A Unique Cloud and IT Funding Mechanism at Health and Human Services

Over the years, Federal agencies have used a variety of ways to fund investments in IT and cloud computing. They have spent Operations and Maintenance Funds, funds for Development, Modernization, and Enhancement, and Working Capital Funds. Using the latter even proved controversial for many years, as Congress warily eyed how agencies deployed that money. The General Services Administration only recently allowed its contracting officers to pay for Software-as-a-Service capabilities upfront.

It turns out, however, that the Department of Health and Human Services (HHS) has been using yet another method of investing in cloud (and in IT in general) – its so-called Non-Recurring Expenses Fund or NEF. Tucked away on page 361 of the HHS’ fiscal year 2025 general departmental management budget request is this:

“The Nonrecurring Expenses Fund (NEF) permits HHS to transfer unobligated balances of expired discretionary funds from FY 2008 and subsequent years into the NEF account. In FY 2008, Congress authorized use of the NEF funds for capital acquisitions necessary for the operation of the Department, specifically information technology (IT) and facilities infrastructure acquisitions. HHS was first able to collect expired funds in FY 2013. Since then, HHS has allocated approximately $6.5 billion for capital projects, including approximately $3.2 billion for physical infrastructure projects and approximately $3.3 billion for IT infrastructure projects. HHS has a wide range of aging IT systems and facilities, and the NEF is an asset to help address these needs across the landholding agencies and to develop, enhance, and maintain IT systems across the Department.”

NEF funds appear to ebb and flow depending on what HHS needs. The NEF for FY 2024, for example, totaled $750M, but of that total $650M were rescinded. And for FY 2025, HHS “proposes to cancel $500 million from the NEF … [but] use $965 million of remaining NEF balances, to fund multiple high-priority projects that address critical facility and technology needs across the Department.”

These priorities include a couple of cloud-related programs:

• Agency for Healthcare Research and Quality (AHRQ) - $15.4M for three IT projects to transform their quality indicator software to a cloud computing-based platform, modernize the Medical Expenditure Panel Survey system by moving to a multi-mode platform to customize respondent experience and data collection, and lastly to implement Zero-Trust upgrades to existing information systems.
• Office of Inspector General (OIG) - $23.5M for new software capabilities on secure cloud platforms, a Zero Trust Architecture, and an efficient and cost-effective enterprise physical security solution across all OIG offices nationwide.

Additional IT programs at other HHS components are funded as well, but the descriptions of these efforts do not mention cloud computing, so I’ve left them out. The interesting thing about the NEF is that it does not appear to be reported as part of the department’s formal IT budget. The Government Accountability Office looked into this practice in FY 2021. It found that the Department of Agriculture also transfers some unobligated funding, as does the Department of Defense. For those interested, USASpending also tracks NEF money.

Concerning the HHS specifically, the GAO found that “The [Non-Recurring Expense] fund is available for capital asset acquisitions for HHS and its components, but HHS cannot use it for operating expenses.”

I’ll look into this a bit more. At first blush, though, it appears that there might be more funding available for IT infrastructure at HHS – and potentially at the USDA –  than meets the eye.