Archive

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Document Name: Chapter 4-- Cutting Back to Basics Part II
Date: 09/07/94
Owner: National Performance Review
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Title:Chapter 4-- Cutting Back to Basics Part II

Author: Vice President Albert Gore's National Performance Review

Date:7 September 1993 10:00:00 EST

Content-Type: text/ascii charset=US ASCII

Content-Length: 978

Perhaps even worse, there's no guarantee that all these

highway demonstration projects, once started, will ever be

finished. GAO noted that project completion costs will greatly

exceed authorized federal and state contributions, and that state

officials are uncertain where they will find more funding.

Further, only 36 percent of the project funds GAO reviewed had

even been obligated by the beginning of fiscal year 1991, even

though they were authorized in 1987. Some projects with no

activity since 1987 may never use their funds. Finally, no

federal provisions allow for canceling or redirecting funds, nor

can states redirect demonstration funds to other transportation

projects.36

We urge Congress to rescind all unobligated authority and

appropriations for highway demonstration projects. Some of the

savings would go to the taxpayers. We recommend that all highway

projects be forced to compete for any remaining savings through

the normal allocation and planning processes set up in more

recent legislation.

Action: Cut Essential Air Service subsidies.37

Sometimes, to push through controversial changes, Congress

grants affected groups special privileges. This was the case when

airlines were deregulated in 1978. Because people living in small

towns feared the loss of air service, Congress created the

Essential Air Service program. The program guaranteed continue

services for a decade--with federal subsidies if necessary. The

purpose was to allow these communities to learn to live in a

deregulated environment. But the program didn't end in 1988 as

scheduled. Quite the opposite. Congress extended it for another

ten years and its budget has grown- -from $30.6 million in 1988

to $38.6 million in 1993.

The program is unneeded: 25 subsidized communities are less

than 75 miles from hub airports. It is also costly: nine

locations, receiving $3 million in subsidies in 1992, carried

five or fewer passengers a day--one community, only 60 miles from

a hub airport, received subsidies averaging $433 per passenger.

Opposition to the program is rising. The Transportation

Department's Inspector General has concluded that the program's

costs outweigh its benefits. And after many years of resistance,

a Congressional subcommittee agreed this year that the program

lacks merit-based criteria. It's time to prune these subsidies.

We recommend eliminating subsidies to locations in the 48

contiguous states within 70 miles of a hub airport; limiting

subsidies to no more than $200 a passenger, and giving the

Transportation

Department authority to establish more restrictive criteria over

time. This would save $13 million a year.

Step 2: Collecting More

Given the size of the federal deficit, government must find

better, more efficient, and more effective ways to pay for its

activities. In Chapter 2, we showed how government could become

more businesslike. In this section, we propose three ways to

increase federal revenues: introducing or increasing market-based

user fees, collecting what is due the government in delinquent

loans and in accidental or fraudulent overpayment of benefits,

and refinancing debt at lower interest rates.

Some people take advantage of government's largesse. They

default on loans, or they double claim for health insurance

benefits. Government has made it far too easy for people to get

away with such actions. As a result, honest people are

subsidizing their less scrupulous neighbors. Their actions raise

the costs of federal programs, divert money from where it was

intended, and discredit our system of governance. Here are the

first steps we will take to end these practices.

Raising User Fees

Congress and federal agencies have shied away from charging

for federal services. But government surely produces many goods

and services for which consumers could, and should, pay." User

fees can serve exactly the same function as prices do--providing

federal managers with invaluable information about their

customers. If customers like the services they are paying for--if

they find the experience of visiting a particular national park

enjoyable, for example--revenues will increase. If the agency can

keep some of its additional revenues, it will be able to pay the

increased operating costs associated with its rising number of

customers. It will, as a result, learn to care about satisfying

those customers.

Paying for the services you receive also is an issue of

fairness. Why should taxpayers subsidize concessionaires or

visitors to National Parks, or pay the cost of determining

whether a business should dump sludge into the nation's

waterways? Many services government provides because they are in

the national interest or because we do not expect people to pay

for them. But the customers of some government activities could

and should pay. Many agencies, including the Food and Drug

Administration, The Patent and Trademark Office, the National

Technical Information Service, and the Securities and Exchange

Commission already charge their customers fees. In some cases,

these fees cover the full cost of operations. Taxpayers are not

called upon to pay for the services that others receive. But,

most agencies aren't allowed to keep the fees--the revenues are

sent to the Treasury. Under these circumstances, agencies have no

incentive to increase fees if market conditions merit it.

Where fees are allowed, Congress often limits them--removing

any discretion from local managers. The National Park Service,

for example, cannot charge more than $5 per car or $3 a visitor

at many parks. At busy Yellowstone, Grand Teton, and the Grand

Canyon, fees are limited to $10 a vehicle and $5 a visitor.

Ending subsidies to concessionaires and moderately increasing

fees would let the National Park Service invest more in its

crumbling infrastructure, and spend more to protect America's

priceless natural heritage.

Two-thirds of all the National Park Services facilities

charge no admission fee at all. Yet the Park Service suffers from

a multi-billion dollar backlog in infrastructure repair and

rehabilitation projects for the National Park System. One-third

of NPS primary paved roads are in poor or failing condition; a

tenth of employee housing is obsolete or deteriorated; and 4,700

planned natural and cultural resource projects are on the waiting

list for funding. Meanwhile, demands on the parks are rising

sharply as the number of visitors--both American and

foreign--grows each year.38

Action: Allow all agencies greater freedom in setting fees for

services and in how the revenues from these fees may be used.39

Even with a modest increase in fees, a family of four will

pay less to spend a week in Yellowstone National Park than they

would to see a first-run movie. The National Park Service should

be allowed to keep 50 percent of revenues from fees to pay for

vital services and projects.

The natural fear is that federal facilities are monopolies

and, unless their pricing policies were regulated, they would

become price-gauging profiteers. The concern is appropriate, but

the policies it has led to are not. We would not recommend that

national parks or documents repositories, for example, become

federal profit centers--but they could, certainly, cover a larger

part of their costs. They cannot charge exorbitant prices--after

all, parks are in competition with each other, and with many

privately owned recreation areas. The market will control the

revenues they can realistically collect.

Pricing policy is an important management tool, and we

recommend that Congress place it in the hands of many more

federal managers. The National Performance Review recommends

increasing the use of user fees for many activities. For example:

-- The FDA must ensure that 1.5 million food products imported

each year meet the same safety and labeling standards as domestic

products. It also certifies the safety of exported foods.

Taxpayers, not manufacturers, pay for these inspections. User

fees could save taxpayers as much as $1.4 billion over 5 years.40

The agency should also have the power to collect fees for

conducting inspections and reviews, processing petitions and

applications, analyzing samples and issuing device reports for

food, drugs, devices, and radiological products.

-- The Department of Veterans Affairs runs a program to guarantee

home loans for veterans. It lets them borrow at lower costs and

make smaller down payments than would be possible without

assistance, because the guarantee protects lenders in the event

of foreclosure by reducing their potential loss. The department

collects fees for this service, yet they are set very low. A

modest increase in fees costing an extra $6 per month, for

example, would still provide homebuyers with better-than-market

terms. Yet it would generate an additional $811.4 million over 6

years.41

-- Under the Clean Water Act, the Army Corps of Engineers issues

permits for discharges of dredged or filled materials into
rivers, lakes and streams. The Corps has processed 15,000

applications at a total cost of $86 million. Yet it has charged

only token fees for its services, collecting only $400,000

annually. This amounts to a $12 million annual subsidy for

commercial customers, according to Defense Department estimates.

Higher fees would help not only taxpayers but Corps customers,

because additional revenues could pay for faster processing of

applications.42

-- The Small Business Administration should have the power to

establish user fees for the services they provide through the

nationwide Small Business Development Center (SBDC) program. SBDC

customers like the services they get, so the revenues from fees

will enable the centers to expand successful programs.

Action: Increase revenues by refinancing debt or raising federal

hydropower rates to cover full operating costs.43

The Power Marketing Administrations (PMAs), such as Alaska

Power, were mandated in 1944 to sell their power at low rates to

help promote development in sparsely populated areas. Rates are

still low today; in fact, the PMAs sell power to their public,

private and cooperative utility customers at below market rates.

Thus, the low electricity rates enjoyed by customers in some

areas are subsidized by American taxpayers in others. Taxpayers

subsidize PMA utility customers through low-interest loans. The

interest rates most PMAs pay the government are artifically low.

As the interest on the Treasury's long-term debt climbed in the

1960s, 1970s, and 1980s, the differential between those rates and

rates on PMA loans created federal subsidies for these projects.

The Energy Department will take immediate steps to increase

revenues from hydropower operations. The department will set a

new rate policy for specified PMAs to seek recovery of full

operating costs. As an alternative, the Energy Department may

attempt to restructure the financing of the Bonneville Power

Administration's debt, allowing Bonneville to issue bonds at

market rates and repay its low-interest Treasury loans. The

department will attempt to achieve such a refinancing with

minimal effects on the near-term rates paid by its customers by

seeking favorable bond interest rates and lengthening terms of

repayment.

Collecting Debt

At the end of last year the federal government was owed $241

billion by former students, small businesses, farmers, companies

developing alternative energy sources-- even foreign companies

and governments. This makes the federal government the nation's

largest lender. Of this total, a shocking $47 billion--20 percent

of the total--was delinquent.44

To some extent, the federal government's unpaid debts

reflect the fact that some of its loan programs operate more like

grant programs. They are designed to meet national policy goals

such as increasing the number of physicians in rural areas and

supporting democratic governments overseas. But in other cases

agencies have done a poor job in collecting what they are owed.

After all, agencies are rarely held accountable for unpaid loans.

All too frequently, neither are delinquent borrowers.

If agencies were to put a higher priority on pursuing

delinquent debt and if Congress were to grant them greater

flexibility in their debt collection operations, the federal

government could collect more of what it is owed. The Office of

Management and Budget will work with each agency to develop debt

collecting strategies that employ the following expanded powers.

Action: Give agencies the flexibility to use some of the money

they collect from delinquent debts to pay for further debt

collection efforts, and to keep a portion of the increased

collections.45

Small investments in debt collecting can yield high returns.

In 1989, the GAO discovered that the Veterans Administration had

not recovered $223 million in health payments from third parties,

such as insurers. Congress then changed the rules, allowing the

VA to keep a portion of recovered third-party payments for

administrative costs. With this incentive, the VA increased its

recovery effort. The result: a four-fold increase in collections

since 1989.

The VA, now called the Department of Veterans Affairs, wants

to go even further by expanding its cost recovery efforts into

its loan programs and establishing cost-sharing, performance

incentives. Local hospitals, for example, might be allowed to

keep some of the revenues they generate to buy new medical

equipment. Overall, VA believes it could pull in another $500

million through 1999.

Opportunities like this occur throughout the federal

government. The Education Department, for example, wants to use

the additional repayments it would collect to pay for further

collections of Higher Education Act debts. Budget offices tend to

oppose the idea of sharing new earnings with the agency in

question, because they want 100 percent of the earnings to meet

deficit reduction targets. But unless the agencies have

incentives to generate the earnings, they rarely produce them in

the first place.

The solution is twofold. First, Congress should allow

agencies to use some of the money they now collect from

delinquent debts to pay for further debt collection efforts.

Second, it should increase the incentives agencies have to pursue

debt collections, by letting them use a small portion of their

increased collections to invest in improving their overall

operations.

Action: Eliminate restrictions that prevent federal agencies from

using private collection agencies to collect debt.46

In addition to sharing in their earnings, agencies would

benefit from being able to use private debt collectors, as the

Department of Education has done. While we know how

cost-effective private collection agencies are, many

agencies--including the Farmers Home Administration, Social

Security, the IRS, and the Customs Service--are statutorily

prohibited from using private agencies for the job, even on a

contingency-fee basis. Congress should lift those restrictions.

Action: Authorize the Department of Justice to retain up to one

percent of amounts collected through civil debt collections to

cover costs.47

When borrowers default on their federal loans, the first

step is for the lending agency to try to collect--or, if

permissible, to use a private debt collection agency. If these

measures fail, agencies refer claims to the Department of

Justice. While the Department handles the larger claims itself,

it refers those under $500,000--which constitute 90 percent of

all claims--to local U.S. attorneys' offices. In overworked U.S.

Attorney's offices, debt collection is often a low priority.

To encourage the Department of Justice to collect debts,

Congress should allow the department to retain 1 percent of

everything it collects through litigating civil debt cases under

$500,000. These retained funds should be used for paying staff

working on debt collection, for paying case-related costs, and

for paying for training and other investments to improve local

debt collection programs.

Action: The Royalty Management Program will increase the royalty

payments it collects by developing new computer programs to

analyze and cross-verify data.48

The federal government collects royalty payments from mining

companies recovering minerals from federal land. The Interior

Department's Minerals Management Service (MMS), the agency

charged with the job, collects $4.7 billion annually. But its

auditing system is limited and focuses heavily on the companies

paying the largest royalties--so smaller companies don't always

pay their share. The Department of the Interior will increase its

collections--by as much as $28 million over five years--by

developing better accounting and auditing systems. To make sure

MMS can collect its dues, the Interior Department will ask

Congress for permission to assess penalties on substantial

underpayments and to impose fees on a broader range of

administrative costs.

Action: HUD should offer incentive contracts to private companies

to help federally subsidized home owners refinance their

mortgages at lower rates.49

HUD has succeeded in extending the dream of home ownership

to many people. But the program does not take advantage of lower

interest rates because the assisted owners do not have enough

incentive to go through the work and bother of refinancing.

We recommend that HUD offer incentive contracts to private

companies to let them share a percentage of the savings to the

government of refinancing the mortgages. They could work with the

home owners to arrange refinancing, doing the necessary leg work

and make cost effective payments to home owners to induce them to

refinance. Projected savings from this program could exceed $210

million over five years. Yet program beneficiaries would

continue to receive exactly the same benefits.

Eliminating Fraud

While many think government steals from people, the reverse

is also true: People steal from government. And, unlike private

companies, some government agencies aren't very good at finding

and prosecuting thieves. Moreover, the bureaucracy does too

little to deter dishonest people.

Action: Make it a felony to knowingly lie on an application for

benefits under the federal Employees' Compensation Act and amend

Federal law so individuals convicted of fraud are ineligible for

continued benefits.50

The federal government manages many programs that provide

benefits to people injured or taken sick. Not all the recipients

are legitimate. When agencies discover fraud, however, they are

often hamstrung in their ability to terminate benefits--so they

keep paying fraudulent claims. For example, under the Federal

Employees' Compensation Act (FECA), the Office of Workers'

Compensation Programs cannot terminate benefits even after

finding that someone made false statements about a disability or

an illness.

In one case, a former federal employee collected almost

$200,000 in benefits under the FECA disability program while

working. When a witness told the government about the fraud, the

employee hired someone to kill him. The employee was convicted of

falsifying his application for FECA benefits, but the government

could not cut off his compensation on the basis of his original

false statements alone.51

Action: Improve processes for removing people who are no longer

disabled from disability insurance rolls.52

The Social Security Administration serves more than 10

million people through two disability programs, Disability

Insurance and Supplemental Security Income. But the General

Accounting Office has estimated that 30,000 of these recipients

are no longer eligible. Overpayments from the trust funds to

ineligible people are projected to reach $1.4 billion by 1997.53

The Social Security Administration faces a dual problem:

overpayment to unlawful claimants and lengthy delays in providing

benefits to legitimate claimants. Using present management

practices, the agency lacks the staff to review its rapidly

escalating caseload. The backlog of 700,000 pending claims is

taking priority over reviewing

continuing cases.

The agency is working to create a single disability claims

processing system, but it needs greater budget flexibility to

invest in hardware and software and to redeploy staff to meet

growing demands.54

Action:Create a clearinghouse for the reporting and disclosure of

death data.55

Obviously, no federal agency should continue paying benefits

after recipients have died. But stopping payments is not easy

because sharing death information among different levels of

government is restricted and not always reliable. The Social

Security

Administration regularly obtains death information from states

under agreements with each of them (except Virginia). But most

agreements restrict SSA's disclosure of death data, so the

information the SSA collects cannot always be shared with those

running other federally- and state-administered benefits

programs. The result is millions of dollars in overpayments. For

Americans living overseas, the problem is even worse. SSA gives

benefit checks to overseas embassies to deliver. The State

Department claims that SSA must check that the recipients are

still alive; SSA says that it's the State Department's job.

We need not serve customers who are no longer alive.

Congress should amend the Social Security Act to allow SSA to

share death information with other programs.56

Step 3: Investing in Greater Productivity

One of the greatest obstacles to innovation in government is

the absence of investment c

federal agencies last only one year: anything left over at the

end of the year disappears. So it's difficult for organizations

to scrape together enough money to make even small investments in

training, technology, new work processes, or program innovations.

We have recommended that agencies be allowed to keep half of any

savings they can generate. In addition, we propose a source of

innovation funds from which they can borrow. When managers and

their employees are allowed to borrow for long-term investments,

they have a real incentive to implement creative new ideas.

The IRS and Interior Department already have innovation

funds.57 Treasury and Justice operate working capital funds that

finance specific innovations, such as modernizing information

technology and computer systems. And the Commerce Department has

a Pioneer Fund that gives employees cash grants (rather than

loans) of up to $50,000 to finance quality and productivity

improvements. The money can be used for supplies, equipment, or

expert services. Some funds have financed projects related to

advanced technology, such as the development of public

information on CD-ROMs.

State and local governments use this approach quite often.

Many cities have long had some form of innovation fund. In

Florida, Governor Lawton Chiles cut departmental budgets by five

percent across the board, then gave half back to agencies that

developed plans to invest in higher productivity and

effectiveness.

*******************************

The Productivity Bank: Paying Big Interest in Philadelphia

Mayor Ed Rendell says it's not hard to change incentives so that

public employees save money.

"We tell a department, 'You go out there and do good work,'

" Rendell told the National Performance Review's Reinventing

Government Summit in his city. "'You produce more revenue. You

cut waste. And we'll let you keep some of the savings of the

increased revenue.'"

Traditionally, the mayor said, "every nickel that they would

have saved would have gone right back to the general fund-- They

would have gotten a pat on the back, but nothing else." Now, city

employees save because their departments can keep some of the

savings for projects to help them perform better.

When the Department of License and Inspection beefed up

collection and enforcement efforts and generated $2.8 million

more than expected in 1992, Rendell said, the city let the

department keep $1 million of the savings to hire more inspectors

and, in turn, exceed the $2.8 million in 1993.

The city also opened a Productivity Bank, from which

departments can borrow for investment-type projects--that is,

capital equipment--to produce either savings or enough revenues

to repay the loan in five years. To ensure that departments don't

apply frivolously, the city subtracts loan payments from annual

departmental budgets. Successes already abound. The Public

Property Department repaid a $350,000 loan to buy energy

efficient lamps in one year--after saving $700,000 in energy

costs.

********************************

At the federal level, one important use for such funds would

be technology investments. These are often considered too

expensive for agencies' operating budgets, even though they save

money in the future. The Agency for International Development,
for instance, needs a centralized information management system

to coordinate its central office with its international field

offices. Because its information systems lack essential data and

are not coordinated, they provide inconsistent, inaccurate, and

incomplete reporting that managers frequently do not trust.

Agencies such as AID should have authority to create innovation

funds for capital investment loans to reduce future operating

costs.

Action: Allow all agencies and departments to create innovation

funds.58

Congress should authorize a two tier system of innovation

funds: small loan funds within agencies; larger funds at the

departmental level. These would be capitalized through retained

savings from operational appropriations. For the new system to

work well, Congress should allow all new and existing innovation

funds to invest in joint projects with other agency funds, with

state or local governments, or with industry.

If managed according to market principles, innovation funds

would produce measurable improvements in agency efficiency and

significant taxpayers savings. Strict repayment schedules, with

interest, would discourage careless borrowing.

Action: The government should ensure that there is no budget bias

against long-term investments.59

Part of straightening out the govern--ment's books will

involve adopting some financial distinctions that business uses.

Federal bookkeeping rules discourage government investments in

productive fixed assets, like computer systems. Right now, we

count a $5 million investment to purchase a Local Area Network

computer system in exactly the same way as we count $5 million

spent on staff salaries. American businesses do it differently.

Business depreciates fixed assets over time: If the $5 million

computer system has a useful life of five years, then its $5

million acquisition costs will be spread out over five years.

Poor choices of capital investment and the acquisition methods

are currently costing the taxpayer millions of dollars each year.

Listen to Eleanor Travers, the director of Pathology and

Laboratory Medicine for the Veterans--Hospital Administration.

She told the National Performance Review meeting at the

Department of Veterans Affairs in August 1993:

"Procurement of equipment is held up because capital

dollars to purchase equipment are frozen. And you asked what

dumb rules there were we could change. Allow our hospital

directors and our top managers to use operating dollars when

they find it's necessary to do leasing rather than purchasing

. . . Please help us loosen up the capital fund so that we

don't have to go to Congress and wait two and a half years for

this line item to change."

The budget should recognize the special nature and

long-term benefits of investments in fixed assets through a

separate capital budget, operating budget, and cash budget. The

separate capital budget will explicitly show expenditures on

fixed assets, and will help to steer our scarce resources toward

the most economical means of acquisition of the most needed

assets. The cash budget reflects the effect of both the capital

and the operating budget on the economy. Therefore, the

discipline of the cash outlay caps in the Budget Enforcement Act

must be maintained.

Step 4: --Reengineering Programs to Cut Costs

In the past turbulent decade, many companies have been

forced to recognize that they weren't organized in the right way

to do what they were doing. Their organization structure

reflected history, not current needs. Reform wasn't easy--too

many people had vested interests in preserving their particular

part of the organization. As a result, most attempts at

reorganization were reduced to shifting things among different

boxes on organizational charts. Businesses found that the only

way to break the mold was to reengineer--to forget how they were

organized, decide what they needed to do, and design the best

structure to do it. An obvious insight? Perhaps. But the best

ideas are always the ones that seem obvious--after their

discovery.

**********************************

We are determined to move from an industrial age government

to information age government, from a government pre-occupied

with sustaining itself to a government clearly focused on serving

the people.

Vice President Al Gore

May 24, 1993

***********************************

We will reengineer the work of government agencies in two

ways. First, we will expand the use of new technologies. With

computers and telecommunications, we need not do things as we

have in the past. We can design a customer-driven electronic

government that operates in ways that, 10 years ago, the most

visionary planner could not have imagined.

Second, we will speed up the adoption of new ways to improve

federal operations. Most of this work will be done by the federal

agencies themselves. An outside performance review could never

learn enough about internal agency work processes to redesign

them intelligently. But we can begin to redesign several broad

government-wide processes: The way we design programs, develop

regulations, and resolve disputes.

Electronic Government

The history of the closing decade of this century is being

written on computer. You wouldn't know it if you worked for many

federal agencies, however. While private businesses have spent

the past two decades either getting rich by developing new

computer technologies or frantically trying to keep up with them,

government is still doing things our parents--perhaps even our

grandparents--would recognize.

Offshoots of the unexpected and fertile marriage between

computers and telephones have changed just about everything we

do--how we work, where we work, the design of the workplace, and

the skills we need to continue working.

Organizations don't need as many people collecting

information because computers can do much of it automatically.

They don't need as many people processing that information

because clever software programs can give managers what they need

at the press of a button.

Factories don't need to stockpile large inventories because

smart machines on the assembly lines order components from

equally smart machines working for suppliers. Yet government

agencies stand guard over warehouses of unused office furniture.

Retailers ship the right size of clothing to customers as soon as

they receive a telephone order and a credit card number. Yet we

can't pay our taxes that way.

Computer companies give technical advice for our computers

and software over the telephone 24 hours a day by fax, modem, or

voice. Yet, the Social Security Administration can't do the same.

Failure to adapt to the information age threatens many

aspects of government. Take the State Department, a

globe-spanning organization dependent on fast and accurate

communications. Its equipment is so old-fashioned that the Office

of Management and Budget says "worldwide systems could suffer

from significant downtime and even failure."60 According to OMB,

its systems are so obsolete and incompatible that employees often

have to re-enter data several times. These problems jeopardize

our ability to meet our foreign policy objectives.

Or think about the way our government sends out checks. For

15 years, electronic funds transfers have been widely used. They

cost only 6 cents per transfer, compared with 36 cents per check.

Yet each year, Treasury's Financial Management Service still

disburses some 100 million more checks than electronic funds

transfers.

We still pay about one federal employee in six by check and

reimburse about half of travel expenses by check. Only one-half

of Social Security payments--which account for 60 percent of all

federal payments--are made electronically, making SSA the world's

largest issuer of checks. Only 48 percent of the Veterans Affairs

Department's payments are made electronically. Fewer than one in

five Supplemental Security Income payments and one in ten tax

refunds are transferred electronically.61 We have only begun to

think about combining electronic funds transfers for welfare,

food stamps, subsidies for training programs, and many other

government activities.

Private financial transactions have become a lot easier in

the past decade: bank cash machines are open 24 hours a day,

credit cards let us avoid carrying cash, and we can buy goods

over the telephone. This saves many of us a lot of time and

money. It could save the Government a lot of time and money, too.
Consider the paper chase involved in running the welfare system.

The Food Stamp Program, alone, involves billions of bits of paper

that absorb thousands of administrative staff years. More than 3

billion food stamps will be printed this year and distributed to

more than 10 million households. Each month, 210,000 authorized

food retailers receive these coupons in exchange for food. These

retailers carry stacks of coupons to 10,000 participating

financial institutions, which then exchange them with Federal

Reserve Banks for currency. The Federal Reserve Banks count the

coupons--although they already have been counted more than a

dozen times--and destroy them. The administrative cost of this

system--shared equally by federal and state governments--is

almost $400 million a year.

We will support Agriculture's commitment to the goal of

issuing food stamps electronically by 1996. Electronic benefits

transfer could eliminate the paper chase, improve services to

customers, and reduce fraud. At the same time, it could be used

to authorize Medicaid payments, distribute welfare payments,

infant nutrition support, state general assistance, and housing

assistance. It could eliminate billions of checks, coupons, and

all the other paperwork, record keeping and eligibility forms

that clutter the welfare system.

Why has business moved faster than government into the

electronic marketplace? In the first place, government is a

monopoly. Public organizations don't go out of business if they

don't have the latest and smartest machines or the best approach

to managing resources. In the second, employees who do want to

modernize management have their hands tied with red

tape--detailed budgets and cumbersome procurement procedures--

that deter investment. Finally, there is a natural inclination,

familiar to private and public managers alike, to do things as

they've always been done.

What can we do to help our federal bureaucracy catch up?

Action: Support the rapid development of a nationwide system to

deliver government benefits electronically.62

OMB has already begun the process. The electronic benefits

transfer steering committee, which OMB oversees, will develop an

implementation plan for electronic benefits transfer by March

1994.

The system is workable with today's technology. For cash
programs such as federal retirement, social security,

unemployment insurance, or AFDC, benefits would be electronically

deposited directly into recipient bank accounts electronically.

If people didn't have bank accounts, these could be created once

the individual enrolled in a program. For "non-cash" programs

such as food stamps, participants would have accounts through

which they could make purchases at approved food

stores--analogous to credit cards with credit limits. Stores

would debit accounts as eligible items were purchased. The entire

system could operate on or be compatible with the existing

commercial infrastructure through which private funds are

transferred electronically.

Agencies have begun experiments with electronic benefits

transfers. Welfare checks, food stamps, and state-collected child

support, for example, are distributed electronically in Maryland.

There are test sites in Iowa, Minnesota, New Mexico, Ohio,

Pennsylvania, Texas, and Wyoming. We know that a joint

federal-state effort to transfer welfare benefits electronically

works--and works well. The system is strongly supported by

recipients, the state welfare agencies, food retailers, banks,

and participating commercial networks. We also know that direct

federal delivery of funds by electronics is cost-effective. We

can't yet project with certainty what the savings might be, but

preliminary estimates suggest $1 billion over five years once

electronic benefits transfer of food stamps is fully implemented.

In the future, the concept of electronic government can go

beyond transferring money and other benefits by issuing plastic,

"smart" benefit cards. With a computer chip in the card,

participants could receive public assistance benefits, enroll in

training programs, receive veterans services, or pay for day

care. The card would contain information about participants'

financial positions and would separately track their benefit

accounts--thus minimizing fraud. Electronic government will be

fairer, more secure, more responsive to the customer, and more

efficient than our present paper based systems.

Barriers still stand in the way. Agencies will have to work

together to develop a comprehensive nationwide strategy for

implementation; it will do no good for each agency to develop its

own process. We will need to strengthen the partnership between

state and federal governments in developing and operating the

system. We will have to eliminate some regulations that would

prevent this radical change in how government operates. And the

National Institute of Standards and Technology will have to issue

final standards and protocols for electronic signatures to

facilitate electronic funds transfers and the electronic approval

of budget and financial documents.

Action: Federal agencies will expand their use of electronic

government.63

Opportunities abound for cutting operating costs by using

telecommunications technologies. The National Performance Review

has identified several projects that would improve government's

productivity and reduce the burden of reporting on individuals

and businesses.

The IRS is introducing an efficient computer system,

automating tax returns, and creating a wholly new work

environment for its 115,000 full-time personnel. The agency

currently operates a computer system put together in the

1960s--not the tool our principal revenue collector should be

using. To make the new system work, the agency will need to

figure out how to train its staff to operate in a reengineered

agency. We will support the agency's investments in new hardware

and training, as discussed in Chapter 3.

The IRS will also manage the creation of an integrated

electronic system for financial filing, reporting, and tax

payment by 1996. The system will serve federal, state, and local

taxpayers. It will allow the electronic filing of tax returns by

individuals and companies, the electronic reporting of wages and

withholding information, and other data required by all levels of

government. In addition, the inter-agency Wage Reporting

Simplification Project (WRSP) will be in place quickly--allowing

businesses to file information once to serve many different

purposes. The savings from fully implementing this program over

the life of the system have been projected at $1.7 billion for

government agencies and $13.5 billion for private employers.

Individuals will be able to file federal and state income taxes

simultaneously through an Electronic Data Interchange, with their

privacy protected and fraud prevented through digital signature

standards. Electronic filing alone will save the IRS and state

agencies from having to mail out the equivalent of 75 boxcars of

forms.

Working together, the Labor Department and IRS will develop

an automated system all employers can use to file electronically

the pension plan forms employers required by the Employee

Retirement Income Security Act.64 At present, it costs the

Internal Revenue Service more than $10 million a year to enter

all these forms into its data base.

The Labor Department will develop computer programs to

determine quickly the appropriate wages on federal service

contracts.65 Currently, all federal agencies contracting for

services--from cleaning services to building management--must

apply to the department for a determination of appropriate wages.

The process is supposed to ensure that federal contracts don't

undermine local prevailing wages. The process takes an average of

57 days and, with a growing number of service contracts, more and

more are subject to delays.

We will continue investing in the Social Security

Administration's massive project to create a single nationwide

disability processing system.66 This will require considerable

investments in new telecommunications and computer systems as

well as in staff retraining. It will also mean that the SSA will

have to work cooperatively with state-run disability

determination offices, set performance standards, and take over

those that don't meet standards. Many of the system's worst

processing bottlenecks are in the state offices that approve

individual claims.

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Money for Numbers

The National Technical Information Service runs a large and

complex information collection and marketing operation. It is the

nation's largest clearinghouse for scientific and technical

information. Yet it covers the costs of its operations without

receiving a penny in federal appropriations. Its customers pay --

and their numbers are growing every year.

NTIS's archives contain about 2 million documents (from

research reports to patents), more than 2,000 data files on tape,

diskette, or CD-ROM, and 3,000 software programs. This resource

is growing at the rate of about 70,000 items each year. NTIS's

press releases, on-line services, and CD-ROMs serve 70,000

customers, three-quarters of whom are from business and industry.

In 1991, NTIS collected $30.7 million in revenues -- 77

percent from its clearinghouse activities, the rest from other

government agencies that reimburse NTIS for patent licensing

services, and from billing other agencies for producing and

distributing documents. NTIS is required by law to be

self-sufficient.

Some of these investments will require Congressional

appropriations. But some can be financed through the innovation

funds, described above, and some will become possible to pay for

as soon as rigid budget regulations are relaxed.

Action: Federal agencies will develop and market data bases to

business.67

Federal agencies must treat the data they compile and

process as potentially valuable resources. Congress alerted the

bureaucracy to the value of information in 1991 by passing the

American Technology Preeminence Act. The act required federal

agencies to transfer to the National Technical Information

Service copies of federally funded research. At NTIS, the

information is organized and made available to research

scientists in academia and in industry. NTIS has developed an

aggressive marketing strategy and pricing policy that have

greatly increased its revenues.

The Census Bureau has pioneered the use of computer

technology such as CD-ROM technology to make federal data

available. By 1992, the Bureau sold census data to 380,000

customers on tape or disc directly, and served another 1.1

million customers indirectly.

Unfortunately, some federal agencies lag behind private data

retailers in the services they offer their customers. People

buying Census data must order it through paper order forms or by

telephone during business hours--only 9 hours a day, 5 days a

week. If private software companies offer 24-hour a day technical

support, so should the Census Bureau.

Other agencies will begin to exploit the potential of the

information they collect. The Commerce Department, for example,

will develop a manufacturing technology data bank that brings

together information residing in the National Institute of

Standards and Technology, the Defense Department, federal

research laboratories, and other organizations. Commerce will

also use its climate data as the basis for developing a National

Environmental Data Index. Good data will be vital in solving the

problems associated with global climate changes. The U.S. must be

a leader in developing these information resources.

Action: In partnership with state and local governments and

private companies, we will create a National Spatial Data

Infrastructure.68

Dozens of agencies collect spatial data--for example,

geophysical, environmental, land use, and transportation data.

They spend $1 to 3 billion a year on these efforts. The

administration will develop a National Spatial Data

Infrastructure, (NSDI) to integrate all of these data sources

into a single digital resource accessible to anyone with a

personal computer. This resource will help land developers and

conservationists, transportation planners and those concerned

with mineral resources, and farmers and city water departments.

Because of the value of the data, it will be possible to

attract private sector funding for its collection, processing,

and distribution. The Federal Geographic Data Committee, which

operates under the auspices of OMB, plans to raise enough

non-federal funding to pay for at least 50 percent of the

project's cost. It will set the standards for data collection and

processing by all agencies to ensure that NSDI can be developed

as economically as possible.

Action: The Internal Revenue Service will develop a system that

lets people pay taxes by credit card.69

The Customs Service lets people pay duties on imported goods

by credit card. Americans should have the same convenient way to

pay taxes. It will save time and cut the IRS's collection

costs.70 There is one hitch: Those who pay by credit card could

avoid paying back taxes simply by filing for personal bankruptcy.

This escape mechanism can't be employed today because back taxes

are, under bankruptcy law, a "non-dischargeable" debt--that is,

they are a debt that remains even after someone becomes

insolvent. Therefore, the use of credit cards for tax payments

should be delayed until Congress has amended the bankruptcy

statute to prevent taxes paid by credit card from becoming a

dischargeable debt. Our goal is to increase customer convenience,

not to open up another loophole through which people can dodge

paying delinquent taxes.

Reengineering to Use Cost-Cutting Tools

Our reinvented government will be able to cut further costs

by using new ways to carry out traditional duties. To begin with

we will have to get a lot smarter about how we design government

programs. The President's Management Council will play a lead

role in helping government learn from its past failures and

successes to design better programs. In addition new approaches

to

regulation--such as negotiated rule making-- can reduce conflict

and produce better results. Finally, alternative techniques for

resolving disputes can avoid many of the costs of traditional

litigation.

Action: The President's Management Council will help agencies

design and redesign better programs.70

As taxpayers and customers we have been, time and time

again, victims of the thoughtless expansion of government. When

new programs were introduced or old ones retargeted, little

thought was given to what economists blandly label "second order

effects"--the unintended and unwanted consequences of actions.

These unintended consequences are the collateral damage

responsible for so much of the waste documented in this report.

When we placed limits on crop deficiency payments, we didn't

realize how easy it would be to establish eligible

shell-corporations. When we added new

procurement standards, we didn't anticipate the difficulties

caused by centralized decision making. When we tried to target

training programs on dislocated workers, we didn't anticipate the

bureaucratic hassles involved in establishing eligibility.

But the fact that we did not anticipate consequences does

not mean that we could not have done so. Many different programs

have been tried--by federal agencies, by state and local

agencies, and by governments overseas. We have built up what

lawyers would call "case law": lots of useful precedents about

what works and what doesn't. The trouble is that, unlike case

law, these precedents aren't easy to find. Congressional staff or

agency employees designing new programs have no systematic way to

find out what has been tried before and how well it has worked.
The result? Endless reinvention of third rate or failed programs.

In 1981, for example, the chairman of the House Banking

Committee asked the Congressional Budget Office if it knew of any

studies evaluating government loans as an effective policy tool.

CBO did not. Yet the federal government had lent hundreds of

billions of dollars--and it continues to do so today. The price

we pay for this ignorance is a mountain of delinquent debt and a

raft of discredited government initiatives. Too many policies and

programs are built on equally feeble foundations.

In 1988, Congress recognized this dilemma and provided for

the establishment of a National Commission on Executive

Organization, patterned after the first Hoover Commission. Its

charter would have included a requirement to "establish criteria

for use by the President and Congress in evaluating proposals for

government corporations and government-sponsored enterprises and

subsequently overseeing their performance."71 The new commission

could have been activated by directive. It was not.

To begin our attack on ignorance, the President should

direct the President's Management Council to make program design

a formal discipline throughout the federal government. The PMC

will commission the preparation and publication of a program

design handbook and establish pilot efforts within agencies to

strengthen their ability to design programs. These pilot programs

will help senior management design new programs, evaluate current

programs, and create models for many different types of programs

(research contracts, loan programs, tax preferences, and

insurance programs to name just a few.)

Since many programs originate in Congress, the Legislative

branch should also work to improve staff capacity. We urge the

Offices of the Legislative Counsel, the Congressional Research

Service, and the General Accounting Office to fill this role. As

both the legislative and executive branches elevate the

discipline of program design, we will get better programs and

less contentious relations between the two branches of

government.

But we need more than good programs. We need better rules

and more efficient rulemaking. Federal agencies administer tens

of thousands of laws, rules, and regulations--and the number is

growing quickly. For better or worse, government's rulemaking,

even more than its appropriations, shapes our lives.

Costs, for the most part, are offset by benefits. Our system

of laws and rules is the foundation for our economic success. It

defines and protects personal and property rights and provides

the framework for the orderly conduct of social and business

affairs.

But some aspects of rulemaking don't work well. As rules

extend into increasingly complex areas of our environment,

workplace safety, health, and social rights, their

consequences--both deliberate and unintended--also grow. As this

happens, we introduce more and more safeguards into the

rulemaking process. The result is not always what we want.

Hearings, reviews, revisions, more reviews, more hearings, and

even more reviews are cumbersome, costly, and time consuming. For

example, because the Department of Health and Human Services has

been slow to issue regulations on such vital areas as the

allocation of funds for the elderly and for children, states have

had to introduce their own regulations without the benefit of

federal guidance. Some of these state regulations have later been

overturned after federal regulations were eventually issued,

leaving states financially liable.

New rules and regulations can also generate costly

litigation--a bonanza for lawyers. Agencies writing the rules to
implement environmental laws, according to one expert, often find

"too frequently that their proceedings become a battleground for

interest groups and other affected parties--in effect little more

than the first round of the expected litigation."72

There are better ways to make rules. A small group of

federal agencies has pioneered a process called negotiated

rulemaking. In 1990, Congress recognized and encouraged the

process with passage of the Negotiated Rulemaking Act. We believe

negotiated

rulemaking--colloquially referred to as "reg neg"--is a process

every rulemaking agency should use more frequently.73

Action: Agencies will make greater use of negotiated rule

making.74

The "reg neg" process brings together representatives of the

agencies and affected groups before draft regulations are issued

and before all sides have formally declared war. The group meets

with a mediator or "facilitator." The negotiators reach consensus

on the regulation by evaluating their own priorities and making

trade-offs. The negotiating process allows informal give and take

that can never happen in court or in a public hearing. If

agreement is reached, the agency can publish the proposed rule,

accompanied by a discussion of the issues raised during

negotiations. Even if both sides are too far apart to reach

consensus, agency staff learn a lot during the process that helps

them improve the regulations. When the parties do reach

consensus, regulations are issued faster and costly litigation is

avoided.

When EPA applied reg neg techniques to the issue of emission

standards for wood burning stoves, it was able to put standards

into effect two years faster, and with much better factual input,

than it could have without negotiations. Manufacturers of stoves,

in turn, were able to begin retooling to meet standards without

another two years of uncertainty.

Action: Agencies will expand their use of alternative dispute

resolution techniques.75

Federal agencies also need better and cheaper ways to resolve

disputes. Enforcing thousands of difficult and sometimes

controversial rules--however carefully they are designed--leads

to disagreements. State and local governments, businesses, and

citizens challenge Washington's right to regulate certain issues,

or they challenge the the enforcement of specific regulations.

Solving these disputes can be expensive. It involves

high-priced lawyers, it clogs the courts, and it delays action.

Each year, 24,000 litigation matters reach the 530 full-time

attorneys and 220 support staffers employed by the Labor

Department alone. It often takes years to resolve these disputes,

postponing the implementation of important programs and

preventing a lot of people from doing what they are paid to do.

In some cases, litigation is important: it interprets the

law, sets important precedents, and serves as a deterrent to

future wrongdoing. But in many cases, no one really wins-- and

the taxpayer loses. It is often cheaper to resolve conflicts

through new techniques known collectively as Alternative Dispute

Resolution (ADR).

Alternative Dispute Resolution (ADR) includes mediation (a

neutral third party helps the disputants negotiate), early

neutral evaluation (a neutral, often expert, person evaluates the

merits of both sides), factfinding (a neutral expert resolves

disputes that arise over matters of fact, not interpretation),

settlement judges (a mediator settles disputes coming before

tribunals), mini-trials (a structured settlement process), and

arbitration (an arbitrator issues a decision on the dispute).

Overcrowded courts are already encouraging private litigants

to use ADR. Private contracts often specify the use of ADR to

resolve disagreements among signatories. In 1990, Congress passed

the Alternative Dispute Resolution Act, authorizing every federal

agency to develop its own ADR policy. Some have, but some have

dragged their feet.

Those that have used ADR have saved time and money and

avoided generating ill will. The Labor Department started a pilot

program last year for OSHA and Wage and Hour cases and found it

much quicker and cheaper. The Federal Deposit Insurance

Corporation saved more than $400,000 with a single, small pilot

program. The Farmers' Home Administration has used ADR on

foreclosure cases--not only saving money but actually avoiding

foreclosure on several families. This type of innovation should

spread faster and further across the federal government.

Conclusion

If we follow these steps, we will move much closer to a

government that costs less and works better for all of us. It

will be leaner, more effective, fairer, and more up-to-date. It

will be a government worth what we pay for it.

We do not deny that many groups will oppose the actions we

propose to take. We all want to see cuts made, but we want them

elsewhere. Eliminating or cutting programs hurts. But it hurts

less, at least in the long run, than the practice of government

as usual. Writing about Britain's monarchy in the eighteenth

century, Samuel Pepys once observed that it was difficult for the

king to spend a million pounds and get his money's worth. Fawning

courtiers, belligerent Lords and hundreds of other claimants each

demanded their share. The same is true today. The money spigot in

Washington is much easier to turn on than to turn off--and too

little of the funds that gush from it irrigate where water is

scarce. That is why we have not simply offered a list of cuts in

this report. Instead, we have offered a new process--a process of

incentives that will imbue government with a new accountability

to customers and a new respect for the public's money.

.