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Streamlining Management Control

Recommendations and Actions

SMC07: Reduce Internal Regulations by More Than 50 Percent

Background

The cost of internal agency directives is tremendous. The cost of researching, writing, printing, storing, and maintaining internal directives, guidance, and procedures are themselves huge. However, the additional expenses of training, supervising, implementing, waiting for clearances, collecting and analyzing data, monitoring performance, and enforcing and auditing regulations, plus preparing the countless reports, generate further costs not always easy to measure but which are equally draining on limited agency resources. A full accounting must also include the cost of delay, confusion, loss of initiative, and paralysis resulting from the inevitable impression on so many workers that nothing is permitted, least of all creativity or initiative.

The demands of internal directives and regulations are growing faster than the executive branch itself over the past 10 years. Although executive branch personnel grew only 7 percent between 1980 and 1990/1991, in the personnel function the number of employees increased 11 percent, in financial management staff grew 27 percent, and in procurement it jumped 60 percent.(1) In the case of procurement, much of this growth is attributed to the increase in the number of internal directives.(2)

A Case Study. Figure 2 is a tally of internal regulations and the number of pages of directives and regulations affecting one field office in the Department of the Interior--a relatively unregulated state office of the Bureau of Land Management in Idaho. In other words, the total is a minimum rather than an average or a worst case. Using the most conservative estimates, there are nearly 33,000 pages of internal regulations and handbook requirements that apply to this office of less than 200 people.(3) The numerous additional agencies with at least partial jurisdiction, plus the case law and interpretations, and various other commentaries, would increase the total pages several fold, as would applicable state and local regulations.

This tally of directives, guidance, and regulations does not directly measure their burden. A single regulation may impose a huge burden, while in some cases there were several regulations per page. But the tally does indicate how obsessive the regulatory process has become. It is hard to believe that this number of regulations can be internally consistent and always the best approach for local circumstances.

Sources of Overregulation. It is easy to blame the proliferation of regulations on Congress, but the issue is more complex. Problems may be seen as falling into one of three categories: general system failures, individual failures (due to problems in training, judgement, or integrity), and acceptable error levels. The private sector approach, which admittedly may be very difficult in the public sector, is to treat system failures aggressively, provided the solution is cost-effective. It also rectifies individual failures by providing training or other remedies to the individual (like firing people who steal). General error rates are monitored to be sure they do not become uncontrollable. The current government approach, by contrast, is zero tolerance for error and treatment of every failure as a general system failure, remedied solely by law or regulation even if the occurrence was isolated.

There are perverse incentives that contribute to the proliferation of internal directives and regulations. For example, successful vendors have a self-interest in complex procurement regulations--they have adapted to them, they bar entry of competitors and, in certain cost- type contracts, vendors get paid for the time required to comply with the regulations while outsiders do not. Federal employees rationalize requests for larger staffs and position upgrades on the ever more complex regulations their agencies must enforce.(4)

Figure 2

 Tally of Internal Directives and Regulations Affecting The Idaho 
 State Office of the Department of the Interior's Bureau of Land 
 Management, 1993
 ***************************************************************

Manual Biann. Fed Dir/ Circ/ Instr. Source Regs---Supplmnts---Bltns---Stmnts---Memos---ndbks ****** **** ********* ***** ****** ***** ***** #/Pgs. #/Pgs. #/Pgs. #/Pgs. #/Pgs. #/Pgs OPM */* 59/* GSA 6,160/2,687 OPM 2,260/1,131 2,040/1,721 OSHA. 587/1,456 EEOC. 45/30 */* DOT 136/61 */* DOE 63/258 DOI 1,628/3,081 830/1,890 BLM 19,052/9,546 750/* 7,366/8,093 State of Idaho BLM 109/917 227/2,047 Total 9,251/5,623 20,789/13,544 59/* 2,040/1,721 977/2,047 8,196/9,983 ******************************* ******************************* GRAND TOTAL OF PAGES 32,918

The tally of pages was conducted by actual count of pages. The tally of regulations was conducted by actual count using the tables of contents when available. Both tallies were conducted with assistance and guidance from the responsible offices. In some cases, there is more than one regulation to a page. Guidance in the handbooks is required, equivalent to a regulation. Totals for OMB Circulars and Bulletins and for BLM Instructional Memoranda are for Fiscal Year 1993--large quantities of additional ones are still in effect from previous years. The tallies from handbooks and interpretive statements are based on the number of directives within the handbooks and interpretive statements respectively. The asterisk (*) notes offices that were unable to provide tallies, usually because the totals were larger than they were willing to count.

Narrow definitions were used for regulations and handbooks. As a result, their tallies are vastly lower than other published figures, which include case law, interpretations, and other secondary sources. These secondary sources frequently exceed 5,000 pages per agency.

The tally is limited to the chain of command (the Department, the Bureau, and the state office itself) and the primary federal agencies with jurisdiction over the operations in the state office (Office of Management and Budget, General Services Administration, Office of Personnel Management, and the relevant portions from the Occupational Safety and Health Administration, the Equal Employment Opportunity Commission, the Department of the Treasury, and the Department of Energy). The tally excludes the regulations of numerous additional federal agencies with jurisdiction over aspects of the state office (e.g., Environmental Protection Agency, Historic Preservation, Small Business Administration, etc.).

The tally also excludes the regulations and case law covering various aspects of government legal process that also have jurisdiction over the state office. These include the Administrative Dispute Resolution Act, the Agency Practice Act, the Claims and Debt Collection Acts, the Contract Disputes Act, the Equal Access to Justice Act, the Federal Advisory Committee Act, the Federal Tort Claims Act, the Freedom of Information Act, the Government in the Sunshine Act, and so forth.

In short, the total of pages is a very conservative figure.

Need for Change

According to a 1992 study by the Merit Systems Protection Board, procurement regulations have become so complex that it is no longer reasonable to expect qualified procurement officers to use them effectively.(5)This impasse is due to a combination of the large number of complex regulations and the speed with which they must be applied.

Overregulation is not limited to procurement, but is a governmentwide problem, according to a still-relevant 1983 study by the National Academy of Public Administration:

Federal management systems are now over-regulated in the sense that, by accretion, each has acquired an overburden of controls, limitations and constraints, reviews and approvals, data requirements, and other mandates, which, in total, significantly reduce their value and effectiveness.(6)

Most regulations start with a law, usually designed to solve a specific problem. The central management agencies (Office of Management and Budget, Office of Personnel Management, General Services Administration) then develop a regulatory process to implement the law. The departments then interpret how the regulations should be applied in their agencies through additional regulations.(7) The agencies and bureaus then customize that process, frequently with regulations at both the national and regional level and occasionally at the local level. This chain produces an inevitable torrent of internal regulations. There is currently much variation in compliance and enforcement of these regulations within any given agency.

Goal of Internal Deregulation.

The goal of internal deregulation is to weed out needless regulations so that: (1) the outcomes to be achieved are clearly articulated; (2) responsibilities for decisionmaking and Action are clearly assigned; (3) direct and objective measures of accomplishment exist; (4) oversight shifts from process to outcome; (5) there is a clear understanding of the fiscal and ethical propriety required in public administration; and (6) the remaining regulations and requirements for uniformity are given highest priority.

Regulatory reform will greatly increase accountability, creativity, and motivation, while decreasing the administrative costs of completing work. The goal is certainly not to give federal workers carte blanche to do as they choose, but allow them to get the job done by the most sensible means possible within the bounds of fiscal and ethical propriety.

For years the burden of internal regulation has been something like Mark Twain's observation about the weather: Everyone talks about it, but no one does anything about it. But in the last few years there have been enough experiments that a best practices model has emerged.

A pivotal point was discovered at the Department of Commerce. According to Alan Balutis, the Department's Director for Budget, Planning and Organization, about two-thirds of the requests for waivers from internal regulations submitted as part of Commerce's reinvention effort seek relief from regulations not even required in the first place. Balutis concludes that much of the internal regulatory burden is self-inflicted, either from informal withdrawal of authority by non-required reviews, from a desire for "security blanket" documentation to avoid individual responsibility, or from a control mentality that confuses 100 percent review with an appropriate level of oversight. What is needed, Balutis said, is not an edit of the regulations but meaningful reform.

A Success Story: Forest Service.

Dale Robertson, then Associate Chief of the Forest Service, undertook a bold reform in 1985. He saw his agency's budget declining while overhead was increasing, and feared the Forest Service would strangle in red tape.(8) The original 20-page handbook written by Gifford Pinchot, the agency's founding director, had grown to a bloated tome 17 feet thick.

Robertson selected four test units (three forests and a research station) and completely deregulated them. He gave them authority to reach their planning targets in the most efficient way they could devise, discarding needless regulations on the condition that the participants remained within the bounds of the law, basic policy, budget integrity, and congressional direction.

Robertson also implemented "end-results budgeting." The test units were responsible for only one to eight line items, consolidating from nine to 15 programs in a single line item. Budget performance would be evaluated through output targets, such as number of acres reforested, rather than solely through strict, detailed spending targets. Appropriations would be biennial, and the four test units would be free to shift dollars among any of the programs in a consolidated line item.

The General Accounting Office found that "end results budgeting is conceptually sound."(9) Internal evaluations showed that the test units also saved money. In the Eastern Region, for example, 11 separate hierarchies were merged into five team groups with interlocking expertise and responsibilities. The regional office cut its budget by $2 million, reduced its staff by 40 positions, and reduced its overhead to the agency's lowest. The region provided 12,000 proposals that eliminated outdated rules, streamlined work procedures, and improved the quality of work life.(10)

It was only when the needless rules were stripped away and management was empowered to use the budget wisely that the managers themselves truly became accountable for goal accomplishment while maintaining fiscal and ethical propriety, according to Bill Delaney, the analyst responsible for evaluating the pilot program. In 1989, the Forest Service chief acknowledged the success of the pilot study and signed a new management philosophy establishing the pilot approach nation- wide.(11)

Unfortunately, Congress rejected the proposal to permit service-wide end-results budgeting, and the service's deregulation effort lost a good deal of momentum. The 17 feet of regulations were reduced by about two-thirds. But objective measures were not established, and the revision of the hand-books was not included. Program managers quietly shifted many of the requirements to handbooks or directives, with the result that much of the deregulation progress was illusory. The emphasis on management controls and documentation is still so strong that the pilot efforts are "caught between two cultures," according to Delaney. He sees the current rate of progress as slow.

A Success Story: Department of Veterans Affairs.

The Department of Veterans Affairs reported success in its Management Efficiency Pilot Program (MEPP). The MEPP, conceived as a three-year pilot program starting in 1987, was supported departmentwide and by the House Veterans Affairs Committee. The program's goals were to provide flexibility to managers in the field, cut red tape, and ease restrictions and reporting requirements.

The results were positive. MEPP approved over 1,000 waivers. This resulted in improved veterans service and millions in savings.(12) The MEPP experiment went so well that it is currently being expanded on an incremental basis beginning with 38 new MEPP sites. Waiver requests continue being processed on an ongoing basis.

A Success Story: Air Force.

In 1992, General Merrill A. McPeak, Air Force Chief of Staff, established the Policy Review Initiative, headed by Brigadier General M.L. Haines. The Initiative is replacing 1,510 regulations with 165 policy directives and 750 instructions. Each new policy averages about five pages, of which no more than one page is the policy itself, about three pages are the performance measurements, and the remainder are definitions and applicability standards. The Initiative will cut the 55,000 pages of intermingled policy and procedures to approximately 18,000 pages, which will clearly separate policy from procedure.

The deregulation effort is managed by a staff of about 10 plus the policy writers and various consulting editors. Full reform will require about 30 calendar months and will be completed in fiscal year 1994. Hand-books, manuals, and other non-directive publications will be produced over a five-year cycle.(13)

To develop the basic performance measures, the team first identified the decisions and the information bases for the decisions, and then selected the most important outcome.(14) For example, the basic performance measure for the motor pool is the percent of requests filled with a suitable vehicle. The basic performance measure for the lawyers was the number of case settlements favorable to the Air Force, counting both cases won and settlements more favorable than the expected trial outcome. The basic performance measure for long- range planning was the percent of plans incorporated into the budget. The basic performance measures for pollution prevention were reduction in pollutants purchased and pollutants discharged.

There were initially many skeptics to General McPeak's initiative. Developing the measures was difficult, requiring several versions to eliminate perverse incentives. It was also difficult for individuals to accept being held accountable to these standards. Most groups initially believed their areas could not be measured. However, the only areas where appropriate measures could not be developed were those where high-level policy regulations were inappropriate.

At the end of the initiative, the headquarters will be free to focus on policy, using real measures of outcomes. And the field will have clear guidance, clear delegations, clear accountability, and useful handbooks.

Now that all the policies, instructions, and handbooks are in digital form, the Air Force is converting the entire set of documents to CD- ROM disks because of the dramatic cost savings.(15) The process will be completed by mid-1994, at which point the Air Force will stop printing paper copies.

The entire Defense Department is now converting all its directives:

First, to clarify--from top to bottom--its policy guidance, and to ingrain forever the principle of clear, concise policy unmistakably separated from essential procedures. Second, once the policy is clarified and separated, policy accomplishment must be measured to assess how well it is carried out. Third, procedures must be pushed to the lowest possible level. People should be given the necessary latitude to carry out policy in a way that best fits local conditions.(16)

The agencies noted above have cut their own regulations, but have no power to reduce the thousands of regulations from the central management agencies with jurisdiction over them. Deregulation is often more difficult in the central management agencies, because so many of the requirements are statutory. But the results are worth the effort because of the appreciable cumulative effect on the remaining agencies. The following example shows that the central management agencies can also reduce the number of regulations.

A Success Story in Progress: General Services Administration. The Federal Acquisition Regulation (FAR) Improvement Project was designed by GSA and the Civilian Agency Acquisition Council to determine how the FAR could more effectively serve its customers: government contracting personnel and the contractors. GSA sent questionnaires for dissemination to 12 federal agencies, the Small Agency Council, and the National Contract Management Association. About 95 percent of the respondents suggested one or more ways to improve the FAR.(17) The most common suggestions were to provide greater flexibility in the FAR for exercising good business judgment, to consult users in the formulation of necessary regulations, to ensure that regulations are consistent and clear, to provide more guidance but less regulation wherever possible, and to notify users of regulatory revisions prior to their effective date. These are essentially the same issues as for internal deregulation. The FAR Council formed an Executive Committee, which reviewed the recommendations and established 19 implementation projects broken into four sub-groups: philosophy, policy, automation, and training.(18) Most of the projects are scheduled for completion by the end of 1995.

The GSA approach may serve as a model for other central management agencies to deregulate. In the future, such reform should include objective performance measures. The Bottom Line Outcome Measures developed by the OPM in conjunction with federal personnel directors illustrate that meaningful performance measurement is possible even in difficult-to-measure administrative areas.(19) A strong deregulation effort in the central management agencies would inspire other agencies by showing that deregulation is possible even in areas highly constrained by laws. While it would be possible to deregulate central management agencies first and then the remaining agencies later, such sequencing would delay total deregulation many years.

Two Basic Approaches. There are two basic approaches to deregulation. The top-down method (Air Force and GSA) is faster, more systematic, and emphasizes clear headquarters policy. The bottom-up method is slower, but allows testing and emphasizes field priorities. The bottom-up method can be driven by either waivers (Veterans Affairs) or pilot sites (Forest Service). Because waivers identify the specific decisions being decentralized, they allow the changes to be more rapidly extended to all offices. The experiences of these agencies show it is not only possible to cut back on internal regulation, but also, with top management support, it is relatively straightforward to dramatically cut back, leading to better work at lower cost without endangering fiscal and ethical propriety.

Lessons Learned. Identifying the need for deregulation is not enough. The solution has to be successfully carried through to completion. A GAO study of 12 governmentwide management initiatives undertaken between 1970 and 1980 concluded that these initiatives failed to achieve their objectives for a number of reasons: rapid turnover in executive branch leadership, a lack of real consensus on what constitutes good management, lack of careful implementation planning and execution, and lack of adequate staffing and management attention to management concerns.(20)

The agency examples described above give some dimension to the levels of leadership, consensus building, planning, resources, administrative support, and sustained effort required to achieve deregulation objectives. The number of people required and the length of time will of course depend on the size and complexity of the agency, but the total is smaller than first assumed. The range in the agencies described above is 5-15 concentrated work years for the headquarters policy task force, and probably a similar but more dispersed number to write the field handbooks. Most agencies should be able to conduct an effort this size within current employment levels and budget.

In addition, the headquarters task force and field writers will need training. At the present time no such training exists, but the Department of Defense Policy Directive Team has prepared a very helpful work plan.(21) If there is a governmentwide push to reform internal regulations, it would be appropriate to assign training to federal training centers, which in turn could seek guidance in training design from the agencies that have already undertaken such efforts.

There is no alternative to sustained sponsorship from agency top management. Only senior staff can initiate radical deregulation and overcome the inevitable resistance and conflicts.

Action

Reduce internal regulations by at least 50 percent over the next three years. (2)

The President should issue an executive order to all departments and agencies--including central management agencies such as OMB, OPM, and GSA--to cut the number and the pages of their internal directives and regulations in half. An exception can be made for agencies that have already recently met the goal, such as certain parts of GSA and the Air Force.

The Office of Management and Budget should be tasked with ensuring sustained support of this deregulation effort, including exchanging information, coordinating efforts, sharing solutions, and identifying training needs and methods.

To implement this executive order, departments and agencies should develop plans for deregulation that include these four steps:

1. Purge agency internal regulations. Excise everything but the highest level policy guidance plus the requirements of laws or other immutable outside guidance, requirements of health and safety, and requirements where national uniformity is absolutely required.

2. Establish an objective output measure for each policy. Agree on terms.(22) Define the measure and show a sample bar chart as part of the policy, so that it is evident what will be tracked and how. Incorporate user satisfAction and economic measures as appropriate. These measures may change with experience--plan for flexibility and periodic review. Update measures in other systems (e.g., Chief Financial Officer Act) as measures are proven to be successful.

3. Provide useful handbooks of best practices, technical assistance, and other optional help. Get field practitioners to write the handbooks rather than headquarters policy staff. This tends to provide appropriate language and real help, and ensures that writers do not have vested interests in inserting requirements into these publications. If economical, publish the handbooks along with the policies electronically or on CD-ROM.

4. Allow field staff to identify authorities and systems for decentralization by requesting waivers from regulations. The presumption is that most waiver requests will be granted, and the requests will identify areas needing permanent decentralization. Both the top-down deregulation and the bottom-up waiver requests are needed so there is a "push-pull" effect, with deregulation driven both by the headquarters and the field (also see SMC08: Expand the Use of Waivers to Encourage Innovation).

Agency heads should establish a speedy timetable and provide the continuing resources, emphases, and conflict resolution needed to complete successful regulatory reform. Agency heads must also ensure that no "shadow" systems develop to retain decisionmaking at higher levels. Agency heads must also guarantee that once a high-level policy is established, there is rigorous, uniform enforcement and that performance assessment is pursuant to the new standards.

Endnotes

1. See Figure 1: Staff Growth in Selected Staff Functions, 1980 - 1990/91, p. 10 of this report.

2. See NPR Accompanying Report Reinventing Federal Procurement, PROC2: Build an Innovative Procurement Workforce.

3. According to the BLM Idaho personnel office, there are 195 permanent and 30 temporary employees in that office. There are approximately 350 additional permanent employees in the Idaho District and Resource areas, but these offices also have additional regulations.

4. Interview with the Assistant Director for General Management, Office of Management and Budget.

5. Merit Systems Protection Board, Workforce Quality and Federal Procurement: An Assessment (Washington, D.C., July 1992).

6. National Academy of Public Administration, Revitalizing Federal Management: Managers and Their Overburdened Systems (Washington, D.C., November 1983), p. 2.

7. The nomenclature of government entities can be confusing. Technically, the heads of both departments and agencies report to the president, while the heads of bureaus report to department heads. In this paper, the term agency is used generically to refer to agencies, bureaus, departments, commissions, and other entities.

8. Robertson, Dale, "How to Overcome a Sluggish Bureaucracy and Tap Into the Strengths of Your People," Vital Speeches (1987).

9. U.S. General Accounting Office, Forest Service: Evaluation of "End-Results" Budgeting Test (Washington, D.C. : U.S. General Accounting Office, March 1988).

10. United States Forest Service, Shaping a New Culture (1992).

11. United States Forest Service, Chartering a Management Philosophy for the Forest Service (December 19, 1989).

12. Department of Veterans Affairs, Management Efficiency Pilot Program: Innovative Test is Meeting Overall Expectations (March 1990).

13. Department of the Air Force, Policy Development and Management Information System Storyboard (September 1992).

14. Ibid.

15. Department of Defense, Defense Performance Review, Policy Directives Team, DOD Policy Directive Team Report (July 14, 1993). The Defense Logistics Agency (DLA) made a one-time capital investment of $900,000, which allowed annual cost savings of $600,000 by eliminating conventional printing of publications and reducing distribution and storage costs, plus annual cost avoidance of $1,370,000 through the elimination of inserting page changes in DLA publications. The CD-ROM disks are replaced every three months with updated versions. In other words, the savings more than paid for the conversion in the first year. The issues in comparing CD-ROM to traditional printing are clearly identified and easy to understand: See U.S. Department of Transportation, Federal Aviation Administration, If, When, Why and How to Publish with CD-ROM, A Guide to the Planning Process (1992).

16. Ibid.

17. General Services Administration, The FAR Improvement Project: An Assessment of User Views (June 1991).

18. General Services Administration, FAR Improvement Project Executive Committee Report (October 1992).

19. Office of Personnel Management, Strategic Plan for Federal Human Resource Management, Appendix (1989). This report is currently being updated.

20. National Academy of Public Administration, p. 7.

21. See DOD, Defense Performance Review.

22. Duquette, Dennis, "Enter the Era of Performance Measurement Reporting," Government Accountants Journal (Summer 1992).

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