Recently there was some media interest in the government system of funding allocation, which essentially rests on one principle: “Use it or lose it.” Unlike in the private sector, where unused funds may be reserved for future use, money that is not spent in a given appropriation year is simply returned, for the most part.
In our own personal financial worlds, in fact, it is a primary lesson that we should not spend every dollar we earn. Rather, any financial adviser will tell you that money must be managed over many years, including saving money for the proverbial “rainy day” (the recent financial meltdown and recovery act not withstanding).
In business as well as in our personal lives, we are taught to do three things with our money:
· Spend some—for business operating expenses or living expenses in our personal lives.
· Save some—for unexpected needs like when a economic recession negatively impacts business cash flow or in our personal lives when a job is lost and we need savings to tide us over; or the saving could be for opportunities like to accumulate funds to get into a new business or to save up for a deposit on a home.
· Invest some—for longer-term needs like research and development, potential business acquisitions, and so forth or in our personal lives for college education, weddings, retirement and more.
My question is why in government is there not an option #2 or #3—to save or invest funds for the future, like we have in our personal lives and in business? Why can’t agencies and lawmakers plan longer-term and manage funds strategically instead of tactically—beyond the current year here and now?
The Clinger-Cohen Act of 1996 called for the development and maintenance of an IT architecture, since interpreted more broadly as the mandate for enterprise architecture, where we plan and govern investments strategically (i.e. no longer based on short-term gut, intuition, politics, or subjective management whim).
Managing for enterprise architecture necessitates that we manage business and IT investments with the ability to spend, save, or invest as necessitated by agency mission and vision, customer requirements, and the overall investment climate (i.e. the return on spending versus the return on saving or longer-term investment).
Managing money by driving an end of year spend-down seems to negate the basic principles of finance and investing that we are taught from grade school and that we use in business and our personal lives.
By changing the government budget process to allow for spending, saving, and investing, we will open up more choices to our leaders and hold them responsible and accountable for the strategic long-term success of our vital mission.