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Streamlining Management Control

Recommendations and Actions

SMC08: Expand the Use of Waivers to Encourage Innovation

Background

While law and regulation are essential to good government, their uniform application can stifle innovation, waste resources, and stymie rather than fulfill program objectives. State and local governments are often frustrated by federal requirements that offer little or no benefit to communities that do not "fit the mold" for which the requirement was created.(1) Categorical grants from the federal government may require activities or levels of expenditure for specific purposes (e.g., special education, drug rehabilitation) in every state regardless of need or community priorities. The enabling legislation usually prohibits federal agencies or state or local governments from reprogramming scarce funds to meet the goals of the program. Or overly detailed legislation may undermine implementation. For example, agencies administering any of the federal government's programs for the poor must verify many details about people's lives. They must verify that a family receiving funds under the Aid to Families with Dependent Children program does not own a car worth more than $1,500 in equity value. To give the same 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. There are exceptions for each program."Why can't we talk about the same car in all three programs?" queried Vice President Gore.(2) With a system of waivers, it could be done.

Federal agencies encounter similar frustrations with the dictates of central management agencies, such as the Office of Management and Budget (OMB), the Office of Personnel Management (OPM), and the General Services Administration (GSA). These agencies are responsible for implementing governmentwide policies. Like state and local governments, federal line managers often find these rules and regulations inapplicable to their needs. A frequent example expressed in the Vice President's Town Hall meetings is the use of staffing ceilings that restrict civil service hiring and therefore force agencies to contract for services that would be more economically performed in-house.

A few agencies (Department of Health and Human Services, Department of Defense (DOD), Internal Revenue Service) have been granted some latitude under research and demonstration authorities to waive non- statutory requirements--largely with positive results. One success is the Management Efficiency Pilot Program (MEPP) at the Department of Veterans Affairs. Established in 1987, MEPP approved over 1,000 waivers resulting in improved veterans service, better resource utilization, millions in cost savings, and improved employee morale.(3) Unfortunately this increased discretion has not spread widely throughout government.

Each of the numerous laws, regulations, rules, and policies was motivated by rational, well-intended, and fair-minded desires to serve a specific public purpose or to solve a particular problem. Taken together, however, they can create more problems than they solve. Solutions to isolated problems often have unintended consequences, often making a situation worse than the original problem.

One Size Fits All.

Our system of laws and regulations can never be perfect. First, it is exceedingly difficult to create laws and regulations that fit the wide range of conditions found across America. Those requirements that fit "on average" may be dysfunctional in situations that are not typical. Second, laws and regulations from different parts of the government can and do result in conflicting or incompatible requirements. For example, food industries may have difficulty meeting both the Food and Drug Administration's requirement for equipment that is easily cleaned and the Occupational Safety and Health Administration's requirement for equipment with noise suppression. Third, as conditions, circumstances, and public needs change, laws and regulations become less effective and appropriate, even if they were initially well-drafted. As societal change accelerates, this becomes an increasing problem.

Exceptions? Change the Law.

The formal legal mechanisms to resolve these problems are changes in the laws and regulations or the pursuit of judicial relief. These processes, however, are time consuming, expensive, and uncertain. Major statutory or regulatory changes can take years, and will not be undertaken unless and until the authorities are truly convinced of the Need for Change. Successful challenges to existing laws and regulations require resources, expertise, and stamina to endure lengthy and often frustrating appeals. Many potential petitioners are intimidated by the high costs and slim chances of a successful challenge. Instead, a state or local government may choose not to apply for a federal program, or a federal manager may give only minimal compliance or lip service to irrational restrictions. In the end, the results sought by the Congress are only achieved at the cost of decreased efficiency and effectiveness, or are not achieved at all. The solution is waiver authority, which has the potential to alert authors of laws or regulations to the Need for Change.

Experience with DOD's Model Installation Program, the reinvention labs of the Department of Veterans Affairs, and the Forest Service indicates that the returns from more liberal waiver approval are substantial and the risks of abuse and evasion are low.

Need for Change

There is an overwhelming need for appreciable relief from ineffective and unnecessary requirements, whether too general, ill-considered-- counterproductive in some instances--or obsolete. Cases in which strict adherence to law or regulation would result in unintended and undesirable consequences should be of immediate interest to lawmakers and regulators. Such circumstances provide opportunities for fruitful reforms. A proposed waiver in furtherance of the statutory intent, limited in scope and duration, and with measurable results is an excellent means for testing an alternative regulatory scheme. It is in the interest of lawmakers and regulators, as well as affected parties, to encourage carefully crafted waivers and an expeditious review process. In the best sense, such waivers are experiments for government's reinvention, not its wholesale abdication.

Improve Ways to Meet Program Goals. In the recently enacted Government Performance and Results Act (GPRA), Congress recognized this need and instituted a process for "granting of managerial accountability and flexibility waivers; that is, the opportunity to be exempt from specific types of non-statutory administrative procedural requirements, in return for achieving greater program results than would otherwise occur."(4) This provision of the GPRA applies to agencies in the executive branch with specific limitations. "The requirements eligible for waiver are exclusively those regarding the internal allocation and use of resources. They do not include any requirements that directly affect persons or activities outside the agency."(5)

While the Congress "believes that the Act provides an important first step in a direction that may pay significant dividends,"(6) realizing the full potential of waivers requires a greater effort by both the executive and legislative branches to extend the waiver process beyond the administrative activities of Federal agencies. In addition to the GPRA, other examples of current legislation providing waivers include the Economic Enterprise Zone bill with broad, general waiver authority and the Goals 2000: Educate America bill with tighter limits on the granting of waivers.(7)

A controlled waiver process must be based on the legal authority being waived. Except when the courts intervene, only Congress can legislate the conditions under which a statutory requirement can be waived. Consideration of legislative requirements should include the conditions under which waivers and exemptions would be appropriate; such provisions should be incorporated into the statute. Generally, it should encourage variations that improve chances for achieving intended program results. Similar consideration should go into the design of regulatory programs. A process that encourages waivers in furtherance of the statutory intent, limited in scope and duration, and with measurable results, can only foster the potential effectiveness and efficiency of regulation.

The controlling process for the waiver, however, should not in itself become a bureaucratic nightmare. For example, the two-year waiver process for certain state Medicaid grants requires 18 months of work. So state officials have to reapply after only six months. As a result, timeliness and the volume of paperwork required need to also be factors in designing such a process.

Action

Establish a process for obtaining waivers from federal regulations and identify the regulations for which this process applies. (1)

The President should direct each agency to establish and publicize an open process for obtaining waivers from that agency's regulations. The process should address the following considerations:

--- Waiver petitions, so as not to be frivolous, must be submitted by heads of local or state governments (who may seek the counsel of their senators or representatives) or heads of federal departments/agencies. Waiver petitions from private entities or individuals would be prohibited.

--- Initial waiver decisions should be made in 60 days, but if no decision is made, the waiver will be deemed to have been granted unless the petitioned agency formally notifies the petitioner that it has extended the period of consideration for a maximum of another 30 days. If no explicit decision is made in that time, the waiver would be automatically approved.

--- Input must be sought from the office with line responsibility for issuing or implementing the regulation for which a waiver is sought, perhaps by having that office make the initial decision on the waiver. Where state or local agencies are affected, the appropriate senators or representatives should be consulted by the petitioned federal agency.

--- A right must be included for the petitioner to appeal a denial to an agency or department office not having line responsibility for the issuance or implementation of the regulation at issue. (This might be a waiver appeals board, the general counsel's office, an office of program design, etc.) This is necessary to ensure that staff heavily invested in the existing regulatory structure do not inappropriately block innovative programs. The duration of the appeal should also be limited to 60 days with no provisions for extension of the consideration period.

--- Decisions by the independent waiver appeals board can be appealed to the head of the agency by either the petitioner or the responsible office. This period should be strictly limited to 30 days.

--- An office designated by the President could serve as ombudsman from whom petitioners may seek help when a waiver decision is appealed to the Secretary or agency head. A petitioner should be able to present its position to this waiver office; this office would advise the Secretary/agency head as to whether it thinks the waiver should be granted or denied.

--- All documents submitted by the petitioners to either the agency or the waiver office must be made available to the public. Final decisions must be announced promptly in the Federal Register.

--- Initial waiver decisions need only signature approval to be granted, while denials would have to be supported by written explanations. All government officials who are formally a party to the ultimate decision should be clearly identified for the record.

Waiver authority should not be sought or instituted for all programs. Waivers should further the statutory intent, be limited in duration and scope, and have measurable results. Waiver authority is appropriate when the petitioner needs a waiver to innovate, such as a state developing a new welfare program. It is also appropriate when changes in circumstances outpace changes in rules. It is inappropriate when agencies are requiring public or private entities to act for health, safety, or environmental reasons. For example, states should not have any additional authority to seek waivers of Clean Air Act requirements, either for themselves or for private entities. Such waivers would not further the purposes of the legislation.

Agencies must designate those existing regulations or programs for which the waiver authority will apply. The waiver process should be instituted immediately for those regulations for which the agency has the authority to do so. Where agencies need a statutory change to institute the waiver process, the Administration should seek such legislation. As new legislative requirements are proposed, explicit provisions for waiver authority should be considered. The current presumption that legislative requirements cannot be waived should be reversed so that agency heads have authority to waive requirements unless legislation explicitly prohibits waivers. The Administration should seek legislation to accomplish such reversals.

Each agency should be responsible for maintaining a data base tracking waivers requested and granted by that agency, including the expected duration and results of each waiver. When a waiver demonstrates its value, or when significant patterns and trends detected by the agencies suggest that regulations or laws create pervasive problems, the agency should revise or abolish the requirement. For example, 48 state agencies have waivers from the Medicaid program allowing them to provide community-based services as an alternative to nursing home care, which is the service routinely covered by Medicaid.(8) With such a preponderance of states seeking waivers, the basic policy clearly demands attention.

Cross References to Other NPR Accompanying Reports

Strengthening the Partnership in Intergovernmental Service Delivery, FSL02: Reduce Red Tape Through Regulatory and Mandate Relief.

Mission-Driven, Results-Oriented Budgeting, BGT05: Provide Line Managers With Greater Flexibility to Achieve Results.

Rethinking Program Design, DES: Preamble.

Executive Office of the President, EOP02: Modify the OMB Circular System.

Department of Health and Human Services, HHS02: Reengineer The HHS Process for Issuing Regulations.

Department of Veterans Affairs, DVA08: Decentralize Decisionmaking Authority to Promote Management Effectiveness.

Endnotes

1. See the discussion on federal mandates and regulatory relief in the NPR Accompanying Report Strengthening the Partnership in Intergovernmental Service Delivery.

2. Vice President Al Gore, From Red Tape to Results: Creating a Government That Works Better and Costs Less (Washington, D.C.: U.S. Government Printing Office, September 1993), p. 38.

3. See recommendation on decentralized decisionmaking in the NPR Accompanying Report Department of Veterans Affairs. See also U. S. Department of Veterans Affairs, Management Efficiency Pilot Program Final Report (Washington, D.C., 1991).

4. U.S. Congress, Senate, Government Performance and Results Act of 1993, Report of the Committee on Governmental Affairs, Report No. 103-58 (Washington, D.C., undated), p. 17.

5. Ibid.

6. Ibid.

7. Economic Enterprise Zone Act of 1993 (H. R. 850) and the Goals 2000: Educate America Act (S. 846).

8. See the NPR Accompanying Report Department of Health and Human Services, HHS02: Reengineer the HHS Process for Issuing Regulations.

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