Dave Naffziger's Blog

I’m out in DC this weekend, so this post touches on another government-related topic.

The government’s budgeting system creates completely perverse incentives. Budgeting is done annually in a trickle down (up) fashion. Congress decides that the Air Force gets ~$100B. This pot then gets divided up by the Air Force to component commands, that then allocate to wings, which allocate to groups, then squadrons, then flights. Upwards requests for funds are also made and aggregated and these requests travel up the tree.

The brain-dead, low risk way to allocate funds down the tree is to take last year’s budget and add a little bit. No one likes to have their budget cut, and no one likes to see budget requests skyrocket. So, the scenario below is played out over and over:

Tim runs the Services Squadron. He’s shrewdly managed his budget by making several great decisions. He ended a major contract with an expensive food supplier, and replaced it with a supplier that could provide lean, just-in-time delivery. He introduced pre-made sandwiches at lunch. This reduced the labor costs at the made-to-order sandwich station and increased the capacity of the lunch room. Two months before the end of the year, Tim was on track to be 10% below budget.

Major Spender runs the Communication Squadron. He’s made a number bad decisions. He brought in contractors to build an expensive content firewall to block all webmail, sports, games, social networks, etc. Instantly people began to complain. The firewall was blocking access to weather information, wikipedia and to news sites (that had sports scores). Rather than admit a mistake, Major Spender created a ‘site inclusion’ process. People that wanted access to a website, would fill out a form justifying their need for access to the site. The flood of requests overwhelmed his small staff and degraded service, but he was still on target to spend all his budget.

The General that runs the base learns his base is 5% under budget. He knows that the budgeting process for next year starts with this year’s spend, so he has to spend the rest of this year’s budget. He calls Major Spender into his office and asks him how his budget looks. Major Spender tells him that he needs a second firewall and he needs contractors to manage all the firewall inclusion requests. The General gives the Major authority to spend an additional $500K as long as he can spend it by the end of the year (which he promptly does).

A month later, the General is planning next year’s budget. Tim presents a budget 20% higher than last year’s. He’d like to upgrade his purchasing software so that he can track the spoilage rates of his perishable foods, plan for soldier surges and predictably purchase supplies. Although this will be an expensive purchase he expects it will save the wing money in subsequent years.

Major Spender presents a budget that is identical to the amount he spent last year (which was higher than his budget). He justifies it by claiming that was the fixed cost to run the base’s communications.

The General approves Major Spenders budget, but not Tim’s. Tim’s budget would require the general to ask for more money than he spent last year, and the General knows that is frowned upon. Tim has his budget reduced to what he spent last year (which is actually a lower budget than he had last year).

Major Spender uses the new budget to upgrade the computers of all of the senior officers on the base. The senior officers are happy and the Major’s name gets mentioned favorably in office circles. When the promotion cycle comes around in 6 months, Major Spender gets promoted because he ‘gets things done’. Tim isn’t promoted and grows increasingly frustrated.

This cycle happens over and over again at every level. Budgets get spent because they will be lost if they aren’t spent. Officers that spend their budget and then quickly spend ‘overage’ dollars get promoted. Eventually the efficient managers are driven out of the system and the inefficient managers get larger and larger budgets.

This continues unabated until one thing happens: Budgets get reduced. The capabilities that have been bred out of the system suddenly become critical.

This is unfolding within the organization I support in the Intelligence Community. A brilliant senior manager is using slight budget constraints to literally squeeze fat out of the system. Government employees are howling. Contractors are howling. Everyone is howling. But, slowly change is happening. Inefficient projects are dropped. Proposals are reconsidered. Systems are shut down. I literally saw a $50,000 contractor proposal to convert XML search results to an RSS feed. Nonsense like this is being tossed where it belongs.