Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Governments Waste Billions on Unused Software Licenses
Transcript
- Lucas: So here's a number that stopped me cold. The Government Accountability Office — the GAO — released an audit last year looking at federal software license spending across a handful of major agencies. And they found that in a single fiscal year, those agencies spent over three point two billion dollars on software licenses that nobody ever used. Luna: Three point two billion. Just on licenses that were literally never opened? Lucas: Never opened. Not installed, not accessed, not activated. The GAO looked at the Departments of Defense, Health and Human Services, Treasury, Agriculture — the usual suspects — and what they found was basically a pattern of buying in bulk without any tracking. Luna: And this is just federal. State and local governments have to be doing the same thing, probably worse. Lucas: Exactly. The federal number is the one that's been audited, but if you scale it to all levels of government, you're probably looking at double-digit billions wasted every year on software nobody uses. And the thing is, this is not a new problem. The GAO has been flagging this since at least the early 2000s. Luna: Right. And every time they flag it, agencies promise to do better. But the money keeps flowing. Lucas: That's the puzzle. Let's look at why it happens. One big reason is that software procurement in government is incredibly fragmented. A single agency might have dozens of separate offices, each buying their own licenses independently. There's no central inventory. Luna: So one office buys a hundred copies of something like Adobe Acrobat, and another office across the hall buys a hundred more, even though they only need fifty between them. Lucas: Exactly. And because nobody tracks usage, they just renew every year. The GAO found one agency that had been paying for licenses for a piece of software that had been discontinued by the vendor for three years. They were still cutting checks. Luna: That's incredible. Who's signing off on those checks? Lucas: That's the thing — nobody with visibility. The person approving the payment sees a line item that says 'software maintenance renewal' and it's a couple hundred thousand dollars, so it doesn't trigger any alarm. It's not fraud. It's just bureaucratic inertia at scale. Luna: And it's not just about old software. A lot of this is subscriptions to cloud services that auto-renew. The government is paying for SaaS products that employees signed up for with a credit card once and then forgot about. Lucas: Right. The GAO audit specifically called out a problem with 'shadow IT' — employees signing up for tools like Trello or Slack or Zoom without going through official procurement. Then those subscriptions just keep billing the agency's credit card forever. Luna: So what's the fix? I mean, in the private sector, companies use software asset management tools to track this stuff. Lucas: They do. And some governments have started to adopt them. But the issue is cultural. In the private sector, there's a profit incentive to cut waste. In government, there's no equivalent of a bottom line. If you save three million dollars on software, that money just goes back to the Treasury. The agency doesn't get to keep it. Luna: So there's no incentive to save. That's a classic public-choice problem. Lucas: Exactly. The people who could fix it — IT directors, procurement officers — have no personal upside to doing so. And they have a potential downside: if they cancel a license and someone later needs it, they get blamed. So the rational choice is to keep buying. Luna: That's a really perverse incentive. So how do you break that cycle? Lucas: One approach is to change the incentive structure. Some states have started experimenting with 'shared savings' models — if an agency cuts its software spending, it gets to keep a portion of the savings for other priorities. California tried this a few years ago with some initial success. Luna: I remember that. They had a pilot program where IT departments could reinvest half of what they saved into new projects. It actually led to some real cost reductions. Lucas: Another approach is centralization. The federal government has something called the Technology Transformation Services, which tries to consolidate software buying across agencies. But it's voluntary, and most agencies opt out. Luna: And we should mention that this isn't just about software. It's a symptom of a larger problem — government procurement generally rewards spending, not saving. Lucas: That's a great point. The whole 'use it or lose it' culture at the end of the fiscal year drives all kinds of wasteful spending. But software is a particularly clear example because it's so measurable. You can literally track whether a license was ever activated. Luna: And yet, for decades, nobody did. I think part of it is that software is intangible. If a government buys a thousand desks that nobody sits at, that's visible. But a thousand unused software licenses? They're invisible. Lucas: Right. And the scale is huge. The GAO estimated that just at the federal level, if agencies cut unused licenses by half, they'd save over one point six billion dollars a year. That's not nothing. Luna: So why hasn't there been more political pressure? I mean, that's real money. Lucas: I think part of it is that it sounds like a technical issue. 'Software license management' doesn't excite voters. But if you frame it as 'billions of your tax dollars paying for things nobody uses,' that should get attention. There was a hearing on this in the Senate last year, but it didn't really go anywhere. Luna: And you know, this is the kind of thing that if we actually fixed it, it would be a rare win-win. No services cut, no jobs lost, just smarter purchasing. Lucas: Yeah. And it's not like we need new technology to solve it. There are off-the-shelf software asset management tools that any Fortune 500 company uses. The question is just whether the political will exists to force agencies to use them. Luna: Honestly, if walking through the economy with us has made something click, or if you just appreciate hearing about where your tax dollars go in this level of detail, we do have a small ask. It's a low-key thing, but listener support is genuinely what keeps this show ad-free and independent. Lucas: Yeah, and fair warning: it's not a grand pledge drive. It's just a coffee. If today's episode was worth the price of a cup to you, that link is buy me a coffee dot com slash fexingo. That's it — no pressure, no follow-up emails. Luna: Exactly. And honestly, even just knowing people find value in this kind of deep-dive is rewarding. But if you do want to chip in, it helps us keep digging into these overlooked corners of public finance. Lucas: So back to the software problem. There's actually a recent development that might change things. In January of this year, the White House issued an executive order on software procurement reform. It mandates that all federal agencies adopt a centralized software asset management platform by the end of 2027. Luna: That's a big deal. Is it enforceable? Lucas: It has teeth. The order requires the Office of Management and Budget to withhold a portion of IT funding from agencies that don't comply. That's the kind of leverage that actually gets attention. Luna: So we might finally see some real change. But I'm skeptical — we've seen these orders before. Lucas: Fair. But this one has a deadline and a penalty. And there's precedent: the 2014 Federal Information Technology Acquisition Reform Act, or FITARA, gave the OMB similar powers over data center consolidation, and that actually reduced the number of federal data centers from over three thousand to about eight hundred. Luna: So there is a track record. It just takes political will and a mechanism to enforce it. Lucas: Exactly. The software license problem is a perfect test case for whether the government can actually manage its own spending in an area that's invisible but costly. If they can't fix this, what hope is there for the harder stuff? Luna: And on that note, maybe we'll follow up in a year and see if the executive order actually moved the needle. Lucas: I'd like that. For now, just know that three point two billion dollars — that's the floor. The real number is almost certainly higher.