That's the generous interpretation. There's also the case when project managers deliberately low-ball their project estimates to take advantage of the phenomenon. I'd put that in the trust problem category.
The same dynamic can occur with hedge funds, where the incentive is to increase variance (because high volatility pays the fund managers a lot more on average) or increase risk (example swing for the fences if underwater).
It is a trust problem because organizations generally aren't worried about losing money they don't spend that year or the next. They're worried about never getting it back. When you use a ratchet approach to budgets it doesn't allow organizations to respond to responsibilities which may be cyclical in nature. This leads to permanent worst case thinking which leads to hording.
edit: on the other hand: If I'm going to quit the job next year and I don't like my successor I'm definitely going to cut corners and budget.
We already know the answer to this, on average at least the system will be gamed to put money in their pockets, to overall detriment of service.
