal agencies have done an admirable job of adjusting to the reality of late appropriations by
attempting to minimize their operational impacts. To the extent that there are agencies that
have not taken advantage of flexibility permitted under federal law and pushed contract and
grant processes until later in the fiscal year, they should do so. Agencies that have already
engaged in these activities should continue them.

Conclusion
In the end, there can be little question that late appropriations and the uncertainty they create
lead to substantial negative effects for federal agencies. These negatives have historically been
associated with the timeliness of the process. Appropriations have gotten less timely over the
past 10 years. Increasingly, however, timing uncertainty has been compounded by uncertainty
over the level of funds to be provided. This twin uncertainty—over timeliness and the level of
funding—creates all sorts of counterproductive results. These results, which are unacceptable
given the importance of the federal budget to the overall performance of the U.S. economy
and the delivery of services to citizens, should be minimized if they cannot be eliminated.

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References
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Defense Department. Federal Times, February 6.
Brass, C. (2011). Shutdown of the Federal Government: Causes, Processes, and Effects.
Congressional Research Service, February 18.
Brodsky (2011). Contractors Would Share the Pain of a Government Shutdown. Government
Executive, February 23.
Carey, M., Schatz, J., and Swindell, B. (2002). Prospect of Continuing Resolution Means
Uncertainty for Programs. CQ Weekly, September 21.
Company Command (2011). Impact of the Federal Government’s Near-Shutdown.
Corrin. A. (2011). Defense Industry’s Confidence Shaken by Budget Battles. Washington
Technology, April 18.
Covington and Burling, LLP (2011). E-Alert: The Impact of a Federal Government Shutdown
on Government Agencies and Contracts, March 7.
Eaglen, M. (2011). Funding Defense through a Yearlong Continuing Resolution is “a Disaster.”
The Heritage Foundation, January 26.
Government Accountability Office (2009). Continuing Resolutions: Uncertainty Limited
Management Options and Increased Workload in Selected Agencies, September.
Hollander, C. (2011). The Economic Impact of a Near-Shutdown: Some experts say budget
brinkmanship will stir less fear as it grows more routine and yields long-term improvement.
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Hulse (2011). Last-Minute Budget Deal averts Government Shutdown. New York Times, April 9.
Joyce, P. (2011). The Congressional Budget Office: Honest Numbers, Power, and Policymaking
(Washington: Georgetown University Press).
Juszczak, T. (2011). Living with Continuing Resolutions. The Public Manager, Fall, 40–44.
Kettl, D. (2011). Kettl’s Primer on Closing Down the Federal Government. University of
Maryland University Communications Newsdesk, February 28.
Leskowich, J. (2007). Contract Delays: The Impact on Department of Defense (DOD)
Contractors’ Wealth. Thesis, Department of Systems and Engineering Management Graduate
School of Engineering and Management Air Force Institute of Technology.
Longley, R. (2011). Government Shutdowns; History and Effects of Government Shutdowns.
About.com.
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McCabe, R. (2011). Budget Delay Sinks 4 Hampton Roads Shipyard Projects. The VirginiaPilot, March 14.
McGarry, B. (2011). U.S. Army Lays off Hundreds of Humvee Workers amid Budget Delay.
Bloomberg.com news, March 16.
McGrath, J. (1997). Shutdown of the Federal Government: Effects on the Federal Workforce
and Other Sectors. Congressional Research Service Report for Congress.
McKenna, Long and Aldridge, LLP (2011). Implications of a Government Shutdown for
Government Contracts, February 22.
Memphis Democrat (2011). Federal Budget Delay Forces NMCAA to Close Memphis Office.
April 28.
Meyers, R. (1997). “Late Appropriations and Government Shutdowns,” Public Budgeting and
Finance 17, Number 3 (Fall), pp. 25–38.
Neeley, S. (2011). The Contractor’s Perspective—Offering Perspective on Key Developments in
the Law of Government Contracts. Husch Blackwell LLP.
Office of Management and Budget (2012), Memorandum to the Heads of Executive
Departments and Agencies, “Use of Evidence and Evaluation in the 2014 Budget,” May 18.
Philpott, T. (2011). Budget Delay has Defense Officials Worried and Angry. DailyPress.com,
March 6.
Reilly, S. (2011). After Debt Deal, Agencies Face Budget Uncertainties. Federal Times, August
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Schultz, C. (2011). Delay in Federal Budget Slows Storm Shelter. Lakegenevanews.net,
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Shea, D. and Morgan, D. (2008). Federal Research and Development Funding: Possible
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Congress, Congressional Research Service, April 28.

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About the Author
Philip Joyce is Professor of Management, Finance and
Leadership in the Maryland School of Public Policy. Professor
Joyce’s teaching and research interests include public budgeting, performance measurement, and intergovernmental relations. He is the author of The Congressional Budget Office:
Honest Numbers, Power, and Policymaking (Georgetown
University Press, 2011), and coauthor of two books—
Government Performance: Why Management Matters (Johns
Hopkins, 2003) and Public Budgeting Systems, 9th Edition
(Jones and Bartlett, 2013) . He is the author of more than 50
other publications (including book chapters and articles),
appearing in journals such as the Public Administration Review,
Public Budgeting & Finance, The Journal of Policy Analysis
and Management, Administration and Society, and the
Handbook of Government Budgeting. His 1993 article, “Using
Performance Measures for Federal Budgeting: Proposals and
Prospects” was reprinted in Classics of Public Administration
(1997).
Professor Joyce is Editor of Public Budgeting & Finance, is a
Past President of the American Association of Budget and
Program Analysis and is a Past Chair of the American Society
for Public Administration (ASPA)’s Center on Accountability and
Performance (CAP). Professor Joyce is the recipient of a number
of grants since 2000 from The Pew Charitable Trusts, focusing
on the performance of state governments and federal agencies.
The highest profile grant funded his participation in the
Government Performance Project, which evaluated the performance of state governments, including their management of
money, people, infrastructure, and information. He also was the
Principal Investigator on the Pew-funded Federal Performance
Project, which undertook a similar evaluation of federal agencies
between 2000 and 2002.
In addition to his work at the University of Maryland, Dr. Joyce
has been on the faculty of The George Washington University,
the Maxwell School of Citizenship and Public Affairs at Syracuse
University, and the University of Kentucky. He also has 12 years
of public sector work experience, including four years with the
Illinois Bureau of the Budget and five years with the United
States Congressional Budget Office (CBO). In 1992, he received

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the CBO Director’s Award for Distinguished Service. He received
his PhD. from the Maxwell School at Syracuse University, his
MPA from Penn State University, and his bachelor’s degree from
Thiel College, Greenville, PA.
Dr. Joyce is a Fellow of the National Academy of Public
Administration. He is the recipient of several national awards,
including the Aaron Wildavsky Award for lifetime scholarship in
public budgeting and finance, the Elmer Staats Award from the
National Association of Schools of Public Affairs and
Administration, and the Joseph Wholey Award from the
American Society for Public Administration. He has done extensive volunteer work in his local community of Arlington, Virginia,
including recently serving as Chair of the Budget Advisory
Council to the Arlington County School Board. He has consulted
and lectured internationally, both as an individual and for the
International Monetary Fund and the World Bank. This consulting work has taken him to Bulgaria, China, Guyana, Korea,
Latvia, Lithuania, Mexico, and Slovenia.

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Key Contact Information
To contact the author:
Philip Joyce
Professor of Management, Finance and Leadership
School of Public Policy
University of Maryland
3111D Van Munching Hall
College Park, MD 20742
(301) 405-4766
e-mail: pgjoyce@umd.edu

42

 Reports from
For a full listing of IBM Center publications, visit the Center’s website at www.businessofgovernment.org.

Recent reports available on the website include:
Assessing the Recovery Act
Recovery Act Transparency: Learning from States’ Experience by Francisca M. Rojas
Key Actions That Contribute to Successful Program Implementation: Lessons from the Recovery Act by Richard
Callahan, Sandra O. Archibald, Kay A. Sterner, and H. Brinton Milward
Managing Recovery: An Insider’s View by G. Edward DeSeve
Virginia’s Implementation of the American Recovery and Reinvestment Act: Forging a New Intergovernmental
Partnership by Anne Khademian and Sang Choi

Collaborating Across Boundaries
Collaboration Across Boundaries: Insights and Tips from Federal Senior Executives by Rosemary O’Leary and
Catherine Gerard
Designing Open Projects: Lessons From Internet Pioneers by David Witzel

Conserving Energy and the Environment
Best Practices for Leading Sustainability Efforts by Jonathan M. Estes
Implementing Sustainability in Federal Agencies: An Early Assessment of President Obama’s Executive Order 13514
by Daniel J. Fiorino

Fostering Transparency and Democracy
Assessing Public Participation in an Open Government Era: A Review of Federal Agency Plans by Carolyn J. Lukensmeyer,
Joe Goldman, and David Stern
Using Geographic Information Systems to Increase Citizen Engagement by Sukumar Ganapati

Improving Performance
Five Methods for Measuring Unobserved Events: A Case Study of Federal Law Enforcement by John Whitley
Forging Governmental Change: Lessons from Transformations Led by Robert Gates of DOD and Francis Collins of NIH
by W. Henry Lambright

Managing Finances
Strategies to Cut Costs and Improve Performance by Charles L. Prow, Debra Cammer Hines, and Daniel B. Prieto

Strengthening Cybersecurity
A Best Practices Guide for Mitigating Risk in the Use of Social Media by Alan Oxley
A Best Practices Guide to Information Security by Clay Posey, Tom L. Roberts, and James F. Courtney

Transforming the Workforce
Engaging a Multi-Generational Workforce: Practical Advice for Government Managers by Susan Hannam and Bonni Yordi
Implementing Telework: Lessons Learned from Four Federal Agencies by Scott P. Overmyer

Using Technology
Challenge.gov: Using Competitions and Awards to Spur Innovation by Kevin C. Desouza
Working the Network: A Manager’s Guide for Using Twitter in Government by Ines Mergel

 About the IBM Center for The Business of Government
Through research stipends and events, the IBM Center for The Business of Government stimulates research and
facilitates discussion of new approaches to improving the effectiveness of government at the federal, state, local,
and international levels.

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visit: ibm.com

For more information:
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IBM Center for The Business of Government
600 14th Street NW
Second Floor
Washington, DC 20005
202-551-9342
website: www.businessofgovernment.org
e-mail: businessofgovernment@us.ibm.com

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