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"Why is it that when we have a problem," the other forester asked, "the solution is always to add something--a report, a system, a policy--but never take something away?"
The first replied: "What if . . . we could just start over?"
The federal government does at least one thing well: It generates red tape. But not one inch of that red tape appears by accident. In fact, the government creates it all with the best of intentions. It is time now to put aside our reverence for those good intentions and examine what they have created--a system that makes it hard for our civil servants to do what we pay them for, and frustrates taxpayers who rightfully expect their money's worth.
Because we don't want politicians' families, friends, and supporters placed in "no-show" jobs, we have more than 100,000 pages of personnel rules and regulations defining in exquisite detail how to hire, promote, or fire federal employees. Because we don't want employees or private companies profiteering from federal contracts, we create procurement processes that require endless signatures and long months to buy almost anything. Because we don't want agencies using tax dollars for any unapproved purpose, we dictate precisely how much they can spend on everything from staff to telephones to travel.
And because we don't want state and local governments using federal funds for purposes that Congress did not intend, we write regulations telling them exactly how to run most programs that receive federal funds. We call for their partnership in dealing with our country's most urgent domestic problems, yet we do not treat them as equal partners.
Consider some examples from the daily lives of federal workers, people for whom red tape means being unable to do their jobs as well as they can--or as well as we deserve. The district managers of Oregon's million-acre Ochoco National Forest have 53 separate budgets--one for fence maintenance, one for fence construction, one for brush burning- -divided into 557 management codes and 1,769 accounting lines. To transfer money between accounts, they need approval from headquarters. They estimate the task of tracking spending in each account consumes at least 30 days of their time every year, days they could spend doing their real jobs. It also sends a message: You are not trusted with even the simplest responsibilities.
Or consider the federal employees who repair cars and trucks at naval bases. Each time they need a spare part, they order it through a central purchasing office--a procedure that can keep vehicles in the shop for a month. This keeps one-tenth of the fleet out of commission, so the Navy buys 10 percent more vehicles than it needs. Or how about the new Energy Department petroleum engineer who requested a specific kind of calculator to do her job? Three months later, she received an adding machine. Six months after that, the procurement office got her a calculator--a tiny, hand-held model that could not perform the complex calculations her work required. Disgusted, she bought her own.
Federal managers read the same books and attend the same conferences as private sector managers. They know what good management looks like. They just can't put it into practice--because they face constraints few managers in the private sector could imagine.
Hamstrung by rules and regulations, federal managers simply do not have the power to shape their organizations enjoyed by private sector managers. Their job is to make sure that every dollar is spent in the budget category and the year for which it was appropriated, that every promotion is consistent with central guidelines, and that every piece of equipment is bought through competitive bidding. In an age of personal computers, they are asked to write with quill pens.
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Never tell people how to do things. Tell them what you want to achieve, and they will surprise you with their ingenuity.
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| General George S. Patton |
| 1944 |
This thicket of rules and regulations has layer upon layer of additional oversight. Each new procedure necessitates someone's approval. The result is fewer people doing real work, more people getting in their way. As management sage Peter Drucker once said, "So much of what we call management consists of making it difficult for people to work."
As Robert Tobias, president of the National Treasury Employees Union, told participants at the Philadelphia Summit on Reinventing Government, "The regulations and statutes that bind federal employees from exercising discretion available in the private sector all come about as a response to the humiliations, mistakes, embarrassments of the past." Even though, as Tobias noted, "those problems are 15, 20, 30 years old," and "the regulations and the statutes don't change." The need to enforce the regulations and statutes, in turn, creates needless layers of bureaucracy.
The layers begin with "staff" agencies, such as the General Services Administration (GSA) and the Office of Personnel Management (OPM). These staff agencies were designed originally to provide specialized support for "line" agencies, such as the Interior and Commerce departments, that do government's real work. But as rules and regulations began to proliferate, support turned into control. The Office of Management and Budget (OMB) which serves the President in the budget process, runs more than 50 compliance, clearance, and review processes. Some of this review is necessary to ensure budget control and consistency of agency actions--with each other and with the President's program--but much of it is overkill.
Line agencies then wrap themselves in even more red tape by creating their own budget offices, personnel offices, and procurement offices. Largely in response to appropriations committees, budget offices divide congressional budgets into increasingly tiny line items. A few years ago, for example, base managers in one branch of the military had 26 line items for housing repairs alone. Personnel offices tell managers when they can and cannot promote, reward, or move employees. And procurement offices force managers to buy through a central monopoly, precluding agencies from getting what they need, when they need it.
What the staff agencies don't control, Congress does. Congressional appropriations often come with hundreds of strings attached. The Interior Department found that language in its 1992 House, Senate, and conference committee reports included some 2,150 directives, earmarks, instructions, and prohibitions. As the federal budget tightens, lawmakers request increasingly specific report language to protect activities in their districts. Indeed, 1993 was a record year for such requests. In one appropriations bill alone, senators required the U.S. Customs Service to add new employees to its Honolulu office, prohibited closing any small or rural post office or U.S. Forest Service offices; and forbade the U.S. Mint and the Bureau of Engraving and Printing from even studying the idea of contracting out guard duties.
Even worse, Congress often gives a single agency multiple missions, some of which are contradictory. The Agency for International Development has more than 40 different objectives, disposing of American farm surpluses, building democratic institutions, and even strengthening the American land grant college system. No wonder it has trouble accomplishing its real mission--promoting international development.
In Washington, we must work together to untangle the knots of red tape that prevent government from serving the American people well. We must give cabinet secretaries, program directors and line managers much greater authority to pursue their real purposes.
As Theodore Roosevelt said: "The best executive is the one who has the sense to pick good men to do what he wants done, and self-restraint enough to keep from meddling with them while they do it."
Our path is clear: We must shift from systems that hold people accountable for process to systems that hold them accountable for results. We discuss accountability for results in chapter 3. In this chapter, we focus on six steps necessary to strip away the red tape that so engulfs our federal employees and frustrates the American people.
As we pare down the systems of over-control and micromanagement in government, we must also pare down the structures that go with them: the oversized headquarters, multiple layers of supervisors and auditors, and offices specializing in the arcane rules of budgeting, personnel, procurement, and finance. We cannot entirely do without headquarters, supervisors, auditors, or specialists, but these structures have grown twice as large as they should be.
Counting all personnel, budget, procurement, accounting, auditing, and headquarters staff, plus supervisory personnel in field offices, there are roughly 700,000 federal employees whose job it is to manage, control, check up on or audit others. This is one third of all federal civilian employees.
Not counting the suffocating impact these management control structures have on line managers and workers, they consume $35 billion a year in salary and benefits alone. If Congress enacts the management reforms outlined in this report, we will dramatically cut the cost of these structures. We will reinvest some of the savings in the new management tools we need, including performance measurement, quality management, and training. Overall, these reforms will result in the net elimination of approximately 252,000 positions. (This will include the 100,000 position reduction the President has already set in motion.)
A reduction of 252,000 positions will reduce the civilian, non-postal work force by almost 12 percent--bringing it below two million for the first time since the 1966.
This reduction, targeted at the structures of control and micromanagement, is designed to improve working conditions for the average federal employee. We cannot empower employees to give us their best work unless we eliminate much of the red tape that now prevents it. We will do everything in the government's power to ease the transition for workers, whether they choose to stay with government, retire, or move to the private sector.
Our commitment is this: If an employee whose job is eliminated cannot retire through our early retirement program, and does not elect to take a cash incentive to leave government service, we will help that employee find another job offer, either with government or in the private sector.
Normal attrition will contribute to the reduction. In addition, we will introduce legislation to permit all agencies to offer cash payments to those who leave federal service voluntarily, whether by retirement or resignation. The Department of Defense (DOD) and intelligence community already have this "buy-out" authority; we will ask Congress to extend it to all agencies. We will also give agencies broad authority to offer early retirement and to expand their retraining, out-placement efforts, and other tools as necessary to accomplish the 12% reduction. Agencies will be able to use these tools as long as they meet their cost reduction targets.
These options will give federal managers the same tools commonly used to downsize private businesses. Even with these investments, the downsizing we propose will save the taxpayer billions over the next 5 years.
None of this will be easy. Downsizing never is. But the result will not only be a smaller workforce, it will also be a more empowered, more inspired, and more productive workforce. As one federal employee told Vice President Gore at one of his many town meetings, "If you always do what you've always done, you'll always get what you always got." We can no longer afford to get what we've always got.
Most people can't get excited about the federal budget process, with its green-eyeshade analysts, complicated procedures, byzantine language, and reams of minutiae. Beyond such elements, however, lies a basic, unalterable reality. For organizations of all kinds, nothing is more important than the process of resource allocation: what goal is sought, how much money they have, what strings are attached to it, and what hurdles are placedble reality. For organizations of all kinds, nothing is more important than the process of resource allocation: what goal is sought, how much money they have, what strings are attached to it, and what hurdles are placed before managers who must spend it.
In government, budgeting is never easy. After all, the budget is the most political of documents. If, as the political scientist Harold D. Lasswell once said, politics is "who gets what, when, how," the budget answers that question. By crafting a budget, public officials decide who pays what taxes and who receives what benefits. The public's largesse to children, the elderly, the poor, the middle class, and others is shaped by the budgets that support cities, states, and the federal government. But if budgeting is inherently messy, such messiness is costly. Optimally, the budget would be more than the product of struggles among competing interests. It also would reflect the thoughtful planning of our public leaders. No one can improve quality and cut costs without planning to do so.
Unfortunately, the most deliberate planning is often subordinated to politics, and is perhaps the last thing we do in constructing a budget. Consider our process. Early in the year, each agency estimates what it will need to run its programs in the fiscal year that begins almost 2 years later. This is like asking someone to figure out not only what they will be doing, but how much it will cost 3 years later--since that's when the money will be spent. Bureau and program managers typically examine the previous year's activity data and project the figures 3 years out, with no word from top political leaders on their priorities, or even on the total amount that they want to spend. In other words, planning budgets is like playing "pin the tail on the donkey." Blindfolded managers are asked to hit an unknown target.
OMB, acting for the President, then crafts a proposed budget through back-and forth negotiations with departments and agencies, still a year before the fiscal year it will govern. Decisions are struck on dollars--dollars that, to agencies, mean people, equipment, and everything else they need for their jobs. OMB's examiners may question agency staff as they develop options papers, OMB's director considers the options during his Director's Review meetings, OMB "passes back" recommended funding levels for the agencies, and final figures are worked out during a final appeals process.
Early the next year, the President presents a budget proposal to Congress for the fiscal year beginning the following October 1. Lawmakers, the media, and interest groups pore over the document, searching for winners and losers, new spending proposals, and changes in tax laws. In the ensuing months, Congress puts its own stamp on the plan. Although House and Senate budget committees, guide Congress' action, every committee plays a role.
Authorizing committees debate the merits of existing programs and the President's proposals for changes within their subject areas. While they decide which programs should continue and recommend funding levels, separate appropriations committees draft the 13 annual spending bills that actually comprise the budget.
Congressional debates over a budget resolution, authorization bills, and appropriations drag on, often into the fall. Frequently the President and Congress don't finish by October 1, so Congress passes one or more "continuing resolutions" to keep the money flowing, often at the previous year's level. Until the end, agency officials troop back and forth to OMB and to the Hill to make their case. States and localities, organizations and advocates seek time to argue their cause. Budget staffs work non-stop, preparing estimates and projections on how this or that change will affect revenues or spending. All this work is focused on making a budget--not planning or delivering programs.
Ironies riddle the process.
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There are two ways to reduce expenditures. There is the intelligent way... going through each department and questioning each program. Then there is the stupid way: announcing how much you will cut and getting each department to cut that amount. I favor the stupid way. |
| Michel Belanger Chairman, |
| Quebec National Bank |
| May 7, 1992 |
In sum, the budget process is characterized by fictional requests and promises, an obsession with inputs rather than outcomes, and a shortage of debate about critical national needs. We must start to plan strategically--linking our spending with priorities and performance. First, we must create a rational budgeting system.
Federal managers should focus primarily on the content of the budget, not on the process. A new executive budget resolution will help them do that. The President should issue a directive in early 1994 to mandate the use of such a resolution in developing his fiscal year 1996 budget. It will turn the executive budget process upside down.
To develop the resolution, officials from the White House policy councils will meet with OMB and agency officials. In those sessions, the administration's policy leadership will make decisions on overall spending and revenue levels, deficit reduction targets, and funding allocations for major inter-agency policy initiatives. The product of these meetings--a resolution completed by August--will provide agencies with funding ceilings and allocations for major policy missions. Then, bureaus will generate their own budget estimates, now knowing their agency's priorities and fiscal limits.
Our own Environmental Protection Agency (EPA) tried a similar approach in the 1970s as part of a zero-based budgeting trial run. Although zero-based budgeting fell short, participants said, two important advantages emerged: a new responsiveness to internal customer needs and a commitment to final decisions. When participants voted to cut research and development funds because they felt researchers ignored program needs, researchers began asking programs managers what kind of research would support their efforts. EPA also found that, after its leaders had agonized over funding, they remained committed to common decisions.
Critics may view the executive budget resolution process as a top-down tool that will stifle creative, bottom-up suggestions for funding options. We think otherwise. The resolution will render top officials responsible for budget totals and policy decisions, but will encourage lower-level ingenuity to devise funding options within those guidelines. By adopting this plan, we will help discourage non-productive micro-management by senior department and agency officials.
We should not have to enact a budget every year. Twenty states adopt budgets for 2 years. (They retain the power to make small adjustments in off years if revenues or expenditures deviate widely from forecasts). As a result, their governors and legislatures have much more time to evaluate programs and develop longer-term plans.
Annual budgets consume an enormous amount of management time--time not spent serving customers. With biennial budgets, rather than losing months to a frantic "last-year's budget-plus-X-percent" exercise, we might spend more time examining which programs actually work.
The idea of biennial budgeting has been around for some time. Congressman Leon Panetta, now OMB director, introduced the first biennial budgeting bill in 1977, and dozens have been offered since. Although none have passed, the government has some experience with budget plans that cover 2 years or more. In 1987, the President and Congress drafted a budget plan for fiscal years 1988 and 1989 that set spending levels for major categories, enabling Congress to enact all 13 appropriations bills on time for the first time since 1977.
In addition, Congress directed the Defense Department to submit a biennial budget for fiscal 1988 and 1989 to give Congress more time for broad policy oversight. At the time, Congress asserted that a biennial budget would "substantially improve DOD management and congressional oversight," and that a two-year DOD budget was an important step toward across-the-board biennial budgeting. Administrations have continued to submit biennial budgets for DOD.
The 1990 Budget Enforcement Act and the 1993 Omnibus Budget Reconciliation Act set 5-year spending limits for discretionary spending and pay-as-you-go requirements for mandatory programs. With these multi-year caps in place, neither the President nor Congress has to decide the total level of discretionary spending each year. These caps provide even more reason for biennial budgets and appropriations. In Congress, 7 out of 10 members favor a biennial process with a 2-year budget resolution and multi-year authorizations. The time is ripe.
We recommend that Congress establish biennial budget resolutions and appropriations and multi-year authorizations. The first biennium should begin October 1, 1996, to cover fiscal years 1997 and 1998. After that, bienniums would begin October 1 of each even-numbered year. Such timing would allow President Clinton to develop the first comprehensive biennial federal budget, built on the new executive budget resolution. In off years, the President would submit only amendments for exceptional areas of concern, emergencies, or other unforeseen circumstances.
Biennial budgeting will not make our budget decisions easier, for they are shaped by competing interests and priorities. But it will eliminate an enormous amount of busy work that keeps us from evaluating programs and meeting customer needs.
Congress typically divides its appropriations into more than 1,000 accounts. Committee reports specify thousands of other restrictions on using money. OMB apportions each account by quarter or year, and sometimes divides it into sub-accounts by line-item or object class--all to control over-spending. Departmental budget offices further divide the money into allotments.
Thus, many managers find their money fenced into hundreds of separate accounts. In some agencies, they can move funds among accounts. In others, Congress or the agency limits the transfer of funds, trapping the money. When that happens, managers must spend money where they have it, not where they need it. On one military base, for example, managers had no line item to purchase snowplow equipment, but they did have a maintenance account. When the snowplow broke down they leased one, using the maintenance account. Unfortunately, the 1-year lease cost $100,000--the same as the full purchase price.
Such stories are a dime a dozen within the federal bureaucracy. (They may be the only government cost that is coming down.) Good managers struggle to make things work, but, trapped by absurd constraints, they are driven to waste billions of dollars every year.
Stories about the legendary end-of-the-year spending rush also abound. Managers who don't exhaust each line item at year's end usually are told to return the excess. Typically, they get less the next time around. The result: the well-known spending frenzy. The National Performance Review received more examples of this source of waste--in letters, in calls, and at town meetings--than any other.
Most managers know how to save 5 or 10 percent of what they spend. But knowing they will get less money next year, they have little reason to save. Instead, smart managers spend every penny of every line item. Edwin G. Fleming, chief of the Resources Management Division of the Internal Revenue Service's Cleveland District, put it well in a letter to the Treasury Department's Reinvention Team:
Every manager has saved money, only to have his allocation reduced in the subsequent year. This usually happens only once, then the manager becomes a spender rather than a planner. Managing becomes watching after little pots of money that can't be put where it makes business sense because of reprogramming restrictions. So managers, who are monitors of these little pots of money, are rewarded for the ability to maneuver, however limitedly, through the baroque and bizarre world of federal finance and procurement.
Solutions to these problems exist. They have been tested in local governments, in state governments, even in the federal government. Essentially, they involve budget systems with fewer line items, more authority for managers to move money among line items, and freedom for agencies to keep some or all of what they save--thus minimizing the incentive for year-end spending sprees.
Typically, federal organizations experimenting with such budgets have found that they can achieve better productivity, sometimes with less money.
During an experiment at Oregon's Ochoco National Forest in the 1980s, when dozens of accounts were reduced to six, productivity jumped 25 percent the first year and 35 percent more the second. A 1991 Forest Service study indicated that the experiment had succeeded in bringing gains in efficiency, productivity, and morale, but had failed to provide the Forest Service region with a mechanism for complying with congressional intent. After 3 years of negotiations, Washington and Region 6, where the Ochoco Forest is located, couldn't agree. The region wanted to retain the initial emphasis on performance goals and targets so forest managers could shift money from one account to another if they met performance goals and targets. Washington argued that Congress would not regard such targets as a serious measure of congressional intent. The experiment ended in March 1993.
When the Defense Department allowed several military bases to experiment with what was called the Unified Budget Test, base commanders estimated that they could accomplish their missions with up to 10 percent less money. If this experience could be applied to the entire government, it could mean huge savings. Beginning with their fiscal year 1995 submissions to OMB, departments and agencies will begin consolidating accounts to minimize restrictions and manage more effectively. They will radically cut the number of allotments used to subdivide accounts. In addition, they will consider using the Defense Department's Unified Budget plan, which permits shifts in funds between allotments and cost categories to help accomplish missions.
OMB will simplify the apportionment process, which hamstrings agencies by dividing their funding into amounts that are available, bit by bit, according to specified time periods, activities, or projects. Agencies often don't get their funding on time and, after they do, must fill out reams of paperwork to show that they adhered to apportionment guidelines. OMB will also expedite the "reprogramming" process, by which agencies can move funds within congressionally appropriated accounts. Currently, OMB and congressional subcommittees approve all such reprogrammings. OMB should automatically approve reprogramming unless it objects within a set period, such as five days.
While understandable in some cases, such earmarks hamper agencies that seek to manage programs efficiently. Agencies should work with appropriations subcommittees on this problem.
In another effort to control spending, both the executive and legislative branches often limit the number of each agency's employees by using full-time equivalent (FTE) limits. When agencies prepare their budget estimates, they must state how many FTEs they need in addition to how many dollars. Then, each department or agency divides that number into a ceiling for each bureau, division, branch, or other unit. Congress occasionally complicates the situation by legislating FTE floors.
Federal managers often cite FTE controls as the single most oppressive restriction on their ability to manage. Under the existing system, FTE controls are the only way to make good on the President's commitment to reduce the federal bureaucracy by 100,000 positions through attrition. But as we redesign the government for greater accountability, we need to use budgets, rather than FTE controls, to drive our downsizing. FTE ceilings are usually imposed independently of--and often conflict with--budget allocations. They are frequently arbitrary, rarely account for changing circumstances, and are normally imposed as across-the-board percentage cuts in FTEs for all of an agency's units- -regardless of changing circumstances. Organizations that face new regulations or a greater workload don't get new FTE ceilings. Consequently, they must contract out work that could be done better and cheaper in-house. One manager at Vice President Gore's meeting with foreign affairs community employees at the State Department in May 1993 offered an example: his FTE limit had forced him to contract out for a junior programmer for the Foreign Service Institute. As it turned out, the programmer's hourly rate equaled the Institute Director's, so the move cost money instead of saving it.
The President should direct OMB and agency heads to stop setting FTE ceilings in fiscal year 1995.
For this transition, the agencies' accounting systems will have to separate true operating costs from program and other costs. Some agencies already have such systems in place; others must develop financial management systems to allow them to calculate these costs. We address this issue in a separate recommendation in chapter 3.
This recommendation fully supports the President's commitment to maintain a reduced federal workforce. Instead of controlling the size of the federal workforce by employment ceilings--which cause inefficiencies and distortions in managers' personnel and resource allocation decisions--this new system will control the federal workforce by dollars available in operating funds.
Congress should also minimize the restrictions and earmarks that it imposes on agencies. With virtually all federal spending under scrutiny for future cuts, Congress is increasingly applying earmarks to ensure that funding flows to favored programs and hometown projects.
Imagine the surprise of Interior Secretary Bruce Babbitt, who a few months after taking office discovered that he was under orders from Congress to maintain 23 positions in the Wilkes-Barre, Pennsylvania, field office of his department's anthracite reclamation program. Or that his department was required to spend $100,000 to train beagles in Hawaii to sniff out brown tree snakes. Edward Derwinski, former secretary of Veteran Affairs, was once summoned before the Texas congressional delegation to explain his plan to eliminate 38 jobs in that state.
As part of its 13 fiscal year 1995 appropriations bills, Congress should permanently allow agencies to roll over 50 percent of unobligated year-end balances in all appropriations for operations. It should allow agencies to use up to 2 percent of rolled-over funds to finance bonuses for employees involved. This approach, which the Defense Department and Forest Service have used successfully, would reward employees for finding more productive ways to work. Moreover, it would create incentives to save the taxpayers' money.
Shared savings incentives work. In 1989, the General Accounting Office (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 hire more staff to keep up with the paperwork and also to keep a portion of recovered third-party payments for administrative costs. VA recoveries soared from $24 million to $530 million.
If incentives to save are to be real, Congress and OMB will have to refrain from automatically cutting agencies' budgets by the amount they have saved when they next budget is prepared. Policy decisions to cut spending are one thing; automatic cuts to take back savings are quite another. They simply confirm managers' fears that they will be penalized for saving money. Agencies' chief financial officers should intervene in the budget process to ensure that this does not happen.
Year after year, layer after layer, the rules have piled up. The U.S. Merit Systems Protection Board reports there are now 850 pages of federal personnel law--augmented by 1,300 pages of OPM regulations on how to implement those laws and another 10,000 pages of guidelines from the Federal Personnel Manual.
| Catch-22 |
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| Our federal personnel system ought to place a value on experience. That's not always the case. Consider the story of Rosalie Tapia. Ten years ago, fresh from high school, she joined the Army and was assigned to Germany as a clerk. She served out her enlistment with an excellent record, landed a job in Germany as a civilian secretary for the Army, and worked her way up to assistant to the division chief. When the Cold War ended, Tapia wanted to return to the U.S. and transfer to a government job here. Unfortunately, one of the dictates contained in the government's 10,000 pages of personnel rules says that an employee hired as a civil servant overseas is not considered a government employee once on home soil. Any smart employer would prefer to hire an experienced worker with an excellent service record over an unknown. But our government's policy doesn't make it easy. Ironically, Tapia landed a job with a government contractor, making more money-- and probably costing taxpayers more-- than a job in the bureaucracy would have paid. |
On one topic alone--how to complete a standard form for a notice of a personnel action- -the Federal Personnel Manual contains 900 pages of instructions. The full stack of personnel laws, regulations, directives, case law and departmental guidance that the Agriculture Department uses weighs 1,088 pounds.
Thousands of pages of personnel rules prompt thousands of pages of personnel forms. In 1991, for example, the Navy's Human Resources Office processed enough forms to create a "monument" 3,100 feet tall--six times the height of the Washington monument. Costs to the taxpayer for this personnel quagmire are enormous. In total, 54,000 personnel work in federal personnel positions. We spend billions of dollars for these staff to classify each employee within a highly complex system of some 459 job series, 15 grades and 10 steps within each grade.
Does this elaborate system work? No.
After surveying managers, supervisors and personnel officers in a number of federal agencies, the U.S. Merit Systems Protection Board recently concluded that federal personnel rules are too complex, too prescriptive, and often counterproductive. Talk to a federal manager for 10 minutes: You likely will hear at least one personnel horror story. The system is so complex and rule-bound that most managers cannot even advise an applicant how to get a federal job. "Even when the public sector finds outstanding candidates," In 1989, Paul Volcker's National Commission on the Public Service explained, "the complexity of the hiring process often drives all but the most dedicated away." Managers who find it nearly impossible to hire the people they need sometimes flaunt the system by hiring people as consultants at higher rates than those same people would earn as federal employees. The average manager needs a year to fire an incompetent employee, even with solid proof. During layoffs, employees slated to be laid off can "bump" employees with less seniority, regardless of their abilities or performance--putting people in jobs they don't understand and never wanted.
Vice President Gore heard many stories of dissatisfaction as he listened to federal workers at meetings in their agencies. A supervisor at the Centers for Disease Control complained that it can take six to eight months and as many as 15 revisions to a job description in order to get approval for a position he needs to fill. A secretary from the Justice Department told the Vice President she was discouraged and overworked in an office where some secretaries were slacking off--with no system in place to reward the hard workers and take action against the slackers.
A worker from the Agency for International Development expressed her frustration at being so narrowly "slotted" in a particular GS series that she wasn't allowed to apply for a job in a slightly different GS series --even though she was qualified for the job. An Air Force lieutenant colonel told the vice president that her secretary was abandoning government for the private sector because she was blocked from any more promotions in her current job series. The loss would be enormous, the colonel told Gore, because her secretary was her "right-hand person". One of the Labor Department's regional directors for unemployment insurance complained that even though he is charged with running a multimillion a year program, he isn't allowed to hire a $45,000-a-year program specialist without getting approval from Washington.
To create an effective federal government, we must reform virtually the entire personnel system: recruitment, hiring, classification, promotion, pay, and reward systems. We must make it easier for federal managers to hire the workers they need, to reward those who do good work, and to fire those who do not. As the National Academy of Public Administration concluded in 1993, "It is not a question of whether the federal government should change how it manages its human resources. It must change."
We must enable all managers to pursue their missions, freed from the cumbersome red tape of current personnel rules. The President should issue a directive phasing out the Federal Personnel Manual and all agency implementing directives. The order will require that most personnel management authority be delegated to agencies' line managers at the lowest level practical in each agency. It will direct OPM to work with agencies to determine which FPM chapters, provisions, or supplements are essential, which are useful, and which are unnecessary. OPM will then replace the FPM and agency directives with manuals tailored to user needs, automated personnel processes, and electronic decision support systems.
Once some of the paperwork burden is eased, our next priority must be to give agency managers more control over who comes to work for them. To accomplish this, we propose to radically decentralize the government's hiring process.
We will ask Congress to pass legislation decentralizing authority over recruitment, hiring, and promotion. Under the present system, OPM controls the examination system for external candidates and recruits and screens candidates for positions that are common to all agencies, with agencies then hiring from among candidates presented by OPM. Under the new system, OPM could offer to screen candidates for agencies, but agencies need not accept OPM's offer.
Under this decentralized system, agencies will also be allowed to make their own decisions about when to hire candidates directly--without examinations or rankings - -under guidelines to be drafted by OPM. Agencies able to do so should also be permitted to conduct their own background investigations of potential candidates. We will make sure the system is fair and easy for job applicants to use, however, by making information about federal job openings available in one place. In place of a central register, OPM will create a government-wide, employment information system that allows the public to go to one place for information about all job opportunities in the federal government.
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First, we must cut the waste and make government operations more responsive to the American people. It is time to shift from top-down bureaucracy to entrepreneurial government that generates change from the bottom up. We must reward the people and ideas that work and get rid of those that don't. |
| President Bill Clinton |
| February 17, 1993 |
Next, we must change the classification system, introduced in 1949 to create fairness across agencies but now widely regarded as time-consuming, expensive, cumbersome, and intensely frustrating--for both workers and managers.
After an exhaustive 1991 study of the system, the National Academy of Public Administration recommended a complete overhaul of the system. Classification standards, NAPA argued, are "too complex, inflexible, out-of-date, and inaccurate," creating "rigid job hierarchies that cannot change with organizational structure." They drive some of the best employees out of their fields of expertise and into management positions, for higher pay. And managers seeking to create new positions often fight the system for months to get them classified and filled.
There is strong evidence that agencies given authority to do these things themselves can do better. Using demonstration authority under the 1978 Civil Service Reform Act, several agencies have experimented with simpler systems. In one experiment, at the Naval Weapons Center in China Lake, California, and the Naval Oceans Systems Center, in San Diego, the system was simplified to a few career paths and only four-to-six broad pay bands within each path. Known as the "China Lake Experiment," it solved many of the problems faced by the two naval facilities. It:
A third demonstration at more than 200 Agriculture Department sites tested a streamlined, agency-based recruiting and hiring system that replaced OPM's register process. Under OPM's system, candidates are arrayed and scored based on OPM's written tests or other examinations. In USDA's demonstration, however, the agency grouped candidates by its own criteria, such as education, experience or ability, then picked from those candidates. A candidate might qualify for a job, for example, with a 2.7 college grade point average. Agencies could create their own recruitment incentives, do their own hiring, and extend the probationary period for some new hires. Managers were far more satisfied with this system than the existing one.
We will urge Congress to remove all the 1940s-era grade-level descriptions from the law and adopt an approach that is more modern. In addition, Congress should allow agencies to move from the General Schedule system to a broad-band system. OPM should develop such standard banding patterns, and agencies should be free to adopt one without seeking OPM's approval.
When agency proposals do not fit under a standard pattern, OPM should approve them as five-year demonstration projects that would be converted to permanent "alternative systems" if successful. OPM should establish criteria for broad-banding demonstration projects, and agencies' projects meeting those criteria should receive automatic approval.
These changes would give agencies greater flexibility to hire, retain, and promote the best people they find. They would help agencies flatten their hierarchies and promote high achievers without having to make them supervisors. They would eliminate much valuable time now lost to battles between managers seeking to promote or reward employees and personnel specialists administering a classification system with rigid limits. Finally, they would remove OPM from its role as "classification police." To accompany agencies' new flexibility on classification and pay, they must also be given authority to set standards for their own workers and to reward those who do well.
The current government performance appraisal process is frequently criticized as a meaningless exercise in which most federal employees are given above-average ratings. We believe that agencies will be able to develop performance appraisals that are more meaningful to their employees. If they succeed, these new approaches will send a message that job performance is directly linked to workers' chances for promotion and higher pay.
Current systems to assess on-the-job performance were designed to serve multiple purposes: to enhance performance, to authorize higher pay for high performers, to retain high performers, and to promote staff development. Not surprisingly, they serve none of these purposes well.
Performance management programs should have a single goal: to improve the performance of individuals and organizations. Agencies should be allowed to develop programs that meet their needs and reflect their cultures, including incentive programs, gainsharing programs, and awards that link pay and performance. If agencies--in cooperation with employees--design their own systems, managers and employees alike should feel more ownership of them.
Finally, if performance measures are to be taken seriously, managers must have authority to fire workers who do not measure up. It is possible to fire a poor worker in the federal government, but it takes far too long. We believe this undermines good management and diminishes workers' incentives to improve.
Agencies will reduce the time for terminating employees for cause by half. For example, agencies could halve the length of time during which managers and employees with unsatisfactory performance ratings are allowed to demonstrate improved performance.
To support this effort, we will ask OPM to draft and Congress to pass legislation to change the required time for notice of termination from 30 to 15 days. This legislation should also require the waiting period for a within-grade increase to be extended by the amount of time an employee's performance does not meet expectations. In other words, only the time that an employee is doing satisfactory work should be credited toward the required waiting period for a pay raise.
These numbers document what most federal workers and many taxpayers already know: Our system relies on rigid rules and procedures, extensive paperwork, detailed design specifications, and multiple inspections and audits. It is an extraordinary example of bureaucratic red tape.
Like the budget and personnel systems, the procurement system was designed with the best of intentions. To prevent profiteering and fraud, it includes rigid safeguards. To take advantage of bulk purchasing, it is highly centralized. But the government wrote its procurement rules when retailing was highly stratified, with many markups by intermediaries. Today the game has changed considerably. Retail giants like Wal-Mart, Office Depot and Price Club are vertically integrated, eliminating the markups of intermediaries. Federal managers can buy 90 percent of what they need over the phone, from mail-order discounters. Bulk purchasing still has its advantages, but it is not always necessary to get the best price.
Our overly centralized purchasing system takes decisions away from managers who know what they need, and allows strangers--often thousands of miles away--to make purchasing decisions. The frequent result: Procurement officers, who make their own decisions about what to buy and how soon to buy it, purchase low-quality items, or even the wrong ones, that arrive too late.
This "secondhand" approach to purchasing creates another problem. When line managers' needs and experiences are not understood by the procurement officer, the government is unable to make decisions that reward good vendors and punish bad ones. As a result, vendors often "game" contracts--exploiting loopholes to require expensive changes. For example, in a major government contract for a computerized data network a few years ago, a vendor used slight underestimates of system demand in the contract specifications as an excuse to charge exorbitant prices for system upgrades. In the private sector, a manager could have used the incentive of future contracts to prevent such gaming; in the government, there is no such leverage.
The symptoms of what's wrong are apparent, too, from stories about small purchases.
One story that Vice President Gore has repeated in Washington over the past six months concerns steam traps. Steam traps remove condensation from steam lines in heating systems. Each costs about $100. But when one breaks, it leaks as much as $50 of steam a week. Obviously, a leaking steam trap should be replaced quickly.
When plumbers at the Sacramento Army Depot found leaking traps, however, their manager followed standard operating procedure. He called the procurement office, where an officer, who knew nothing about steam traps, followed common practice. He waited for enough orders to buy in bulk, saving the government about $10 per trap. There was no rule requiring him to wait-- just a powerful tradition. So the Sacramento Depot didn't get new steam traps for a year. In the meantime, each of their leaking traps spewed $2,500 of steam. To save $10, the central procurement system wasted $2,500.
As the Vice President visited government agencies, he heard many more stories of wasteful spending--most of them produced by the very rules we have designed to prevent it. Take the case of government travel.
Because GSA selects a "contract airline" for each route, federal employees have few choices. If Northwest has the Washington-Tampa route, for instance, federal employees get routed through Detroit. If Northwest has the Boston-Washington route, employees have to use Northwest--even if USAir has more frequent flights at more convenient times. Workers told the Vice President of being routed through thousands of miles out of their way even if it cost them a day's worth of time--and a day's worth of taxpayers' money. Others told of being unable to take advantage of cheap "special fares" because they were not "government fares." And one worker showed the National Performance Review a memo from the Resolution Trust Corporation explaining that RTC workers would not be reimbursed for any travel expenses unless they signed their travel vouchers in blue ink!
| "Ash receivers, tobacco (desk type)..." Our federal procurement system leaves little to chance. When the General Services Administration wanted to buy ashtrays, it has some very specific ideas how those ashtrays--better known to GSA as "ash receivers, tobacco (desk type)," should be constructed. In March 1993, the GSA outlined, in nine full pages of specifications and drawings, the precise dimensions, color, polish and markings required for simple glass ashtrays that would pass U.S. government standards. A Type I, glass, square, 41/2 inch (114.3 mm) ash receiver must include several features: "A minimum of four cigarette rests, spaced equidistant around the periphery and aimed at the center of the receiver, molded into the top. The cigarette rests shall be sloped toward the center of the ash receiver. The rests shall be parallel to the outside top edge of the receiver or in each corner, at the manufacturer's option. All surfaces shall be smooth." Government ashtrays must be sturdy too. To guard against the purchase of defective ash receivers, the GSA required that all ashtrays be tested. "The test shall be made by placing the specimen on its base upon a solid support (a 1 3/4 inch, 44.5mm maple plank), placing a steel center punch (point ground to a 60-degree included angle) in contact with the center of the inside surface of the bottom and striking with a hammer in successive blows of increasing severity until breakage occurs." Then, according to paragraph 4.5.2., "The specimen should break into a small number of irregular shaped pieces not greater in number than 35, and it must not dice." What does "dice" mean? The paragraph goes on to explain: "Any piece 1/4 inch (6.4 mm) or more on any three of its adjacent edges (excluding the thickness dimension) shall be included in the number counted. Smaller fragments shall not be counted." Regulation AA-A-710E, (superseding Regulation AA-A-710D). |
Beyond travel, at every federal agency the Vice President visited, employees told stories about not getting supplies and equipment they needed, getting them late, or watching the government spend too much for them. At the Department of Health and Human Services, a worker told the Vice President that no matter how much his office needed a FAX machine--and how much time the machine would save workers--the purchase wouldn't be possible "without the signature of everyone in this room." An engineer from the National Institutes of Health added that in his agency, it takes more than a year to buy a computer, not a mainframe, but a personal computer! At the Transportation Department, a hearing-impaired employee told the Vice President of watching with dismay as her agency spent $600 to buy her a Telephone Device for the Deaf (TDD), when she knew she could buy one off the shelf for $300.
Anecdotes like these were documented in January 1993, when the Office of Federal Procurement Policy and the U.S. Merit Systems Protection Board collaborated on a survey of the procurement system's customers: federal managers. More than 1,000 responded. Their message: The system is not achieving what its customers want. It ignores its customers' needs, pays higher prices than necessary, is filled with peripheral objectives, and assumes that line managers cannot be trusted. A study by the Center for Strategic and International Studies added several other conclusions. The procurement system adds costs without adding value; it impedes government's access to state-of-the-art commercial technology; and its complexity forces businesses to alter standard procedures and raise prices when dealing with the government.
There is little disagreement that federal procurement must be reconfigured. We must radically decentralize authority to line managers, letting them buy much of what they need. We must radically simplify procurement regulations and processes. We must empower the system's customers by ending most government service monopolies, including those of the General Services Administration. As we detailed in Chapter 1, we must make the system competitive by allowing managers to use any procurement office that meets their needs.
As we take these actions, we must embrace these fundamental principles: integrity, accountability, professionalism, openness, competition--and value.
The Federal Acquisition Regulation (FAR), the government's principal set of procurement regulations, contains too many rules. Rules are changed too often and are so process-oriented that they minimize discretion and stifle innovation, according to a Merit Systems Protection Board survey. As one frustrated manager noted, the FAR does not even clearly state the main goal of procurement policy: "Is it to avoid waste, fraud, and abuse? Is it to implement a social-economic agenda? Is it to procure the government's requirements at a fair and reasonable cost?"
This administration will rewrite the 1,600-page FAR, the 2,900 pages of agency supplements that accompany it, and Executive Order 12352, which governs federal procurement. The new regulations will:
Today, with most computer equipment commercially available in highly competitive markets, the advantages of centralized purchasing have faded and the disadvantages grown. The federal government takes, on average, more than four years to buy major information technology systems; the private sector takes 13 months. Due to rapidly changing technology, the government often buys computers that are state-of-the-art when the purchase process begins and when prices are negotiated, but which are almost obsolete when computers are delivered. The phenomenon is what one observer calls "getting a 286 at a 486 price."
Currently, the GSA authorizes agencies to make individual purchases up to $2.5 million in equipment and services on their own. The GSA Administrator will raise authorization levels to $50 million, $20 million and $5 million. These levels will be calculated according to each agency's size, the size of its information technology budget, and its management record. In some cases, GSA may grant an agency greater or unlimited delegation. GSA will also waive requirements that agencies justify their decisions to buy information technology items under $500,000 that are mass-produced and offered on the open market.
The government buys everything from forklifts and snowplows to flak jackets and test tubes through a system called the Multiple Award Schedule program, which includes more than one million separate items.
Under this program, GSA negotiates and awards contracts to multiple vendors of comparable products and services, at varying prices. GSA then creates a "supply schedule" for a particular good or service, identifying all vendors that have won contracts as well as the negotiated prices. Of GSA's 154 schedules, civilian agencies must must buy from 117. In ordering from schedules, agencies still must comply--in addition- -with the Federal Acquisition Regulation, Federal Information Resources Management Regulation, and Federal Property Management Regulation.
In most cases, we should not limit managers to items on the supply schedules. If they can find the same or a comparable product for less, they should be free to buy it. Mandatory schedules should apply only when required by law, to ensure standardization, or when agencies voluntarily create team pools that buy in bulk for lower prices. In addition, GSA should revise regulations that currently limit agencies from buying more than $300,000 of information technology items on supply schedules, raise them to $500,000 and provide a higher limit for individual items costing more than $500,000.
To make supply schedules more user-friendly, GSA should conduct several pilot tests. One should test an "electronic marketplace," in which GSA would not negotiate prices. Instead, suppliers would list products and prices electronically, and agencies would electronically order the lowest-priced item that met their needs. Suppliers, at any time, would be able to add new products and change prices. Such a pilot would test whether visible price competition will cut prices and give line managers easier access to rapidly changing products.
Under current law, agencies are allowed to make purchases of less than $25,000 on their own, using simple procurement procedures. These small purchases, on average, take less than a month to complete; purchases of more than $25,000 normally take more than three months. If Congress raised the threshold to $100,000, agencies could use simplified procedures on another 45,550 procurements--with a total value of $2.5 billion.
Congress should keep current rules that reserve small purchases for small businesses and should improve access to information on procurements of more than $25,000. To ensure that small business receives adequate notice of possible procurements, the federal government, with OMB as the lead agency, should adopt an electronic notification system.
The government can save enormous amounts of money by buying more commercial products instead of requiring products to be designed to government-unique specifications. Our government buys such items as integrated circuits, pillows, and oil pans, designed to government specifications--even when there are equally good commercial products available.
We recommend that all agency heads be instructed to review and revise internal purchasing procedures and rules to allow their agencies to buy commercial products whenever practical and to take advantage of market conditions. We will ask the Office of Management and Budget to draft a new federal commercial code with commercial-style procedures, and then ask Congress to adopt the new code and remove impediments to this money-saving approach to procurement.
There are four federal labor laws implemented through the federal procurement process. Each was passed because of valid and well founded concerns about the welfare of working Americans. But as part of our effort to make the government's procurement process work more efficiently, we must consider whether those laws are still necessary- -and whether the burdens they impose on the procurement system are reasonable ones.
The Davis-Bacon Act of 1931 requires that each repair or construction contract in excess of $2,000 for work on a public building specify that the prevailing area minimum wage be paid to workers on that contract. The law was passed because Congress feared that without it, federal contracts awarded through a sealed bid process could undermine local prevailing wages. While Congress shifted the government's focus to an open bidding process in 1984, we acknowledge that concerns about the impact of government contracts on prevailing wages are still valid.
Recognizing that the original $2,000 threshold in the law was set more than 60 years ago, we recommend that Congress modify the Davis-Bacon Act by raising the threshold for compliance to $100,000, a change similar to that proposed by Senator Kennedy in March 1993.
The Service Contract Act of 1965 has purposes similar to those of the Davis-Bacon Act, and applies to service contracts in excess of $2,500. It requires contractors to pay the minimum prevailing wage and specified fringe benefits. To keep contractors from "locking in" their wage agreements at low levels, the law imposes a five-year limit on service contracts and requires new wage determinations every two years.
We suggest that the five-year limit is inconsistent with the government's interest in entering into long-range contracts. We will urge Congress to increase the limit up to 10 years while retaining the two-year wage adjustment requirement.
The Copeland Anti-Kickback Act of 1934 regulates payroll deductions on federal and federally assisted construction. The law prohibits anyone from inducing employees to give up any part of their compensation and requires contractors to submit weekly statements of compliance and detailed weekly payroll reports to the Labor Department.
We suggest that such detailed reporting is an unreasonable burden on federal contractors, and we will urge Congress to modify the act. We suggest eliminating requirements for weekly reports and requiring contractors instead to certify with each payment that they have complied with the law. Contractors would also be required to keep records to prove their compliance for three years.
The Walsh-Healey Public Contracts Act requires contractors that supply materials to the federal government through contracts in excess of $10,000 to pay all workers the federal minimum wage, to agree that no employee is required to work more than 40 hours a week, and to avoid using convict labor or workers under the age of 16.
Over time, each of the requirements of the Walsh-Healey Act--with the exception of the provision relating to convict labor--has been superseded by other federal legislation. We therefore urge Congress to remove the burden of certifying compliance with redundant laws from federal contractors. Within 30 days of the repeal of that law, the President should amend Executive Order 11755 to include the convict labor provisions of the Walsh-Healey Act.
The act was broad in scope, requiring IGs to promote the efficiency, economy and integrity of federal programs with auditing program expenditures, and investigating possible fraud and abuse.
The inspectors general, who are independent of the agencies in which they operate, report to Congress twice a year. These reports detail how much money IG audits have recovered or put to better use and the number of convictions resulting from their criminal investigations. The IGs also send the audit reports to the heads of their agencies and forward investigations for criminal prosecution to the U.S. attorney general. The Inspector General Act's two central mandates, combined with the last two administrations' eagerness to highlight "waste, fraud and abuse," have shaped the evolution of the IG offices. The standard by which they are evaluated is finding error or fraud: The more frequently they find mistakes, the more successful they are judged to be. As a result, the IG staffs often develop adversarial relations with agency managers--who, in trying to do things better, may break rules.
At virtually every agency he visited, the Vice President heard federal employees complain that the IGs' basic approach inhibits innovation and risk taking. Heavy-handed enforcement--with the IG watchfulness compelling employees to follow every rule, document every decision, and fill out every form--has had a negative effect in some agencies.
In a government focused on results, the Inspectors General can play a key role not only in controlling managers' behavior by monitoring it, but in helping to improve it. Today, they audit for strict compliance with rules and regulations. In the future, they should help managers evaluate their management control systems. Today, they look for "waste, fraud, and abuse." In the future, they should also help improve systems to prevent waste, fraud and abuse, and ensure efficient, effective service.
Many IGs have already begun to help their agencies this way. At the Justice Department, for example some offices were inefficient in completing background and security clearances. The Inspector General's office examined the problem, then recommended setting up a central database to manage the clearance process and warn officials automatically when they are about to miss deadlines for completing investigations. Similarly, the Inspector General of the Department of Health and Human Services has long been engaged in program evaluations to help agencies uncover inefficiencies. While the Inspector General's office retains the right to conduct formal audits and criminal investigations, it also uses its role as a neutral observer to collaborate on making programs work better.
Congress need pass no legislation to make this happen. Promoting the efficiency and integrity of government programs was part of the IGs' original mandate. But such change will require a cultural revolution within many IG offices, and we recommend two steps to help guide such a change. First-line managers, who are the IG front-line customers, should be surveyed periodically to see whether they believe the IGs are helping them improve performance. Second, criteria should be established for judging IG performance.
We can lick gravity, but sometimes the paperwork is overwhelming.
We must clear the thicket of regulation by undertaking a thorough review of the regulations already in place and redesigning regulatory processes to end the proliferation of unnecessary and unproductive rules. We have worked closely with administration officials responsible for developing a new approach to regulatory review, and incorporated that work into the following action.
Can regulations be eliminated? The answer is yes, as evidenced by promising experiments in several federal agencies. In the Management Efficiency Pilot Program (MEPP) in five of the Department of Veterans' Affairs regional benefits offices, the offices were encouraged to do away with red tape. At several benefits offices, 895 of 1,969 regulations were dropped, saving the staff more than 3,000 hours and $640,000 in one year. And productivity at MEPP centers increased by 35 percent in one year (1988-89), more than double the increase at other centers. A similar effort by five VA medical centers redirected $13.1 million to much-needed funding for acute care centers.
An even more sweeping example of a fresh start in internal regulations comes from the Air Force, where the chief of staff has established a servicewide program to streamline the organization and cut out bureaucracy. Under the Policy Review Initiative begun in 1992, the Air Force is replacing 1,510 regulations with 165 policy directives and 750 sets of instructions. This effort will cut 55,000 pages of intermingled policy and procedure to about 18,000 pages clearly separating policy from procedure. This deregulation effort, managed by a staff of 10, is expected to be completed in fiscal year 1994.
Over the next 3 years, each federal agency will undertake a thorough and systematic review of its internal regulations. Agencies may choose their own strategies for reaching the goal of reducing internal regulations by 50 percent.
In 1981, frustrated at the inconsistencies and duplication among federal regulatory efforts and their burden on government and the private sector, President Reagan required the Office of Management and Budget specifically, the Office of Information and Regulatory Affairs (OIRA) to review all regulations proposed by executive agencies.
With a limited staff, many of whom are also involved with paperwork reduction issues, the review process for proposed regulations can be lengthy. And while a lengthy review process may be appropriate for significant rules, it is a waste of time for others. In early 1993, Vice President Gore convened an informal working group to recommend changes in the regulatory review process. The working group and the National Performance Review coordinated their efforts closely. We endorse the recommendations of the working group and the President's executive order, which will implement those changes and streamline the regulatory review process.
The order will enhance the planning process and encourage agencies to consult with the public early in that process. In addition, in an effort to coordinate the regulatory actions of all executive agencies, the Vice President will meet annually with agency heads, and the Administrator of OIRA will hold quarterly meetings with representatives of executive agencies and the administration.
Improving the regulatory review process also means being selective in reviewing regulations. Through this order, the President will instruct OIRA to review only significant regulations--not, as under the current process, all regulations. The new review process, which will take into account a broad range of costs and benefits, will be more useful and realistic. To ease the adverse effects of regulation on citizens, businesses, and the economy as a whole, the executive order also will require an ongoing review of existing regulations. Agencies will identify regulations that are cumulative, obsolete, or inconsistent, and, where appropriate, eliminate or modify them. They will also identify legislative mandates that require them to impose unnecessary or outdated regulations.
With the advent of the Government Performance and Results Act, which Congress passed in July 1993, we have begun to acknowledge the important principle of "flexibility in return for accountability."
Under the act, some agencies may apply for waivers from federal regulations if they meet specific performance targets. In other words, they will be exempt from some administrative requirements if they do their jobs better. The law applies only to internal regulations and government agencies, but it also urges wider waivers authority to test the potential benefits. In the spirit of that legislation, we seek to expand the concept of greater flexibility for greater accountability.
The President should direct each federal agency to establish and publish,in a timely manner, an open process through which other federal agencies can obtain waivers from that agency's regulations--with an expedited appeals process. Rules adopting this new waiver process would state that all future agency regula-tions would be subject to the waiver process unless explicitly prohibited. We will also ask Congress to specify that legislation would be subject to waivers unless explicitly prohibited.
Woodrow Wilson was right. Our country's 28th president once wrote that "there is no distincter tendency in congressional history than the tendency to subject even the details of administration" to constant congressional supervision. One place to start in liberating agencies from congressional micromanagement is the issue of reporting requirements. Over the past decades, we have thrown layer upon layer of reporting requirements on federal agencies, creating an almost endless series of required audits, reports, and exhibits.
Today the annual calendar is jammed with report deadlines. On August 31 of each year, the Chief Financial Officers (CFO) Act requires that agencies file a 5-year financial plan and a CFO annual report. On September 1, budget exhibits for financial management activities and high risk areas are due. On November 30, IG reports are expected, along with reports required by the Prompt Payment Act. On January 31, reports under the Federal Civil Penalties Inflation Report Adjustment Act of 1990 come due. On March 31, financial state-ments are due and on May 1 annual single-audit reports must be filed. On May 31 another round of IG reports are due. At the end of July and December, "high-risk" reports are filed. On August 31, it all begins again. And these are just the major reports!
In fiscal year 1993, Congress required executive branch agencies to prepare 5,348 reports. Much of this work is duplicative. And because there are so many different sources of information, no one gets an integrated view of an agency's condition--least of all the agency manager who needs accurate and up to date numbers. Meanwhile, trapped in this blizzard of paperwork, no one is looking at results. We propose to consolidate and simplify reporting requirements, and to redesign them so that the manager will have a clear picture of the agency's financial condition, the condition of individual programs, and the extent to which the agency is meeting its objectives. We will ask Congress to pass legislation granting OMB the flexibility to consolidate and simplify statutory reports and establishing a sunset provision in any reporting requirements adopted by Congress in the future.
Washington provides about 16 percent of the money that states and localities spend and shapes a much larger share of such spending through mandates. Much of Washington's domestic agenda, $226 billion to be precise, consists of programs actually run by states, cities, and counties. But the federal government doesn't always distribute its money--or its mandates--wisely. For starters, Washington allocates federal money through an array of more than 600 different grant programs. Many are small: 445 of them distribute less than $50 million a year nationwide; some 275 distribute less than $10 million. Through grants, Congress funds some 150 education and training programs, 100 social service programs, and more than 80 health care programs. Considered individually, many categorical grant programs make sense. But together, they often work against the very purposes for which they were established. When a department operates small grant programs, it produces more bureaucracy, not more services. Thousands of public employees--at all levels of government--spend millions of hours writing regulations, writing and reviewing grant applications, filling out forms, checking on each other, and avoiding oversight. In this way, professionals and bureaucrats siphon money from the programs' intended customers: students, the poor urban residents and others. And states, and local governments find their money fragmented into hundreds of tiny pots, each with different, often contradictory rules, procedures, and program requirements.
Were we directed from Washington when to sow and when to reap, we should soon want for bread.
Henry Cisneros, Secretary of Housing and Urban Development, likens federal grants to a system of pipelines spreading out across the country. The "water," says Cisneros, reaches states and localities through hundreds of individual pipelines. This means there is little chance for the water to be mixed, properly calibrated to local needs, or concentrated to address a specific problem, geographic area, or population.
In employment and training, for example, Washington funds training programs, literacy programs, adult education programs, tuition grant programs, and vocational education programs. Different programs are designed for different groups--welfare recipients, food stamp recipients, displaced homemakers, youth in school, drop-outs, "dislocated workers," workers displaced by foreign trade, and on and on.
At a plant in Pittsfield, Massachusetts, General Electric recently laid off a large group of workers. Some workers could get Trade Adjustment Assistance benefits, because their jobs were lost to foreign competition. Others could not; their jobs fell to defense cutbacks. Because they have a union, people working in one area began exercising their seniority rights and bumping people in other areas. Some workers bumped from trade-affected jobs to defense contracting jobs, then lost those a few weeks later. Under federal regulations, they could no longer get Trade Adjustment Assistance. Thus, friends who had spent years working side by side found themselves with very different benefits. Some got the standard 6 months of unemployment checks. Others got 2 years of unemployment checks and extensive retraining support. Try explaining that to people who have lost the only jobs they've ever held!
People who run such programs struggle to knit together funds from three, four, or five programs, hoping against hope that workers get enough retraining to land decent new jobs. But the task is difficult; each program has its own requirements, funding cycles, eligibility criteria, and the like. One employment center in Allegheny County, New York, has tried hard to bring several programs together and make them appear as seamless as possible to the customers. At the end of the day, to accommodate reporting requirements, the staff enters information on each customer at four different computer terminals: one for Job Training Partnership Act (JTPA) programs, one for the JOBS program, one for the Employment Service, and one for tracking purposes.
When Congress enacted JTPA, it sought to avoid such problems. It let local areas tailor their training programs to local needs. But federal rules and regulations have gradually undermined the good intentions. Title III, known as the Economic Dislocation and Worker Adjustment Assistance Act (EDWAA), helps states respond immediately to plant closings and large layoffs. Yet even EDWAA's most flexible money, the "national reserve fund," has become so tangled in red tape that many states won't use it. As Congress's Office of Technology Assessment put it, "the process is simply too obstacle ridden. ... many state EDWAA managers cannot handle the complexities of the grant application, and those that do know how are too busy responding to clients' urgent needs to write demanding, detailed grant proposals."
When Congress amended JTPA in 1993, targeting more funds to those with "multiple barriers" to employment, homeless advocates thought the change would help their clients. After all, who has more barriers to employment than someone without an address or phone number? But the new JTPA formula also emphasized training over job search assistance. So a local program in Washington, D.C. that had won a Labor Department award for placing 70 percent of its clients in jobs--many of them service sector jobs paying more than the minimum wage--lost its JTPA funding. Why? It didn't offer training. It just helped the homeless find jobs.
But federal programs rarely focus on results. As structured by Congress, they pay more attention to process than outcomes--in this case, more to training than to jobs. Even in auditing state and local programs, federal overseers often do little more than check to see whether proper forms are filed in proper folders. The rules and regulations behind federal grant programs were designed with the best of intentions--to ensure that funds flow for the purposes Congress intended. Instead, they often ensure that programs don't work as well as they could--or don't work at all.
Virtually every expert with whom we spoke agreed that this system is fundamentally broken. No one argued for marginal or incremental change. Everyone wants dramatic change--state and local officials, federal managers, congressional staff. As in managing its own affairs, the federal government must shift the basic paradigm it uses in managing state and local affairs. It must stop holding programs accountable for process and begin holding them accountable for results.
Sometimes we need to start out with a blank slate and say, "hey, we've been doing this
for the last 40, 50 years. It doesn't work." Let's throw out everything, clear out minds...
Let's have as a goal doing the right thing for the right reasons, even if it entails taking
risks.
In participating communities, for example, federal programs could be consolidated and planning requirements could be simplified; waivers would be granted to assure maximum flexibility; federal funding cycles would be synchronized; and surplus federal properties could be designated for community use.
As the federal deficit mounted in the 1980s, Congress found it more and more difficult to spend new money. Instead, it often turned to "unfunded mandates"-- passing laws for the states and localities to follow, but giving them little or no money to implement those policies. As of December 1992, there were at least 172 separate pieces of federal legislation in force that imposed requirements on state and local governments. Many of these, such as clean water standards and increased public access for disabled citizens, are unquestionably noble goals.
But the question remains: How will state and local governments pay to meet those goals? We recommend that Congress refrain from this practice and that the President's directive establish that the executive branch will similarly limit its use of unfunded mandates in policies, legislative proposals and regulations.
The directive would narrow the circumstances under which departments and agencies could impose new unfunded burdens on other governments. It also would direct federal agencies to review their existing regulations and reduce the number of mandates that interfere with effective service delivery. OMB's Office of Information and Regulatory Affairs (OIRA) should review all major regulations or legislation proposed by the executive branch for possible adverse impacts on states and localities. Finally, OIRA's director should create a forum in which federal, state, and local officials could develop solutions to problems involving unfunded mandates.
This proposal came from the National Governors Association (NGA) and National Conference of State Legislatures (NCSL), which describe it as "a first step toward broader, more ambitious reforms." It would consolidate some 20 education, employment and training programs, with a combined $5.5 billion in fiscal year 1993 spending; roughly 10 other education programs ($1.6 billion); 10 small environmental programs ($392 million); six water quality programs ($2.66 billion); and six defense conversion programs ($460 million).
| How Much Do You Get for a 1983 Toyota?
What does the price of a used car have to do with the federal government's family policies? More than it should. Caseworkers employed by state and local government to work with poor families are supposed to help those families become self-sufficient. Their job is to understand how federal programs work. But as it turns out, those caseworkers also have to know something about used cars. Used cars? That's right. Consider this example, recounted to Vice President Gore at a July 1993 Progressive Foundation conference on family policy in Nashville, Tennessee: Agencies administering any of the federal government's programs for the poor must verify many details about people's lives. For instance, they must verify that a family receiving funds under Aid to Families with Dependent Children (AFDC) does not own a car worth more than $1,500 in equity value. To give a poor family food stamps, it must verify that the family doesn't own a car worth more than $4,500 in market value. Medicaid specifies a range that it allows for the value of a recipient's car, depending on the recipient's Medicaid category. But under food stamp rules, the car is exempt if it is used for work or training or transporting a disabled person. And under AFDC, there is no exemption for the car under any circumstances. Recounting that story to a meeting of the nation's governors, the vice president asked this simple question: "Why can't we talk about the same car in all three programs?" |
Recognizing the political and administrative obstacles to wholesale reform of more than 600 existing categorical grants in the short term, the National Performance Review focused on an innovative solution to provide flexibility and to encourage result-oriented performance at the state and local levels.
Our proposal calls for Congress to authorize "bottom-up" grant consolidation initiatives. Localities would have authority to mix funding from different programs, with simple notification to Washington, when combining grants smaller than $10 million each. For a consolidation involving any program funded at more than $10 million, the federal awarding office (and state, if applicable), would have to approve it before implementation. In return for such consolidation, the state and local governments will waive all but one of the programs' administrative payments from the federal government.
When different grants' regulations conflict, the consolidating agency would select which to follow. States and localities that demonstrated effective service integration through consolidation would receive preference in future grant awards. Each of the partners in the intergovernmental system must work collaboratively with others--federal, state, and local--to refine this recommendation.
The details of this proposal will be negotiated with important state and local organizations, such as the NGA, the NCSL, U.S. Conference of Mayors, and the National League of Cities, before legislation is drafted. Bottom-up consolidation will be given a high priority by the administration. It represents a way to improve state and local performance without tackling the thorny political problem involved in consolidating 600 grant programs, reconciling thousands of rules and regulations, and anticipating every possible instance when flexibility might be necessary. It puts the burden of identifying obstacles and designing the best solution where it belongs--on those who must make the programs work.
For federal grant programs to work, managers must have flexibility to waive rules that get in the way. Some departments have this authority; others don't. Federal decisions on most waivers come very slowly, and states often must apply to a half-dozen agencies to get the waivers they need. Florida, for example, has a two-year waiver allowing it to provide hospice care to AIDS patients under Medicaid. Its renewal takes 18 months. So state officials have to reapply after only six months. Waiver legislation should grant broad waiver authority, with the exception of fair housing, non-discrimination, environmental, and labor standards. We will ask Congress to grant such authority to Cabinet officers. These waivers, should be granted under limited circumstances, however. They must be time-limited and designed to include performance measures. When each experiment is concluded, the granting agency should decide whether the new way of doing things should be included in standard practice.
Public housing is a classic story of good intentions gone awry. When the program began in the 1930s, it was hailed as an enlightened response to European immigrants' squalid living conditions in cities across the country. Through an enormous bureaucracy stretching from Washington into virtually every city in America, the public housing program brought clean, safe, inexpensive living quarters to people who could not afford them otherwise.
Now, however, public housing is even more troubled than our categorical grant programs. With its tight, centralized control, it epitomizes the industrial-era program: hierarchical, rule-bound, and bureaucratic. HUD's Washington, regional, and local offices rigidly control local public housing authorities, who struggle to help the very poor. Frustrated by the failure of public housing, innovative state and local governments began to experiment with new models of developing, designing, financing, managing, and owning low-income housing. Successful efforts tailored the housing to the characteristics of the surrounding community. Local public housing authorities began to work with local governments and non-profit organizations to create innovative new models to serve low-income people.
HUD recognizes that local authorities with proven records of excellence can serve their customers far better if allowed to make their own decisions. We and the secretary recommend that Congress give HUD authority to create demonstration projects in which local housing authorities would continue to receive operating subsidies as long as they met a series of performance targets, but would be free from other HUD control. Individual demonstrations could vary, but all federal rules would be open for waivers as long as HUD could measure performance in providing long-term, affordable housing to those poor enough to be eligible for public housing.
In addition, HUD should work closely with local housing authorities, their national organizations, public housing tenant organizations, and state and local officials to eliminate unnecessary rules, requirements, procedures, and regulations. In particular, HUD should replace its detailed procurement and operating manuals and design and site selection requirements with performance measures, using annual ranking of local housing authorities to encourage better service and greater accountability. It should eliminate the annual budget review, an exercise in which HUD field staff spend thousands of hours reviewing and approving detailed budgets from local housing authorities --even though the reviews do not influence federal funding decisions. And it should work with Congress to change current rent rules, which create strong incentives for people to move from public housing as soon as they find jobs. Conclusion
We must move quickly because the bureaucracy, by its nature, resists change. As Tom Peters wrote in Thriving on Chaos, "Good intentions and brilliant proposals will be dead-ended, delayed, sabotaged, massaged to death, or reversed beyond recognition or usefulness by the overlayered structures...."
But the changes we propose will produce their own momentum to overcome bureaucratic resistance. As the red tape is being cut, federal workers will become more and more impatient with the red tape that remains. They will resist any reversal of the process. And they will be strengthened in their resistance by the steps we propose in the next chapters.