Only One Christmas for Contractors: How the Department of Defense Enables End-of-Year Fiscal Waste and How Congress Can Fix It

Abstract

The monthly spending of the Department of Defense nearly doubles in the last two months of the fiscal year as compared to any other month. This well-known phenomenon has been called “Christmas in September” by government contractors, which is caused by defense government procurement officials trying to spend every dollar allotted to them by Congress in an effort to show that they need more money in the next fiscal year. This Note recommends that Congress and the Department of Defense reduce the number of bureaucratic restrictions on how procurement officials can spend their money on defense programs, and that Congress restructure how the Department of Defense can carry over any unspent balances through to the following fiscal year.

I. Introduction

In 2010, Harvard University professor Jeffrey B. Liebman and Stanford University professor Neale Mahoney conducted a study on federal agency spending habits from 2004 to 2009, which revealed that agencies usually spent just shy of nine percent of their yearly budgets in the last week of the fiscal year. They noted that if the budget was spent in even increments throughout the year, the weekly average should be around 1.9%. This same study also noted that a majority of total federal spending on contracts—around seventy percent—came from the Department of Defense (DoD), which spent sixteen percent of its budget in the last month of the fiscal year, with around half of that being in the last week.

The phenomenon of the DoD spending a larger proportionate share of its budget at the end of the year did not end in the early 2000s. In 2017, the Congressional Research Service released a report on DoD fiscal spending, outlining how the DoD’s monthly spending nearly doubled in September of fiscal year 2016, the last month of the fiscal year. While the DoD averaged $25 billion in spending every month in fiscal year 2016, they spent over $43 billion in the month of September. This begs a question: why does the DoD spend so much more of its budget at the end of the fiscal year than any other month?

The increase in end-of-year fiscal spending by federal agencies is a well-known phenomenon, often referred to as “use-it-or-lose-it” spending for government contractors, with the time period colloquially known as “Christmas in September.” At the end of the fiscal year, the DoD rushes to spend its remaining appropriated funds because the DoD Appropriations Act requires portions of “funding remaining unused on October 1 [to be] automatically unavailable for new obligations, even if funding was provided late” or other unseen delays prevented execution of a contract. This occurs because Congress and the DoD assess future needs based on the percentage the DoD spent of their total appropriations in the prior fiscal year. Thus, the DoD is incentivized to spend as much as possible to retain—or gain even more than—the previous year’s funding.

Incentivizing the DoD to behave in this manner has invited instances of reckless spending. For example, a 2020 report of Pentagon year-end spending revealed low-value purchases, including $223.9 million on furniture and $96 million on food, with $2.7 million being for lobster. At the same time, the DoD has several issues hindering national defense readiness due to underfunded initiatives, which could be problematic for national security. For instance, as of January 2022, the U.S. Government Accountability Office (GAO) found that military barracks were below healthy living conditions, with maintenance having a reported backlog of $137 billion in needed repairs to troop living quarters. Military officials have made comments that the poor “barracks conditions directly affect service members’ quality of life and readiness,” and nine out of twelve study groups stated how poor barrack conditions negatively impact troop morale. So, why can’t “Christmas in September” spending be rerouted to more effective spending? Why does this end-of-fiscal-year spending spree happen at all in the DoD?

While use-it-or-lose-it spending occurs at the end of the fiscal year for many federal agencies, this Note is limited only to DoD policy, in part to show how one agency can adopt change, which, if possible and successful, could be applied to other agencies. In Section II, this Note will provide an overview on how certain laws dictate the DoD single-year contract procurement process and how these laws create use-it-or-lose-it spending habits. Section III will explain how such laws, when paired with the DoD purchasing process, exacerbate the problem. Section IV will suggest that to resolve the issue of DoD end-of-year waste, Congress should readjust the spending requirements in the yearly DoD appropriations to disincentivize spending every dollar and implement more frequent performance goals. To that end, this Note proposes changes in how the DoD conducts procurements throughout the year, such as readjusting spending caps and utilizing other governmental carryover guidelines, to prevent a build-up of unobligated funds that promote year-end low-value spending.

II. Background

The DoD receives funding through annual congressional appropriations, titled the DoD Appropriations Act. The DoD has the third largest budgetary allocation for all U.S. federal government allocations, with defense spending making up approximately “one-sixth of federal spending.” From 2021 to 2023, the DoD’s budget ranged from $700 billion to $852 billion. These appropriations supply the DoD with the funds and authority to procure contracts for defense readiness for each branch of the Armed Forces, including the Army, Navy, Marine Corps, Air Force, and Space Force. For the purpose of this Note, defense readiness spending is defined as spending that advances the following categories set forth by Congress in its yearly DoD appropriations bill: Military Personnel upkeep and recruitment; Operation and Maintenance of DoD military assets; Procurement of defense weaponry and necessities for national security; Research and Development needs; and Defense Programs such as health and counter-drug enforcement. This Note considers DoD spending that does not advance these categories to be low-value spending.

A. How Are Funds Traditionally Allocated, and How Must These Funds Be Spent?

Several U.S. government entities, including the executive branch, legislative branch, and several agencies under both, work together to create the DoD’s annual defense budget. This subsection will review the budgetary creation process, starting at the agency level, then through executive review, and ending with congressional approval.

1. Part One of the Budgetary Process: DoD Internal Creation and Presidential Review

The budgetary formation process for the DoD begins with the Office of Management and Budget (OMB) issuing budget planning guidance to executive branch agencies eighteen months prior to the start of a new fiscal year for the agency to begin planning its financial needs for a specified year. The agency must plan what it intends to spend in the new fiscal year and submit a budgetary request to OMB in September, thirteen months prior to the start of the budget’s intended fiscal year. OMB reviews the proposal and, if approved, submits the budgetary request to the President. In this initial budget request, the DoD is required by OMB to justify what it believes the budget should be for the new fiscal year, including desired changes from the current year’s budget for the next year. The DoD must also include within this budget proposal for the new fiscal year a justification on why any unobligated balances—unspent money intended to remain available—should be carried forward into the following year. Unobligated balances “should be [no higher than the amount] . . . to fulfill outyear contracts for the sum of . . . individual programs” needed to continue DoD operations over the course of more than one year. In reality, millions of dollars can go unspent, with the DoD usually often having excessive end-of-fiscal-year unobligated funds.

In creating a yearly budget, the DoD must include in its request significant changes to the budget and “the relationship of such changes to the budget year and outyear requests.” All internal components of the DoD “must determine that the goods, supplies, or services required under contracts, or orders placed obligating an annual or multiple year appropriation, are intended to meet a bona fide need of the period for which funds were appropriated.” A bona fide need is based on whether the purchase falls under a fiscal year authorization approved by Congress in law.

2. Part Two of the Budgetary Process: From the President to Congress

Once the DoD submits a justified budget to OMB, OMB presents the budgets of each executive agency in a compiled request for a complete federal budget to Congress, pending President approval, by the first Monday in February. The Office of the President has historically submitted this budget late, with the 2025 budget proposal being submitted on March 11, 2024. Both the House and the Senate will then create their own versions of a budget resolution, which modifies the President’s budgetary request, until they are able to pass a final resolution.

In finalizing a federal budget, Congress is required to determine “[f]ederal revenues and expenditures” yearly. In Congress’s yearly appropriations to the DoD, there are strict rules for what the DoD, and its service branches, are permitted to spend their money on. The DoD, through each armed service branch, must spend in accordance with the following categories: Military Personnel; Operation and Maintenance of DoD military assets; Procurement of defense weaponry and necessities for national security, Research and Development needs; and Defense Programs. These set categories include requirements for each service branch to maintain specific inventories, outlined in the yearly National Defense Authorization Act, which establishes the planned procurement of defense weaponry and other spending requirements for the DoD in a given fiscal year. In a DoD Appropriations Act bill, the Secretary of Defense is required to send quarterly reports, as well as reports for other deadlines throughout the year, to show Congress that the money is spent appropriately. Congress eventually agrees on a formal budget resolution in late spring or early summer and forms it into a law, published as a yearly DoD Appropriations Act; however, delays are frequent and budgets may sometimes be passed so late that they are enacted in the year they are meant to apply.

The DoD makes up nearly half of all discretionary spending in the federal government yearly and also accounts for approximately two-thirds of all federal contracting. The overall budget for the DoD funds procurement, military personnel upkeep costs, operations & maintenance (O&M), military & family construction, and some other miscellaneous categories. While the majority of these funds are expended in multiyear obligations, categories like “O&M funding must be obligated within the span of a single year.” At the end of the fiscal year, an annual audit of DoD expenditures occurs, where either an independent firm or the DoD Office of the Inspector General examines “balances, processes, and internal controls[ to] . . . reduce the risk of fraud and abuse” of funds. Unfortunately, as discussed below, preventative measures like Pentagon audits have not been extremely effective, given that the DoD has not passed a congressional level audit of total assets in several years.

B. The Yearly Budgetary Process Encourages Use-It-or-Lose-It Spending

While Congress empowers the DoD to spend this money to make multiyear contracts, many of the DoD’s appropriations must be spent within a single fiscal year, and, thus, the money either gets obligated to a program or runs the risk of ending up unobligated and thus cut from future budgets. If the DoD does not receive new yearly appropriations, it must “shutdown” operations due to a funding gap. In events where DoD appropriations are not enacted before the new fiscal year, Congress and the President work together to pass temporary resolutions to continue obligating funds to keep the DoD operational.

Since the DoD must submit a justified proposal for a new budget a year prior to the intended year of enactment, this system seems to encourage the DoD to spend as much as possible to justify its funding. A 2019 report from the Advisory Panel on Streamlining and Codifying Acquisition Regulations (809 Advisory Panel)—created by Congress to “provide recommendations that would better position the defense acquisition system to meet the continuously evolving threats posed by the nation’s near-peer competitors and non-state actors”—found that compliance with obligation funding targets for congressional reports throughout the year created several circumstances that enable a use-it-or-lose-it spending spree. Most notably, the report found that the DoD’s failure to meet congressionally and internally set spending goals throughout the year led to the DoD awarding low-value contracts, some of which were unnecessary for defense readiness. These contracts occurred, at least in part, because Program Managers (PMs)—individuals “[d]esignated . . . with responsibility for and authority to accomplish program objectives”—cannot get approved for larger projects in time for congressional reports. Individuals involved in the process have reported this “often force[s] PMs into suboptimal spending decisions” that result in end-of-year efforts to show adequate budget use by reporting or spending deadlines. While not in official policy, the 2019 report by the 809 Panel found that the DoD acquisition community believes that if a PM does not spend its allocations for a project within a given fiscal year, Congress will reprogram or cut any subsequent budget.

For an example of the need to spend money, one of the biggest categories in which the DoD has unspent funds for discretionary spending is O&M, with the DoD leaving billions of unobligated dollars to expire at the end of the fiscal year from 2010 to 2014. O&M cannot be obligated beyond the fiscal year for which Congress allotted the funds, which creates time pressures for getting O&M procurements approved, as shown by the fact “[e]nd-period defense contract spending is concentrated largely in the O&M Appropriations accounts.”

These low-value contracts are also spurred on in part because of the loss in negotiating power for DoD PMs due to “vendors know[ing] exactly how much money is available to a program office and the precise deadlines by which each portion of that money must be spent.” Army contracting officers also reported low morale by the end-of-year contracting workload, which was reportedly compounded by poor allocation of human capital—actual manpower available for contracting—per the 2019 report.

In an effort to reduce unused money in a given allocation category, Congress and the DoD permit PMs to reprogram or transfer funds between programs with limited discretion. Transfer authority refers to the ability of DoD PMs to transfer funds from one project to another within a given congressionally mandated funding category. Reprogramming authority refers to the ability of DoD PMs to reprogram funds from one category of funding to an entirely different category of funding within the DoD.

For both reprogramming and transfer authorities, PMs can only reallocate funds to projects that are considered “a higher priority item, based on unforeseen military requirements, and prohibits their use for an item for which Congress has denied funds.” Additionally, the Secretary of Defense must immediately inform Congress whenever funds have been reallocated, with some transfers requiring additional approval from congressional committees before reallocation. On top of that, the DoD has an annual limit on how much it can transfer and reprogram in a given year. Due to the large amount of restrictions on a DoD PM’s ability to reallocate funds, the money must be spent within its original parameters given to the allocated budgetary purpose. For instance, in 2019, the DoD only transferred $5.1 billion of its $6 billion limit for transfer authority powers. Given the limits in how the DoD can reallocate funds from specific predetermined categories and how the DoD is incentivized to spend every dollar it has rather than focusing on particular goals, low-value spending seems almost inevitable.

C. Wasteful Spending and the Government’s (Failed) Efforts to Curb It

Given the need to spend every dollar, compounded with an inability to transfer or reprogram money between spending categories, the DoD is essentially incentivized to spend funds recklessly in an effort to spend every dollar. The federal government, in turn, has attempted to keep the DoD accountable and more financially thrifty, but has had mixed results.

1. How Does Use-It-or-Lose-It Spending Get Used?

As indicated by the 809 Panel, the DoD either purchases low-value items or buys over-inflated contracts in order to spend every dollar by the end of the fiscal year. The 2020 report by OpenTheBooks.com, a nonprofit “government watchdog” organization that serves to track government end-of-fiscal-year spending, found that the DoD spent $57.5 billion in the last month of the fiscal year. In addition to spending billions on last-minute military equipment, the DoD also spent money on last-minute low-value purchases, such as $123.8 million on furniture, $96 million on food, $88.5 million on public relations support, and $668,889 on golf carts.

Contractors may also be encouraging use-it-or-lose-it spending sprees. In the 2020 OpenTheBooks.com report, the authors noted how “$1 in every $4” of end-of-year fiscal spending “flowed to just [ten] federal contractors.” All ten contractors are well-known defense, construction, or technology contractors. While this last-minute spending possibly occurs because of contractor expertise, it is worth noting that this system could be abused. As previously noted, these contractors likely “know exactly how much money is available to a program office” and that PMs want to spend every dollar, thus giving the contractors an upper hand at the negotiating table and likely leaving PMs with little recourse on where to spend last-minute remaining money. Between high levels of contractor profiteering and low-value spending, much of the DoD budget—tax-payer money—has gone to waste for purposes that do not efficiently further national defense.

2. Congress Attempted to Audit the Pentagon but Failed

Given all the commotion caused by possible DoD waste, Congress has tried to account for all DoD spending but has failed to do so. After years of reports, such as the 809 Advisory Panel’s, building up about the DoD’s wasteful spending habits, several Senators from both major American political parties announced a bipartisan bill to audit the Pentagon. When announcing this bill, Senator Chuck Grassley of Iowa noted how the DoD had spent recklessly on low-value items while also losing track of its own purchases that may be important for national security, likely requiring items assumed to have been contracted for to be repurchased.

By law, government agencies are required to perform independent audits upon request of Inspectors General assigned to the agency. In an effort to keep agencies accountable for spending, Congress had previously established the role of Inspectors General to audit the finances of individual agencies, and, if they discover any low-value purchases with appropriated funds, they recommend to Congress how to rectify agency financial mismanagement. Inspectors General conduct financial audits, which involve reviewing financial reports and how agencies use resources to ensure agencies are using resources as intended. Additionally, government agencies may undergo performance audits, which require inspectors to review performance outcomes by ensuring agency leadership is operating within the guidelines set by law and meeting performance goals established by Congress or the President. While the DoD undergoes an annual audit, it has not passed a single one since 2017, as it could not account for all its acquisitions for several years in a row, and yet Congress has not punished the agency.

Congress makes yearly attempts to audit the DoD for full reports on how the agency spends its yearly allotment, but the DoD routinely fails these audits in that they are unable to account for all their assets. The 1990 Chief Financial Officers Act, as amended in 1994, requires all executive agencies to submit financial reports accounting for all their assets. Despite all these measures, the DoD has failed on a yearly basis to account for over half of its total assets, which estimates conclude total over $3.1 trillion. Congress has made recent attempts to audit the DoD with two Audit the Pentagon Acts—one in 2021 and the bipartisan one referenced earlier in 2023—with each attempted bill having provisions forcing the DoD to complete an audit or lose funding. The most recent of the two, House Bill 2961, noted that “the DoD was unable to account for . . . [sixty-one percent] of its assumed $3.5 trillion in assets.” The bill would require the DoD to either pass an audit or lose a portion of up to one percent of its yearly budget. Neither bill has made it past the introduction stage at the time of writing this Note.

Congress has previously held hearings to address DoD wasteful spending. In a 2021 congressional hearing regarding the DoD’s inability to pass an audit with the Senate Budget Committee, Roger Zakheim, the Washington director of the Ronald Reagan Presidential Foundation and Institute, stated that the DoD’s inability to pass an audit is due in part to the use-it-or-lose-it spending problem at the end of the fiscal year. Use-it-or-lose-it spending has been identified as a leading cause for end-of-fiscal-year “delays in acquisition[] and modernization[], exasperating readiness problems throughout the [armed] force[s].”

3. Congress Usually Implements an 80/20 Rule to Prevent PMs from Spending Too Much at the End of the Fiscal Year, with Mixed Results

Congress normally includes a clause in DoD yearly allocations as an effort to curb Christmas-in-September spending, which requires no more than twenty percent of one-year appropriations to be spent in the last two months of a given fiscal year—commonly known as the 80/20 rule. The issue with the 80/20 rule is that it creates an arbitrary new fiscal year deadline for use-it-or-lose-it spending. For instance, the 80/20 rule creates more pressure on the DoD to spend its budget by requiring spending in a shorter period of time. Additionally, of the fifty-two weeks in a fiscal year, the fifty-second week is the week with the most spending, and the 80/20 cut-off week has the fourth highest spending rate in a year. Despite the 80/20 rule being in place, the 2020 OpenTheBooks.com report on fiscal year spending showed that low-value luxury spending was still commonplace by September. The 80/20 rule also does not address the underlying problem of DoD components being incentivized to spend every single dollar, regardless of how necessary the purchase is for national defense.

4. Where Else Could That Money Go?

Instead of letting unobligated funds go to waste, the DoD should reallocate or repurpose these funds. For instance, when each military service branch submits its list of funding requests for the next fiscal year to the DoD, it includes requests for items such as new tanks, aircrafts, ships, or other high-priority defense items. The DoD could reprogram or transfer money internally to offset such requests, instead of letting millions of dollars lapse at the end of the year.

The need to reallocate money is best shown through issues affecting personnel quality of life in the United States, such as military barracks that have been found to be in below healthy conditions and in direct need of repairs. As previously noted, military officials have stated that the poor quality of “barracks conditions directly affect service members’ quality of life and readiness.” Such austere conditions have led to reports of increased crime, such as theft and sexual abuse, with such conditions being reported to have “significant effects on reenlistment.” At the same time, a 2024 article has found that “nearly 26% of active-duty service members are considered food insecure, and about 15% rely on food stamps or food banks to help support their families.” The DoD and Congress should consider restructuring its funding to help remedy problems like these.

III. Analysis: DoD’s Purchasing Process Creates Use-It-or-Lose-It Sprees

By understanding how the use-it-or-lose-it spending process came into existence, the flaws within the DoD’s purchasing process become apparent. This section will analyze DoD purchasing regulations, for both the agency as a whole and down its hierarchical chain of command and how a false urgency to spend money results in needless low-value purchases.

A. Statutory and Regulatory Provisions on Defense Purchasing

The DoD, through the Secretary of Defense, is permitted to manage its contracts through the “sustainment of major defense acquisition programs, core logistics capabilities . . . , commercial logistic capabilities, and the national technology and industry base.” Such logistical capabilities for contracting include the procurement and maintenance of “Government personnel and Government-owned and Government-operated equipment and facilities[] to ensure effective and timely response to a mobilization, national defense contingency situations, and other emergency requirements.”

The Secretary of Defense published a 2020 directive, updated in 2022, for acquisitions management, establishing a purchase system for the DoD titled the Defense Acquisition System (DAS). The DAS is managed by the Undersecretary of Defense for Acquisition and Sustainment (USD(A&S)). The DAS exists to empower PMs to oversee and execute contracts. PMs are “individual[s] with responsibility for and authority to accomplish program objectives for development, production, and sustainment to meet the user’s operational needs,” and the “PM shall be accountable for credible cost, schedule, and performance reporting” to the DoD. PMs then have Contracting Officers (COs), who are DoD employees, set out bids or proposals and work with contractors for enacting the procurement process the PMs seek to execute.

B. Unfunded Requirements Build Up by the End of the Fiscal Year, Likely Causing Panic-Induced Spending by PMs

As a common by-product of government acquisitions, some obligations dissipate as projects become redundant or end up costing less than anticipated, thus leading to the promised funds becoming unobligated. Funds that have become de-obligated from a dissipated project for spending requirements like O&M, go from being considered de-obligated to unobligated funds, funds without specific spending objectives, as the ability of PMs to move the funds goes under extreme scrutiny in order to be able to reprogram or transfer funds. Unobligated funds can be over a billion dollars in a given fiscal year.

If a government agency does not spend its yearly allotments, it has to justify why it should keep or gain even more funds. If a DoD PM knows Congress will cut the budget based on any leftover funds, then the PMs, who manage DoD money for their specifically assigned projects are likely aware of the need to spend every dollar.

Additionally, PMs do not have many options to spend their money if funds become de-obligated, and they have other spending needs for which they were not obligated money. PMs are likely incentivized to spend money on low-value spending within a given allocation category due in part to the stringent limits on how funds can be transferred or reprogrammed. Thus, if PMs could not get approval for a spending project within a specific fiscal year, it seems they would have no other choice than to spend money on low-value items, which may be easier to get through the contracting process.

As previously mentioned, contractors are likely aware that PMs have to spend this money or risk losing it, which creates inflated prices or encouragement of lower-value contracts in terms of value to national defense. For example, several news articles in the Federal Times, FedBizAccess, and Forbes have noted how contractors should celebrate in August or September, because government agents are more likely to contract when trying to expend their yearly allocations. Given how contractors are keyed into how the appropriations process works and PM limitations to spend the money, contractors are likely aware that PMs have few options to spend money on and thus use their better bargaining position to induce contracts at the inflated prices—which has been known to happen to the Pentagon.

Due to the need to spend money, coupled with the restrictions on spending it, for PMs, the 80/20 restriction seems more akin to a bandage for a gushing wound. Now, PMs have to spend a proportionately higher amount of their budget in less time—ten months—which does not account for delays or other contracting issues that may pop up along the way. With the knowledge that the PMs are incentivized to spend as much money as possible, the fact that some of the highest spending months for the DoD are July—the 80/20 cutoff month—and September—the end of the fiscal year—is an obvious conclusion to the 80/20 legislation.

IV. Two Solutions to Reduce Budgetary Waste and End Christmas in September

With the 80/20 rule likely to reappear for the 2025 DoD fiscal year, and little accountability for DoD spending habits since the Pentagon is still unable to pass an audit, government contractors will continue to mark Christmas in September on their calendars. While forcing a full audit to account for total DoD assets would help Congress realize the full scale of DoD waste over the years, Congress and the DoD can implement several substantial changes that could help mitigate DoD yearly waste. First, Congress and the DoD should encourage a financial system with fewer restrictions on reallocating funds to put less stress on PMs to spend every dollar. Second, Congress should remove the 80/20 rule and replace it with a solid rollover program, such as that used by the Department of Health and Human Services, which would incentivize some frugality among PMs.

A. Congress Can Advance Legislation to Increase Caps in Reprogramming/Transfer Authority for PMs

Congress should rework the caps that prevent PMs from reprogramming or transferring funds in the yearly DoD Appropriations Act. Reducing the restrictions on reprogramming and transfer authority for PMs so that they can more effectively reallocate money is not a new idea. For instance, Frederico Bartels, former Senior Policy Analyst at the Heritage Foundation, advocated in a report on DoD fiscal waste for Congress to legislate a way to expedite the approval process of reprogramming and transfer of funds. However, his proposed solution did not address the issue that the caps themselves limit the ability of the DoD to move funds. Transfers and reprogramming of funds are still limited to statutory caps and other factors limiting the reallocation of excess funds that could be better spent. If Congress implements into the yearly appropriations act a scheme for reprogramming or transferring funds outside of or in addition to the annual caps, Congress can encourage money to be sufficiently spent with less pressure to spend it on potentially low-value purchases. As it currently stands, PMs can only transfer and reprogram funds to “‘a higher priority item’ based on unforeseen military requirements.”

Congress has previously been wary of permitting DoD budgetary reallocations due to concerns from Representatives that empowering the DoD to reallocate funds violated the constitutional separation of powers, given that the DoD is an executive agency and Congress controls the budget. These concerns led to lowering the total “dollar threshold for reprogramming funds . . . for procurement and . . . for operation and maintenance,” which seems to hinder PM transfer authority even more, given that O&M traditionally had higher levels of de-obligated and unobligated funds at the end of the fiscal year.

Instead of limiting transfer and reprogramming authority to restrictive caps for “higher priority items,” the DoD and Congress should encourage PMs to reallocate money for other defense purposes when they cannot spend unobligated funds. For instance, Congress could increase reallocation caps in the yearly DoD Appropriations Act, and outline tier lists for a preferred order of where to reallocate funds. This could be done by including a section in the DoD Appropriations Act that states that when reprogramming funds, certain areas must be prioritized first, unless additional funds are not needed in this area or for which expenditures have already been legislatively denied. That way, PMs have discretion on how to reallocate money while still having some restrictions to curb wasteful spending.

Additionally, the DoD could establish quarterly spending goals through an internal directive. The DoD could then identify, through their Inspector General, PMs within a specific DoD allocation provision with a sizable budgetary surplus, so that the DoD can encourage reallocation. O&M, for example, traditionally has budgetary surpluses. At the same time, military housing is in a dire state nationally, and troop morale is plummeting as a result. The DoD could use such reports to determine whether the previously mentioned tiers are adequately funded and advise PMs on where money could be better spent.

To incentivize budgetary reallocation for PMs, the executive branch and Congress should identify funds PMs reallocated to other issue areas of the DoD as spent under the originating program. This way, the PM’s budget justification will show that they did indeed spend every dollar without undue pressure to spend unnecessarily. These reports would be factored into the next fiscal year’s budget, and PMs would be encouraged to share allocations because it would be a better internal method of reallocating funds other than low-value expenses.

B. Congress Should Eliminate the 80/20 Rule and Adopt a Policy for the DoD Similar to One at the Department for Health and Human Services

Congress should introduce a new yearly carryover program, with features like a program used by the Department of Health and Human Services, for the DoD’s appropriated funds to reduce PMs’ urgency to spend every dollar. The 80/20 rule has proven ineffective for the purpose of preventing a year-end spending surge by the DoD, and, more than just “relaxed,” it should be removed outright. The 80/20 rule “exacerbate[s] the negative effects of periodicity-based budgeting” and lacks any real force since the DoD already has internal spending deadlines that match quarterly report deadlines.

Instead, Congress should permit some level of rollover to incentivize PMs to spend a majority of their budget without a dire urgency to waste every dollar. The 809 Panel Report recommended a solution of “allowing the obligation of up to 5 percent of O&M funding for 1 year beyond what would normally be the end of its availability” to lessen the spending urgency. Mr. Bartels similarly advocated for a five percent carryover authority, implemented through congressionally mandated pilot programs. These suggestions are a good starting point, but they leave open the issue that permitting a carrying-over of budget would create the same problem again for the following year: a now larger budget that the agency has to spend to show that it used every dollar. An improved solution, which this paper supports, would be to incorporate a future budget reduction with any carryover as done by the Department of Health and Human Services.

The Department of Health and Human Services HIV/AIDS Bureau, specifically under the Ryan White Program (DHHS HIV Program), uses a comprehensive system for rolling-over any unobligated funds in the program’s budget, which the DoD could learn from. The DHHS HIV Program takes their PMs’ unspent one-year appropriations at the end of the fiscal year, unless a waiver is submitted by a PM through a superior, explaining why they should keep some of the unobligated budget in addition to a new budget. Only five percent of the unobligated budget may be carried forward to the new fiscal year, and it must be spent one year from the original budgetary expiration date. The PMs of this program will have a reduction in budget for the new fiscal year “by the same amount as such unobligated balance,” but this reduction will not be taken into account when determining the new total budget of an organization for the next fiscal year. On top of that, the DHHS HIV Program PMs must use their budget on issues that further the program it was allotted for and cannot spend more than ten percent of their budget on administrative costs.

If the DoD implemented some of the Department of Health and Human Services’ HIV/AIDS Bureau fiscal spending rules, like the five percent carryover and how it factors into the following fiscal year’s budget considerations and administrative cost caps, such changes could curb a portion of the spending incentives for PMs. First, by implementing a five percent carryover, there would be less of a need to spend every dollar by DoD PMs. At the end of the fiscal year, DoD PMs often end up with de-obligated funds, which they may want to carry over. If Congress enacted a streamlined process like having PMs request a waiver to the USD(A&S) to keep up to five percent of excess these de-obligated or unobligated funds, PMs would not feel the same pressure to spend all dollars. This would be especially true if the DoD and Congress did not factor in budgetary allocations for programs based on any permitted carryovers, like the DHHS HIV Program. While there could be concerns that this delays fiscal waste to the end of the next year, the idea of subtracting the carryover from the current year’s budget encourages limiting any carryovers to those expenditures that are absolutely necessary. Additionally, implementing the administrative spending caps utilized by the DHHS HIV Program may curb potential luxurious or other wasteful spending to encourage efficient use of funds and carryover.

To incentivize the program, at least in the early years of implementation, Congress could even reduce the next year’s budget by only fifty percent of what was carried over from the year before, instead of reducing the entire budget. This way, contractors could leave the year prior based on a fiscal surplus as long they do not spend on solely low-value projects, and Congress can pilot the program.

V. Conclusion

Despite all the scrutiny on the DoD’s spending habits, Congress must still implement changes to effectuate any meaningful change to curtail wasteful spending. At the time of this Note’s publication, the most recent Audit the Pentagon Act bill has been in review by the House Committee on Armed Services since April 27, 2023. With renewed vigor from Congress to audit the DoD, the government should see that change is needed to fix how the DoD spends its yearly allocations. Unfortunately, several armed conflicts as of 2025, including the ongoing war in Ukraine, could pull national attention away from DoD waste. This would permit U.S. military morale to continue to plummet behind the scenes as troop quality of life remains subpar. However, should Congress successfully force an audit and uncover the extent for which DoD fiscal change is needed, then ideally, Congress can implement change so that tax dollars do not get spent on nearly as many low-value purchases. The proposed policy changes would benefit troops and help the government put tax dollars to good use.

Congress needs to review the DoD budget allocation procedures and make revisions to end “Christmas in September” spending and reprioritize the funding to bolster national security. Congress and the DoD can help mitigate these problems by first readjusting the DoD Appropriations Act to cut the recurring 80/20 rule. Congress can also revise the laws on transfer and reprogramming authority to remove the harsh measures discouraging PMs from transferring unobligated expenses. Then, the DoD can implement more effective systems for fiscal year carryover like the HIV/AIDS Bureau of the Department of Health and Human Services. With the proposed changes mentioned throughout this Note, the DoD and Congress can, it is hoped, mitigate fiscal waste.