The FY2008 Federal Budget – Where we Stand

Not to belabor the obvious, but money flow in the GovCon industry is seasonal.

As agencies approach the new fiscal year, they often “dump” funds left over from the current fiscal year to keep from losing them. In fact, most years both contractors and procurement activities like the General Services Administration work overtime to accommodate the last minute spending.

Not this year.

The traditional fourth quarter feeding frenzy just didn’t happen.

The Federal Times reported in a recent article that purchasing by non-Defense agencies was down 25 percent – about $5.6 billion – in the fourth quarter compared to the same period last year.

Experts like Larry Allen, president of the Coalition for Government Procurement, John Slye, federal analyst for INPUT and Ray Bjorklund, senior vice president at FedSources say it’s because all agencies except Defense and Homeland Security have been operating under a continuing resolution for the entire year. Even at Homeland Security, which had an approved appropriations bill, spending is down almost 18 percent from the same quarter last year.

In non-Defense agencies, overall spending for the entire year is down $15.8 billion from almost $112 billion in fiscal ’06 to just over $96 billion for fiscal ’07. While Defense spending is strong for Q4, much of it is going directly to logistics support for Iraq and Afghanistan. The Defense Logistics Agency, for example, is projecting it will spend about $5.4 billion this quarter. That’s up $600 million, or about 13%, from the same quarter last year. But, about 35% of the total expenditures for the quarter are bound for overseas battlefields

And, FY 2008 just isn’t looking much better.

Funding for new programs, new contracts, option exercises and new task orders typically becomes available in October with the start of the new fiscal year. Just like fourth quarter “dumping,” new money in the system in the first quarter also causes a flurry of activity.

Not this year.

Last year, the first quarter flurry never really developed because of the inability of Congress and the Administration to agree on budgets. When late budgets became no budgets for most agencies, the procurement year just sort of limped along. This year was supposed to be different. But, here we are again.

While the House has passed all twelve of the spending bills required to fund the Government, as of this morning the Senate had passed only four. Of those, none have been referred to a conference committee for resolution of the differences between the House and Senate versions. Of course, nine of the twelve are under threat of a presidential veto anyway.

On September 30th, Congress passed and the President signed another continuing resolution to keep things running through November 15th.

A continuing resolution to keep the Government running has been required in 22 of the last 25 years, but Fiscal 2007 represents the first time some agencies have operated for the entire year without an approved budget.

Today’s Trivia Tidbit – The Government Fiscal Year hasn’t always ended on September 30th. Until 1976, the Government fiscal year ran from July 1st to June 30th. At the beginning of Fiscal 1977, the fiscal year was changed by act of Congress (literally) to begin on October 1st. The resulting 90 day “year” from July 1st, 1976 to September 30th, 1976 was designated “197T” (for Transition). The change was made to allow more time for Congress and the President to complete the budget deliberation process.

It doesn’t seem to be working.