Archive
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Document Name: Chapter 4 -- Getting Our Money's Worth
Date: 09/07/95
Owner: National Performance Review
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Who says the government isn't innovative? Now it's making money out of thin air! Big money. Billions. In the early days of radio, the airwaves--the portions of the electromagnetic spectrum that carry broadcast signals--were in chaos, with broadcasters jamming each other's signals in a sort of huge electronic shoving match. To bring some order out of this chaos, the Federal Communications Commission was created to parcel out frequencies. Talk about giveaways: last year alone, the industries that have gained licenses to use the airwaves had $100 billion in sales.1
In the case of radio and television stations, the FCC gave licenses away based on its judgment about the applicant's proposed programming. But when cellular phones came along, the system broke down. Because there was no programming to evaluate, licenses went to all sorts of people--many of whom simply sat on them awhile, then sold them at huge profits. To reduce this crush of "air prospectors," the FCC switched to a lottery, but that solved almost nothing. Meanwhile the whole process had become incredibly complicated, and the main beneficiaries were the industry's lawyers and lobbyists.
Finally, when it came time to distribute airspace for advanced paging systems and super-light portable phones, the FCC came up with a sweepingly simple solution that perfectly embodies the spirit of reinvention: it decided to auction the airways.
The results blew away even the optimists. In 1994 alone, the first year of the auction program, industries paid $8.9 billion for broadcast licenses. The money went straight to the Treasury to reduce the deficit. In this case, at least, the people were getting a fair return on their assets, and the companies were paying a fair price.
Let's say one of the wage-earners in your family is laid off and your household income is sharply reduced. You have some savings, but they won't last long--partly because you've been living beyond your means and have built up some pretty hefty credit card debts. You get some unemployment compensation, but that won't last long, or go very far, either. Do you turn to one of your two small children and say, "Sorry, we can't afford you just now; find someplace else to live"? Hardly. Do you tear down part of your house so it won't cost as much to run? Not likely. Do you cut your family back from three meals to two? Not if you want to stay healthy, you don't. But you also don't keep right on living the way you did before.
What you do is sit down with the family, look at where the money goes, and try to live more frugally, more sensibly. You eat simpler meals, not fewer. You cut non-essential activities--like first-run movies--completely. Maybe you sell a second car, and one of you takes the bus. You might even spend some money to save more--say, to put plastic over your windows and cut down on heating bills. And then you have a long talk about how you got into this fix in the first place and how to make sure you never get into it again.
That's what ordinary folks do when things get tight. And that's what we expect our government to do as well. In short, to manage our money and our assets wisely.
You'd think it was just common sense--but it's been uncommon in the federal government for a long time. And it really galls us when we hear about the government wasting our money. The bipartisan Hart/Teeter poll asked Americans to name our top two complaints about the federal government. Sixty-one percent of us said that the government wastes money because it is not well managed. Fifty-six percent also said that the government spends too much on the wrong things.2
We understand that the government isn't a business, that it has to do a lot of things businesses don't have to do. But that doesn't mean it can't operate in a businesslike manner--efficiently, effectively, with a minimum of waste.
Since reinvention began in 1993, the federal government's been listening to what people say they want--and acting on it. Here's what people have said they want.
Stop Doing Unnecessary Things
Shortly after the turn of the century, there was an outbreak of typhoid fever at the U.S. Naval Academy in Annapolis, Maryland. It was traced to a commercial milk supplier in the area. Given the strategic importance of the Academy, Congress moved swiftly, mandating the creation of a Naval Academy Dairy to provide safe milk to midshipmen. Today, although the Centers for Disease Control and Prevention in Atlanta say there hasn't been a single case of milk-related typhoid anywhere in the United States in more than 30 years, the dairy's still there. All 856 government-owned acres of it. What's more, because the dairy's facilities are obsolete and inefficient, the Navy pays 30 cents more for every gallon of milk it buys from the dairy than it would if it shopped at the local supermarket. And it pays retail, not wholesale. In fairness, it's not like the Navy hasn't tried to unload the dairy from time to time; it has. But Congress won't do it. Holy cow.
Obsolete government programs and duplication drive Americans crazy. That's not the Navy's money that's being wasted, it's ours. What's more, we know this isn't an isolated incident. We have 200 years' worth of government programs that have built up like sediment in a river. In places, the sediment is so thick the ship of state can't get through. And yet it's seemed almost impossible over the years to dredge a channel through this muck. Congress is quick to add programs, but powerful special interests ensure that it's slow to kill them. Federal budget expert Allen Schick has said he could identify only three major nondefense programs that had been eliminated between 1980 and 1993--an era in which the administrations in power pledged to cut government.3
That era is over. Since the Clinton Administration's "reinventing government" initiative began, 400 programs have been proposed in the President's Budget for elimination--obsolete, duplicative, or just plain silly programs that waste our money.
The National Aeronautics and Space Administration has been more successful at streamlining than the Naval Academy Dairy. In 1963, President Kennedy had a simple, sweeping vision: to put an American on the moon and, in the process, make the United States the world leader in space exploration and technology. The American public thrilled to the idea, and the NASA budget continued to rise by several orders of magnitude as a result. On July 20, 1969, President Kennedy's vision became a reality: Apollo's Eagle landed on the moon.
While NASA's budget declined through the 70s and early 80s, NASA committed to several large programs toward the end of the decade, including the development of the international Space Station, several large space science programs, and the initiation of Mission to Planet Earth. For the most part, these programs followed the Apollo model, requiring large budgets and centralized management systems. With American's concern over deficits, though, NASA was out of sync with the times.
That was before Dan Goldin took over and started reinventing. Faster, better, cheaper, without compromising safety, became the new way to do business. The new NASA team worked with agency employees, field centers, and customers to find ways to streamline operations, reduce duplication and overlap, and cut costs without compromising either safety or the agency's goal of being the world leader in aerospace research and development. This past March, the results were announced. Functions duplicated across the country will be consolidated at Centers of Excellence, and programs that once belonged to the government will be privatized, commercialized, or transferred to institutes operated by universities, industry, or other team arrangements. Much work that still needs to be done by the agency will be done by contractors and not micromanaged. Says Goldin, "If we don't have to do it, we won't.ÉIf we have to do it, we'll change the way we work."
By not doing unnecessary things, the new NASA is a whole lot smaller than the old one, and a whole lot cheaper. The agency's budget has been cut by 30 percent. During the next five years, NASA will take a total of $8.7 billion out of its budget. There will be 4,000 fewer civilian personnel. Already, the average cost of launching a space shuttle has been cut by two-thirds and the time involved has been cut in half.4 Likewise, the costs of spacecraft for NASA's space science and Mission to Planet Earth programs have been reduced by two-thirds, the development time has been cut in half, and missions are launched four times as often.
Buy Smart
When the Clinton Administration took over, the federal government was spending about $200 billion each year to buy stuff--from staples to satellites, from jeeps to jockey shorts.5 It wasn't exactly a smart shopper. For years it tended to buy more than it needed and spend more than it should. For the most part, this wasn't because it was being ripped off by unscrupulous suppliers (though there have been a few notorious contracting scams). Most of the damage has been self-inflicted.
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Goodbye, David Letterman President Clinton, at the signing of the Federal Acquisition Streamlining Act of 1994: I kind of hate to sign this bill today. What will Jay Leno do? There will be no more $500 hammers, no more $600 toilet seats, no more $10 ashtrays. Al Gore will never get on David Letterman again. It's sort of a sad day the passing of government purchasing as the butt of all the jokes on the evening TV shows. |
The government tended to spend too much because it had almost everything it bought "custom-made" to government or military specifications. For example, instead of buying Chips Ahoy cookies at wholesale--say, for the Army--it created 700 pages of procurement specifications defining for contract bakers how to make a chocolate chip cookie. The specifications, as many soldiers no doubt would tell you, don't require the cookies to taste good.
Another example: Motorola's reputation for quality is so good that its "Motorola University" now trains employees of companies from all over the world. Its products routinely outsell Japanese products--even in Japan. You'd think anything Motorola produced would be good enough for the federal government, right? Think again. For years, the government issued its own standards. In fact, every agency issued its own standards, often for the same products. So if you were Motorola or anyone else, you not only had to produce at world-class standards to sell your products around the world, you also had to meet different standards--often several different standards--to sell to your own government. Of course, if you were willing to put up with this sort of nonsense in order to make a sale, you had to charge more for the product because it was custom-made for that agency. So not only was the government getting a product that was no better than the international standard (and often worse), but it was paying extra.
Finally, some bright folks at the Defense Department and NASA, with the impetus of the reinvention initiative, took it upon themselves to persuade agencies to accept official international quality standards. It will be worth billions to taxpayers. Just one company, Raytheon, estimates that this move will save the government $30 million to $40 million annually on a single contract.6
Hold Government Accountable
In 1991, the General Accounting Office surveyed the 103 agencies that spent three-quarters of the $1.3 trillion in federal outlays that year. Only nine could claim they were accounting for their performance in ways that legitimately measured performance.7
Like the stockholders of any business, Americans expect the government's management to provide an accounting of its performance each year. And while the language of business--market share, sales levels, earnings growth, and share prices--isn't the language of government, government agencies nonetheless need mechanisms for providing that accounting.
Of course, to measure performance, organizations first need to know what they're trying to accomplish. FedEx's executive team meets every morning to review the company's performance on achieving on-time delivery. The managers collect the right data, assess it, and act on it--always with that goal in mind. In contrast, government agencies for years would have been hard-pressed to tell you what their performance goals were, never mind how well they were doing at meeting them.
Now that's changing. As part of reinventing government, this is exactly what they're doing. So far, the heads of eight major agencies have signed performance agreements with President Clinton that identify the agency's performance objectives in measurable terms and document a commitment to meet the objectives and reward employees accordingly. Perhaps not surprisingly, it turns out that the agencies with the clearest and best-communicated performance goals and most specific accountability systems have the best records in reinvention. Moreover, these agreements are no secret; they're available for public view on the Internet.8
Two years ago, President Clinton promised American taxpayers a government that gives us more value for our money--with fewer workers, fewer layers of management, fewer programs, and more businesslike management. Not only has the promise been kept, but progress is ahead of schedule.
The task of cutting the cost of government and managing it better involves four activities that are underway simultaneously: downsizing (reducing the size and number of agencies, their programs, and staff); streamlining (simplifying the procedures involved); restructuring (reforming agencies structurally to better serve their missions); and privatizing (spinning off functions to the private sector that are better accomplished there).
The cumulative effect of all four types of reform has been significant. President Clinton's reinvention initiative promised to reduce the size of the government by 12 percent in six years, dropping federal employment to levels that haven't been seen since the Kennedy Administration. In fact, in just two years the size of the government has been reduced 7.6 percent--that's nearly two-thirds of the way toward the goal in one-third of the time. So far, the federal workforce has slimmed down by more than 160,000 workers. In fact, civilian federal government jobs now make up a smaller share of all jobs than at any time since the eve of World War II.9
Perhaps more importantly, the whole point of reinventing the government is to make it work better by making it leaner, especially by reducing layers of supervisors who add relatively little value to the government enterprise and by eliminating or consolidating obsolete or duplicative programs. In just two years, supervisory personnel have been reduced by 30 percent. This means there is one supervisor for every ten federal workers, compared to one for every seven before reinvention began. The goal is one for every 15 by 1999.
The cost of government is dropping not just because people and programs are being reduced, but because things that do need to be done by government are being done better, with less overhead. In 1993, President Clinton promised savings of $108 billion in five years from the reinvention initiative. So far $58 billion have been saved; billions more are "in the pipeline" or awaiting congressional action.
There is still plenty of room for more streamlining, and the task of incorporating best management techniques throughout the federal government has just begun. Moreover, even with strong and persistent Presidential support, and the hard work of many federal employees, the resistance in other parts of our government to change--even necessary change--can be frustrating. Even ludicrous.
Take the tea-taster...please. In 1897, Congress passed the Import Tea Act, creating the Board of Tea Experts and an official federal tea-taster. You can picture the scene: New York harbor, the tall clipper ships at anchor, the rigging on their graceful wooden masts slapping in the breeze, the federal tea-taster prowling the docks on the lookout for poor-quality tea. We are, after all, a people who overthrew our previous government over a certain tea matter.
Now, fast-forward to 1995. We still have a federal tea-taster and a tea-tasting room in Brooklyn. Now, no one questions the extraordinary skill of the current tea-taster. The question is why the federal government is still spending $120,000 a year to support an activity that the tea industry is already supporting itself. And it's not like the tea-taster is America's foot soldier in the battle to fight back wave upon wave of shabby tea; only 1 percent of all the tea tested is rejected.
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Then and Now In 1968, there were 14.7 federal executive branch personnel per 1,000 Americans. In 1994, there were 11.2. |
The National Performance Review featured the Federal Tea Room in its first report two years ago. The Clinton Administration proposed eliminating it last year. Some Members of Congress argued forcefully to get rid of it. It's still there. The tea industry itself has recommended that the government charge fees to cover the cost of the service.10 Congress simply will not act on it. The tea-taster tastes on.
It's not a lot of money. It's the principle of the thing. If Congress is proposing to cut back benefits to the needy, or trim badly needed investments in education, training, and infrastructure, how can we continue to support a tea-taster? Or any other outdated or unnecessary program? The answer is, we can't.
Progress Report: Reducing, Eliminating, Spinning Off Programs
The reinvention initiative began by cutting away the most obviously obsolete programs and by trimming overhead throughout the government. These tasks continue. But there is another, more difficult task--one the reinventers will have to address repeatedly in the years to come. That task is asking the deceptively simple question: What business should the government be in?
Answering that question, a task that began this year, has already yielded significant organizational changes and taxpayer savings. Consider the Office of Personnel Management. OPM is, in effect, the federal government's personnel department. One of its top concerns, as you would expect, is making sure federal employees get proper training. It has done that in part by running its own 200-person Workforce Training Service. Then the people at OPM asked the crucial reinvention question: Is it our business to run a training school, or simply to ensure that employees are trained? Their answer was the latter. So, on July 1, 1995, OPM Director Jim King turned the entire operation over to the USDA Graduate School which--despite its official-sounding name, a leftover from early in this century--is a tuition-supported training school with no federal employees.
Now OPM is asking the same question about its Investigations Service--an 800-person operation that does background investigations for federal agencies. And it's arrived at the same answer: no, it doesn't need to run an investigation service. It just needs to have a way to get background checks done. This time, the solution is even more innovative: OPM is helping the employees of the Investigation Service form their own private company through an Employee Stock Ownership Plan, or ESOP. Target date for privatization? The first of the year. These and other reinvention activities at OPM will save the American taxpayers some $30 million in the next four years.11
Sometimes the result of applying the question "Should the government be doing this?" to a given program yields a simple answer: no. A century ago, when the U.S. Department of Agriculture had the job of increasing the productivity of America's farmers, it set up field offices throughout the young nation--a network designed so that no farmer was more than a day's horse-ride from a knowledgeable farm agent. Since then, the number of farmers has dropped to a minuscule percentage of the population, and very few of them still use horses to get around.
Two years ago, the National Performance Review and USDA promised to eliminate unnecessary field offices. This year and next, 1,200 offices representing the Farm Service Agency, the Natural Resources Conservation Service, and the Rural Economic and Community Development divisions of USDA will be eliminated or consolidated--the most sweeping field office downsizing of any federal agency, including Defense. And USDA didn't stop at field offices. Departmentwide, it has cut the number of separate agencies and offices from 43 to 29, while consolidating its administrative services.12 Times change; government must change with them.
The Department of Energy's cutbacks may be even more dramatic. Think back to 1973. America is importing most of its oil supplies, but suddenly the international oil cartel puts the squeeze on. Gas stations draw long lines, and oil prices skyrocket. The entire energy-dependent economy is in chaos. In a version of closing the barn door after the horse is gone, the federal government tosses every government program even remotely connected with energy--including nuclear bombs--into a big box, which it calls the Department of Energy. The energy crisis passes, but DOE continues to grow. The cold war ends, but DOE still handles a huge nuclear program. This led folks to start asking what DOE does, anyway. Most people don't know. Those that do--those who have heard about nuclear waste polluting the environment at the agency's Rocky Flats or Savannah River facilities--don't like what they hear. Then, President Clinton brings in Hazel O'Leary as DOE Secretary. She starts asking a lot of very simple questions, like why the agency has so many secrets, why it's still so big even though it's mission has changed, why it owns so many things it doesn't really need and--more importantly--can't afford. To get some answers, she creates a departmentwide reinvention effort: the Strategic Alignment Initiative.
The department is off to an impressive start. DOE is shutting down 12 field offices. By September 30, 1995, it will close its Office of General Counsel field office in Dallas and fossil energy offices in Wyoming and Louisiana. By March 1996, it will close a Houston field office and merge two more fossil energy facilities. Also, it will close more offices in San Francisco, Dallas, New York, and Kansas City, and combine the Denver and Golden, Colorado, offices. In addition, the number of headquarters sites will be reduced from 16 to four. The department will sell the Naval Petroleum Reserve, created to ensure oil for World War I battleships, and the Oil Shale Reserve. It will privatize four power marketing administrations and convert a fifth to a government corporation. It will turn over much of the environmental cleanup of contaminated sites to private firms that can do the work cheaper than DOE can, and it will cut the number of private contractors it uses by 17,000 by the end of fiscal year 1996. In all, it will cut nearly 3,800 positions--2,339 from headquarters and 1,449 from field offices--and save some $1.7 billion.13 In the next five years, DOE reinvention savings are projected to exceed $23 billion.14 This is, in short, wholesale reinvention.
The Department of Transportation faces almost the opposite problem. Since 1967, when the agency was created by cobbling together a half-dozen different organizations, demand for its services has increased steadily, but the resources to support it are increasingly limited. Meanwhile, no one has had much success simplifying the agency or eliminating overlap and duplication--in fact, the number of agencies in DOT grew.
Until this year, that is, when Secretary Federico Pea announced the reinvention of the department. First, its ten operating administrations will be consolidated into three--an Intermodal Transportation Administration that will handle all surface and maritime transportation, a revamped Federal Aviation Administration, and the Coast Guard. Second, the department will be downsized dramatically to reduce unnecessary overhead, and the FAA's air traffic control system, given congressional approval, will be turned into a government-owned corporation to permit it to function more like a business and be supported by the airlines it serves. Third, the department will be streamlined, reducing some 30 individual grant, loan, and subsidy programs to three and providing state and local governments more discretion over how funds will be used. The results: an estimated savings to taxpayers of some $17.9 billion and a major shift of resources out of administration and into the transportation system itself.
Finally, sometimes the result of asking the basic question "Should the government be doing this?" is: yes, but differently. After a detailed review of the performance of the Department of Housing and Urban Development--a review that included studying the operations of major corporations--its Secretary, Henry Cisneros concluded, "Many aspects of this department are simply indefensible." It wasn't that its mission--ensuring the availability of decent housing for the nation's poorest families--was indefensible, but that it was failing, consistently, to achieve that mission. Indeed, he concluded, it was perpetuating the problem instead of solving it: "We cannot allow landlords to keep people in slum conditions because the government provides them a check that enables them to do that."15
The result is a major reorientation of HUD's approach to achieving a mission which, if anything, is more urgent now than ever before. Three major legislative steps are proposed. First, HUD's 60 separate housing and urban community development programs will be consolidated to eight in 1995, and to only three performance-based programs by October 1, 1997. Second, as noted earlier, it will transform the public housing system by shifting federal dollars from funding housing authorities to providing housing vouchers to individuals who will be free to use them wherever they choose. Third, HUD will turn its Federal Housing Administration residential mortgage insurance operation into a government-owned corporation, giving it the ability to escape bureaucratic systems and personnel restrictions and "function in the marketplace as the modern, competitive insurance company that it is."16 These changes are not simply designed to make HUD "defensible" again, but to save millions for taxpayers--a projected $825 million, to be exact, by fiscal year 2000.17
The foreign affairs agencies are no exception to this kind of restructuring. They are streamlining their operations and closing posts--the Agency for International Development is closing 27 posts, and the State Department has already closed 17 posts and identified an additional 19 lower priority posts for closing. These agencies are also making more fundamental changes to reduce the cost of representing U.S. interests overseas. As just one example, the United States Information Agency has consolidated overseas broadcasting and eliminated low-priority programs; by 1997, it will have saved $400 million by doing so.
The agencies have also tackled the 20-year-old system that they use to divvy up the cost for basic services like computer lines and motor pools--a system so complex and arcane that no one likes it and everyone thinks it costs them too much. Now, the agencies involved are adopting an approach called Cooperative Administrative Support Units--which involves forming interagency collectives to provide administrative support and services--that has proved successful domestically, and testing it internationally, starting at four posts. At a minimum, the new system will be more flexible for participating agencies. It will also put in place incentives to reduce costs and encourage streamlining over the long term.
This same kind of reinvention-driven major restructuring is underway throughout the federal government--in the Interior Department's Bureau of Reclamation and National Park Service, the Departments of Labor and Education, the Small Business Administration, the Federal Emergency Management Agency, the Social Security Administration, and the Internal Revenue Service, among many others.
Progress Report: Using Best Management Practices
Where programs should not be spun off either to the private sector or to state or local government--that is, where the federal government is best equipped to address the problem--Americans have a right to expect those programs to use the most effective management techniques and the most efficient technologies, just as we would expect of any business in which we owned stock. Increasingly, that is exactly what we are getting: entrepreneurial agencies using state-of-the-art techniques to do the public's business.
For entrepreneurship, you'd be hard-pressed to beat the Tennessee Valley Authority's Inspection Services Organization. TVA needed people to inspect its nuclear facilities, but couldn't keep them busy full time. So it set up ISO as a private company inside TVA, but without any government appropriation. ISO stays alive by staying competitive; it works not just on TVA projects, but also for external customers, like Duke Power and Light in North Carolina and Rochester Gas and Electric in New York. Results? A customer satisfaction rating of more than 90 percent and revenues that exceed the cost of operations by 10 percent. Says Duke Power and Light's Fred Bulgin, "They get nothing but rave reviews from me for their enthusiasm and innovation."18
So does the Environmental Restoration Unit of the Army Corps of Engineers. This outfit of 120 engineers and project managers primarily does environmental cleanup work for other federal agencies. But it has to compete--with the agencies themselves and with the private sector--for the work. It can only make its payroll if it prices itself competitively and does work that keeps customers satisfied, and it can only do that if it manages itself like the best in the business. And it does.
A well-managed government also ensures that it collects what's owed it, in part to reduce the need for new revenue. The Department of Housing and Urban Development's Federal Housing Administration, for example, insures residential mortgages. When a borrower defaults on the loan, the borrower's bank transfers the loan to HUD and gets an insurance reimbursement. In this way, HUD accumulated a large number of bad loans. Then someone had a reinvention idea: why not sell the bad loans to private companies and investors and let them work out repayment with owner/borrowers, or foreclose? HUD's estimate of the value of these loans was about $310 million. The 177 loans in the sale brought in $710 million.
In another such example, the Department of Justice has just launched a central operation to provide a single, accurate source of information on the value of debts owed by, for example, students who default on college loans and businesspeople who default on business loans. Information that used to be collected and held by 93 separate U.S. Attorneys' offices now is available, instantly, in one place. Last year, even before the new system was in place, the department was able to collect $1.83 billion in overdue debts--double the previous year's total. The new system is projected to speed the collection of such debts in the future.
What has made the widespread restructuring of the federal government under the reinvention initiative possible is, in part, a deep-seated commitment to listening to customers and using private-sector principles of quality management. Focusing on providing the highest quality service leads almost automatically to sweeping away layers of supervision and following management techniques that emphasize results over process--a very different way of thinking and being for folks in the government, and a refreshing one.
In achieving best management practices--and, in the process, seeking efficiency improvements to save taxpayers' money--technology, especially information technology, is vital. It is both a driving force of reinvention and a means of getting there. The examples are innumerable.
There's IRS's Telefile tax return filing and TAXLINK, which enables employers to deposit federal payroll taxes electronically. And there's the Defense Logistics Agency, an $8 billion-a-year buyer of supplies for the military--and others--that now awards more than 50 percent of its purchasing contracts via electronic commerce and has set up five centers around the country to train businesses in how to use the system.
In fact, electronic commerce--paperless purchasing--is going governmentwide, with projected savings of $123 million every year. The way the government is going about buying computer workstations is just one example. NASA has created an electronic commerce system, called Scientific and Engineering Workstation Procurement (SEWP, pronounced "soup") that is a recipe for simplification. An $827 million multi-contract, multi-year program connects 26 federal agencies and eight computer systems sellers, making it possible for individual offices in those agencies to acquire the computing systems and support they need quickly, without a lot of complex forms, and cheaply, at better prices than would otherwise be available to them. Orders are transmitted over the Internet, and credit card payment was just introduced. Average order time has decreased from 115 days to five; two days is the current target. With a credit card, the process can take as little as five minutes. Savings to date are estimated at $140 million.19
But perhaps the most sweeping technological advances are in electronic funds transfer. Some agencies have already made great strides in direct deposit of benefit payments to customers' bank accounts. Social Security, for example, estimates that the money it saves by not having to prepare and mail paper checks will top $70 million in postage and handling alone. As for people without bank accounts, the federal government last year announced its intention to pay a wide variety of benefits through electronic benefits transfer (EBT), which uses personal debit cards rather than checks. The use of these electronic payment systems represents a major overhaul of the way government does business.
The biggest application of EBT so far is in the food stamp program. Ten states are already issuing food stamp benefits by way of a debit card that enables customers to access their benefits at the supermarket cash register, the same way many Americans already use ATM cards. Another 35 states are in various stages of planning to do the same. Customers will no longer need to handle coupons--and neither will retailers, banks, or USDA itself. In addition, the system will make it easier to crack down on program abuse. A report last year to the Vice President describing an implementation plan for nationwide EBT estimated annual savings of $195 million once a single card delivering both cash benefits and food assistance is fully implemented.
Progress Report: Measuring and Benchmarking the Best in Business
Well-managed businesses measure. They measure their own performance and they measure themselves against the best in their business, a process called "benchmarking." For years, as described elsewhere in this report, the federal government has measured the wrong things--typically inputs (time, personnel, and money, among others), rather than outcomes. Measurement matters not simply to answer the question "How am I doing?" but also to provide regular information to the government's stockholders, the American people; to give managers the information they need to continuously improve and re-engineer what they do; and to ensure that the heads of agencies make informed "business decisions."
When the reinvention initiative began two years ago, President Clinton told government agencies to begin measuring their performance and benchmarking themselves against the best private businesses. At about the same time, performance measurement became the law of the land with the passage of the Government Performance and Results Act (discussed in Chapter II of this report).
Measuring performance is essential for guaranteeing to Americans that our government is held accountable for the work it does on our behalf. Even more, it enables government to see just how well its services stack up to the best in business. And here the news has surprised even the most optimistic reinventers. Not only have agencies--particularly those with high levels of contact with the general public--been benchmarking aggressively, but their performance has improved so markedly that they are not simply as good as business, they're often better. Other sections of this report describe the success of the Social Security Administration's phone service and the National Security Agency's travel system. And more examples emerge every day.
For example, when Wal-Mart--no slouch when it comes to good management--wanted to improve its pharmacies' prescription processing time, it did what quality-conscious companies throughout the nation do: it benchmarked itself against the best in the business. The "best in the business" turned out to be the Air Combat Command's pharmacy at MacDill Air Force Base, near Tampa. It's among the world's busiest pharmacies, filling between 4,000 and 6,000 prescriptions each day. By using a state-of-the-art inventory system and regularly measuring workload, error rate, customer waiting time, and several other factors, MacDill is able to fill 95 percent of its prescriptions within five minutes with an error rate that is half the national average. What's more, though MacDill is the star, in fact the pharmacies throughout the Air Combat Command fill 92 percent of their 60,000 prescriptions each day in less than ten minutes. Next time your local drug store chain tells you there will be a half-hour wait, you can point out that's not good enough for government work.
Progress Report: Partnering With Business
We live in a society in which it sometimes seems everyone is suing everyone else. A lot of people sue the federal government, often to block activities or projects they don't agree with. That's okay; it's their right, after all. But the cost of all those lawsuits is enormous. What if the federal government sat down with people affected by a proposed project in advance?
The idea of "alternative dispute resolution"--of negotiating settlements, rather than tying up the courts--has been around awhile. But the Army Corps of Engineers has pushed the idea to a new level. Says Lester Edelman, Chief Counsel of the Corps, "The idea was, if we're using alternative dispute resolution (ADR) to resolve disputes, why can't we back up a step and use it to try to avoid disputes." Having concluded that "nobody really wins in litigation," that's exactly what the Corps did, establishing ADR/Partnering relationships with communities, citizens, the construction and trade industry, and the legal community. It's used the technique to accelerate hazardous and toxic waste cleanup projects, resolve conflicts over the operation of multi-purpose dams, handle wetland permits, acquire real estate, even handle internal labor disputes. In all, the Corps' ADR/Partnering program has cut its legal caseload by more than 70 percent and reduced claims values from a high of nearly a half-billion dollars to $220 million. It's just good business.
Not far from New York City's famous Lincoln Center for the Performing Arts is a post office that, in 1992, was on its last legs. The building was a wreck and inaccessible to people with disabilities. Nobody much cared about the deteriorating building; the lease would run out in ten years anyway, and the post office would be history. But the neighborhood needed a post office. Enter Dennis Wamsley, a manager of U.S. Postal Service properties around the nation. Where others saw a loser, Wamsley saw a winner--indeed, a goose that could lay golden eggs. He formed a development partnership with several real estate development giants and, three years later, Lincoln Square opened: a 10-story, 400,000-square-foot urban entertainment center and shopping mall topped by 38 floors of residential housing...and space for a 50,000-square-foot permanent post office with expanded services. Wamsley had partnered with industry to leverage a lousy building and an expiring lease into a development that not only provided the neighborhood with a bigger, better post office, but also is actually generating between $1 million and $2 million in payments to the U.S. Postal Service annually.20 Partnering pays.
Progress Report: Selling Obsolete Inventory
The government has had a habit of buying far more than it needs, in part to get a low bulk price to save taxpayers' money. But that has often created inventory storage costs that far outweighed those savings. In 1947, for example, the Central Intelligence Agency purchased bamboo snowshoes, presumably to help some agent across the Russia/Finland border to get in "out of the cold." Last year, they found the snowshoes languishing in a storage depot, along with lots of other goodies the agency didn't need. Since then, through "Project Snowshoe," it's cut its inventory by $32 million, or nearly a quarter, and will soon cut annual rent payments by $2.2 million.21
But the bottom line is that, in most cases, it makes very little sense to maintain big inventories anymore at all. When you buy something at a supermarket or drug store these days, the cashier scans its bar code. A computer not only tells the company it's just sold that item, it also often tells the supplier at the same time. A replacement arrives automatically. It's called "just-in-time" inventory, and it's used throughout private industry precisely to keep the cost of maintaining inventory to a minimum. Government needs to do the same thing. And it is. It's even winning awards for it.
Consider the Defense Personnel Support Center. The DPSC sits in the middle of a large, aging military base in South Philadelphia, amid acres and acres of warehouses and railroad sidings. Its job is to supply millions of troops and civilians with food, clothing, and medicine. For decades, the warehouses were stacked to the ceiling with thousands of items of everyday use stockpiled for the military. It even had its own uniform factory, a holdover from the Civil War. When the military needed to buy something, DPSC issued complex specifications, solicited and reviewed low bids, waited for the items to be manufactured to specification, then stashed them in the warehouses. And there they sat, often for years.
Today, however, the warehouses are empty, the railroad tracks rusting. And the DPSC, once King of the White Elephants, has just won one of the Ford Foundation's Innovations in American Government awards. As a result of a massive employee-led overhaul, the $3.5 billion agency is being hailed as a model of reinvention. DPSC is no longer a purchasing, billing, warehousing, and shipping agency; it's a food, clothing and medical supplies broker. The difference is profound: using the most advanced electronic ordering technologies, the agency makes it possible for its customers to buy brand-name commercial products directly from the manufacturer, through a one-stop electronic shopping catalogue, at competitive prices and with just-in-time delivery. Because of its buying power, it gets terrific prices. Because the choice of products is vast, buyers and customers are delighted. Because the entire process is electronic, delivery has gone from months to hours. Because virtually nothing is warehoused, storage costs are nil.
In fact, the effect cascades throughout the military. Walter Reed Army Medical Center used to use seven warehouses for the medical supplies it got from DPSC's warehouses. Now they use half of one. Inventory dropped 90 percent from April 1993 to February 1995. The new system saves taxpayers millions every year and is virtually invisible to its users; they just order and the goods arrive. Perhaps more important, defense readiness has actually been heightened.
How good is DPSC? When the accounting firm Price Waterhouse benchmarked electronic commerce, it looked at IBM, Motorola, Sears, J.C. Penney, Texas Instruments, and other leading companies. It also looked at the Defense Personnel Support Center. The result? DPSC's scores were well above the mean, even among this elite group of private businesses.
Under the reinvention initiative, the General Services Administration also has been slashing waste--$1.2 billion in unneeded office construction, $6 billion in inappropriate information technology purchases, and more. But in the long run, it may be the small things that mount up most. Last year, the government signed a deal with Visa for the IMPAC card--a credit card by which government workers can make small purchases easily. What's more, there are no fees, and the government will even get rebates on some purchases. No more $4 staplers that cost another $50 in paperwork. Use of the card is not as widespread as it needs to be yet, but the potential is enormous. During the 1994 fiscal year, for example, the government made more than 18 million small purchases.22 Had they all been made with the card, savings last year would have totaled nearly $250 million.
And then there are the natural resource stockpiles the government set aside at various times in its history that have outlived their usefulness--like the Oil Shale and Naval Petroleum Reserves managed by the Energy Department, or the major power utilities it owns. Except for Bonneville Power Administration (which is proposed to become a government corporation), all are now on the block, with an estimated sale value of $5.3 billion. Also for sale are the government's excess metal and gas reserves, valued at $75 million. And the Interior Department's Bureau of Mines is in the process of privatizing the nation's helium reserve. The reserve has been strategically important for the space program, but plentiful supplies of the gas are being developed commercially.
When it comes to government's management of our money, we need to be able to "take it to the bank." We need to be sure that our government is managing professionally the work we expect it to do and, when it needs to spend our money, spending it wisely.
We're already there in some parts of the federal government, on our way in others, and only just
beginning in still others. The job not only isn't done, it never will be--it will always continue.
More Measurement, More Accountability
If we want the best-managed government, then that government must be enterprising. And, like any good enterprise that wants to do its job well, our government needs to measure what matters. Measurement tells managers where they're succeeding and where they're not, More importantly, it tells them what levers to pull to get back on track. If the essence of enterprise is risk-taking and experimentation, measurement tells us how the experiment is going.
Measuring performance is also essential to morale. As President Clinton has said, "Most people who work for the federal government are like most people anywhere. Given a choice between being productive or unproductive, most choose being productive."23 That means they need some way to know how they're doing. Sure, they'd like to hear they're doing a good job, but they also need to know when they're not. If they have no way of knowing whether they're succeeding--whether they're being productive--they feel irrelevant, and they may stop trying at all. The public's work is too important to permit that.
We must have a government that is accountable--not just every four years at the voting booth, but every day. But if we are going to hold agencies and individuals accountable for accomplishing certain things, we must also ensure they have the kind of flexible authority they need in order to do what needs to be done. They can't succeed with one (or both) hands behind their back.
A few years ago, Great Britain succeeded in sharply increasing performance of government agencies by striking a bargain between the political head of a department and the chief executive of each service or operational agency within that department. In exchange for maximum clarity about program objectives, annual productivity savings targets, and a clear focus on outputs and outcomes, agency heads were given significant flexibility to manage their operations. The chief executives were held personally accountable for their use of resources and for achieving results, and 20 percent of their pay was tied to performance.
We need our government to operate in a similar manner. And with the passage of the Government Management Reform Act, the Government Performance and Results Act, the Chief Financial Officers Act, and the Federal Acquisitions Streamlining Act, we have the foundation in place to do so. The 1994 Government Management Reform Act alone is a landmark--requiring 24 major federal agencies, for the first time, to provide annual audited financial statements and, by 1998, a governmentwide financial statement. We will know better where our money is going and how it is managed.
More Competition, More Privatization
If we have learned anything about economics, it is that competition increases quality and productivity and decreases cost. To the maximum extent practical, we must demand that our government operate in ways that encourage--even require--competition. Certainly we must always temper that competition--we don't want our government to be cut-throat. We still expect our government to protect us and to provide some basic level of care and protection to the least fortunate among us. We simply expect it to be done professionally.
Two years ago, the National Performance Review's first report called for the introduction of competition to reduce the monopolistic control many government agencies have over their customers. Monopolies aren't healthy, whether private or public. The government has made less progress in this area than in some others, but the objective stands. And progress is evident: some programs are competing head-to-head with one another; some are being privatized, so they can operate within the private sector themselves; still others are being reinvented as government corporations, gaining the flexibility of private companies while remaining under government supervision and control. Is the U.S. Postal Service improving, in part, because it now must compete with UPS and FedEx? Certainly. Can such competition improve the performance of other service-oriented government operations? Of course.
1. Warren Cohen, "Halting the Air Raid," The Washington Monthly, June 1995, p. 30.
2. Report of Peter Hart/Robert Teeter poll conducted for the Council on Excellence in Government, Washington, D.C., April 12, 1995.
3. Al Gore, From Red Tape to Results: Creating a Government That Works Better and Costs Less (New York: Plume/Penguin Books, 1993), p. 144.
4. Daniel Goldin, Administrator, National Aeronautics and Space Administration, White House briefing, Washington, D.C., March 27, 1995.
5. U.S. General Services Administration (GSA), FRDS Federal Procurement Report: October 1, 1993 through September 30, 1994 (Washington, D.C.: U.S. Government Printing Office [GPO], 1994), p. 2.
6. Briefing by Raytheon officials to the Department of Defense, April 1995.
7. Amy Waldman, "You Can't Fix It If You Don't Look Under the Hood," The Washington Monthly, July/August 1995, p. 35.
8. Information on how to find NPR materials on the Internet appears at the end of this publication.
9. "The Bureaucracy: What's Left to Shrink," The New York Times, June 11, 1995, p. E-1.
10. Cindy Skrzycki, "The Cup Board Isn't Bare Yet," The Washington Post, August 9, 1995, p. F3.
11. U.S. Office of Management and Budget (OMB), Budget of the United States Government, Fiscal Year 1996 (Washington, D.C.: GPO, 1995), p. 144.
12. Ibid.
13. "Re-Engineering Energy, " The Washington Times, August 4, 1995, p. A9.
14. OMB, Budget of the U.S. Government, Fiscal Year 1996.
15. Henry Cisneros, Secretary of Housing and Urban Development, White House briefing, Washington, D.C., December 19, 1994.
16. Cisneros, White House briefing.
17. OMB, Budget of the U.S. Government, Fiscal Year 1996.
18. Telephone conversation between Fred Bulgin, Duke Power and Light, and National Performance Review staff, August 11, 1995.
19. Elizabeth Sikorovsky, "NASA debuts credit card buys on the Net," Federal Computer Week, August 21, 1995, p. 8; and information provided by Skip Kemerer, head of NASA Goddard's ADP procurement branch.
20. Telephone conversations between Dennis Wamsley, U.S. Postal Service, and Daniel Neal of NPR, August 1995.
21. Memo from Betsy Wiley, CIA, to Pamela Johnson of NPR,
August 8, 1995.
22. GSA, FRDS Federal Procurement Report.
23. Bill Clinton, remarks at Reinventing Government event on regulatory burden reduction, U.S. Department of the Treasury, Washington, D.C., June 9, 1995.