59

I don’t think that we can turn this government into a grievance-
only system and still have the President and his agency heads and
the Director of the Office of Personnel Management and the rest,
have the authority to carry out their mission.

The basic responsibility of the government is to carry out the
wishes of the people. The mission is not to carry out what is bar-
gained between unions and management. Now we need union
input. We need employee input in the government. But we can’t
take management rights away, which is what these proposals por-
tend to do. They take away the critical management right to define
and assign work. That takes away management’s most important
power.

Second, the performance management principles would not allow
the President or his Director of OPM to set any governmentwide
performance standards. Think of that for a minute. Neither the
President nor his representative, the OPM Director, can set any
governmentwide standards for performance. I mean, that’s taking
away the President’s constitutional power to decide how the gov-
ernment’s run, to assure that the laws are faithfully executed. I’m
very concerned about that.

I’m concerned about the hiring system performance proposals to
allow the agencies to augment, as it says in the proposals, OPM’s
basic knowledge, skills, and ability criteria. And of course the prob-
lem with augmentation is overriding. It allows so-called exceptional
individuals to be appointed noncompetitively. It undermines veter-
ans’ preference. I’m very concerned with this and, at a minimum,
I would ask that the Congress and your committee give close atten-
tion to this.

Second, on the area of classification reform that Director Horner
mentioned, when we are talking about classification, we are talking
about pay. And when we put major pay decisions in the hands of
agency officials where the responsibilities are so great and the
temptations are equally great, we are asking for problems.

Several people mentioned today how free the government is from
abuse. One of the reasons our Civil Service is so free from abuse
is because we do have so many controls over abusive behavior, I
think you should think very, very seriously before you think of de-
centralizing classification reform and, along with that, pay.

The performance management section I am very concerned with,
too. It makes some statements about poor performers being denies
general pay increases. But it also says that the probationary period
can be shortened. Why would we want to shorten the probationary
period by a year? Tell me that’s in the interest of good manage-
ment. This question of going to a grievance system—have unions
set the criterion to work—do we really want to do that?

The longest sought goal—and I know because I met with the
union representatives from the day I went into office until the day
I went out, and at least in the beginning we had many good, two-

conversations about this—their No. 1 goal is to get rid of so-
called permissive management rights from the current law.

The President has already issued an Executive order which has,
in effect, already told the agencies not to exercise their permissive
rights. But the proposal, the formal proposal, would put into law
this change and it would take away the right of management to de-


25

application ratios, quit rates, unemployment rates, career progression patterns, and
indicators of change in the quality of the workforce. Outside the Federal Govern-
ment, pay administrators commonly use a variety of data to set pay.

‘The system rigidity flaw can be resolved only through legislation. The Govern-
ment needs the flexibility to select an appropriate pay policy—i.e., one that does not
overpay and underpay workers by design, resulting in a system that lacks credibil-
ity.

"ithe second flaw—inability to publish sulficient salary information in, same Jocal-
ities—was apparent in the first locality surveys used for the January 1994 adjust:
ment. The Pay Agent addressed this problem in its recommendations for the 1995
and 1996 adjustments by adopting a special multiple regression model to estimate
the pay of unpublished jobs based on published information for other jobs by goo-

aphic area, occupation, and grade level. The econometrics model is described in

e Pay Agent’s November 29, 1994, report to the President; it was approved by
statisticians at the Bureau of Labor Statistics and recommended by the Federal Sal-
ary Council.

LABOR-MANAGEMENT RELATIONS.

Question 1. What is your view concerning the advisability of mandatory dues—
sometimes known as agency shop—within the federal government?

Answer. The National Partnership Council reviewed this issue thoroughly in pre-
paring its January 1994 Report to the President on Implementing Recommendations
of the National Performance Review. The Council was unable to reach consensus.
It offered four options ranging from mandatory dues payment for all members of a
bargaining unit to no change in the current law. The Administration is now develop-
ing.a legislative proposal for human resources management reform.

uestion 2. In your view, is Congressional action required to permit mandatory
dues checkoff or could the President prescribe this by Executive Order?

Answer. The Administration believes that legislation is required to permit manda-
tory dues checkoff. That is why the issue of mandatory dues was considered by the
National Partnership Council as a possible legislative proposal. The conference re-
port on the Civil Service Reform Act confirms this view in stating, among other
things, that “[T]he conferees wish to emphasize . . . that nothing in the conference
report authorizes, or is intended to authorize, the negotiation of an agency shop or
union shop provision.”

sstion 3. Many have voiced concerns that the labor-management councils estab-
lished by this administration may undermine merit principles and cede to unions
authority that really needs to be exercised by management in the interests of the
taxpayers. What, if anything, has OPM done to oversee the operation of these coun-
cils to ensure the observance of merit principles and the retention of management's
Tight to administer the agency in the taxpayers’ best interests?

Answer. OPM and the National Partnership Council provide guidance and assist-
ance to agencies and unions who are establishing labor management partnership
councils. While it is not OPM’s role to oversee the day-to-day operation of such coun-
cils, as Executive Secretariat to the National Partnership Council, we are gathering
information on activities of councils throughout the country.

With respect to adherence to the merit principles, it is important to note that.
labor-management partnership does not in any way relieve agency management of
its responsibility and accountability for upholding laws, regulations, and merit prin-
ciples. Further, the National Partnership Council was mindful of the interests of
taxpayers when it recommended to the President the establishment of a “Good Gov-
ernment Standard” calling for labor-management cooperation in seeking increased
“quality and productivity, customer service, mission accomplishment, efficiency,
[and] quality of work life... .” Partnership engages unions, employees, and man-
agement together in creating a more efficient Government, while complying with
laws, regulations, and merit principles.

Finally, OPM plans to strengthen oversight generally, and in that context it would
address any activities that might undermine merit principles.

Question 4, The labor-management councils provide a forum for input by unions,
but has OPM or the administration established any similar mechanism for soliciting
the views of rank-and-file non-union employees?

‘Answer. There is currently no established mechanism comparable to Executive
Order 12871 that requires agencies to consult with nonrepresented employees. How-
ever, nothing precludes agencies from including nonrepresented employees on their

artnership councils or otherwise obtaining their input, as we have done here in

PM. In advising agencies and unions forming partnerships: we encourage them to
provide opportunities for all employees to participate. The National Partnership



COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, JR, Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York

DAN BURTON, Indiana

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

STEVEN SCHIFF, New Mexico

ILEANA ROS-LEHTINEN, Florida

WILLIAM H. ZELIFF, JR., New Hampshire

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

PETER BLUTE, Massachusetts

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

JON D. FOX, Pennsylvania

RANDY TATE, Washington

DICK CHRYSLER, Michigan

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

WILLIAM J. MARTINI, New Jersey

JOE SCARBOROUGH, Florida

JOHN SHADEGG, Arizona

MICHAEL PATRICK FLANAGAN, Illinois

CHARLES F. BASS, New Hampshire

STEVE C. LATOURETTE, Ohio

MARSHALL “MARK” SANFORD, South
Carolina

ROBERT L. EHRLICH, JR., Maryland

CARDISS COLLINS, Minoie

HENRY A. WAXMAN, California

‘TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

JOHN M. SPRATT, JR., South Carolina

LOUISE McINTOSH SLAUGHTER, New
York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

COLLIN C. PETERSON, Minnesota

KAREN L. THURMAN, Florida

CAROLYN B. MALONEY, New York

THOMAS M. BARRETT, Wisconsin

GENE TAYLOR, Mississippi

BARBARA-ROSE COLLINS, Michigan

ELEANOR HOLMES NORTON, Washington,
DC

JAMES P. MORAN, Virginia

GENE GREEN, Texas

CARRIE P. MEEK, Florida

FRANK MASCARA, Pennsylvania

CHAKA FATTAH, Pennsylvania

BERNARD SANDERS, Vermont
(Independent)

JAMES L. CLARKE, Staff Director
KEVIN M. SABO, General Counsel
JupItH McCoy, Chief Clerk
BUD MYERS, Minority Staff Director

CiviL SERVICE SUBCOMMITTEE

JOHN L. MICA, Florida, Chairman

CHARLES F. BASS, New Hampshire
BENJAMIN A. GILMAN, New York
DAN BURTON, Indiana

CONSTANCE A. MORELLA, Maryland

JAMES P. MORAN, Virginia
BERNARD SANDERS, Vermont (Ind.)
FRANK MASCARA, Pennsylvania

Ex OFFICIO

WILLIAM F. CLINGER, JR., Pennsylvania

CARDISS COLLINS, Minois

GrorcE NESTERCZUK, Sta/f Director
DAN Mott, Professional Staff Member
SUSAN MOSYCHUK, Professional Staff Member
CAROLINE FIEL, Clerk
CEDRIC HENDRICKS, Minority Professional Stoff

ay


68

performed. All was bound together with a performance appraisal and performance
reward system to set and enact the policy set by the President under the laws of
Congress. Employee work groups and organizations can be useful in some situations
and employee input and needs must be considered by management. But the need
in effective government management is strong agency leadersiup in the model of the
Thayers, Altmeyers, Pinchots, Hoovers and Russels Even though these came from
the career ranks, they were effective in political positions with the support of the
President. To the degree the mission is simplified and the work ‘contracted, the easi-
er leadership becomes.

It is expecting too much of subordinate career executives and union leaders to
make pay, hiring, firing and performance-rating decisions independent of political
executives representing the President. Only the political appointees—because their
rewards come from the president, not the system—have any incentive to resist the
dominant cultural pressures on management not to make tough decisions. Turning
control of these executive decisions to unions makes even less sense. Their whole

urpose is to get more, in an environment where the public demands less. Clinton’s
einventing Government” is not a policy but a union goody wrapped in tough lan-
guage.

e Carter reforms as implemented by the Reagan Administration were based
upon a management theory appropriate to government organizational reality. Lead-
ership, simplicity of mission and work, and responsibility were the essence. Labor-
management councils are rare enough in a private sector that has the bottom-line
necessary to limit abuse. The Clinton proposal is untested, and the Federal
workforce is too important to be used as guinea pigs in the experiment. The solution
is to return to the Carter reforms and make them work. They can, with intelligent
and dedicated leadership under sound management principles.

Implementing the Reduction: The Function of OPM

Whatever direction future management takes in the Federal Government, it is
clear that its size will be smaller and that reductions will have to be made. Presi-
dent Clinton recommended a reduction of 252,000 positions, increased—to fully fund
his crime bill—to 292,000. The Clinton reform suggests that agencies can set their
own personnel plans, and their lack of a public plan is apparently the result. The
alternative is to have a Presidentially-approved plan to manage the process effi-
ciently and in accord with human resources management principles, This, I believe,
is the purpose of OPM: to help develop and to manage government-wide personnel
priorities set by the President.

As Chief Executive, the President is Constitutionally given the responsibility to
“take care that the laws be faithfully executed.” As suck, he is given subordinate
officers to assist in that task. The Director of OPM is assigned that responsibility
for “administering and enforcing the civil service rules and regulations of the Presi-
dent” to assist him in managing the government. Most of the work of OPM could
be—and should be—contracted out, but not the job of helping the President admin-
ister his far-flung organization.

By forbidding the Director or the President from issuing government-wide per-
formance standards, the Clinton Proposals attempt to take away the President's
Constitutional right to run the Executive Branch. By transferring management
rights from agency political heads, the OPM Director and the President to labor-
councils, the proposals strike at Constitutionally-protected Executive
responsibilities. By granting agency labor-management committees the right to de-
sign and administer pay-classification, testing and hiring, and performance manage-
ment systems, the proposals take the authority from Congress and the President to
set basic management policies for the administration of the Government. They
would deny the Director of OPM the necessary tools to assist the President to man-
age the Government.

It is irresponsible for the Executive Branch not to devise a central plan to manage
the proposed personnel reductions. And OPM-—presumably still possessing the nec-
essary oman resources management skills—should be a central part of that re-
sponsibility. A plan could be effected humanely without incurring major costs by set-
ting a personnel reductions policy of “attrition first,” as in the early Reagan years.
A total freeze would need to be set early, only allowing exceptions for critical skills
and to fill positions for essential functions. To keep agencies from subverting the
employment reduction function, the process must be managed centrally by an agen-
ey with the expertise and clear focus upon personnel to make the policy a high prior-
ity, Jed by an official strongly committed to the President’s personnel reduction

als.
s The Office of Management and Budget (OMB)—close by within the Executive Of-
fice of the President—is one alternative to handle the exceptions process in a modi-



79

First, for our civilian personnel operations. The Department of
Defense employs over a million civilians around the world. With
roughly 824,000 of these in the Federal Civil Service, we’re by far
the largest Federal employer. Indeed, we account for nearly half of
the Federal civil servants. Additionally, we employ about 180,000
people through the Nonappropriated Fund system—these work in
morale, welfare and recreation areas—and another 62,400 foreign
nationals at our bases outside the United States.

Within the Office of the Secretary of Defense, the Office of Civil-
ian Personnel Policy and its field activity, the Defense Civilian Per-
sonnel Management Service, employ specialists to develop policy,
regulations, and rules and to oversee their implementation. There
are additional personnel specialists throughout the Services and
agencies who manage the system locally.

Because of the size and range of our activities, we employ experts
in staffing, compensation and benefits, education and training,
labor and employment relations, information systems, complaint in-
vestigation, workforce reengineering, research and other areas as
well.

Let me take a moment to highlight some of the areas of signifi-
cant accomplishment with this workforce over the past year:

We've met DOD’s drawdown targets, secured funding for the ci-
vilian personnel regionalization and the systems modernization, de-
veloped labor-management partnerships, initiated liaison offices
with Department of Labor for injury compensation. We’ve stream-
lined and increased our complaint investigations, established the
Field Advisory Service, improved civilian leadership training, im-
proved procedures for civilian workforce contingency management,
and established the Reinvention Laboratory with the Office of Per-
sonnel Management.

It’s been a busy year. Details on each of these activities appear
in the written testimony supplied separately.

Over the coming year, we're committed to work more in each of
these, as well as in three other areas of particular interest to this
committee: improving the policy framework for civilian personnel
management, simplifying personnel management, and streamlining
the alternative personnel systems.

Let me turn now to our efforts in downsizing.

The Department of Defense has accounted for the overwhelming
majority of cuts in the efforts to downsize the Federal Government.
Our regular employment has fallen from just over 1.1 million at
the end of fiscal year 1989 to under 900,000 in November 1994.
Our reduction targets have been set by two administrations and
the Congress. In fact, these targets were developed before the Na-
tional Performance Review reductions were even proposed. The
cuts themselves have been managed by my office, the military de-
partments, and the defense agencies.

If you will permit some bragging about one of our programs in
particular, this year marks the 30th anniversary of our Priority
Placement Program. This is a pioneering effort to help displaced
DOD employees find other positions within the organization. It’s
part of our Civilian Assistance and Reemployment Program. We
call it CARE. CARE was designed to help the Department meet its
drawdown goals of achieving necessary reductions, minimizing the


15

under a spoils system, with jobs bought and sold like used cars.
And by the way, with the same standard of excellence all too often.

Perhaps you've heard of the time when President Lincoln was be-
sieged by job seekers, and by the way, what virtually every Presi-
dent up to the coming of the Civil Service spent one half of his time
dealing with job seekers exclusively, and that was before the Secret
Service, so you couldn’t use security as a screen.

And at this time, Mr. Lincoln was suffering from smallpox. And
he told his secretary, tell all the office seekers to come in here to
my room at once. I finally have something I can give them all.

fforts at reform of the spoils system got nowhere until the as-
sassination of President Garfield by a disgruntled office seeker.
And this created a national outrage that led to congressional pas-
sage of the Civil Service Act of 1881.

The act created the merit system, which provided for hiring
based on examinations, not on who you knew, but what you knew.
I would like to suggest, Mr. Chairman, that this was just the be-
ginning. It covered several thousand people. And what it did over
the next 100 plus years was to bring additional employees under
the merit system. So it didn’t happen all at once. It evolved.

For more than a century, with bipartisan support, the merit sys-
tem has expanded to cover not only hiring and promotions, but also
to promote fairness to all applicants. This century-old bipartisan
merit system has given us in my opinion the best civil service in
the world.

To preserve and protect the principles of this merit system is
OPM’s core mission, and we now have four units that contribute
to that goal. The Employment Service develops generic employment.
policy and qualification standards, works with agencies on hiring
that is delegated to them, and uses the latest technology to make
job information easily available to the public. It also works with
agencies on downsizing.

The Human Resource Systems Service sets standards and pro-
vides services to help ensure that agencies have effective, merit-
based personnel systems, with regard to pay and job classification,
performance management, and labor management relations.

The Office of Executive Resources, which includes the Senior Ex-
ecutive Service, the Federal Executive Institute, and the Manage-
ment Development Centers, provides executive training and leader-
ship for management in government.

The Office of Merit Systems Oversight and Effectiveness oversees
merit standards across government. The goal of these programs is
a government that is cost efficient and that will never slip back
into the spoils, corruption, and discrimination of the past.

Against that background, Mr. Chairman, let me ‘address the spe-
cific questions you raised in your letter to us. Question: Can each
agency or department effectively manage its personnel functions
without strong direction from a central personnel agency? Mr.
Chairman, we believe that recruitment and hiring can be carried
out by the agencies, under merit principle guidelines set by OPM.
The agencies would have the option of carrying out their own pro-
grams or contracting with OPM, or others, to carry them out. Many
agencies find it more cost efficient to use our services, rather than
create new programs of their own. Once again, they would have the


74

was in the large conference room at OPM around the table there.
There were a dozen or more of them and that’s what they asked
me for, And I don’t think it is unreasonable for someone to give
what they wanted to them.

As I say, I have a great deal of sympathy with President Clin-
ton’s position and Vice President Gore’s position that there are two
systems in the government now. It makes some sense to go to one
rather than two and, from their point of view, it makes perfect
sense to recommend to go to a grievance system—a grievance sys-
tem only. So I don’t consider it is a charge or anything unethical
or underhanded. It’s, to me, a very businesslike kind of thing to do.

Mr. Moran. I want to make sure I understood that correctly. You
think it is perfectly reasonable to have involuntary dues check-off?

Mr. DeEviNE. No, no, no, no. To go into an agreement with the
union leaders to give them that kind of system. I don’t think there
is anything wrong with that.

Mr. Moran. What kind of—the system of involuntary dues
check-off, to go into agreement with the unions to do as Mr. Gore
has purported to have done, to go into an agreement where you
would have mandatory dues check-off for Federal employees?

Mr. DEVINE. That was a recommendation of the committee, to
give those as joint management-labor committee that was set up
with national partner—no. I forgot it, that’s a different committee.

Mr. Moran. The labor-management councils. So that you think
it is—I’m trying to understand exactly what you think is perfectly
reasonable, that you would have collective bargaining, is that what
you are saying?

Mr. DEVINE. No, that Vice President Gore would recommend it,
or make an agreement with unions to have such a system. I mean,
I oppose it absolutely, but it was a recommendation of the commit-
tee to the President, a consensus recommendation if I remember
correctly.

Mr. Moran. Which committee are you talking about?

Mr. DEVINE. What was it called? The National Partnership Coun-
cil, made a recommendation—this was what your opponent was
talking about. All right. This council made a recommendation to
the President. This council was set up by the Executive order that
the President signed. It set up this council to make recommenda-
tions to the President which they made before the election.

And those proposals were made to the President to give a dues
check-off and representation election through submitting cards
rather than through an actual election. That recommendation was
made to the White House from that committee. There’s no question
about that.

Mr. Moran. I don’t question that. I would expect them to do
that. But I don’t find that to be of particularly great consequence.
What is of consequence is how the President and Vice President
would react to those recommendations and whether, in fact—I’ll
just speak for myself—whether I had any role in that.

You don’t have to defend my opponent. I know that I had no role
whatsoever in that. But I think it is incumbent upon you to verify
what you say is the role that Vice President Gore took, which was
to accept those recommendations and to promise involuntary dues
check-off with the related ramifications which you go on to say,


32

Mr. Kinc. We didn’t have a date certain, Mr. Chairman, as to
when the separation would occur. We believe it can be done within
the next 12 months.

Mr. Mica. But my question is, has there been an actual reduc-
tion and how significant in the dollar figures we are expending?

And then the next part of that question would be: have any of
these functions been contracted out or are they reflected in some
other agency’s budget who’s had to assume that responsibility, or
are these part-time positions? Are we spending less money and
what dollar figures, do we know that?

Mr. Kinc. OK. The two areas that we're talking reductions in are
revolving fund. And that is where we do fee-for-service work our-
selves, as you know, Mr. Chairman.

Mr. Mica. Right. Some money is coming in for investigations and
some for training from the other agencies.

Mr. KING. We charge them, and we get fully reimbursed. We op-
erate them at this stage at a break even basis or slightly above.

Ms. Lattimore, the way your figures are going now, you're at
what level?

Ms. LatTiMorE. Just about $1 million a month.

Mr. Kinc. Just about $1 million a month above costs. So what
we're doing is looking at that. Let’s take a look at that unit, it’s
a good unit to discuss because it’s somewhat of a single piece.

at. would remain, Mr. Chairman, I'd like to give you a heads
up on this, is that you wouldn’t have it leave the government en-
tirely. You would want to keep a security policy group, you know,
available at a central location. We have over 12 million records
that would be confidential, and the management of those files
would be also important. And those should be looked at for a
central repository within government.

Mr. Mica. I think it would be helpful, Mr. King, if we could get
the figures so we could see the body count. I’m interested in the
dollar count, too, that corresponds. And then we also need to look
and see, are we just. deferring this to some other agency? Are there
any real savings in what we're doing, or is the service being con-
tracted out?

Mr. KiNG. What we are looking at, Mr. Chairman, is, can we
move things out of our agency that aren’t part of the core that
could be “privatized”.

We believe that, with investigations and a number of the train-
ing responsibilities we presently have, that could be done. As far
as the economic implications, we have been told by the Office of
Management and Budget that there are savings in there, and we
are operating on the basis of their recommendations as far as the
economic implications that you're raising.

I have no problem forwarding that request from you, Mr. Chair-
man, to the Office of Management and Budget.

Mr. Mica. Just briefly. Like what did you spend overall for the
Agency, say in fiscal year 1994, 1995? What was your budget?

ir. KING. Oh, our total? Mr. Gilbert Seaux who, is our Chief Fi-
nancial Officer.

Gil, where are you?

Mr. Mica. Then what are we working under now, what’s pro-
posed under what we saw yesterday?


39

Mrs. MoRELLA. We look forward to seeing it. You know, you can
hire somebody quickly now because of the new procedures. But
there’s nobody to hire.

Mr. Kine. Right. We're also going to need consultant help be-
cause, to be very candid, there isn’t that much real business talent,
when we're talking about business talent within the government it-
self because it doesn’t have that ethos, nor that training in a num-
ber of different areas.

We have an entrepreneurial ethos. We have hard-working people,
as I've suggested, and we’ve been working in a competitive environ-
ment for many years. But they are going to need help and assist-
ance from our government if they can be permitted to be successful
in the private sector.

Mrs. MorELLA. If you were sitting where we are, what advice
would you give the OPM Director? Or what would you ask him?

Mr. King. Ask him to slim down as much as his agency is bein
slimmed down probably would be the most therapeutic persona’
thing that could occur. I always hate to look in the mirror. You no-
tice I never use the term lean.

But I would think that he should be dedicated to OPM’s core
functions and to our annuitants and to the benefits which we man-
age. He should be sensitive to the human dimension and when
talking about cutbacks, avoid drifting into the academic or thinking
in fiscal terms. Instead, he should translate the results into human
terms and understand we're talking about individuals, their very
lives, and in almost every case we’re talking about how people de-
fine themselves as human beings in the context of their work. The
OPM Director should not deal with them in a callous fashion or
merely dismiss them as statistics.

Mrs. MorELLA. Final little comment. Any morale problems? Are
you finding that your OPM people are suffering from a lack of feel-
ing that we care about them or the Department cares about them?

0 you have a problem with morale at all?

Mr. Kinc. We have—I think any place we are going through a
transition, any place where we're talking about people who have
been through very substantial RIF’s—and that’s an involuntary
separation, as you know so well—our approach has been from the
beginning that first we will treat this as if it were a death in the
family. And I’m talking about the individual who’s being affected,
and that we work with them in the most compassionate fashion.
We understand what people go through in this.

And Ed Flynn, if you'd like, could tell you the process that we
used. By the way, in our outplacement, we've placed over 90 per-
cent of the people who have lost jobs in the agency, either inside
or outside of government. So we have an extraordinary high rate
of settling people outside the agency.

Mrs. MoRELLA. You placed 90 percent of these people?

Mr. Kine. Yes.

Mrs. MoRELLA. That’s very impressive.

Mr. KING. It’s a tribute to Mr. Flynn’s leadership, but we couldn’t
have done it without partnership again. Because people in the
agency volunteered, our partnership councils came in, they worked
directly with people. It was an extraordinary internal effort and it’s
ongoing.


64

cannot seriously affect or even monitor, much less lead. Neither Congress nor the
President would be able to hold responsible the labor-management committees mak-
ing the actual decisions on work and pay standards and the actual performance of
the work of the Executive Branch.

IIL Real Reform of Government Management
People Are Demanding Real Reform

A reform meant to create “high performance government” ended by eliminating
the responsibility of those in the unions and management councils making the major
decisions, and gelding those with the legal responsibility for performance and over-
sight. The national Government certainly needs re-invention Rae Mr. Clinton's pro-
posal would make things much worse. Leadership is transferred to committees and
unions, assuring weak executive leadership. Too bad. As management expert Peter
Drucker has written, building “entrepreneurial management into the existing pub-
lic-service institution may . . . be the foremost political task of this generation.”

Given popular views of government today, acceptance of the Clinton plan with its
greater inefficiency to appease the unions would be the height of cynicism. Worse
would be for the Clinton Administration to get credit for bureaucracy reform while
actually making management more difficult. To truly reform government, Congress
must get to know the details of the bureaucracy game, especially when reformers
confound common understanding. For example, decentralization sounds good and
makes sense in the private sector because its profit-and-loss bottom line signals if
it has gone too far and endangered its profitability or even survival. Devolving func-
tions to state governments makes sense too because local voters can sort out the
details and vote out the elected lower-level official if things go wrong. The Federal
Government has neither profit centers nor decentralized elected executives.

Decentralizing decisions within the Federal Government just shifts the decision
further away from Executive and Congressional oversight. It creates less respon-
sibility, not more. Labor-management councils, quality circles and group manage-
ment ideas can be used in limited ways in government but never as much as is pos-
sible in the private sector. These methods can increase quality but they have the
offsetting cost of delaying decisions. Only the knowledge that profits are being
threatened, forces a decision in the private sector—a‘id that decision is ultimately
made by top management, not a committee. In government, there is no profit mech-
anism to limit delays. So a culture of inertia becomes the rule.

Government bureaucracy must be understood as very different from the private
sector. As badwig von Mises’ classic, Bureaucracy showed, government management
is more difficult because it does not have the efficiency devices readily available in
a market—the marvelous bottom line. To reform government, it is essential to un-

derstand the different management principles required for government administra-
tion.

The Need To Keep the Mission Simple

It was 1971 and the fabled Corps of Engineers had done the impossible once
again. Responding to desperate pleas for assistance following massive loss of life and
property in a series of hurricanes in the 1940s, the COE turned 103 miles of mean-
dering, mosquito-infested swamp called the Kissimmee River in Florida into a 56-
mile canal system protecting local citizens from flooding, utilizing the most modern
electronically operated locks available to engineering science.

Flash to 1992 and Senator Bob Graham (D-Fla.) is threatening George Bush with
the loss of Florida’s citizen support if he does not agree to re-route the Kissimmee
canal back to the original “river” at a cost of almost a half billion dollars. And who
is to do the costly deed? It is the same Corps of Engineers, which understandingly
did not like the idea of destroying its masterwork canal and turning it back into
3 swamp.

1971 was the era of can-do foversment and the COB was the government's best
Only the Marine Corps, the Federal Bureau of Investigation, the Social Security Ad-
ministration and the Forest Service were even in the same league. All had mastered
what academic expert, James Q. Wilson, would later identify as the essential ingre-
dient for administrative success in government: a simple, clear mission with an
imaginative leadership dedicated to it. Government can work, if it keeps it simple
andcontinuously drives that simple message home to a cadre of dedicated subal-
terns.

Each of these agencies had a unambiguous sense of mission because they were

iven one by their larger-than-life, single-minded founders, who assured that their
fogacy was ingrained In their troops and communicated to all new recruits. It was,
as Wilson stated in his magnificent book, Bureaucracy, “as if they felt the ghosts



35

Mr. Moran. Yes, these are good numbers, I would suggest, and
they’re helpful to have ready because I think they make a point.
So I would hope we would supply that for the record. Unfortu-
nately, supplying it for the record, nobody ever sees it.

Mr. KiNG. We'll supply it for the record, Mr. Moran——

(The information referred to follows:]

ADMINISTRATIVE COSTS OF THE FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

In FY 1993 (the most recent year for which we have complete financial data), the
Proportion of program costs devoted to administering the pro was 5.7 percent.
is percentage recognizes that two components comprise the administrative cost
structure of the program:
1) Expenses which the Office of Personnel Management incurs in administer-
ing the program:
$22 million or 0.2 percent of the total
2) Expenses for administration classified and reported by carriers participat-
ing in the program on a fee-for-service ba:
$803 million or 5.5 percent of the total.
The amounts do not include the administrative expense of prepaid carriers (pri-
marily Health Maintenance Organizations) which participate in the program. Since
our contracts with prepaid carriers are based on community rating practices, they
do not track and separately record administrative expenses charged to the program.
In addition, all Federal iogencies expend funds in the program’s administration
(recording enrollments, withholding and disbursing premiums, etc.). These costs are
not captured and recorded, and are probably not significant in the context of the
overall program.
We are not certain what costs may have been included in the 25 percent figure
used by Mr. Moran as representative of administrative costs for health care in the
rivate sector. For that reason, a straight comparison with the Federal Employees
Freaith Benefits (FEHB) program should be approached with some caution. Never-
theless, the evidence does support the thesis that administrative costs in the FEHB
Program compare very favorably to the private sector.
fe have sought and will continue to seek ways to minimize administrative ex-
penses in the program, both to ensure that it is being managed properly, and, more
importantly, to ensure that costs remain competitive and that as much as possible
of every health care dollar goes to the provision of quality medical care for enrollees.

Mr. Moran. Is it fair to say it’s about 5 to 6 percent?

Mr. Kine. I don’t think it exceeds that, but I’m hesitant to say
that because I’m under oath, Mr. Moran.

Mr. Moran. All right. I think there’s a point that could be made
in your next presentation that it’s saving an enormous amount of
money in terms of management, given the number of people who
are actually running the Federal Employees Health Benefits Plan.

Mr. Kine. Yes, sir.

Mr. Moran. And of course one might ask, well, then there must
be a problem with the efficiency or the satisfaction level. I know
that private insurance plans have about an 80 to 85 percent level
of satisfaction.

Do you know what the FEHBP level of satisfaction is? I know
you sent out surveys.

Mr, Kine. We have just completed a survey.

Mr. FLYNN. We are very comparable across the board, in the high
80’s and 90’s for some carriers.

Mr. Moran. Oh, well, I was told last year, when I presented tes-
timony to Mr. Ford’s committee, it was actually 96 percent satisfac-
tion level.

Mr. FLYNN. I believe that’s a survey done by perhaps one plan
in asking some different questions.



67

Contract management has the substantial benefit that it accords with perform-
ance compensation. Rather than de-emphasize pay for performance and throw clas-
sification to the mercies of labor-management committees, OPM should be in-
structed to transmit to Congress a compensation system that rewards savings and
mission accomplishment on time and on spec. The classification system should be
broad-banded, but only under tight OPM control to reduce the normal temptation
of agencies (shown in the demonstration studies already conducted) to push com-

nsation up unnecessarily. While employee and even union input are essential, the
Final decisi¢ns need to be made on mission-accomplishment grounds by top agency
management, under the supervision of the President.

Hiring, Firing and Labor Reform

With the higher quality permanent employee required by the core-and-rim staff-
ing system, it is important to restore selection based upon knowledge, skills and
abilities. OPM should immediately seek to end the sweetheart consent decree en-
tered in the last days of the Carter Administration that abolished its Professional
and Administrative Career Examination (PACE) for competitively selecting superior
college graduates into government employment. Indeed, the decree was only to last
five years, but has already placed the Federal Courts in control of hiring for 15
years.

There is a reason for centralized hiring. General ability tests such as PACE are
better in selecting qualified individuals than are any separate tests for particular
occupations. The only reason Courts have ruled differently is that Afro-Americans,
on average, score below whites on them (so-called disparate impact). Certainly, an
argument could be made for some temporary affirmative action but 15 years without
an entry examination deserves some notice and redress. The courts have agreed to
review the decree if the Uniform Guidelines on Selection Procedures are reformed.
This challenge must be accepted so that Federal hiring is returned to the law that
requires selection on KSA’s. And OPM is the only agency with the knowledge base
to take on the job of up-dating PACE.

As the law requires hiring to be based upon skills, retention and reward is sup-

sed to be based upon good performance. The Clinton reforms establish reward and

isciplinary systems, but they are based upon much greater union involvement. In-
deed, the apparent purpose is to shift totally to labor-management contro] and
union-grievance review. The likelihood that such a system will lead to higher stand-
of performance and more action against poor performers is nil. Unions just do

not thrive being tough on performance or discipline.

True labor reform would be to take the other track. The answer is to eliminate
the expensive and duplicative grievance system and re-establish a true merit sys-
tem. It was the justification for a civil service in the first place and what President
Carter desired before being required to defer to a union-dominated Democratic Con-
gress to create the second system. Centralization of examining for common positions
is still required by law, and is cheaper. OPM has been shown to select at between
$10 and $15 less per applicant than agencies. Less hiring and less personnel re-
sources generally will be needed when a small core of skilled professionals manage
many temporaries and contractors with a single mission focus.

Give the Authority to the Managers

Jimmy Carter used significant political capital to give political managers the tools
to manage the bureaucracy. Ronald Reagan, likewise, fought to sustain those tools
for effective executive decision-making. For a few, short years it worked. More was
accomplished with less, as measures of productivity increased as personnel were cut.
The thrust of the Clinton reforms is to remove authority from the political and ca-
reer executives that were the focus of the Carter reforms, and transfer the manage-
ment authority to labor-management councils. The weakening of political control
has been a long-sought goal not only of unions but the career manager-dominated
American Society of Public Administration. A recent Brookings study was typical,
suggesting cutting the number of political appointee positions by one-third.

‘ithout political leadership, when the President gives an order, there is no reason
to assume anything would happen down the line in the bureaucracy. That is why
all of the responsibility in the law rests with the political agency head. In a perverse
way, this is acknowledged by the Clinton recommendations when they give the
power to the labor-management councils but the recourse against abuse is the politi-
cal agency head. Democratic government, at some level, must place responsibility
in the hands of political appointees representing the elected executive.

‘The Carter management reforms recognized this essential reality and moved this
responsibility down the management chain to successively lower-level political ex-
ecutives, career executives and managers, down to the level where the work was



45

Mr. Mica. And we need to find out, is it more cost effective to
do it the way we’ve been doing it with some changes, or are we just
again back to the shell approach?

Mr. Kinc. I can’t imagine why OMB would do that.

Mr. Mica. The other area—and I can’t imagine you'd do that. But
the other area that was interesting is retirement and insurance,
which is, what, 1,600 employees, as I recall, and this is one area
where you've advocated an increase.

I know there has been some automation and some updating.
Rather than adding more personnel, are you looking at more auto-
mation, computerization?

Mr. KING. Yes.

Mr. Mica. And have you looked at contracting out this? Aren’t
there insurance companies or other processing folks that handle
this on a routine basis who may or may not be able do it cheaper?

Mr. Kinc. On the retirement side, Mr. Chairman, it’s something
that we had looked at the costs and worked that out.

Ed, would you like to speak to those costs on the retirement?
And this is really what we should have back for Mr. Moran’s ques-
tion on health care.

Mr. FLYNN. And I can do this I think fairly quickly and see if
you have any other questions. I guess the first thing I would say
is if you look at the cost of our operation in terms of providing pen-
sion services to Federal annuitants and survivors, we’ve looked at
what other pension organizations do, both in the public and the
private sector.

Our review of that suggests that we are about a third less expen-
sive than any private/public or private sector pension organization,
and anywhere from 50 percent to close to 100 percent less expen-
sive than some public sector Pension paying organizations.

So I guess the first thing I would say is that we're very efficient
in what we do.

The second thing that was inside your question that I'd like to
just respond to quickly, and that is whether or not technology can

elp enhance the level of services we provide. The answer is clearly

yes.

We're working in two areas, one, to deal with some of the dif-
ficulties people have getting to us by telephone to transact busi-
ness, as Mr. Mascara mentioned; and second, as I think all of you
know, we're in the midst right now of a long-term development ef-
fort to develop a system to handle the retirements that will occur
under the Federal Employees Retirement System. That is being
done by a firm, Computer Sciences Corporation, working with us.
It’s an effort that will be completed in the year 2000, 2001.

But it will create a relatively modern, completely automated, cen-
tralized system to process retirements and related services for an-
nuitants. So I think in both those areas, one, we're very efficient,
and two, we’re using technology wherever we can.

Mr. KING. By the way, as you know, Mr. Chairman, it has to be
applied at a more rapid rate than it has in the past. And we're
moving in that direction.

Mr. Mica. Well, I thank you for your responses. My questions
have led to some additional questions, which I'll submit to you and
solicit your response.


87

significantly fewer resources and less opportunity for staff specialization in different
areas of expertise. Therefore, a small agency like the SEC which has twenty-five
personnel specialists needs to rely more on OPM for advice and technical assistance
on complex legal and regulatory issues.

e other hand, small agencies often have special needs or circumstances that
differ from those of large agencies, so we strongly support flexibility in the proce-
dural implementation of government-wide personnel regulations. As long as they
meet certain minimum standards, agencies should be able to develop procedures to
implement the basic requirements which are tailored to their individual needs.

jince the release of the NPR recommendations, we have seen genuine evidence
of change, especially proposals originating from or involving OPM. For example, we
have been consulted on overall plans for human resource management (HRM) re-
form legislation, including legislative proposals to clarify the redesigned role of
OPM, and a number of regulatory proposals on specific program areas that serve
to streamline requirements or increase agency discretion on procedures, The SEC
has been supportive of these changes. Tn addressing the specific questions posed by
the Subcommittee, I would like to briefly discuss OPM’s role and then respond to
each question.

I, WHAT IS THE APPROPRIATE ROLE OF OPM?

OPM should function as a central service and advisory agency. Its focus should
move from the direct control of processes and procedures to promulgating broad pol-
iy frameworks intended to uphold the basic merit principles. The implementation
of details should be left largely to the individual agencies. For example, this is the
approach that OPM has taken on performance management systems in the proposed
regulations published in the January 27, 1995 Federal Register.

ere needs to be government-wide consistency on certain basic issues relating to
conditions of civil service employment such as guidance in the areas of benefits,
processes for pay determinations, retention rights, disciplinary and adverse action
due process procedures, and labor management relations. OPM could play an impor-
tant role by serving as an authoritative source for interpretive guidance.

As a regulator, OPM also needs to maintain an effective enforcement mechanism.
Agencies, as well as individual managers, need to be accountable for compliance
with statutory requirements, particularly if the precise methods of achieving the
statutory objectives are not spelled out through detailed procedures.

Tn addition to its advisory role, OPM provides an important service in managing
government-wide benefits programs, such as retirement, health benefits, and life in-
surance. Central OPM control of these programs offers the advantages of group pur-
chasing power, maximum choice, and lower administrative overhead costs.

should play a strong role in facilitating communication and coordination
among agencies, and in serving as a consultant. Since the NPR report, OPM has
me much more customer-oriented, and we applaud this initiative. The develop-
ment of OPM’s Mainstreet bulletin board has greatly enhanced OPM’s information
clearinghouse capabilities and the quality and timeliness of its advisory service to
agencies. For example, publicizing case law developments and best practices of other
organizations helps agencies to maximize their own resources by avoiding duplica-
tion of efforts in research and program development. We also support OPM's govern-
ment-wide research activities and efforts to develop model programs either inde-
pendently or by organizing consortia of other agencies. For example, the SEC was
one of the organizations that piloted an automated version of the FPM 296-33,
“Guide to Personnel Processing.

However, training is not part of the core services OPM must provide. We would
support the idea of “privatizin training to promote competition.

In summary, we agree with the redefined role of OPM that has been commu-
nicated to agencies, and look forward to its full implementation. Nonetheless, we are
concerned that downsizing too rapidly and without adequate transition may under-
mine the level of expertise that OPM staff have developed over the years.

Il. CAN EACH AGENCY AND DEPARTMENT EFFECTIVELY MANAGE THEIR PERSONNEL
FUNCTIONS WITHOUT STRONG DIRECTION FROM A CENTRAL PERSONNEL AGENCY?

As I stated earlier, a strong central authority is needed for certain specific areas
of policy direction. However, the overly prescriptive procedures and excessive red
tape that have been created over the years need to be eliminated. Effective regu-
latory simplification and delegation to agencies will allow the agencies to implement
personnel programs to meet their specific needs. :


8

But ironically, that has correlated to gaining even less respect
and appreciation on the part of the American public, and particu-
larly on the part of politicians. So I think the inevitable is that the
Office of Personnel Management is going to be cut even further, al-
though I think a reduction of more than 1,000 people is substan-
tial.

The Federal Government is going to continue to be cut. I hear
Senator Roth saying that the 272,900 is just a start. I know that
the Republican side has the votes now. And so we are going to have
to make terribly compelling arguments to even moderate that ef-
fort, never mind stop it.

But we are prepared to do that, because I think that the Federal
workforce, when you look at it with some depth and in fact with
the breadth of responsibilities that we have given it to perform, I
think you can only come away fairly impressed.

And we—so let’s—we’re ready to start. Let the debate begin. And
I do appreciate the fact that you have been forthcoming with me,
and I think you intend to deal with this side of the subcommittee
with the same cooperative and constructive manner in which you
have shown us so far. I very much appreciate that, particularly
since we have virtually no staff resources available to us at all on
this subcommittee. So that constructive cooperative attitude is
going to be very important to us.

And I appreciate that for what you have shown today, and par-
ticularly what I know you will be showing in the future.

So thank you, Mr. Chairman.

[The prepared statement of Hon. James P. Moran follows:]

PREPARED STATEMENT OF Hon. JAMES P. MORAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA

Mr. Chairman: As you mentioned, this is the first in a series of oversight and ex-
ploratory hearings on the different functions of the federal civil service.

Much of the discussion today is in response to the ambitions Goals set out by the
National Performance Review Council Report on Reinventing Government and the
subsequent actions of OPM to meet those goals. While I had strong objections to the
workforce reduction targets established in the NPR report, I do support the ongoing
effort to re-examine every aspect of the civil service and restructure the federal gov-
ernment to make it more responsive to its customers and constituents. It is our re-
sponsibility to ensure that this restructuring does not damage the foundations of our
current civil service in its effort to renovate the structure as a whole.

We all know, that the government that governs closest to the people governs best.
Accordingly, this Congress is examining a number of initiatives aimed at devolving
federal programs to the states and local governments. Local governments are more
accountable and more responsive to the needs of their communities than a large fed-
eral government where the decisions and decision makers are removed from the con-
stituents they serve.

In a similar vein, we must look at ways to ensure that the remaining government
functions are performed more efficiently and more responsively. The Office of Per-
sonnel Management is a large federal bureaucracy. It constituents, however, are not
the 250 million Americans across this country, but rather the more than 2 million
federal employees. These employees are also constituents of the individual personnel
offices in their employing agencies.

As part of its civil service reform efforts, the Administration is proposing to de-
volve the daily personnel functions of OPM to those agencies that most directly
serve the individual federal employees. This is an important reform because it is
tied to the Administration’s commitment to giving federal managers and executives
greater authority of the staffing and personnel policies of their offices. Again, the

ernment or personnel office that serves closest to the individual constituent is
Bost suited to appraise the individual needs of that constituency. It is appropriate
that we begin this dialogue today since civil service reform is arguably one of the


RESTRUCTURING OF THE OFFICE OF
PERSONNEL MANAGEMENT

TUESDAY, FEBRUARY 7, 1995

House oF REPRESENTATIVES,
SUBCOMMITTEE ON CIVIL SERVICE,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 9:33 a.m., in room
2203, Rayburn House Office Building, Hon. John L. Mica (chair-
man of the subcommittee) presiding.

Members present: Representatives Mica, Bass, Gilman, Morella,
Moran, and Mascara.

Mr. Mica. Id like to call the first meeting of the Subcommittee
on Civil Service to order. I’m John Mica, I’ve been chosen to Chair
this panel. Good morning to some of our witnesses and those in at-
tendance, also to my colleague, Frank Mascara, from Pennsylvania.
Can’t help but reflect that I feel a bit like Vaclav Havel this morn-
ing. I remember when he addressed the House, was it a year or so
ago, and he opened his statement, and said something like, “4
months ago I was in jail and wasn’t allowed to speak, and here I
am before the Congress.” And my situation is somewhat similar.

Four months ago I wasn’t allowed to speak in this committee, at
the last hearing in the full committee, and here I am_today
chairing a panel. So it’s an exciting time for me. I want to take this
opportunity to welcome everyone to this first hearing of the newly
created Subcommittee on Civil Service of the Government Reform
and Oversight Committee.

It’s, as I said, an honor and privilege to Chair this subcommittee,
and I look forward to working with Chairman Clinger, and also
with our Vice Chairman, Mr. Charles Bass, of the subcommittee,
who has been designated for that position. I have also enjoyed,
since my appointment, my work with the ranking member, Mr.
Moran from Virginia, who has been most accommodating in work-
ing with us and trying to reach mutual accord on the goals and ob-
jectives of this subcommittee. And the same is to be said for my
colleague from Pennsylvania, whom I recognized earlier.

I’ve selected the following personnel, and I’d just take a minute
to introduce them to the committee and subcommittee and also to
the gathering this morning. George Nesterczuk is our staff director.
George? Maybe you all can raise your hands. Dan Moll is a senior
policy director, Dan’s over there. Garry Ewing is our legal counsel.

usan. Mosychuk, there she is, one of our professional staffers. And
Caroling Fiel, and she’s in the back, she’s going to be serving as
our clerk.

«@


42

as an agency more work than we were able to handle, and a num-
ber of agencies, defense investigative agencies and some others,
were given delegated authority to procure their investigative serv-
ices on the private market.

And some of those delegations still remain to date and, as we un-
derstand, work successfully for those agencies. OPM at one point
also augmented its staff for a short period of time to do a number
of investigative cases.

Ive heard staff perceptions of the varying qualities of that. We
have not been able to find any written assessment of the quality
of the cases that those individual contractors provided.

Mr. Kinc. Mr. Mascara, DEA, which is very, very sensitive as to
the background work done on their employees, that’s done by a
contractor, a private contractor. And that was done with our ap-
Proval back in the 1980’s. And they've maintained that relation-
ship.

Mr. Mascara. OK. Finally, and I realize it’s difficult to quantify
what kind of revenues would be available to OPM, but is the unit
receiving money for these investigations?

ic. Yeah, we run it like a business, Mr. Mascara. We're
running at this stage $1 million above break even on the costs.

It’s a viable business at this moment in time, in large part be-
cause it’s responding to that market that’s out there. But that’s
after we've gone through some real management traumas, which
we shared earlier, and we're merely saying that it’s an area that
should be more market sensitive than a government agency can be
under its entire processes.

Mr. Mascara. You said, Mr. King, it was $1 million above costs.
Is that per month? I heard someone say——

Ms. Lattimore. Per month.

Mr. Mascara. It’s $12 million still in the red then?

Mr. Kinc. Oh, no, no, we're still running behind. We inherited,
and then it went downhill, we had a start-off point of, what, about
$4 million?

Ms. Latrimore. I guess when we first started working, we were
about $44 million in deficit. Through some various management
changes, cost containment efforts, and some different pricing mech-
anisms, we probably have reduced the deficit now to just around
$34 million.

We've been operating since last spring in a posture where we
would no longer increase the deficit, where at any accounting pe-
riod our costs would have not exceeded our income. Our annual
costs are running just about $71.5 million, and our income is run-
ning just about $73 million, and we anticipated that our costs
would not exceed our income for any given period.

Mr. Mascara. Thank you.

Thank you, Mr. Chairman.

Mr. Mica. Thank you.

If I may in this second round get back to a couple of points on
my original line of questionin; , which is again I'd like to see the
real impact and numbers and dollars from the agency.

And some of this work is no longer being performed by the agen-
cy and is reimbursed from other agencies as the way they conduct
some of their business, and also see some of the budget figures,


BB

move from centralized examining to decentralized examining, in-
cluding a proposal the Clinton administration made for so-called
quality group appraisal. To the degree to which you do that, it’s
harder to apply veterans’ preference, it becomes diluted.

So to the degree you decentralize, you hurt veterans’ preference.
That’s why the veterans organizations were very upset even with
the degree of decentralizing that we had done, the vast majority of
exams were decentralized already. What I would certainly not do
is adopt the administration proposals that are circulating as a draft
because they seriously would make things worse. Second, I think

‘ou need ODM’s continual supervision to make sure that it is fol-
lowed.

Mr. Mica. Well, I have additional questions, but I would yield to
Mr. Moran.

Mr. Moran. Thank you, Mr. Chairman. It is nice to have you be-
fore this subcommittee, Mr. Devine. I have heard a lot about you
but never had the opportunity to meet you.

During my campaign that just concluded, my opponent made a
big issue of my forcing the Federal employees to pay mandatory
union dues. Was that an issue in your campaign with Mr. Hoyer
as well? Did that come up?

Mr. DEVINE. Not a great issue. And of course dues checkoff was
a recommendation made to the President which has now dis-
appeared from the recommendations—I think, having a lot to do
with what you commiserated about in the beginning of your testi-
mony, that there’s a new majority here.

Mr. Moran. Well, in my case, it was absolutely untrue. I don’t
know where he got it, but I can’t speak for Mr. Hoyer, but, boy,
it gets annoying when somebody continues to charge you with
something that is totally false.

But on the first page of your testimony, Dr. Devine, you say,
“Against the staff recommendations, which were personally over-
ruled” it is on page 1 here, the fifth paragraph of the first page:

Against the staff recommendations, which were personally overruled, project boss
Vice President Al Gore proposed to give the unions equa] power with management
in labor-management councils. In addition, he promised the unions an involuntary
dues check-off from Federal employees—without even requiring representation elec-
tions. The quid pro quo was codified in Executive Order 12871, making the unions

“full partners” with management in the assignment classification of work, and creat-
ing labor-management committees to enforce it throughout the Federal Government.

That is true to the best of your knowledge?

Mr. DEVINE. Yes, sir. I was told that by a reporter who received
that information from a staff member of that committee.

Mr. Moran. From a staff member of that committee. This is pret-
ty important since it is congressional testimony and under oath of
course. So I am going to ask Vice President Gore if he promised
the unions an involuntary dues check-off from Federal employees,
because I don’t believe that to be true, and it is a central issue and
I think a very important charge to make.

So I will ask you again, you are confident, without doubt, con-
fident enough to say in sworn testimony that that’s true?

Mr. DEVINE. Yes. I—as I told you, from my source, which I am
not at liberty to give, but that is the source. And I don’t consider
it a charge—as you noticed, I didn’t even mention that in my sum-
mary of remarks. I know the first meeting I had with the unions


82

b. Secured Approval of and Funding for Civilian Personnel Regionalization and Sys-
tems Modernization

The culmination of intense analysis, compromise, and consensus building, this ap-
proval sets a course for the future of civilian human resource management. Wit}
the establishment of regional servicing centers and the movement of all DoD compo-
nents to a standard, modern data system, the ratio of employees served per
personnelist will climb from the current 60 to 100 by FY 2001. After the new system
is in place, DoD) will save about $156 million a year.

c. Developed Labor-Management Partnerships

The Office of Civilian Personnel Policy continued to use its Presidents’ Roundtable
to involve union, employee, and managerial groups, as well as the Services and De-
fense Agencies in civilian personnel policy. More significantly, we managed to have
the Defense Partnership Council chartered and its bylaws adopted. Further, the

staff provided partnership training to over 700 senior managers and their counter-
part union representatives in support of the National Performance Review.
d, Initiated Liaison Offices for Injury and Compensation

We located field liaison offices at Department of Labor (DOL) offices, through
which technical experts have provided advice and guidance to the 400+ installation
personnel on Federal Employees’ Compensation Act (FECA) matters, Review of in-
jury claims at DOL and encouraging installations to re-employ injured workers re-
sulted in 158 successful placements. As a direct result, actual one-year savings ex-
ceed $3 million, with potential savings exceeding $101 million.
e. Streamlined and Increased Complaint Investigations

Our Office of Complaint Investigations (OCI) reduced its work-in progress inven-
tory by a third while reducing staffing levels by 8 percent. It increased monthly pro-
duction almost 20 percent through economies of scale, staff training, and stream-
lined procedures.

By implementing mediation, OCI has enabled local parties to achieve settlement
in over half of all mediation attempts. Conservatively, OCI’s use of mediation has

been saving DoD) at least $8 million a year; with all investigators becoming trained
mediators, the savings should rise even higher.

f. Established the Field Advisory Service

An internal directive required that positions be transferred from the Components
to establish a central Field Advisory Service. This became fully operational in FY
1994, with a consolidated program providing technical advice on common human re-
source issues. The result is meeting needs with fewer staff members while exceeding
customer expectations for timeliness.

g. Improved Civilian Leadership Training

The Office of Civilian Personnel Policy has engaged senior Component. personnel
managers in the development of an integrated, systematic program of human capital
investment to improve leadership training for civilians, a key readiness issue, Fur-
ther, as 1994 ended, the Executive Leadership Development program was expanded
to include its first Science and Technology Week.

h, Improved Procedures for Civilian Workforce Contingency Management

The staff developed a comprehensive directive on Civilian Workforce Contingency
and Emergency Planning and Execution. These procedures are essential as the role
of civilians in military activities continues to expand. On a related item, we trans-
lated “total force” into meaningful policies by making civilians who served in the
Gulf War eligible for evaluation and care in our military medical facilities under the
same conditions as active duty military.

i, Established the Reinvention Laboratory with the Office of Personnel Management

Our Information System Division conceived of, planned, and established the Re-
invention Laboratory as a showplace for automated business process improvement
efforts. A joint effort with OPM, the Laboratory serves as a testing and display vehi-
cle for computer software innovations in processing personnel actions.

Over the coming year, we are committed to further work in all of these areas, as
well as three other areas of particular interest to this committee:

improving the policy framework for civilian personnel management;

simplifying personnel management; and
« streamlining the alternative personnel systems (those falling outside Title 5,
such as the intelligence community).

Let me turn now to our efforts in downsizing,



RESTRUCTURING OF THE OFFICE OF PERSONNEL
MANAGEMENT

HEARING

BEFORE THE

CIVIL SERVICE SUBCOMMITTEE

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

FEBRUARY 7, 1995

Printed for the use of the Committee on Government Reform and Oversight

a

U.S. GOVERNMENT PRINTING OFFICE
88-700 CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-053715-0
a





30

accountability with Federal personnel law, rules, regulations, and merit. system
principles,

« Providing technical assistance directly to agencies to assist and advise them in
the development of human resources management accountability programs.

OPM, of course, will maintain its authority and ability to directly investigate alle-
gations of abuse of Federal personnel laws, rules, and regulations (including the
merit system principles and veterans preference) when it becomes aware of such
abuses or when such abuses are brought to OPM’s attention, and to take appro-
priate action.

Question 4. Witnesses at the hearing remarked on the need for OPM to serve as
a source of authoritative guidance on personnel matters for agencies, especially
smaller agencies. With the substantial reduction of the FPM, how will 0] now
provide that sort of guidance?

Answer. The Office of Personnel Management has become much more accessible
to all agencies as a result of the abolishment of the FPM. In the past, the FPM was
virtually the only formal communication vehicle between OPM and agencies. That
is no longer the case. The FPM Sunset Document, which showed the disposition of
all material in the former FPM, listed an office and phone number for each FPM
chapter. This has provided agencies and others with a direct link to the office within.
OPM that can provide expert advice on the topic of particular interest.

OPM’s electronic bulletin board, “Mainstreet,” provides another way to access
OPM experts. Anyone with a modem and a telephone can use “Mainstreet,” includ-
ing its numerous forums that provide information on a wide variety of topics. Que-
ries can be posed and answered quickly. An example of this is the forum on reduc-
tion in force (RIF). A multitude of information on RIF is provided, and the informa-
tion is updated daily. “Mainstreet” has been very heavily used. A formal notice and
posting system is also in operation, to ensure that all personnel offices receive im-
portant information on Governmentwide policies and issues. Continued expansion of
electronic means of communication will ensure that agencies have access to as much
guidance as they feel a need for.

Question 5. It is imperative that the President, as the nation’s chief executive offi-
cer, have the tools to control the executive branch and ensure that it is responsive
to his political program and his political appointees. He, after all, is politically ac-
countable to the Congress and the American people for the actions (or inaction) of
the executive branch. How, in your view, will OPM’s proposed decentralization affect
the President’s ability to exercise political control of the civil service?

Answer. A principal duty of the OPM Director is to be the President’s primary
advisor on Federal human resources management and, as such, the Director has a
pivotal role in helping the President implement his program and policies throughout
the Government. At the same time, the National Performance Review recognized
that, in certain areas, decentralization will allow agencies to do better personnel
work, and this will require greater flexibility than in the past. OPM tries to distin-
guish between those areas where central control is required and those where it is
not. Among the former are our core mission of protecting the merit system and such
areas as pay, benefits, leave, and retirement that require uniformity throughout
Government. We recognize, however, that there are other areas where the agencies
may be given more flexibility without any loss of the President’s central leadership

role.

GPM also has an educational role in providing central leadership through its OF
fice of Executive Resources. For example, the Federal Executive Institute provides
residential, month-long training programs for hundreds of senior career executives.
These programs reflect Administration policies and priorities. We believe that, as
fa result of these courses, the ideas taught will cascade down through the chain of
command within their various agencies, In short, we believe that such decentraliza-
tion as has taken place, or will take piace, will not inhibit Presidential leadership
but will enhance it!

[NoTE.—Tabs A-E can be found in the subcommittee files.)

Mr. Mica. And I also want the record to note that we've been
joined by our distinguished member of the panel, Mr. Gilman, from
‘New York. Welcome, Mr. Gilman.

Did you have any comments you wanted to make?

Mr. GILMAN. Just that I am pleased, Mr. Chairman, that you are
conducting this hearing early in the stages of this 104th Congress,
and I am pleased that we have such a distinguished panel before
us.


89

ground as to how a couple of agencies function from a real stand-
point.

First of all, Dr. Disney, DOD has how many people involved in
civilian personnel? How many individuals are involved in the civil-
ian side? And I’m not sure if you break it up to the active personnel
side.

Ms. Disney. About 15,500, just under that.

Mr. Mica. 15,000——

Ms. DIsNEy. If you're talking about in the personnel issue.

Mr. Mica. Yes, with the civilian workforce. In the civilian
Workforce, I heard there’s somewhere between 900,000 and a mil-

ion?

Ms. Disney. Yes, under 900,000 regular employees and 180,000
paid with nonappropriated funds.

Mr. Mica. OK. And you have 15,000.

Ms. DISNEY. Yes, there are approximately 15,500 personnelists.

Mr. Mica. How many of the 15,000 are in sort of a manager ca-
pacity?

Ms. DISNEY. I don’t have an answer to that. I’m not sure how you
would define managerial.

Mr. Mica. Well, you know, that have some administrative re-
sponsibility as far as human resources.

Ms. DISNEY. Well, I am not certain of that percentage, but I'll
find that out and give you that information.

Mr. Mica. I would just be curious.

{The information referred to follows:]

As part of the DoD Plan for Streamlining the Bureaucracy, the Department iden-
tified that it had 108,836 supervisors and managers who have responsibility for the
human resources as it applies to the employees who work for them. These numbers
are separate from the 15,500 personnel specialists who perform technical and advi-
sory work for both the supervisors and the employees they service.

Mr. Mica. I am trying to find out how many people across the
spectrum of the Federal workforce are involved, again, in personnel
processing and human resource activities?

Ms. DISNEY. Well, right now, we have about 15,500 involved in
that, which is a lower number than just a year ago as we're consoli-
dating some services.

Mr. Mica. That was my next question. Since you've gotten rid of
some of the personnel—I think you said around a quarter of a mil-
lion over a couple years—has that number come down?

Ms. Disney. Oh, yes. That has brought down the number. And
the regionalization and modernization efforts in which we're en-
gaged right now will, by the turn of the century, have cut that
number of personnelists in half.

7 Mr. Mica. So the next 5 years you're going to go from 15,000 to

Ms. DISNEY. About 7,500, yes.

Mr. Mica. 7,500.

Ms. Disney. We're working to change the ratio of personnelists.
Right now, there is roughly one personnelist for every 60 employ-
ees. We're moving toward a ratio of 100 at the turn of the century.

Mr. Mica. The figure that was quoted to me by Mr. King I think
was 35,000 people involved. Are you—you're included in that
35,000, so you would be 15,000 of that?


84

d. Training and Re-Training

When we closed Mather Air Force Base in California, regulations at the time
made it impossible for the Department of Labor to help with retraining employees
dntil RIF notices actually were distributed. We worked with OPM and DOL to de-
Velop a “Certificate of Expected Separation” which may be used six months in ad-
vance of a RIF to receive eligibility lor Job Training Partnership Act programs.

In other words, we have been able to work with OPM to develop alternatives that
can make downsizing more humane and more efficient, We do not believe that OPM
should either design or oversee our reduction efforts, However, the agency ean and
should facilitate the rule and regulatory changes, as well as information and pro-
gram exchanges. OPM can identify agency initiatives which appropriately can be
‘used throughout government as well as tailor or eliminate those which might work
im one time and place but are not generalizable.

IMPLICATIONS OF OPM’S RESTRUCTURING TO DOD

‘As mentioned earlier, our size and level of expertise set the Department of De-
fense apart from other agencies. For example, since 1978, our Civilian Personnel
Manual has provided a vehicle for publishing uniform, DoD-wide policies governing
civilian personnel. The current version is integrated with the Federal Personnel
Manual (FPM). We are engaged in a massive effort to update and revise our CPM
due to the FPM’s sunsetting and, more importantly, to comply with laws as we con-
form to National Performance Review goals and our own desire for deregulation.

In some situations, such as labor relations and intra-management communica-
tions, there are no OPM regulations; in others, such as administrative grievances,
OPM is Proposing abolishment. Where OPM regulations do exist, we conform our
policies to those regulations. However, we are fully capable of designing and imple-
menting our systems and programs in the absence of such regulations. While we see
no need for OPM to regulate in areas in which it is not now operating, we have
found the OPM staff with which we deal to be highly competent and capable of play-
ing an important advisory role to agencies.

in conclusion, I must reiterate that DoD’s size and experience will enable us to
adapt more readily than other agencies to any changes within the Office of Person-
nel Management. We applaud OPM’s desire to simplify its operations and look for-
ward to working with OPM as it decides which functions to retain and which to del-
egate. In doing so, we will be mindful of the tension between the benefits of decen-
alizing government and the need to provide cross-agency equity for employees.
Similar! Wye we will help seek a balance between devolution of authority and the allo-
cation of sufficient resources to fulfill the resulting responsibilities.

I thank you for this opportunity to present testimony.

Mr. Mica. And now we'll hear from Mr. Alegria.

Mr. ALEGRIA. Thank you, Chairman Mica, for inviting me here
today to testify on the administration’s proposal to restructure and
downsize the Office of Personnel Management. My comments will
focus on the impact of the proposed changes and particularly as
they relate to small agencies like the Securities and Exchange
Commission, which has only approximately 2,700 employees.

I was pleased to hear that members of the subcommittee are sen-
sitive to the fact that the needs and problems of small agencies like
ours are very different from those of large departments and agen-
cies like the Defense Department. In general, I think that most of
the personnel community agrees with the significant changes in the
philosophy and operations of OPM. I also think that the support
stems from the fact that the personnel regulatory framework had
become overly complicated with too many burdensome and ineffi-
cient requirements, and’ we're Pleased to see that OPM is moving
quickly to implement many of the changes recommended by the
National Performance Review.

However, we do share a concern with the subcommittee, and that
is that downsizing OPM too rapidly without an adequate transition
could undermine the high level of expertise that OPM’s staff have
developed over the years. With small numbers of personnel special-


12

main immune to political pressure. Someone somewhere has to set
down guidelines and enforce them to ensure that the workers hired
are qualified and can get the job done. This job should probably fall
to a reorganized OPM.

The point I am trying to make is that our country has struggled
too long and too hard to keep politics out of its general government
workforce to change course now. I do not think that is what the
American people expect or demand from our government.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Frank Mascara follows:]

PREPARED STATEMENT OF HON. FRANK MASCARA, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF PENNSYLVANIA

Mr. Chairman, I am pleased to be able to participate in this hearing set to review
the administration’s roposal to restructure and further downsize the Office of Per-
sonnel Management (OPM).

This is the first official business of the Subcommittee this session and ] am hope-
ful today’s hearing will prove to be productive and provide us all with the insight
and knowledge we will need to oversee the evolution of OPM in the weeks and
months ahead.

Let me start off by mentioning that I was involved in reinventing government be-
fore the term was popular. Back in the 1980's, after being elected chairman of the
Board of County Commissioners of Washington County, Pennsylvania, I found my-
self confronted with a county government in need of thorough review and a bit of
an overhaul.

In the lingo of Ross Perot, my fellow commissioners and I “lifted the hood,” and
got to work. Believe it or not we developed the county’s first organizational chart
and over the course of several years, reorganized the county’s departments and
agencies, consolidating functions where appropriate, and downsizing where needed.

I am, as they say, a “union man” and over the course of time, segments of the
county workforce were unionized. Working with the union leadership, we were able
to establish a system of fair wages and benefits in return for getting the job done,
and I mean done correctly!

I must humbly say that by the time I left last December, the engine of govern-
ment in Washington County was humming along at a good clip.

The point is, 1 know something about downsizing, reorganizing and reinventing

vernment. When I joined the county government in 1980, we had approximately

100 workers and when | left there were 800, and that’s after 15 years of assuming
unfunded mandates from the Federal Government. My experience has also given me
i t into the reason why governments all across the country have turned to a
civil service system as a way to hire, fire and promote their workers. Over the years,
Thave learned some general lessons that I think are applicable in the case of OPM.

First, it is probably wise to decentralize as much as possible the process of actu-
ally hiring and firing the workforce. The Department of Agriculture’s County Exten-
sion Agent in southwestern Pennsylvania certainly knows more about the local
crops and needs of area farmers than someone sitting behind a desk at OPM devel-
oping @ two-page detailed job description. The local agent, as my grandchildren
would say, is “plugged in” and knows who in the local workforce can and cannot
get the job done. The agent should have the authority to make this kind of person-
nel decision.

‘Second, it is probably not wise to decentralize payrolls, benefits or the Federal re-
tirement system. A big department like the Department of Defense, clearly has the
ability, the know-how and the computer capacity to develop a system to handle the
hundreds of calculations and key strokes needed to develop a payroll system. How-
ever, the reality is that many other smaller departments and agencies do not. Wis-
dom; common sense and efficiency probably dictates that this function should re-
main centralized. While I understand Federal retirees are frustrated and an
about trying to get through OPM’s phone lines, I think this is the type of operation
that should be improved, not thrown out.

Finally, throughout the process of reorganizing OPM, we must not fail to remem-
ber why a civil service system was established in the first place. As Director King
points out in his testimony, about the middle of the 1980's, the good citizens of this
country decided that politics and the spoils system were not producing a profes-
sional government workforce and demanded a system be developed based on true
merit and ability, thus, evolved OPM with its employment tests and classification



54

curs, and correct violations of central tenets which threaten the in-
tegrity of the new systems.

ome leadership of this sort can be afforded by strong White
House and interagency bodies. But cultural change is a lengthy
process and institutional capacity to support it is important. Spe-
cifically, for example, line managers need to be educated in the eth-
ical underpinnings of the merit system as they undertake greater
responsibility for its execution. Facilitating effective cultural
change requires people. The challenge is finding a new location be-
tween a stultifying status quo and a counterproductive, because of
too rapid or extreme reduction.

Additionally, there is the challenge of determining how much
oversight and what kind of structure of oversight is appropriate to
a significantly decentralized decisionmaking environment. There is
no question that major reductions in the workforce as a whole are
warranted and indeed overdue. The structure of work has been un-
dergoing a seismic shift, not only in the American private sector,
but also in the governments of other democracies.

Recent reports suggest that the Canadian Government, for exam-
ple, may be contemplating cuts of up to 30 percent of its national
government workforce, compared with about 12 percent for the
United States. However, workforce reductions must be tied to
changes in the structure of work or to program terminations. If
they are arbitrary, if they are designed for easy political effect or
summary budget savings alone, they will produce a government
that works less well.

In that light, the advisory, service-oriented role toward which
OPM has been moving under the National Performance Review
represents a structural change and, in my view, a desirable one.
However, it would be an abdication of responsibility to reduce
central oversight capacity beyond a certain point, especially during
a period of major change.

There is another large challenge posed by OPM downsizing given
the administration’s desire to expand employee union powers, for
two reasons. If managers are freed of excessive central agency con-
trols, whether OPM’s or OMB’s, but required to bargain over newly
decentralized authorities respecting classification of work—which
implies, to a degree, pay—and over numbers and grades of employ-
ees assigned to tasks, then decentralization becomes a facade be-
hind which line managers actually lose the greater flexibility de-
centralization and simplification are designed to provide.

Moreover, given reductions in Hatch Act protections enacted sev-
eral years ago, there is a new environment in which to protect
against violations of merit-based hiring and promotion. Perhaps in
this new environment a sound approach is to “decentralize but ver-
ify”

Finally, there remains, even in a decentralized and downsized
personnel system, a need for strategic planning. With the focus on
downsizing—and appropriately so—it is important to remember
that the Civil Service as a whole is a governmentwide institution
in certain of its attributes and requirements, even when operation-
ally decentralized, and therefore is in continuing need of broad
leadership attention to assure its future. OPM, with the right ca-



96

because we don’t have to go through the OPM competitive services
procedures,

Mr. Moran. You don’t have to go through OPM to hire attor-

neys?

‘Mr. ALEGRIA. Not for attorneys because they are exempted from
the regular—they’re noncompetitive jobs. And so if you're an attor-
ney you can be hired without going through all the normal OPM
procedures. But we do have very stringent requirements.

Mr. Moran. That’s probably—but that exemption is—I can just
imagine—was probably written by an attorney.

Mr. ALEGRIA. I’m sure. But that does simplify the process.

But we have another category also. You asked a question about
limited partnerships. And, clearly, that’s one of our problems with
the expanding mutual funds and so forth, that we needed more ex-
aminers to go out and check the books.

Again, there’s another hiring authority called the Outstanding
Scholar Program, which means that any individual who has a 3.5
average or is in the highest 10 percent of his or her class, can be
hired directly without going through the OPM process. So we sim-
ply advertise for applicants under this program.

I think it was last year we had 50 new positions for examiners.
We advertised in newspapers, had lots of outstanding applicants,
very bright people that had the required 3.5 average; and we were
able to pick them up quickly and efficiently. And I am glad to say
we were able to diversify our workforce also, because we were able
to get women and minorities and so forth included in that group.

Mr. Moran. Is this unique to the SEC, George? Is that the only
agency that would do it?

Mr. NESTERCZUK. No, Schedule A authorities are government-
wide, and the Outstanding Scholar Program is a limited one, but
it’s governmentwide.

Mr. ALEGRIA. It’s governmentwide, but we're lucky that we've got
this. Now, if we had to hire individuals who have to go through the
normal system, that’s where the problems start.

Mr. Moran. If you hire them normally. But you’re saying law-
yers are exempt. That’s why we have so many lawyers. You can

ire lawyers any time you want to. That’s why they’re all over the
place.

Mr. Mica. Doctors are, too, I think.

Mr. NESTERCZUK. There are about 100,000 Schedule A’s in the
government, all lawyers.

Mr. Moran. 100,000 lawyers? Holy smokes.

Mr. Mica. We're in the wrong business.

Mr. Moran. You probably are a lawyer.

Mr. Mica. No, I’m not.

Mr. Moran. I’m a stockbroker, actually. But they don’t have any
exemption with stockbrokers, I’m sure.

Mr. Mica. If I had to work under the OPM constraints, I couldn’t
operate my business.

Mr. Moran. Well, this answers a whole lot of questions I’ve had
for what is wrong with the government. You can hire lawyers at
the drop of a hat.

Mr. Mica. And then it’s almost impossible to fire any.

Mr. Moran. That’s right. They'll sue you.


7

that unions would be full partners with management in the assign-
ment and classification of work and there would be not even rep-
resentation elections, that unions would have equal power with
management.

And that is what I’m getting at-——

Mr. DEVINE. If you read that--——

Mr. Moran. Not a recommendation.

Mr. DEVINE. If you read that as a charge. I mean, I don’t con-
sider that as a charge.

Mr. Moran. Well, then don’t call it a charge. You are making it
as a statement of fact. That’s what I’m getting at, how factual is
it?

Mr. DEVINE. Well, again, I was told this, so I’m repeating some-
thing I don’t have absolute knowledge of, but the fact of the matter
is, the recommendations were in the Executive order in terms of
the assignment of work, and are in the draft recommendations that
are circulating, and the dues check-off and the elections by card
rather than secret ballot were on the council recommendations.

Now, I’m not trying to, you know, say Vice President Gore did
all this or made any secret deal, I’m saying that—from the infor-
mation I got, he overruled the staff on this. And, again, I don’t see
anything improper with that. That’s the role of the executive to
overrule staff.

Mr. Moran. You don’t see anything improper in the Vice Presi-
dent making a decision to have involuntary union dues check-off?

Mr. DEVINE. I don’t see—

Mr. Moran. And you don’t——.

Mr. DEVINE [continuing]. Anything improper for him doing it.
Don’t get me to say I agree with it. I don’t agree with it.

Mr. Moran. OK. See, I think that it is, in fact, it is in the form
of a charge and it’s made as factual statement, and I would be
shocked if this was true. To the best of my knowledge, it is not.
And I think it is incumbent upon us to find out whether it is in
fact true.

The fact that a person of your stature would make this in sworn
testimony under oath that this is a factual statement in your writ-
ten statement, I think it’s important to find that out and I am
going to find that and pursue that.

Tm sorry to belabor this issue, Mr. Chairman, but, obviously, it
is one that I’m sensitive to, and since I represent 70,000 Federal
employees, a whole heck of my constituents are sensitive to it as
well. Of course all of us get a whole lot of recommendations, as ’'m
sure you fot any number of recommendations when you were head
of OPM. The real issue is, what do we, how do we act on those rec-
ommendations which we choose to accept, which we ignore, which
we turn down, and which we refine?

This one, if he in fact accepted this recommendation and made
a promise, I think that’s a terribly important issue, and you'll for-
give me if I don’t take it on face value but pursue it.

Mr. DEVINE. Let me respond to that. In the report of the Per-
formance Review Council, in my opinion, you can—and I wrote a
column myself at the time when it was out, before the subsequent
events—

Mr. Moran. I read that.


36

Mr. Moran. All right. I appreciate your modesty. I’m not all that
impressed by your salesmanship here. OK.

Mr. KING. It’s the first time I’ve ever been accused of not dealing
in hyperbole, Mr. Moran, thank you.

Mr. Moran. I don’t find you dealing in hyberbole at all. I am try-
ing to make a case that OPM is actually carrying out a fairly im-
portant function in a very efficient manner.

Let me ask you—we'll try a different tack and next time when
you have these numbers, we'll give you an opportunity to under-
score them. The administration’s budget, as the chairman was sug-
gesting, includes about an one-third reduction in OPM.

Was that your recommendation?

Mr. KinG. The recommendation was that we could reduce the
agency, and as you probably noted, what we're not doing is reduc-
ing our core function. We’re not reducing our retirement area; we're
actually enhancing it. We are reducing our administrative over-
head, and by the privatization in both training and in investiga-
tions, we can reduce the number of Federal employees who are
doing that work, and we feel it can be done in the private sector.

What I would like to do, Mr. Moran, is to do an employee-owned
business and launch that so they can go into the private sector,

rovide those services. And because we know in both areas there

ave been these ups and downs, it’s a cyclical business, private sec-
tor is much more responsive to cyclical business than government.
Government does not have quick turnaround time. And that’s one
of the real difficulties if you’re managing, trying to manage a busi-
ness that’s got to be very market sensitive in response.

Mr. Moran. I don’t argue with that, Mr. King, but the actual
question was, was that your recommendation?

Mr. Kinc. I had looked at it. We had serious problems when I
came into the agency.

Mr. Moran. You had serious problems?

Mr. Kinc. When I first came into the agency, this was an area
of serious problems because we were headed toward bankruptcy, if
you will. I think “anti-deficiency” is the term of art in government.

Mr. Moran. OK. We were told, when the NPR effort was an-
nounced, that one of the core proposals on which this whole thing
hinged was Civil Service reform. I waited anxiously all last year for
the Civil Service referral legislation, and somehow it either slipped
by me or never got to the committee.

Is there a plan for submitting Civil Service reform?

Mr. KING. Yes, sir. There is the Civil Service reform legislation.
We're staffing large parts of it, but it is being worked directly be-
cause of its implications, directly with the Vice President in the re-
invention effort. And you should be hearing, within a few months
of that——

Mr. Moran. Few months?

Mr. KiNG. Well, I’m taking the extreme because I don’t control
it, so 1 am buying as much time as I can for someone else.

Mr. Moran. I understand. We ought to mention, is it Elaine
Kamarck who is running it?

Mr. KING. As we used to say in the Soviet Union, you said that,
Mr. Moran.


48

And if you don’t, you don’t buy out, and you go unit by unit, you
don’t deal with personalities, you deal with what the mission of the
agency is and the jobs. In this case, let me give you an example
at my agency. We wouldn't offer a buyout to our operator mechan-
ics. Well, for two reasons, if you’ve been on our 30-year-old ele-
vators, you will know why we want people there to maintain them.
But more than that, you can’t easily replace them. So why would
we retire or in any such position offer an incentive for someone to
leave? That is a critical need.

I think Len Klein probably has more disappointed staff than any
other single person in our whole operation. Virtually none of your
people were offered buyouts, although there’s a large number that
would be eligible.

Is that correct?

Mr. KLEIN. That’s right.

Mr. Kine. And the reason we didn’t offer them is we need them.
We're looking at downsizing, we’re looking at a whole series of
other things. By the way, no matter how much downsizing we're
doing, there are turnovers. Even at this stage when everything is
going on, there are several thousand jobs that are filled on a regu-
ar basis that need to be filled.

Mr. Moran. Yeah, but given your oversight function, is it your
perception that other agencies are performing this responsibility in
the same manner?

Mr. Kinc. Unfortunately, Mr. Moran, what generally happens is
you don’t find that out until the end of the dey. The assumption
is you try and lay out what should be done, you try and give them
help and guidelines as to how they might manage it, and you con-
tinue through that process.

But generally you don’t discover these things unless there’s
something gross that occurs during the process. But what you do
is you find out at the end when you are doing the oversight and
the auditing, that’s when you discover mistakes.

Mr. KLEIN. No, not yet. But I might tell you that we have had
several training sessions in our auditorium. We have had all the
agencies over three times to talk to them about what works, what
doesn’t work, what mistakes we have made in the past. We provide
them with standard forms to use, counseling on how they handle
the system.

What we have seen so far, I think, is that the agencies are trying
to make these decisions in a strategic way that they are looking at
their operations. I am not saying we won't find when it is all over
there is some agency out there that did something that wasn’t too
smart, but I think they are all really thinking about this and trying
to do it in an effective way. They know the consequences.

Mr. Mica. I want to thank the panel for their response. I think
Mr. Moran’s question does go to the core of what we are here for
today and what we will be doing in the months ahead and would
just tell him that as the revolution proceeds, we will work with you
‘on the evolution of OPM and our personnel practices. ®

I understand the deal with the Post Office, but that’s under Mr.
McHugh’s chairmanship and I will ask him to investigate the
dumpsterization of your newsletters.

Mr. Moran. It is a little late now.


53

hold and Don Devine used to hold. I know how much more difficult
it is to make these kinds of responses when you are juggling all the
competing considerations within an administration.

And so I hope my comments will be offered in a spirit of support
and assistance and whatever small amount of wisdom comes with
the short passage of time outside of government.

Id like to place my testimony in the context of three broad obser-
vations. First, as Congressman Moran said also, the United States
Civil Service is without question the most responsive and least cor-
rupt among the world’s bureaucracies. And I think we often take
this for granted. This is especially remarkable given its size and
the diversity of its operations.

These qualities have been developed and sustained through more
than 100 years of vigilance based on the recognition by political
leadership in the executive and legislative branches that the civil
service is a vital underpinning of Democratic government. There-
fore, the first requirement of proposed change is that it strengthen,
not weaken, institutional capacity for vigilance in the protection of
the integrity of the civil service, especially its commitment to merit
and fairness in hiring and promotion.

A second observation I would make is that the executive branch
is a huge conglomerate, administering through its diverse elements
over 150,000 pages of regulations and costing the taxpayer over
$150 billion a year in pay, benefits, and pensions. Its activities are
powerful, diffuse, and costly. Over the 11 decades of its life as a
formal institution, the Civil Service has become increasingly en-
crusted with rigid systems of internal governance. These ried sys-
tems impede efficiency and diminish the quality of managerial and
executive decisionmaking. They should be deregulated and decen-
tralized as the Clinton administration proposes.

My third general observation, however, is that it is a consider-
able challenge to retain the perception and the reality of govern-
mentwide integrity which is the basis for public trust while devolv-
ing authority away from central agencies and personnel specialists.
Nonetheless, this devolution is also vital to public trust, as it will,
if done right, make government work better for the citizens it
serves. Decentralization has been under way in fits and starts
under experimental authorities and judicial decisions for well over
a decade.

Now, under the impetus of the National Performance Review and
administration budget proposals for the OPM, crucial decisions
about the nature and extent of this trend are unavoidably ap-
proaching. These decisions will determine how effectively we will
strike a new balance between oversight and regulation on the one
hand and flexibility and autonomy on the other.

I would like to suggest, very briefly, several challenges to be met
in attempting to achieve an effective new balance.

First, and perhaps ironically, decentralization of personnel deci-
sionmaking can be effectuated most successfully in the near term
under very strong central leadership. A central authority, operating
under Presidential direction, is needed to define the envisioned
change, activate agency commitments systematically, train man-
agement for a new workplace culture, measure progress as it oc-


49

Mr. MIca. With that, I yield to the gentlelady from Maryland.

Mrs. MorELLa. Thank you, Mr. Chairman.

In the interest of time, I have always felt that one of the difficul-
ties with being the first panel, you never have the opportunity to
hear what the subsequent panelers are going to say. I had the op-
portunity to scan what Mr. Devine has written—which is a volumi-
nous report—as a former director, and Connie Horner with whom
I worked, and I have known Don for years.

I know you don’t have time now to respond to the recommenda-
tions they have given. Incidentally, Connie Horner has said that
she thought it was the least corrupt, most responsive workforce in
her statement.

But I just wondered if you could respond briefly—not now be-
cause you don’t have time—to some of the recommendations that
they have made with regard to OPM. I would be curious about how
you react to it from your situation.

Would that be all right, Mr. Chairman?

Mr. Mica. Yes. And we will leave the record open for OPM’s re-
sponse.

[The information referred to follows:]

HIRING SYSTEM REFORM.

1. “The proposal would eliminate the statutory definition of merit principles for ex-
‘amining and allow the President or his principal agent in the field—the Office
of Personnel Management (OPM)—without Congressional action, to define them
as each administration so determined.”

‘The proposal for civil service reform would not eliminate the statutory merit prin-
ciple for examining. The January 20, 1995, draft legislative specifications specifi-
cally state that agencies would determine examining methods “consistent with merit
principles, open competition, veterans preference, and other aspects of existing law.”
Accountability for compliance would shift to agency managers. OPM would oversee
broad system compliance, not specific processes.

2. "Veterans preference would be diluted by giving all disabled individuals the same
preference as those who have borne the brunt of battle.”

The proposal to permit noncompetitive appointment of disabled candidates (in-
cluding disabled veterans) is not new policy. The disabled can now be hired under
excepted appointments and converted to competitive status after 2 years. Veterans
who are at least 30 percent disabled can be given noncompetitive temporary ap-
pointments, with benefits, and be converted to permanent status at any time. The
initial excepted and temporary appointments add no practical value; they merely
substitute for the probationary period that is required for competitive appointments.
The proposed legislative change would simply remove the unnecessary extra step.

3. “A second set of proposals under the hiring section would eliminate temporary ap-
pointments and reclassify them as ‘nonpermanent,’ This would place present
temporary employees under union grievance procedures (after one year), would
allow them to compete at an advantage to outside applicants (after two years),
would grant them health insurance (after a year), and. within-grade increases (as
earned). . . . The effect of these would be to remove many of the flexibilities and
lower cost aspects of temporary employment for the government, and therefore
mate it less attractive to government employers.”

Temporary appointments have never been authorized for the purpose of avoiding
the cost of benefits. They are intended to offer flexibility to meet fluctuating work-
loads without reductions-in force, and the proposal would preserve that flexibility.
Nonpermanent appointments under the proposal would also replace term appoint-
ments, which already provide the same benefits as those proposed.



78

Mr. Mica. I do thank you. And you know in the short time that
you had, this is quite a volume and should be referred to as we go
along. We appreciate your counsel and Ms. Horner’s counsel. You
both have contributed greatly to Federal Government and to the
Office of Personnel Management, We really look forward to work-
ing with you as we proceed, and with Mr. King and others.

ie vote has been called. I think we'll reconvene at quarter of
1 and try to conclude the hearing. We have one more panel. That
will give everyone a chance to et over there and get back, so that
sharply, precisely, at quarter of 1 we'll reconvene.

[Recess.]

Mr. Mica. Id like to reconvene the meeting of the subcommittee
and also welcome Dr. Diane Disney and Fernando Alegria. We'll go
ahead and swear you in now, if you’d raise your right hand.

[Witnesses sworn.]

Mr. Mica. Thank you. And, for the record, again we have Dr.
Diane M. Disney, who’s Deputy Assistant Secretary of Defense, Ci-
vilian Personnel, under the Department of Defense, and obviously
representing a rather large civilian employee constituency; and
Fernando Alegria, who's the Associate Executive Director of the Of-
fice of Administration and Personnel Management of the Securities
and Exchange Commission.

And this, of course, is a much smaller operation, but it will give
us a little bit of insight as to some of the recommendations relating
to OPM restructuring and how they'll affect these individual agen-
cies and operations.

If I may, I'd like to call on Dr. Disney first. Welcome.

STATEMENT OF DIANE M. DISNEY, DEPUTY ASSISTANT SEC-
RETARY OF DEFENSE, CIVILIAN PERSONNEL, DEPARTMENT
OF DEFENSE; AND FERNANDO ALEGRIA, ASSOCIATE EXECU-
TIVE DIRECTOR, OFFICE OF ADMINISTRATION AND PERSON-
NEL MANAGEMENT, SECURITIES AND EXCHANGE COMMIS-
SION

Ms. Disney. Thank you, Mr. Chairman, and thank you for invit-
ing the Department of Defense to present testimony today

‘Over the years, DOD has worked very closely with OPM in devel-
oping and administering policies for human resource management.
Beyond the mandated oversight activities, this collaboration has in-
cluded joint task forces on a variety of issues, biweekly meetings
of OPM’s InterAgency Advisory Group, biweekly meetings of the
Federal Prevailing Rate Advisory Committee, cooperation in
waiving regulations that affect downsizing, and a variety of infor-
mal contacts to explore ways of improving the personnel systems
operation.

We believe that there is a need for an agency such as OPM to
set basic standards and to assure governmentwide equity for em-
ployees. In fact, if OPM did not exist, there would be a need to in-
vent it. Its coordinating role helps avoid unnecessary duplication of
efforts, while the oversight activities ensure adherence to law.

My testimony today is going to cover three basic areas: an over-
view of DOD’s civilian personnel operations; downsizing within the
Department of Defense; and some implications of OPM’s restruc-
turing to DOD.


88

II. WHICH ACTIVITIES SHOULD REMAIN CENTRALIZED AND WHICH CAN BE READILY
DELEGATED AWAY?

The regulatory, advisory, and coordination functions need to remain centralized
at OPM. It would be useful for OPM to maintain a customer service or technical
assistance function to provide experts that can assist agencies (preferably small
agencies) with personnel and management issues. However, agencies need more
flexibility and euthority to recruit and hire directly and be able to set pay within
broad bands and overall limitations. Although agencies should be accountable for
ensuring that the merit principles are followed, they should have full flexibilit;
develop streamlined procedures for selecting the best qualified applicants. OPM
should maintain a central repository for vacancy information throughout govern-
ment, operate a displaced government employee placement program, and develop a
single simplified standard application format. The general public should have one
source for employment information and not have to create customized applications
for each agency.

In contrast, just as we would seek Mlexibility i recruiting employees, it is impor-
tant to provide agencies with maximum flexibility regarding staff reductions. Pris
is especially important during a time when agencies are being called upon to re-
structure and downsize.

OPM should delegate approval for entry into the Senior Executive Service (SES)
to agencies, but issue guidelines for standard executive competencies and qualifica-
tion standards. The existing Qualification Review Board (QRB) process allows SES
members from other agencies, generally unfamiliar with the selecting agency, to im-
pose their judgments on whether individuals selected by an agency are sufficientl
qualified. Agencies should be delegated the authority to conduct their own ‘QRB
process. In addition, the current SES recertification program should be eliminated
since to date it has not produced any meaningful results in motivating higher per-
formance or removing non-performing SES members.

In the area of pay and classification, there should be some central models for pay
banding and simplified, updated classification standards issued by OPM. Agencies
then would be able to tailor the models and apply the standards to meet their par-
ticular needs and environments. If managers are to be held responsible for manag-
ing their resources, they should be able to make some choices and “trade offs” be-
tween higher salaries, numbers of employees, and perhaps automation tools within
an established budget.

As indicated earlier, employee relations matters, such as those involving discipli-
nary and adverse actions and performance-based actions, need to follow consistent
criteria to minimize legal challenges. Training and employee development policies
should be left to the discretion of each agency, although a centralized training re-
source at OPM could be useful for advisory services and development of training to
meet government-wide mandates, such as HIV/AIDS training and ethics training.
OPM should retain a central role in either conducting background investigations or
in credentialing contractors to conduct the investigations for agencies that need this
service.

IV. HAVE AGENCIES SUCH AS YOURS HAD AN OPPORTUNITY TO DISCUSS THESE ISSUES.
WITH OPM AND OMB?

Yes, we have been involved through interagency advisory group meetings and re-

yuests for comments on various OPM proposals. In addition, representatives of the

small Agency Personnel Directors’ Group met with OPM Director James B. King
to relate the requests and concerns of small agencies. We participated in preparing
issue papers for that meeting. Our Executive Director has discussed various agency
personnel resource issues with OMB officials.

V. WOULD YOU BE WILLING AND ABLE TO ASSUME GREATER RESPONSIBILITIES IN THE
PERSONNEL AREA IN THE FACE OF REDUCED APPROPRIATIONS FOR ADMINISTRATIVE
FUNCTIONS?

Yes, we would welcome additional responsibilities and delegations within the pol-
icy framework discussed above. However, in order for small agencies to assume
greater responsibilities we need maximum flexibility to streamline procedures as
well as continued technical assistance from OPM.

Mr. Mica. Thank you both.
And if I might lead off with a couple of questions. This is very
helpful for me, because it gives me some insight and some back-



43

how many actual dollars we’re spending and how many personnel,
how much is proposed to be contracted out, both in what’s proposed
and what has actually taken place?

And in your role of performing functioning, for example, inves-
tigations, because you're going to cut primarily in investigations,
and training, are your two proposals.

In the investigations area, you perform the service for your cus-
tomers, the agencies. Have you been soliciting input from these
agencies and what’s their reaction as you've gone along?

Mr. KiNG. What I have done is I asked the President’s Manage-
ment Council to put this entire matter on the agenda for the month
of March. Because I didn’t want to go in there without having pro-
posals from my own employees as to what needs to be done, so that
this corporate entity that will evolve will meet the needs of the in-
dividual agencies.

So we're raising them, we’ve had correspondence with the secu-
rity folks in some of the agencies. We expect to put a package to-
gether and present it to the Management Council, and then meet
with every single client that we presently have on a one-to-one

asis.

Mr. Mica. So that has not been done?

Mr. KInc. No, not yet.

Mr. Mica. Well, that’s one of the concerns that I have. Mr. Mas-
cara got it from one individual. And since assuming this position,
I get a lot of fan mail, and what I received just almost prior to this
hearing is copies of letters that were sent to Ms. Lattimore, who
heads up the Office of Federal Investigations.

And what I’ve got here, actually the date—I just received these,
but the dates are pretty old.

Mr. Kina. We have them from Energy and from Treasury.

Mr. Mica. I’ve got Energy, Treasury, INS. INS says we are also
dismayed as to why OPM, which prides itself in being a customer-
oriented agency, made such a far-reaching decision with no cus-
tomer input. And this is dated a bit back.

And then the Department of Energy says it appears that the Of-
fice of Personnel Management is preparing to embark on an unac-
ceptable, ill-considered course of action. This is dated January 13—
I mean the original correspondence.

d from the perspective of the Department of Treasury, any one
of these to happen would have a significant adverse impact on our
suitability and security program. So it doesn’t sound like there are
a lot of happy campers and they're transmitting copies of this cor-
respondence to me as chairman.

I’m wondering why there hasn’t been some working with these
folks to get some additional input rather than making the decision
and now getting this reaction.

Mr. KING. Well, I think, Mr. Chairman, what you're seeing and
you're hearing is really the contact that has been made. We're
caught in a chicken and egg situation.

It would have been a fairly simple thing to move this out of gov-
ernment, period, to set up an employee-owned corporation to pro-
vide the service. But folks that are in here that are solid, com-
fortable bureaucrats, feel that they may have to do additional kinds


CONTENTS

Hearing held on February 7, 1995 ...
Statement of:

Disney, Diane M., Deputy Assistant Secretary of Defense, Civilian Per-
sonnel, Department of Defense; and Fernando Alegria, Associate Execu-
tive Director, Office of Administration and Personnel Management,
Securities and Exchange Commission

Horner, Constance, guest scholar, the Brookings Institutions, former Di-
rector of OPM, 1985 through 1989; and Donald Devine, adjunct scholar,
the Heritage Foundation, former Director of OPM, 1981 through 1985 ..

King, Jim, Director, Office of Personnel Management, accompanied by

m Klein, Associate Director, Employment Service, Pat Lattimore, As-
sociate Director, Investigation Service, Carol Okin, Office of Merit Sys-
tems Oversight and Effectiveness, Ed Flynn, Associate Director of Jn-
surance Service, and Gilbert Seaux, Chief Financial Officer Je

Letters, statements, etc., submitted for the record by:

Alegria, Fernando, Associate Executive Director, Office of Administration
and Personnel Management, Securities and Exchange Commission, pre-
pared statement of

Bass, Hon. Charles F., a
of New Ham shire, prepared statement of

Devine, Donald, adjunct scholar, the Heritag
tor of OPM, 1981 through 1985, prepared statement of ..

Disney, Diane M., Deputy Assistant Secretary of Defense,
sonnel, Department of Defense, prepared statement of ...

King, Jim, Director, Office of Personnel Management:

Sbrepered statement of ..

Response to written questions

Mascara, Hon. Frank, a Representative in Congress from the State of
Pennsylvania, prepared statement of a

Mica, ] Hon. John L., a Representative in Congress from the State of

lori a

Moran, James P., a Representative in Congress from the State
of Virginia, prepared statement of . .

Morella, Hon. Constance A., a Representative in Congress from the State
of Maryland .

am)

78

52

14


66

and eliminate functions. In this climate, it makes sense for Congress, the President
and the people to re-evaluate what. functions should be performed by the national,
state or local governments and which to be performed privately—based upon con-
stitutional grants of power and rational divisions of labor.

The first management priority is to set what functions should be performed bi
the national Government. All others should be transferred back to the states wit!
a corresponding income source. Devolution to the states and through them to local
communities and the private sector divides the work to make it simple enough to
be performed efficiently. Both Constitutional grant and James Q. Wilson's adminis-
trative logic suggest that the national functions be limited so that they can be per-
formed well. In a complex, interdependent world destroying large bureaucratic
structures both in the public and private sectors, there is no higher goal for improv-
ing government performance.

Privatization: Reforming the Competition Process

Once the functions for the new, streamlined national Government are set, a budg-
et can be devised to support it. Then decisions can be made regarding what worl
should be done in house by government employees and what contracted out to the
rivate sector. Governors and mayors across the United States have recognized the
enefits in reduced costs, efficiency and improved management resulting in contract-
ing work out to the private sector and other forms of privatization. The California-
based Reason Foundation has identified $300 billion of federal assets that could be
put to more efficient use in the private sector, while increasing federal revenues.

Still, no recent U.S. president, unlike the chief executives at more local levels here
or national leaders in other countries, has given contracting-out and privatization
the top-level attention necessary to implement it widely, nor provided sufficient in-
centives to prevail against the predictable resistance of bureaucratic interests. The
current U.S. program exists as a neglected backwater within the Office of Manage-
ment and Budget (OMB) and receives almost no support

Part of the reason so little is contracted out in Washington is that the procedure
(called A~76) for comparing Government costs to private ones for the same work is
skewed towards doing the work by the government. The federal pensions, for exam-

le, are badly under-valued and under-state the cost of government management.
& the procedure comparing costs needs to be reformed first and then used to decide
how to allocate the work.

Another reason is that not enough attention has been given to winning or at least
neutralizing employee support. If part of the savings for contracting-out are given
to the managers and employees who recommend privatized services, and the em-
ployees who agree to shift with the function to the private sector and to those who
remain to oversee the operation, it is possible to lesson employee opposition. The
more-or-less moribund so-called FED CO-OP program designed to give shares in the
private firms to those federal workers who assist in making the transfer should re-
ceive greater attention. Indeed, the whole work of contracting-out and contract man-
agement must be reorganized in a new and rational manner.

Real Performance Management

The new workforce must be organized properly for a contractor-based system. Ac-
tually, contractors are the predominant part of national government already. Per-
haps 8 million contractor employees dwarf the 2 million civilian Federal employees.
Millions of state government employees also implement Federal rules. No one even
knows the total number, much less is in a position to manage it properly. The
lem is that the Government is still organized as if it were the 1940's, when the
did the work; and tried to do it all.

A new “core and spoke and rim” organizational structure needs to be created. A
core Federal Government employment would consist of expert, highly-compensated
individuals who would be the executives setting the plans and managing the con-
tractors who perform the great majority of the work on the “rim” of the government.
In between, “spoke” temporary employees with no benefits and no job protection
would be used to fill in gaps in cycles demanding more core work than the basic
government employment could momentarily fulfill.

This is where the Clinton reforms go astray. Rather than magnify flexibility, they
propose to further bureaucratize through an additional level of labor-management
committee involvement and to give protected status to formerly temporary employ-
ment. They also divide central responsibilities, duplicating work in each agency.
Even the core workforce could be made more mobile if its pensions were made fully
portable pension like a 401(k) private plan, which would not tie an employee so
tightly for 30 years to a fob ‘which often has become a burden.



52

Mr. Mascara. Very good, because as Director King pointed out,
within the agency itself, there might not be that top evel manage-
ment——

Mr. KING. That’s correct, absolutely.

Mr. Mascara [continuing]. Who actually have the ability of form-
ing an ESOP.

is. LATTIMORE. We are looking at some of the professional ESOP
advisers to help.

Mr. KING. There are some costs connected to that. I think they
are modest in connection with the benefits are with all the parties,
including the agency and the government as a whole.

Mr. Mascara. I wish you well. I look forward to working with

you.

Mr. Mica. Thank you, Mr. Mascara.

I would also like to take this opportunity to thank our first panel
today. We have a sobering task before us as members of this panel,
and you see that we are dealing with real people and real lives and
real situations. We look forward to working with you and appre-
ciate your prompt and open response to this panel.

‘And with that, thank you so much. We will let you go and we
will be leaving the record open for members to ask additional ques-
tions or submit additional testimony without objection.

Mr. KiNG. We look forward to responding to that, Mr. Chairman.
I thank you, and I thank the entire subcommittee and thank you
for its kindness.

Mr. Mica. We need to move right ahead. We took a little bit
more time than I anticipated, but I think it is very important, espe-
cially with the number of individuals who are involved in makin
some of these important decisions, that we committed the time ani
resources to that panel.

Tf I may call our next two witnesses, Dr. Donald Devine, who is
the adjunct scholar of the Heritage Foundation and former director
of OPM from 1981 to 1985, and Constance Horner, who is a guest.
scholar of the Brookings Institute and also former director of OPM
from 1985 to 1989.

We welcome both of you to the subcommittee, and if you could
stand for just a moment, we will swear you in.

[Witnesses sworn.]}

Mr. Mica. Let the record reflect that the witnesses answered in
the affirmative. And with that, we would like to call first on Ms.
Horner and ask her if she could summarize her testimony, and
then we will question Ms. Horner first.

Thank you.

STATEMENT OF CONSTANCE HORNER, GUEST SCHOLAR, THE
BROOKINGS INSTITUTIONS, FORMER DIRECTOR OF OPM,
1985 THROUGH 1989; AND DONALD DEVINE, ADJUNCT
SCHOLAR, THE HERITAGE FOUNDATION, FORMER DIREC-
TOR OF OPM, 1981 THROUGH 1985

Ms. Horner. Thank you very much, Mr. Chairman. My testi-
mony is quite short, so I think I will go through it.

Mr. Mica. Yes.

Ms. Horner. Let me say first, though, that I want to express my
great sense of deference to the incumbent in the position I used to


101

Mr. Mica. What kind of dollar figures?

Mr. ALEGRIA. We spend about $700,000 a year on training. And
that includes training for secretaries. But even attorneys and ac-
countants, for example, need specialized training: We're one of the
agencies that has grown a little bit instead of downsizing. So, for
example, when we picked up the 50 new examiners, we had to give
them training. And so we spend approximately $700,000 a year.

Mr. Mica. What about investigations?

Mr. ALEGRIA. For investigations, that’s much less. We spend be-
tween $15,000 and $20,000 a year on investigations. We do that
strictly through OPM.

Mr. Mica. But that could be contracted out?

Mr. ALEGRIA. It could be contracted out, but we have a concern
as to whom we would contract it out to.

Mr. Mica. And was it you that recormmended that if we do that,
we should have OPM certify——

Mr. ALEGRIA. Yes, sir.

Mr. Mica. Who is doing that?

Mr. ALEGRIA. I call it credentialing.

Mr. Mica. I thought that was a good proposal.

I’m sorry. You wanted to respond?

Ms. Disney. Yes, I wanted to go back just for a moment to the
attrition issue. Attrition lets whoever wants to leave, leave. Those
figures are based upon that.

‘Well, we have a definite mission at DOD, and relying just on at-
trition isn’t necessarily going to enable us to maintain readiness.
The tools that we have been using have enabled us to target the
occupations and so forth where we want that attrition to occur. So
relying on chance alone won't help us. We have to be able to target.

Mr. Mica. Well, I appreciate your comments there.

Mr. Moran, did you have any other questions?

Mr. Moran. No. I think it’s OK. I am glad that you got a large
agency and a small agency. It would seem that the small agency
is more dependent upon OPM but not necessarily so. Dr. Disney
has pointed out that the function of investigations, for example, is
what she would consider to be an essential function that she
couldn’t perform in-house.

Ms. DISNEY. Well, we could if we kept the money.

Mr. Moran. If you had more people, yes.

Ms. Disney. Yes, and had more people.

Mr. Moran. Yeah, sure. Do you notice an effort in the last year
to decentralize the personnel function, to give you more autonomy
over the management of your personnel, autonomy that used to be
more tightly controlled by OPM?

Mr. ALEGRIA. I think there is definitely a move in that direction.
I've sensed a change in the way OPM operates, that they’re more
customer oriented. Before, they used to play, like the saying goes,
“I gotcha.” And now they’re here to help us. So I think that there
is a definite change. I think they are headed in the right direction,
and we’re pleased with that.

Mr. Moran. Good. Dr. Disney.

Ms, Disney. I think the restructuring is a work in progress, and
we're pleased with the movement toward decentralization.


26

Council, which I chair, is currently collecting information about partnership activi-
ties, including information about the participation of nonrepresented employees.

OPM ORGANIZATION

Question 1a. In your testimony, you indicated that OPM has already reduced the
number of people on the payroll by about 23.1 percent, including a 40.4 percent re-
duction in GS-13 to 15 supervisors and middle mangers. What was the absolute
number and percentage reduction in FTE's achieved by this reduction?

Answer. Since March the reductions have continued, The number of employees at
OPM has now been reduced from 6,944 on April 1, 1993, to 5,146 on April I, 1995,
a reduction of 25.9 percent. The number of GM 13-15 supervisors has been reduced
from 497 to 279, a reduction of 43.9 percent. (See attached chart, OPM On-Board
Strength. Also, please note that Full-Time Equivalent (FTE) is a measure of work
years and does not directly translate to employees on-board.)

Question Ib (1). Please break down these reductions by the following categories:
Full-time permanent employees.

Answer. We have reduced the number of all full-time permanent employees by
1,611 and the number of full-time permanent GS 13-15 supervisors by 218.

Question 1b (2). Temporary employees?

Answer. We have reduced the number of temporary employees by 196. We have
no temporary supervisors GM 13-15.

Question ib (3). Intermittent employees?

Answer. The number of intermittent employees on-board has increased by 85. We
have no intermittent supervisors GM 13-15.

Note: The populations in numbers (1) to (3) are in no way exclusive of one an-
gther. For example, an intermittent employee may also be a temporary: employee.
Also, they do not include all of OPM’s employees, as there are populations which
are not covered (e.g. part-time permanent employees).

Question 1b.(4). By OPM program or division?

Answer. Due to reorganizations and restructuring between September 1994 and
March 1995, the number of employees by organization is difficult to track. Many or-
ganizations have been combined, realigned, or abolished. Here is a chart comparing

pril 1, 1993, employees onboard with April 1, 1995, employees onboard.

Aaa Ai
Orgaization pe se Reorganization Noles
ord Bord
ALL EMPLOYEES
Employment Service 295 311 Some employees reassigned from Washington Area

Service Center
Workforce Training Service/Otfce of Executive Re- 260199
sources.
Investigations Sent oso nue 465779 Field investigators reassigned from Field Services
Retirement and insurance Service 7 . 1,346 1,338 Some employees reassigned from Administrative
Offices
Human Resources Systems Service/Office of Merit 263 au
Systems Oversight and Effectiveness

Atlanta Field Service G11 306 Field Service Investigators reassigned to lnvestiga-
tions Service
Chicago Field SeIvic€ sone ne 655471
Dallas Field Service... 651336 Do
Philadelphia Field Service .. snnninee 588 320 Do
San Francisco Field Service ...... oe 2 269 Do
Washington Area Service CeMtet nc nvnween 408 © Organization Abolished
Administrative Offices (Personnel, information 608-305 -_-Some employees reassigned to Retirement and In-
Technology, Contracting, Administrative Serv: surance, Chief Financial Office
ives).
Staff Off 08S nnn svinnenene 120-128 Some employees reassigned from Human Re-
sources Systems Service
Chief Financial Office ...... vue 46-79 Some employees reassigned from Administrative
Offices
Office of Inspector General 120 96

Total... coe 6,988 5,146


22

Answer. No.

Question 7b. If not, (1) Many believe Medical Savings Accounts offer distinct ad-
vantages over ordinary medical insurance and managed care programs by providin,
first dollar coverage and catastrophic coverage while simultaneously leaving medic:
decisions to the patient and doctor and creating incentives for the patient to be cost-
conscious. Has OPM considered offering Medical Savings Accounts through the
FEHBP? If not, why net? Will you be studying this issue in the future? (2) If you
considered offering Medical Savings Accounts through the FEHB, but rejected that
option, please explain why.

Answer. Current tax law provides that employers may establish Flexible Spending
Accounts for health care expenses for their employees on a pretax basis. These ac-
counts are in addition to, not in lieu of, comprehensive health insurance. The funds
may be used to pay health insurance premiums, deductibles, and/or coinsurance.
Anything left in the account at the end of the year is forfeited. OPM has considered
proposing legislation that would enable the Federal Government to exercise that op-
tion and has rejected it because the outcome would be a cost rather than a savings
to the Government.

Funds deposited in Flexible Spending Accounts are not considered to be taxable
income. Therefore, there is a savings to both the employer and the employee in the
private sector. Specifically, the employer benefits because the base salary on which
it must contribute FICA taxes is reduced. The employee benefits because both FICA
taxes and income tax are based on a lower salary amount.

The Federal Government as employer would not benefit because FICA taxes are
considered income to the Government. In addition, unlike private sector employers,
the Government also loses the income tax revenue that would otherwise be paid by
the employee. As a result of these considerations, Federal employees, unlike many
workers in the private sector, have never been given the opportunity to use Flexible
Spending Accounts.

‘Medical Savings Accounts are based on a slightly different concept. We are mon-
itoring several bills now pending in the Congress to amend the Internal Revenue
Code to provide an opportunity for employers to establish Medical Savings Accounts
for employees on a pretax basis or for individuals to establish them for themselves,
Under these bills, health care coverage would be provided through a combination
of a savings account and catastrophic health insurance. It is too early to determine
the specific provisions likely to be enacted into law. Once we know the parameters,
we can do an analysis to see if there would be a potential savings to the Govern:
ment and advantages for Federa] employees and their families.

Question 8. Do you survey federal employees to determine their level of satisfac-
tion with FEHBP? If you do, how frequently are these surveys performed? Would
you please provide us with the results of the last five surveys.

Answer. Yes, we do survey Federal employees to determine their level of satisfac-
tion with the FEHB Program. We are in the process of accepting proposals for the
1995 FEHB Program Customer Satisfaction Survey. This survey was designed to
measure enrollees’ satisfaction with such aspects of their health insurance plan as
access to care, quality of care, doctors’ availability, coverage, and adequacy of infor-
mation and customer service. We will use the same survey questionnaire as last

ear and will administer it in the same manner. We think that it is important to
Nave consistency so that we can track trends and monitor the performance of the
carriers over time.

In addition to the survey mentioned above, we have completed or are undertaking
the following surveys:

¢ A survey of FEHBP enrollees concerning the availability and adequacy of
FEHBP open season materials,

« A survey of agency benefits officers concerning the adequacy of FEHBP mate-
rials and processes, and

* A survey of FEHBP enrollees who file disputed claims with OPM, so that we
may assess our performance in handling such claims.

We | are attaching the results from our most recent surveys for your review. [See
Tab A.

Question 9. What percentage of Federal employees’ insurance premium goes into
management of the program and other administrative costs? Does this figure in-
clude the carriers’ management and administrative costs? If not, what is the cumu-
lative percentage that goes to both the government’s and the carriers’ management
and administrative costs?

Answer. In FY 1993 (the most recent year for which we have complete financial
data), the proportion of program costs devoted to administering the program was 5.7
percent.



34

Mr. KING. Good question. About, again, about 1,600, and we will
try and get to the committee more accurately——

Mr. Mica. And how many individuals are involved in human re-
sources or personnel?

Mr. Kinc. About 35,000 at last count.

Mr. Mica. 35,000. And what was the other figure?

Mr. Kine. 1,600, Mr. Chairman.

Mr. Mica. OK. My time is expired and I'll yield now to the rank-
ing member.

ir. Moran. Thank you, Mr. Chairman.

So up to now, you have cut the number of people directly em-
ployed by OPM from approximately 7,000 down to about 5,000.

Mr. Kinc. 400.

Mr. Moran. 5,400. So you’ve—1,500 people have left over what
period of time?

Mr. KING. About a year, just about a year, Mr. Moran.

Mr. Moran. And as a percentage of the number of people em-
ployed by OPM, that comes to—

Mr. Kine. A little over 20, it’s over 20 percent. And by the way,
I should say I would be disingenuous not to say it, that the num-
bers I’m _using are warm bodies at the agency. So that when you

et into FTE’s, you get a lower percentage. But that was the num-
er of people drawing Federal paychecks who were on our payroll.

Mr. Moran. Right. So actual warm bodies that were terminated,
you achieved a decline of about 20 percent.

Mr. Kine. Yes.

Mr. Moran. Is there any other agency in the Federal Govern-
ment that has a reduction of 20 percent?

Mr. Kinc. Mr. Klein, I would look to you. I think the Department
of Defense probably with base closures would have the impact, Mr.
Moran, but I don’t think there are other agencies that have any-
thing approaching that.

Mr. KLEIN. That's correct.

Mr. Moran. So DOD has achieved just about that, actually, if
you look at the budget, I think it was about 20 percent. I think
that’s important, because OPM strives to be a model for the other
agencies in terms of personnel management and actions.

With regard to health benefits, I know the health insurance com-
panies generally take about 25 percent of the health dollar that we
pay in in terms of premium for their own management. That's one
of the problems, one of the things driving the need for health care
reform, that about 25 percent of every health dollar is not going to
health care, but into insurance management.

What percentage of the Federal employees’ insurance premium
goes into management?

Mr. KING. Mr. Flynn, would you like to respond?

Mr. FLYNN. I don’t—I don’t have that information precisely. I'd
be happy to try and pull together something that the committee
could take a look at and bring it back.

Mr. Moran. I am disappointed you don’t have it, because I used
a figure that had been given to me last year, but I want an up-
dated figure, but it was in the single digits. It was like 5 or 6 per-
cent.

Mr. Kinc, It’s—we have—there’s a number, and I believe-—


58

vidual’s part if there isn’t some comprehensive plan that deals both
with the question of efficiency, and the desires of employees and
needs of the agencies.

I noticed that Director King mentioned an out-placement plan
they had in OPM. We had an out-placement program for the whole
government in which we placed people in other jobs who were dis-
placed. The results we had: Over 90 percent of the reductions we
made were done by attrition, and 90 percent of those received some
kind of satisfactory separation—either in a job or training, mostly

in fobs

‘ou are being asked—and I think Mr. Moran made the fun-
damental point here—you are being asked to make some enormous
changes under this “Reinventing Government.” The administration
has proposed those enormous changes—mainly, as Mr. Moran said,
on personnel—and there hasn’t been much of a guideline given. If
you haven’t seen it, I very much recommend to you “Draft Speci-
fications for HRM Reform,” specifications which outline in as much
detail as the administration has given so far, what its future plans
are.

In my opinion, these future plans are very, very much in the
wrong direction. They first deal with the section on hiring system
reforms. To a great extent, and everybody who’s testified, all mem-
bers of the committee have pointed to the importance of the merit
system principles. And there is no question those merit system
principles are the most important part about the Civil Service in
this government.

The fact is, these proposals would make enormous changes to un-
dermine the merit system. In fact, as I read these recommenda-
tions—and I must say there’s a good degree of vagueness here—I
may make some of my statements stronger than can be fully sup-
ported, but I found that’s the way you get attention for ideas in
Washington.

But as I read this, there is enormous erosion of the merit sys-
tem—in fact what I gather to be a replacement for the merit sys-
tem. It says that the major changes which can be made either by
streamlining the current system without cutting back on its protec-
tions—which is almost an impossibility because the protections are
why the system is so complex—or to set up a single grievance sys-
tem.

The great problem that President Carter had—the great concern
Director Campbell had—was that at the last minute, in order to
get the Civil Service Reform Act through, which was as a proposal
a pure merit system reform. The last minute they had to accede to
Federal sector unions’ pressure and put a whole second system over
the merit system, a governmental grievance system. The merit sys-
tem is headed by the Merit System Protection Board. The griev-
ance system is headed by the Federal Labor Relations Authority.

We in fact have two personnel systems in the Federal Govern-
ment. Of course two can’t work well. Nobody wants two systems
that I know of, and yet we have two systems. And in a way I ap-
plaud what President Clinton is doing, which is to come up with
a proposal to have one. One makes more sense than two that over-
lap and conflict with each other. I just think he’s choosing the
wrong one.


76

Mr. DEVINE [continuing]. That you could see all of this as at least
implicit in the original recommendations. If that’s so, obviously
Vice President Gore agreed to it.

Now as far as the particular part about the dues checkoff and the
votes without the election, I don’t know about that. I’m talkin,
about what to me is the most important part of that, in my mind,
which is the definition of the work and moving to a grievance-only
system.

Mr. Moran. Well, wait a minute. You say here he promised the
unions an involuntary dues checkoff from Federal employees with-
out even requiring representational elections, and now you just say
I don’t know.

Mr. DEVINE. Well, if the promise means to you some kind of oath
or something, that’s not what I mean to say by that.

Mr. Moran. It means whatever is in the dictionary. He prom-
ised—it means—I assume the words mean exactly what they say.
And but what I’m confused about is now youre saying you don’t

now.

Mr. Devine. I’m using that in a—what’s the right word?—meta-
phorical way. Don’t take that as—I mean, I had, you know, what,
2 or 3 days to do this, 20 pages of testimony. I didn’t go over the
whole darn thing. Don’t hold me to every word of it.

Mr. Mica. I don’t think we can continue trying to get to the bot-
tom of this just in this hearing, but I'll be glad to, with the Rank-
ing Member, to address an inquiry to the Vice President. If you
would like to—

Mr. Moran. Id like to do that.

Mr. Mica [continuing]. Get additional clarification, actually in-
vite him to come and tell us how that’s done. Because I think it
will be an important element in some of our later discussions as
to some of the very important policy developed by this administra-
tion and by this committee.

Mr. Moran. I appreciate that suggestion. And I would like to
pursue it. That’s the best way to get at the bottom of that. Thank
you, Mr. Chairman.

Mr. Mica. I think we will. And thank you.

Tl yield to Mr. Bass.

Mr. Bass. No questions.

Mr. Mica. OK. I know there’s going to be a vote in just a couple
minutes, and I didn’t want to take much more time.

I noticed that you had also under the section—we should have
tabs on this, Mr. Devine. It’s entitled Hiring, Firing and Labor Re-
form. You recommended that OPM should immediately seek to end
the sweetheart consent decree entered into in the last days of the
Carter administration that abolished its professional and adminis-
trative career examination pay for competitively selecting superior
college graduates into government employment. Indeed, the decree
was only, to last for 5 years but has already placed the Federal
courts in control of hiring for 15 years. Could you elaborate on that
and just comment?

Mr. DEVINE. Well, in the closing days of the Carter administra-
tion, literally the last week, a consent decree was signed—by the
way, not by OPM in the Carter administration— by the Justice De-
partment against the recommendations of the Office of Personnel


28

Question 2. In your testimony, you emphasized that in addition to obtaining high
quality investigations, proper analysis of the data is also required to ensure that
suitability and security adjudications are correctly made. How does OPM oversee
this critical part of the Braces?

‘Answer. Currently, OPM routinely assesses how agencies adjudicate investiga-
tions they request, whether from OPM, their own staff, or another provider. This
examination looks at the type and amount of information contained in reports of in-
vestigation, whether the scope of the investigation is sufficient for its use, and the
determination made based on information contained in the investigation.

As a service to our customers, we characterize the information in reports we
produce, to give security officers a quick reading as to whether issues are present
in the investigation and, if so, of what seriousness. In instances where we consider
the issue(s) to be potentially actionable (up to and including removal), we require
that the agency notify us of the action taken. If we do not receive a timely notifica-
tion, we follow up to ensure quick adjudication.

PERSONNEL MANAGEMENT

Question 1. Does OPM periodically survey other agencies, job applicants, or mem-
bers of the civil service to determine whether they are satisfied with the level of
OPM services? If so, how frequently are these surveys performed? Would you please
provide the Committee with the results of the last five surveys?

swer.

Agency Customers—Satisfaction with Staffing Services

OPM began surveying its agency customers on a nationwide basis in 1991. We
asked for their opinion on the recruiting and staffing services provided by the OPM
field offices. Our survey questionnaires have changed over the years as our services
have changed; however, a survey question to gauge satisfaction with our overall
functions has remained. We have attached a chart showing the results for this over-
all question over the past four years. We have also included copies of the complete
annual survey reports. (See Tab C.}

Job Applicants—Satisfaction with Employment Information

Since 1991, OPM has been surveying job seekers to determine their level of satis-
faction with our employment information service. Our methods of delivering infor-
mation have changed over the years (we now rely heavily on automated telephone
and touch screen systems to provide 24-hour service), and our survey process has
thus varied from year to year. We have included copies of five different customer
surveys we conducted between 1990 and 1993. [See Tab D.]

Tn 1994, we focused on developing customer service standards for delivering em-
ployment information, and creating a continuous survey process to measure our
service against these standards. The surveys are being given to customers who use
our automated systems and who visit, call, or write our employment information
centers. Our first customer service report against these standards will be prepared
this summer. Copies of the standards and the surveys are attached. [See Tab E.]

Question 2. What is your assessment of the current performance management sys-
tem for Federal workers, its strengths and its weaknesses? What changes would you
make to strengthen it?

Answer. The Federal statutory and regulatory scheme for performance manage-
ment does not sufficiently support agency efforts to redesign and reinvent their or-
ganizations and work processes, because it is too inflexible and does not promote
employee involvement in the development of agency systems. Consequently, agency
performance management systems are typically rigid, more focused on process than
on performance improvement, and lacking in credibility. Moreover, some of the sys-
tem’s required linkages between performance ratings and other personnel actions,
while offering some efficiency and consistency, have contributed to severe ratings in:

lation.

This assessment is based on various studies the Office of Personnel Management
commissioned or coordinated under Congressional direction. The National Research
Council of the National Academy of Sciences synthesized contemporary research and
private-sector practice in the areas of pay for performance and performance ap-

raisal. Two Congressionally mandated committees, the Pay-for-Performance Labor
Management Committee and the Performance Management and Recognition System
Review Committee also studied the Government’s systems, explored options for
change, and made recommendations regarding performance management in the
Federal Government. The two themes that run through all these studies are the
need to provide flexibility for the agencies to design systems that can meet their


94

Ms. DISNEY. Well, I think those who read the columns in the
newspapers—or who listen in the corridors—are always susceptible
to rumors. Some no doubt are waiting. But we're trying to manage
it very carefully so there are very narrow windows of opportunity.

We also are making it very clear that a buyout is not an entitle-
ment. We target them to occupations that are in surplus.

Mr. Moran. Well, that’s what I want to get at. That’s a very sub-
stantial reduction. And it implies that there are over 100,000 civil-
ian jobs that were not necessary, that were superfluous. Have you
achieved any of that goal, that planned reduction, by consolidating
activities that are common to all four services? Are you simply
doing less?

I know the President would like to say you’re doing more with
less, but I'd like to know from you. Have you just decided to do less
in terms of support functions or—what’s the impact?

Ms. Disney. When the mission is redefined, when national de-
fense policy changes, then the staffing within the agency changes.
And there has been some of that. There has been some consolida-
tion.

For example, I mentioned our field activity, Civilian Personnel
Management Service. That came into being by consolidating from
the Services many similar activities. In personnel policy writing,
for example, there were perhaps 600 people across the various com-
ponents engaged in that. By consolidating, we eliminated redun-
dancy; and we've brought that number down to under 400, as an
illustration.

Mr. Moran. 400 people total?

Ms. DISNEY. To doing this one particular function. I was just giv-
ing you an example of consolidation.

Mr. Moran. From?

Ms. DISNEY. 600.

Mr. Moran. From 600.

There is an attempt to include four new nations into NATO. We
have reduced the number of both military and civilian cumulative
personnel stationed in Europe from a peak of about 400,000 down
to about 100,000. If we were to extend NATO protection to Hun-
gary, Poland, Czechoslovakia, the Czech Republic, and Slovakia, it
would require more personnel and repositioning of personnel. Are
those types of policy issues brought to your attention so that you
can plan in advance?

For example, do you get, as a Personnel Director, Deputy Assist-
ant Secretary, are you kept apprised of potential demands for addi-
tional workers, both in the civilian and military side?

Ms. DISNEY. My office is located in the Office of the Under Sec-
retary of Personnel and Readiness. And any issue that is going to
affect the size of the personnel workforce will come through my of-
fice, yes, sir. At least I hope it does.

Mr. Moran. But you—you regularly engage in planning for those
possibilities, changes in mission or security responsibilities?

Ms. DISNEY. Oh, we are continually planning for contingencies,
yes. Even for coming here, we put together many different point
papers on issues where we might be asked questions. So we try our

est.


9

most important issues that will come before this Subcommittee during the 104th
Congress.
AS Mr, King will testify, the Office of Personnel Management has undergone a
significant downsizing effort over the past 22 months, In ‘April of 1993, OPM em.

loyed 6944 individuals. Today, they employ 5,341. While the President’s FY1996
Budget Request does not project further reductions in the OPM workforce, it does
foresee OPM being further reduced by a third in the future.

I understand some of the concerns being expressed by the different witnesses
today. They raise issues that must be addressed by this subcommittee and the Ad-
ministration as part of the civil service reform effort. I am particularly concerned
about the impact this restructuring may have on smaller agencies that may not
have the resources to absorb their new responsibilities. In addition, we must ensure
that our restructuring efforts do not weaken the protections federal civil servants
have against undue political influence. Mr. King is absolutely correct in arguing
that we do not want a return to the spoils system that plagued this nation in the
past. For this reason alone, we must ensure that the ‘OEM of the future has more
than a mere oversight or advisory role. We must not, however, defeat this oppor-
tunity to restructure the federal civil service outri;

‘Again, I am pleased to hear from the witnesses before us today and J look forward
to this first part of an important review of the federal civil service.

Mr. Mica. Thank you, Mr. Moran, and again for your coopera-
tion. I will just quickly respond by saying that normally not much
would be done in the Civil Service area, but there are a lot of forces
outside of this subcommittee that will drive us and drive our ac-
tions, and we do have tens of thousands, literally hundreds of thou-
sands of individuals who have their lives, careers, and their well-
being at stake in this process. We do need to approach this task
together from a wise, astute, and well-motivated purpose. And I
think we can do that.

We also discussed that not too many things, in most of the life-
time of this panel, were certain in life. You got a job and you
stayed there if you were a civil servant or whatever, or went to
work for some corporation. That has all dramatically changed in
our lifetime. And now the Federal Government is about to realize
that as far as its personnel is concerned. So we do have an impor-
tant obligation. .

With those comments I'll yield to my colleague, Mr. Bass.

Mr. Bass. Thank you very much, Mr. Chairman.

And as one who has the honor of serving in Congress as a fresh-
man and has been called in my own district at the age of 43 an
old war horse, I don’t know whether I’m young or old, or where I
stand.

However, it is indeed a tremendous honor and an opportunity for
me to have been chosen to be vice chairman of this committee. And
just because it represents a consolidation, if you will, of the former
responsibilities of the Post Office and Civil Service Committee, does
not reflect in any way a reduction in the significance that we as
Members of Congress hold the Federal workforce.

d as Mr. Moran mentioned a minute ago in his opening re-
marks, Federal employees are Republicans and Democrats, they're
liberals and conservatives and moderates and so forth. And we
have an opportunity in this committee to make government work
more efficiently and more effectively, more sensitively.

But that does not necessarily mean that cutting the size of the
workforce will result in that objective. So we are going to work
hopefully in a bipartisan fashion. I’m the newest member of this
committee, and I suspect perhaps the only freshman on the com-
mittee, so I am going to ask for your forbearance as we go through


77

Management under my predecessor. This consent decree was
signed which said we couldn’t use that examination any longer be-
cause it had so-called disparate impact, which meant that the pro-
portion of blacks and Hispanics taking the exams was dispropor-
tionate to the percentage passing those exams.

Mt. Mica. So you'd like to see us take some remedy to reverse
that?

Mr. Devine. I think it’s time—after 15 years of the courts run-
ning our main examination for college graduates into the govern-
ment, where we have no real merit examination. I think it’s time
sooner or later to look at that.

Mr. Mica. Another criticism that you lodged I guess against the
Clinton administration proposals, it says the only enforcement.
specified for OPM by the Clinton proposals is informing the Presi-
dent of violations involving agency heads and directing corrective
action, That’s not your idea of an oversight and responsibility, I
guess?

Mr. DEvINE. Again, let me say that it’s not totally clear from this
document—as I said at the beginning—exactly what it means. But
that’s the only enforcement section I see there, against the agency
head, and that is not what I think OPM should do. OPM should
have a comprehensive role, although there is lan, e through the
rest of the proposal mentioning that OPM should fo this and do
that. But I don’t see that there is any incentive given to OPM to
actually perform oversight. I would suspect a prudent director of
OPM with no real authority is going to sit back and wait until
somebody brings something to him.

Mr. Mica. And, finally, one of your charges here says the decen-
tralizing decisions within the Federal Government just shifts the
decisions further away from the executive and congressional over-
sight. So you’re saying that what’s been proposed by the adminis-
tration is not the direction to go, that we’re getting further re-
moved from the process, inability for oversight, for impact of hav-
ing policy that’s set either by the Congress or the administration
actually seeing some net results.

Mr. DEVINE. The perfect example is one you elicited under ques-
tioning. There are 1,600 personnel agencies around the govern-
ment. It is not possible for you to get 1,600 agencies to testify. You
need to have the Director of the Office of Personnel Management
in here, who is in a position to tell you what’s going on in those
1,600 agencies, and not one that’s denuded in power. I would feel
sorry for that person. If this is passed—the recommendations of the
President—an OPM Director is going to come here with no author-
ity and be subject to oversight and be absolutely unable either to
tell you what’s going on, or to do anything about it if he did know.
And, again, with absolutely no disrespect to Director King—I mean,
he had to answer your major questions by referring you to OMB.

Mr. Mica. Well, I thank you for your comments.

And I yield back to the gentleman from Virginia. Did you have
additional questions?

Mr. Moran. That’s OK. I think we’ve got a vote right now, so it’s
probably good timing to——

Mr. Mica. Thank Mr. Devine for his comments.

Mr. Moran [continuing]. Thank Mr. Devine.


83

DOWNSIZING AT DOD

The Department of Defense has accounted for the overwhelming majority of cuts
in the efforts to downsize the federal government. Our regular employment has fall-
en from 1,117,000 at the end of FY 1989 to 887,000 in November 1994. Our reduc.
tion targets have been set by two Administrations and the Congress, In fact, our
reduction targets were developed before the National Performance Review reduc.
fons were proposed. Actual eats have been managed by CPP/CPMS, the Military
Departments, and the Defense Agencies.

‘Pais year marks the 30th anniversary of our Priority Placement Program (PPP),
a pioneering effort to help displaced DoD employees find other positions within the
organization, Tt is part of the Civilian Assistance and Re-Employment (CARE) Pro-
gram, which my office designed to help the department meet its drawdown goals
of achieving necessary reductions, minimizing the impact on civilian employees,
helping lnid-off employees, and maintaining workforce balance,

In the past two fiscal years, we reduced civilian employment by roughly 115,000
people; fewer than 8,000 of these separations were involuntary, that is, as a result
Ef Reductions in Force (RIF). We try very hard to avoid RIFs because’ they are s0
costly in morale, productivity, time, and money. To do s0, we have relied on a vari,
ety of policy "tools, including “hiring freezes, PPP, separation incentives,
outplacement assistance, and collaborative ventures with the Department of Labor
and OPM. Our separation incentives, or buyouts, started in January 1993; roughly
54,000 employees have taken them so far. Further, over 8,000 employees have re.
tired under the Voluntary Early Retirement Authority (VERA).

Tn the central CARE activity, PPP placements increased to an average of 900 per
month for FY 1994, The program’s interactive bulletin board system now connects
personnel offices worldwide with the OPMS Systems Support Branch. This connec.
tion has allowed us to process an average of 19,000 registrants a year, up from a
few thousand several years ago.

Despite the heavy drawdown, between the end of FY 1989 and the end of FY
1904, the pereentage of women among evlian DoD employees held steady. Although
the relative percentage of women in biue-collar occupations fell slightly, the pereent-
age of mid- and high-grade white-collar positions going to women mmereased. For mi-
horities, the relative percentage rose in all General Schedule categories, although
growth rates varied by subgroup, Much of these sueresses ean be atiributed to intel.
gent, aggressive use of buyouts and the Priority Placement Program. PPP is in fact
the best protector of our capital investment as it lets us transfer valuable assets to
other locations within the Department.

We have managed our reductions by being true to our goals (reduce staff: avoid
involuntary separations; assist employees: achieve balance) and by steadfastly hold-
ing to mission and readiness requirements. We have delegated authority to the low.
est levels possible to let managers determine where reductions are needed and
which skills they need to retain. Our voluntary tools (incentives, VERA, hiring au-
thority) allow managers to control to a large degree who goes and when, We also
pay constant attention to workforce demographics and the results of downsizing,
Inost notably through a Workforce Reshaping ‘ask Force managed by the Office of
Givilian Personnel Policy.

While we have managed the details, we are most grateful to OPM for assistance
in our efforts. Help has come in a variety of ways, including the following:

a. Early Retirement Flexibility

OPM allowed us to expand early retirement authority to cover locations where we
could create placement opportunities. This set the stage for cross-component incen-
tives,
b. Retirement Eligibility

When we closed Eaker Air Force Base (LA), we learned that a woman would be
separated only three weeks before she was eligible for a retirement annuity; yet she
had to be let go. We worked with OPM, which agreed to publish a rule change to
allow employees to use annual leave if that would let them reach retirement eligi-
bility. This Title 5 change, of course, helps all federal agencies, not just DoD, to
manage downsizing more humanely.

ec. Staffing at Closing Bases

In June 1992, Deputy Secretary of Defense Atwood asked OPM Director Newman.
to delegate to DoD the authority to waive regulations on dual compensation, along
with temporary hiring authority. We received the former, as well as alternatives to
help with temporary appointments.



Mr. Mica. Yes.

Mrs. MorELLA. Thank you.

It's with great anticipation that I await the testimony on the re-
structuring of the Office of Personnel Management. On the surface,
of course, the major changes proposed for OPM could have limited
consequences for the Federal workforce and Federal work—in the
Federal Government, since the agency itself is relatively small.

But in fact the agency, perhaps as much as any other in govern-
ment, interacts with virtually every other arm of the Federal bu-
reaucracy and, therefore, the changes executed at OPM have ripple
effects throughout the government.

Of course the winds of change already have impacted OPM in a
variety of ways. That venerable application form, the Standard
171, already has been eliminated, and so has the hidebound
10,000-page Federal Personnel Manual. Attempts have been made
to greatly expedite the hiring process, although recent recruitment
has been limited. Substantial downsizing at OPM has already oc-
curred.

But now the administration is embarking on a decentralizing
process that will transfer many personnel functions from OPM to
individual Federal agencies, large and small. This process would
occur at a time when many of those individual agencies are facing
downsizing themselves. So I’m going to be looking forward to hear-
ing from OPM and from representatives of two of those agencies on
how personnel policies will be handled in the future.

It’s quite possible that larger agencies, even in a slimmed down
form, will have sufficient expertise to. handle their new personnel
duties efficiently. M greater concern at this point is how smaller
agencies, many of which also face downsizing, will be able to adjust
to the additional responsibilities.

Will they have sufficient personnel and sufficient knowledge of
relevant regulations by those specialists to comply with Title Vreg-
ulations? Can they handle hiring as well as retirement procedures
in an expeditious way that properly serves the needs of the em-

ployee?

On a related matter, one area that I hope warrants attention is
the future administration of the Federal Employees Health Bene-
fits Program, which has been run in a highly effective and timely
fashion in the past. What are the prospects of retaining FEHB
within the OPM structure for the foreseeable future?

So, Mr. Chairman, both as a member of this subcommittee and
as a representative of more than like 55,000 Federal employees,
probably close to 30,000 retirees, I eagerly await the upcoming tes-
timony and I commend you for calling this important hearing and
for the comments that you made about the nature of this sub-
committee under your leadership.

[The prepared statement of Hon. Constance A. Morella follows:]

PREPARED STATEMENT OF HON. CONSTANCE A. MORELLA, A REPRESENTATIVE IN
ConcREss FROM THE StaTE OF MARYLAND

Mr. Chairman. It is with great anticipation that I await the testimony today on
the restructuring of the Office of Personnel Management. On the surface, of course,
the major changes proposed for OPM could have limited consequences for the fed:
eral government—and federal workforce—since the agency itself is relatively small.
But, in fact, the agency, perhaps as much as any other in government, interacts


81

changes within the Office of Personnel Management. We applaud
OPM’s desire to simplify its operations, and we look forward to
working with OPM as it decides which functions to retain and
which to delegate. In doing so, we will be mindful of the tension
between the benefits of decentralizing government and the need to
provide cross-agency equity for employees. Similarly, we will help
OPM to seek a balance between devolution of authority and the al-
location of sufficient resources to fulfill the resulting responsibil-
ities.

I thank you for this opportunity to present testimony.

Mr. Mica. Thank you, Dr. Disney.

(The prepared statement of Ms. Disney follows:]

PREPARED STATEMENT OF DIANE M. Disney, DEPUTY ASSISTANT SECRETARY OF
DEFENSE, CIVILIAN PERSONNEL, DEPARTMENT OF DEFENSE

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting the Department of Defense to send a representative to dis-
cuss the Administration’s proposal to restructure and downsize the Office of Person-
ne] Management (OPM).

Over the years, DoD has worked closely with OPM in developing and administer-
ing policies for human resource management. Beyond the mandated oversight activi-
ties, this collaboration has included joint task forces to study issues and develop rec-
ommendations, bi-weekly meetings of OPM’s InterAgency Advisory Group of chief
personnel officers, cooperation in waiving regulations that hindered or could hinder
effective management of downsizing activities, and informal contacts to explore
ways of improving the personnel system's operation. Therefore, I applaud the will-
ingness of Mr King and his staff to break through the paperwork barriers and help
streamline the process.

We believe that there is a need for such an agency to set basic standards and as-
sure government-wide equity for employees; if OPM did not exist, there would be
a need to invent it. Its coordinating role helps avoid unnecessary duplication of ef-
forts, while the oversight activities ensure adherence to law.

Currently, OPM is heavily committed to change, in both its structure and its mis-
sion. Because I have not had a complete briefing on all the changes, I must limit
my testimony to those areas with which DoD has had experience. My testimony will
cover three basic areas:

1. Overview of DoD’s civilian personnel operations

2. Downsi at DoD

3. Implications of OPM’s restructuring to DoD.

OVERVIEW OF DOD'S CIVILIAN PERSONNEL OPERATIONS

The Department of Defense employs over a million civilians around the world.
With roughly 824,000 of these in the federal civil service system, we are by far the
largest federal employer; indeed, we account for nearly half of the federal civil serv-
ants. Additionally, we employ about 180,000 through the NonAppropriated Fund
system to work in morale, welfare, and recreation. as well as 62,400 foreign nation-
als at our bases outside the United States.

Within the Office of the Secretary of Defense, the Office of Civilian Personnel Pol-
icy and its field activity, the Defense Civilian Personnel Management Service, em-
ploy personnel specialists to develop policy, regulations, and rules and to oversee
their implementation.

Additional personnel specialists and assistants throughout the Services and Agen-
cies manage the system locally.

Because of the size and range of DoD’s activities, we employ experts in staffing,
compensation and benefits, education and training, labor and employee relations, in-
formation systems, complaint investigation, workforce re-engineering, research, and
other areas. Let me take a moment to highlight some of the accomplishments of the
past year:

a, Met DoD Drawdown Targets
I will provide more details on this later.


92

[The information referred to follows:]

In FY94, the Defense Investigative Service (DIS) completed more than 600,000
National Agency Checks and over 150,00 field investigations at a cost of approxi-
mately $150M. At the end of FY94, DIS had 2,550 personnel engaged in the man-
agement, oversight, and conduct of personnel security investigations for the Depart-
ment. Since DIS investigators conduct investigations for military, civilians, and con-

tractor personnel, there is no way to quantify a number devoted solely to civilian
cases.

DoD is not authorized by OPM to conduct. National Agency Checks with Inquiries
us Credit (NACIC) on newly hired civilians. In ‘94, OPM conducted 31,500
|ACIC’s for DoD at an average cost of $71 each.

Mr. Mica. And if that could be absorbed maybe it could be done
cost effectively. Maybe they don’t have the capacity to assume that.

Ms. DISNEY. I strongly doubt that we’d have the capacity to ab-
sorb all of this work being done by OPM without additional re-
sources. Or redirecting the money that we are now spending to-
ward OPM, using those resources for in-house activity.

Mr. Mica. All right. And then training, the same situation?

Ms. DIsNEY. Training is a little bit different because, as you
know, the Department of Defense is extraordinarily skilled in
training. It trains its own on the military side, and it’s doing more
and more of that on the civilian side. It has a number of institutes,
command and staff colleges, war colleges and other operations
which civilians can attend in varying numbers.

Now one option we have is to increase the numbers of civilians
in those respective institutions. We also have the opportunity to go
to more than one private vendor, beyond OPM, for education and
training. So the decision has not been made as to how we would
reallocate the training dollars yet.

Mr. Mica. OK, I have some more questions, but will yield to the
ranking member first.

Mr. Moran. Thank you, Mr. Chairman.

It’s impressive that you have been able to achieve as substantial
a reduction as you have with minimal RIF’s. But at some point you
reach a level where you can’t squeeze any more.

Ms. Disney. That’s right.

Mr. Moran. And you have to RIF. When are you going to reach
that level, in your estimation?

Ms. DISNEY. Well, clearly, for 8,000 people over the past 2 years,
we reached it. Every year——

Mr. MorRAN. But out of 150,000, that’s——

Ms. DISNEY. Every year that our overall numbers decline, our ca-
pacity to reabsorb people declines as well. So the relative percent-
age of those and the numbers of those who will be RiF’ed will go
up. That’s inevitable.

Mr. Moran. And you’ve got how many more you are anticipating
reducing?

Ms. DISNEY. We believe that we are approximately—almost two-
thirds of the way through our RIF. So there will be more—there
will be roughly 100,000 more positions eliminated.

Mr. Moran. So you have eliminated 200,000?

Ms. DISNEY. Over 200,000.

Mr. Moran. Over 200,000, of which about 115 are civilians?

Ms. DisNEY. Oh, no, sir, those are all civilians. The 115,000 just
cover the last 2 years.



60

cide which is the definition of the assignment of work, the fun-
damental definition. Again, nobody is talking about taking away
discussion and input from employees or even employee unions.

But the question of the final decision on the work——

Mr. Mica. Dr. Devine, if you could begin to conclude because I
think we can address some of the other points in questions.

Mr. DEvINE. I think I will conclude there.

I’m concerned with the direction the administration is going. I
don’t think there is enough authority for the Director of OP. Tbe-
lieve we need a strong Director of OPM and I think the President
needs a strong arm to help him deal with this widely distributed
government.

I believe, in decentralization. I was the one in charge of decen-
tralizing the overwhelming majority of the personnel examinations,
in the range of over 700 in the examining of delegations alone are
decentralized, but—and I don’t know how much further we can go.
Certainly, under current law, I have very serious questions now
how much further we can go.

So I'll end just there and be happy to respond to any of your
questions.

[The prepared statement of Mr. Devine follows:]

PREPARED STATEMENT OF DONALD DEVINE, ADJUNCT SCHOLAR, THE HERITAGE,
FOUNDATION, FORMER DIRECTOR OF OPM, 1981 THROUGH 1985

REINVENTING OR REDEFINING GOVERNMENT?

I. Introduction; What Kind of Reform?

As a former Director of the U.S. Office of Personnel Management, I am pleased
to have the opportunity to appear before the subcommittee to give my views on the
proper role of the government’s central personnel agency. To do so it is necessary
to gin with the proposals of the Clinton Administration to “Reinvent Govern-
ment,” as they relate to my knowledge and experience regarding the proper manage-
ment structure for the Federal Government.

The Clinton Administration has made its program of Reinventing Government one
of its major priorities. It has not until recently, however, provided many of the de-
tails of its proposals. In few areas are the details more critical than in reforming
government.

Reorganization can, and often does, make an organization weaker and less effi-
cient. A cabinet agency can be eliminated by shifting its functions to another depart-
ment that wil] be more successful in obtaining higher levels of funding and more
ruinous regulatory powers. Downsizing can either save or cost money, depending
upon how much is contracted-out and how personnel are separated, especially i
$25,000 buy-outs are utilized. And decentralization to smaller governments usually
is more efficient, but not if it just sinks deeper within a single large bureaucracy.

For the Clinton Administration, reinvention presented problems from the outset.
It desired to make government more efficient and reduce government personnel, but
it had relied upon the Federal sector unions for election and did not want to alienate
them, It was not possible for the unions to support or even ignore a proposal to cut
252,000 personnel slots unless something very valuable could be given in return.

Against the staff recommendations, which were personally overruled, project boss
Vice President Al Gore proposed to five the unions equal power with management
in labor-management councils. In addition, he promised the unions an involuntary
dues check-off from Federal employees —without even requiring representation elec-
tions. The quid pro quo was codified in Executive Order 12871, making the unions
“full partners” with management in the assignment and classification of work, and
creating labor-management committees to enforce it throughout the Federal govern-
ment. A presidential “partnership council,” composed of union and Administration
officials, recommended that these changes be submitted as law, together with a pro-
posal for involuntary dues collection and union representation by card-submission
rather than by secret ballot.


56

Two thoughts in response to your question. One is that I don’t
think that institutional reorganization solves problems in the ab-
sence of mission clarity. It doesn't do any good simply to consoli-
date or separate. There needs to be some serious thought given to
mission and the decisions with respect to organization should flow
from that decision.

I don’t have a judgment on that right now.

The other principle I would apply to that decisionmaking is that
it is always good to have some other institution located in govern-
ment with the capacity to interject itself into any serious decision,
because human nature being what it is, people will be more careful
and more prudent and more honest if they know that there are
other bodies able to comment on what they are doing.

Mr. Mica. Well, I appreciate your comments, ‘and I am going to
yield to the ranking member.

Mr. Moran. I thank you, Mr. Chairman. And I thank Ms. Horner
for her statement. I did not disagree with it and I found that it was
a very positive perception of the role that OPM plays.

You might elaborate a little bit on your concern about the decen-
tralization of OPM’s function, first of all, to small agencies that
may not have adequate human resource capabilities within the
agency and so lose that resource that they have traditionally had
at OPM to perform their classification and personal functions, eval-
uation and so on, and the larger agencies who, from your perspec-
tive, would be more likely to be entering into contract negotiations
with Federal employee unions and how you fear that it may con-
strict their latitude.

Ms. Horner. I began my life in government in a very small
agency called ACTION, which only had several hundred people.
And from that point of view, I think that OPM in every arena
needs to retain the capacity to assist small agencies. It’s simply
wasteful to ask for duplication in every small agency.

I am concerned, as a strong proponent of decentralization, a very
strong proponent of decentralized decisionmaking, that we not re-
place the current burdens on Federal managers which are rep-
resented by rules and regulations and short leashes from central
Management agencies with equivalently entangling constraints on
their autonomy from negotiated union agreements.

I very much fear that they will make a bad trade if that’s the
trade. Labor-management relations can be effective in their out-
comes for the taxpayer but, in my view, there are probably a lot
of agencies where they are counterproductive.

‘ith very strong decentralization, we have no way to assure that
the interests of the taxpayer are served first and foremost. This is
no denigration of the role of union leaders who, after all, are sup-
posed to represent the interests of their members. The interests of
their members often coincide with the interests of taxpayers and
citizens and often do not and, therefore, there’s a conflicting pur-
pose there. That’s why I think it is important for management to
be as unconstrained as is prudent in the pursuit of its duties.

Mr. Moran. I appreciate that. Thank you.

Mr. Mica. Thank you.

Mr. Bass.

Mr. Bass. No questions, Mr. Chairman.


18

to make job information easily available to all our citizens. It also assists agencies
with the challenges of downsizing.

The Human Resources Systems Service sets standards and provides services to
help ensure that agencies have effective, merit-based personnel systems with regard
to pay, job classification, performance management, and labor-management rela-
tions.

The Office of Executive Resources, which includes the Senior Executive Service,
the Federal Executive institute, and the Management Development Centers, pro-
vides executive training and leadership for managing the government.

Finally, we have our Office of Merit Systems Oversight and Effectiveness, which
oversees merit-standards all across government.

The goal of these programs is a government that is cost-efficient and that will
never slip back into the spoils, corruption and discrimination of the past.

‘Against that background, Mr. Chairman, let me address the specific questions you
raised in your letter.

Question: “Can each agency and department effectively manage their personnel
functions without strong direction from a central personnel agency?”

Mr. Chairman, we believe that recruitment and hiring should be carried out by
the agencies, under merit-principle guidelines set by OPM. The agencies would have
the option of carrying out their own programs or contracting with OPM or others
to carry them out. Many agencies find it more cost-efficient to use our services rath-
er than create new programs of their own.

Question: “Which activities should remain centralized and which can be safely
delegated away?”

For the most part, personnel system design, administration, and decision making
should be delegated to the agencies, Much of it already is. We need more decen-
tralization of program design and administration to provide systems that better
meet agency needs.

Certain key functions should remain at OPM for the sake of cost-effectiveness and
economies of scale, government-wide equity, and merit-system protection.

These include government-wide merit-system policy and oversight, central job in-
formation, centralized personnel data, and pay and benefits administration.

Job information should remain at OPM so applicants need not inquire at scores
of agencies to find out about openings.

e automation and technology that is revolutionizing human resources manage-
ment—and saving many millions of dollars—can also centrally coordinated so
that every agency doesn’t have to reinvent the wheel or invest in costly technology
that can be developed cooperatively.

Question: “Who will ensure the integrity of centralized information gathering and
databases?”

OPM and its predecessor, the Civil Service Commission, have since 1972 operated
the Central Personnel Data File. This is an automated, user-friendly system that

rovides key data about the Federal workforce to Federal agencies, Congress, the
‘ite House and the Public. It is an excellent system and I would again invoke the
“ain't broke / don’t fix” rule.

Question: “Who is responsible for tracking programs toward meeting the Adminis-
tration’s personnel reduction targets?”

The answer is the Office of Management and Budget.

Question: “Can retirees and others leaving government service be properly served
by_a smaller OPM?”

Mr. Chairman, I strongly believe we do not need and cannot afford a small OPM
with regard to retirement and insurance. A 1994 survey of customer satisfaction
with retirement services shows serious declines from 1990-91 satisfaction levels,
when our retirement staffing levels were about 10% higher than today.

During that period, the number of annuitants we serve has increased by 150,000,
or about 7%, and our number of telephone inquiries has roughly doubled, from
400,000 to 800,000.

‘That is why the administration’s downsizing plans do not include our Retirement
and Insurance Service. In fact, the 1996 budget seeks to restore the 10% retirement
staff losses of the past four years. And let me point out that I’m doing this by reallo-
cating existing money and staff.

In short, we very much share your concern about delivering excellent service to
our customers,

Question: “Can we retain the best and the brightest workers under current RIF
procedures? Can we reform the process to balance management needs while protect-

ing employee rights?”
har Charman, under the law, current RIF procedures consider both qualifications
and performance. But the current system ranks employees with similar qualifica-


47

And the Congress has to either eliminate the service so that
there is no expectation of it, or reform its ways of achieving savings
in personnel reductions.

And I am afraid that that is the situation we're getting ourselves
into, and one of the reasons I have a particular concern about that
is what happened with the Postal Service.

We've had these hearings, and I know Mrs. Morella has joined
us on some of them, where in the rush to achieve the kind of
downsizing that was being achieved in the corporate sector had to
make ourselves more competitive, we let go thousands of mid-level
people, 40,000 or more took those retirement incentives? Far more
than anticipated. But now, about 6 months later, we’re getting mis-
erable service. It hit home when my newsletters were actually in
a dumpster behind the postal service.

Mrs. MORELLA. Maybe it was quality.

Mr. Moran. But do you know that it has actually cost us more
money now to hire people to perform the functions that can no
longer be performed by the senior people who were let go, who
were given incentives to leave, because in many of these functions,
we're having to hire two people to perform the job of one because
the one person who achieved so much efficiency and had so much
understanding of their job that they could perform it so much more
efficiently an effectively.

And so in some parts of the Postal Servicé organization, the
whole effort backfired. And we had to hire more people, albeit on
a temporary basis, and spend more money.

So I want to ask Mr. King, this is my one question, having given
him a little introduction, a little time to think about it——

Mr. Mica. If he may have time to respond.

Mr. Moran. Do you see, Mr. King, a responsible relationship be-
tween the jobs that are being vacated, particularly through buyout,
incentives, and in fact the functions that must continue to be per-
formed?

Mr. Kina. The question was superb and it’s on target. I think
that the critical thing the post office did, it may have had the same
mistake that a number of States did and a number of cities. And
that was it said we're buying out, first X number of people to come
to the pay gate, we'll buy them out.

And what you’ve had following every one of those is chaos, abso-
lutely predictable. It’s the fleet of foot, and generally the people
that feel they can go somewhere else and make a good living some-
where else. And you lose in that sense.

Mr. Moran. The people who are competitive in the private sector
can find jobs.

Mr. KiNG. And I don’t want to suggest those of us who are left
somehow couldn’t find our way on the outside, but included in
there is a whole series of items. But I think you hit on target.

I think the way that Congress acted last year, they gave the au-
thority for a buyout, but we had learned some lessons and we had
advised the post office earlier, but that’s neither here nor there,
that what you do is you identify the jobs, not people, the jobs that
you feel can be bought out, and where you may have a succession
in there, fine.


51

REDESIGN OF OPM AND ALTERNATIVE PERSONNEL SYSTEMS

8. “OPM could not set Governmentwide performance expectations, but the Director of
OPM would be the responsible point of contact with Congress for all executive
branch human resources management activity.”

In fact, OPM has never set performance expectations for agencies. This has not
mitigated our ability to monitor and oversee human resources management pro-
ams as they are implemented by individual Federal agencies. For example, the
former 5 U.S.C. 4302a(f), which set part of the statutory basis of the Performance
Management and Recognition System for managers and supervisors, contained a
prohibition similar to that currently proposed. Specifically, it stated:
“The Office may not prescribe, or require an agency to prescribe, any specific
performance standard or element for purposes of this section.”
This prohibition caused no difficulties for the President or agency heads.

HIRING, FIRING. AND LABOR REFORM

9. “There is a reason for centralized hiring. General ability tests such as PACE are
better in selecting qualified individuals than are any separate tests for particular
occupations.”

This paragraph confuses the method of examining with centralization. Many cen-

tralized exams—for engineers, scientists, technicians, and for administrative jobs
above the entry level—did not involve written tests. OPM will be available to help
agencies develop and validate written tests and other instruments, including struc-
tured interviews, that have proven successful in measuring candidates’ knowledge,
skills, and abilities.

Mr. Mica. Anything else?

Mrs. MorELLA. Thank you. No.

Mr. Mica. Mr. Mascara?

Mr. Mascara. Only that I would caution you to go slowly. There
are a lot of human lives involved in what you do and we talked
about that, Director King, the other day.

I always have concern about people and people’s lives. I am de-
lighted to hear that you were able to effectively get jobs for, what,
90 percent of the people.

Mr. Kine. Not all got jobs. There is a term of art of the settle-
ment. Some went to school. Some decided they would retire. And
some started their own business. We had a number of people actu-
ally get involved with that. But, yes, at the end of the day, they
had made a decision to settle.

Mr. Mascara. And I am familiar with ESOP, participated as a
county commissioner. It is very difficult. In fact one of the shining
examples were in Weirton, , when Weirton Steel engaged in an
ESOP, and I think Avis, the employees purchased that agency.

And is the Federal Government in a position to help these em-
plavees to engage in an ESOP? Are they being offered professional

elp

Mr. Kine. If we can, Ms. Lattimore has been working with the
investigators and Ms. Okin has been working with the training
side, so we are——

Mr. Mascara. Will they be given first opportunity to—

Ms. LaTTIMorE. That’s one of the things we are currently explor-
ing now. We are hoping within the next couple of weeks, we will
be able to come forward with some proposals for total or partial
privatization of the investigative functions and that there will be
opportunities for the employees if they desire to take over that
business in the private sector, and we are also exploring ways that,
at the least cost, we can find some professional assistance to do
that.


80

impact on civilian employees, helping laid-off employees, and main-
taining workforce balance.

In the past 2 fiscal years, we have reduced civilian employment
by roughly 115,000 people. Fewer than 8,000 of these separations
were involuntary—that is, as a result of RIF or reductions-in-force.
We try very hard to avoid RIF’s. They are very costly in morale,
productivity, time, and money. To do so, we've relied on a variety
of policy tools, including hiring freezes, priority placement, separa-
tion incentives, outplacement assistance, and various collaborative
ventures with other agencies, including OPM.

We've managed these reductions by being true to our goals and
by holding steadfastly to mission and readiness requirements.

e’ve delegated authority to the lowest levels possible to let man-
agers determine where reductions are needed and which skills they
need to retain. Our tools have allowed managers to control to a
large degree who goes and when. We also pay constant attention
to workforce demographics and the results of downsizing, most no-
tably through a workforce reshaping task force, which our office
manages.

And while we’ve managed the details, we’re most grateful to
OPM for help in our efforts. This help has come in a variety of
ways including early retirement flexibility, some retirement eligi-
bility, staffing at closing bases, training and retraining. Again, the
written testimony provides details in each of these areas.

In other words, we’ve been able to work with OPM to develop al-
ternatives that can make downsizing more humane and more effi-
cient. We do not believe that OPM should either design or oversee
our reduction efforts. However, the agency can and should facilitate
the rule and regulatory changes, as well as information and pro-
gram exchanges. OPM can identify agency initiatives which appro-
priately can be used throughout the government. It can also tailor
or eliminate those which might work well at one time or place but
might not be generalizable.

at of the implications of the restructuring? As mentioned ear-
lier, our size and level of expertise set the Department of Defense
apart from other agencies. For example, since 1978, our Civilian
Personnel Manual has provided a vehicle for providing uniform,
DOD-wide policies governing personnel. The current version is inte-
grated with the Federal Personnel Manual. We're engaged in a
massive effort to update and revise our manual due to the FPM’s
sunsetting and to comply with laws as we conform to National Per-
formance Review goals and our own desire for deregulation.

In some situations, such as labor relations and intra-manage-
ment communications, there are no OPM regulations. In others,
such as administrative grievances, OPM is proposing abolishment.
Where OPM regulations do exist, we conform our policies to those
regulations. However, we are fully capable of designing and imple-
menting our systems and programs in the absence of such regula-
tions. ‘ile we see no need for OPM to regulate in those areas in
which it is not now operating, we have found the OPM staff with
whom we deal to be highly competent and capable of playing an
important advisory role to agencies.

In conclusion, P must reiterate that DOD’s size and experience
will enable us to adapt more readily than other agencies to any


13

system for Federal workers. Granted, over the years things got out of hand. Anyone
who has thumbed through the 10,000 page Federal Personnel Manual or rolled out
the lengthy Standard Form 171, would certainly agree. That is why OPM has right-
fully been making efforts over the past two years to tighten its ship.
ile I am sure there is still room for improvement, the bottom line is our Fed-

eral workforce must remain immune to political pressure. Someone, somewhere has
to set down guidelines and enforce them to ensure that the workers hired are quali-
fied and can get the job done. This job should probably fall to a reorganized OPM.

The point Iam trying to make is that our country has struggled too long and too
hard to keep politics out of its general government workforce to change course now.
I do not think that is what the American people expect or demand from their gov-
ernment.

Thank you, Mr. Chairman.

Mr. Mica. Thank you, Mr. Mascara, and we look forward to your
leadership and also the experience you bring to this panel.

I hope our witnesses and other folks here today will appreciate
that this is the first time that members of the panel have had an
opportunity to really set on the record some of their comments.
And we appreciate hearing from them and the other members of
the panel.

At this time we have our first witness, Mr. Jim King, who is the
Director of the Office of Personnel Management. Mr. King, I’m
going to call on you first, if you would, to introduce the people on
the panel.

And then it’s the custom and practice of this committee, which
is an oversight committee and we've reaffirmed this with the Chair
and the other Chairs of the subpanels, that we will swear in all of
the witnesses in all of our hearings, since we have an oversight re-
sponsibility.

So if you would introduce the individuals with you and then I'll
ask you to stand and be sworn in.

Mr. Kinc. All right. From left to right, our left, Mr. Chairman,
we have Len Klein, who is the Associate Director of Employment
Service. To my immediate right, Ms. Patricia Lattimore, our Associ-
ate Director of our Investigation Service. To her immediate right,
Ms. Carol Okin, Office of Merit Systems Oversight and Effective-
ness. And to her immediate right, Ed Flynn, who is the Associate
Director of the Retirement and Insurance Service.

And would you like us to rise now, Mr. Chair?

Mr. Mica. If you could, if you’re going to testify.

(Witnesses sworn].

Mr. Mica. Please let the record reflect that they answered in the
affirmative.

Mr. KING. To the best of our abilities, Mr. Chairman. I wouldn’t
suggest that it’s holy writ.

Mr. Mica. We're pleased to hear from you, and I don’t think it
could be more fitting to hear from you on any other day but today,
the day after the administration has released its budget.

So without further ado, we give you the floor.


55

pacity and strong leadership, can meet this challenge and help
serve the interests of democratic government over the long term.

I would be happy to respond to your questions.

Mr. Mica. Thank you. We will go ahead and ask you questions
first. And I had a couple of general questions.

When you were heading up OPM, how many individuals were
employed there? What was the total FTE count?

Ms. Horner. I don’t recall. I’m sorry.

Mr. Mica. 6,000 range.

Ms. Horner. The figure that sticks in my mind is somewhere be-
tween 5,500 and 6,000. I am not certain of that number.

Mr. Mica. When you spoke just a few minutes ago about the re-
sponsibility for the oversight role of OPM, what do you think we
could end up accomplishing with the proposals you heard from the
administration yesterday?

You heard Mr. King testify earlier that they are advocating addi-
tional cuts. Some, are in specific function areas, primarily inves-
tigations and training, but what kind of a core oversight respon-
sibility would you see from your experience?

Ms. Horner. Well, first of all, I think the single most important
thing that OPM does, that the Civil Service Commission did before
it is, to protect the integrity of the hiring and promotion practices
of the Federal workplace.

Mr. Mica. For the entire Federal workplace?

Ms. Horner. Yes. And, therefore—although it’s never impossible
to suggest that cuts would be acceptable—I think that cuts in that
arena should be most carefully approached. I had not given a great
deal of thought before coming here today to the investigations
question.

My thinking, frankly, has evolved on that since I was OPM Di-
rector, and evolved more in the direction of retention of investiga-
tions rather than privatization of investigations. Privatization
seemed a reasonable thing to me when I was there. And if I were
sitting in the Director’s seat now with all the information available,
it might still seem reasonable and helpful to me.

But I am increasingly concerned about the potential for corrup-
tion in the Federal workplace. And I am increasingly concerned,
not because I think there is more of it or that more of it is threat-
ened, but that because of the public’s deep concern about the Fed-
eral Government right now, even small but visible incidences of
corruption have a disproportionately bad effect on public confidence
in government. I would be very leery—I would move slowly and
carefully in that direction.

Mr. Mica. I also understand that you served at a time at OMB,
and I have heard some proposals for possibly even combining OPM,
OMB, and maybe GSA into one agency to be assigned some of the
functions in a consolidated fashion. at would your reaction to
that kind of a move be?

Ms. Horner. Mr. Chairman, I have an interesting perspective on
that because when I was at OMB, I had the OPM portfolio and,
therefore, when I was then appointed Director of OPM, I had to
live with the budget that I had given myself and the FTE ceilings,
and it was very difficult.


2

The Post Office and Civil Service Committee, our predecessor,
had 74 staff people. We hope to do the work with seven, and the
Post Office Subcommittee will have approximately seven staffers.
So we have quite a challenge before us.

The Subcommittee on Civil Service has inherited the lion’s share
of jurisdiction from the old Post Office and Civil Service full com-
mittee, and our subcommittee has jurisdiction over Federal Civil
Service, which breaks down into two main areas, compensation and
rules of employment.

According to rough calculations, this constitutes nearly $140 bil-
lion in annual spending for the fiscal year 1995. This represents
nearly 10 percent of the total annual budget of the United States.
In the months ahead, we have an ambitious schedule and a num-
ber of serious challenges.

It’s my intention to conduct a thorough review of all major per-
sonnel legislation, including: the 1978 Civil Service Reform Act, the
1986 revamping of the Federal Retirement System, and the 1990
overhaul of the pay system for Federal employees.

The governmentwide jurisdiction of this subcommittee will allow
us to examine virtually all activities of Federal employees and pro-
vide a systematic review of the downsizing of government person-
nel. A reduction in government and streamlining in government ac-
tivities have been demanded by the taxpayers of this Nation, and
it is my deeply held conviction that the citizens of this country de-
serve a quality workforce, a workforce that will provide efficient
and effective service.

During my chairmanship of this subcommittee, I’m committed to
find and institute whatever remedies necessary to unburden Fed-
eral employees from unnecessary rules, regulation, and red tape.
We, in the legislative branch, must accept a share of responsibility
for creating this sticky web over the years. And now we have the
task of making some sense of this.

Government must be more responsive, more accountable, and
less intrusive and less expensive. I know we've all heard that be-
fore. Up to this point, however, attempts to restructure or downsize
have been done in piecemeal or patchwork fashion, often simply
trimming government around the edges.

The short-term and long-term impact of these efforts is negative,
and at times counterproductive, as promises to do more with less
have promoted false expectations among affected constituencies. It
is essential that a radical change occur in the way the Federal Gov-
ernment and its departments and agencies are managed.

We must alter the size and scope of government functions to
bring them into line with the needs and expectations of our citi-
zens. Agencies must be taught to police themselves. By this I mean
they must make continuous improvements on their own initiative.

Any organization needs to alter its structure if it is to signifi-
cantly change its size and function. Any organization that doubles
or triples in size needs to be restructured, and also needs to be re-
examined from time to time. If any institution continues in its old
ways, it can become unmanageable and unresponsive.

fe are undergoing such a reassessment right now, as we are the
overseers of the Federal workforce. We must continue in this oppor-
tunity to streamline and modernize the rules which guide our


72

Mr. DEVINE. OPM’s main function should be to lead—provide the
leadership Director Horner talked about, and second to provide
oversight.

Mr. Mica. Also, in the atmosphere of RIF’s and also some of
these positions we are talking about having eliminated or being
done by attrition, one of the major questions that comes up is, how
do you retain good folks and then, how do you eliminate Sikes who
aren’t producing?

One of the complaints I’ve heard is, it takes so long to get rid
of an employee. You saw that we have now insulated the process
with the influence of unions and the new emphasis on controlling
the workforce from within. How would you approach this
downsizing? And then how can we deal with folks that we should
eliminate, not only from a functional standpoint but their ability to
perform? What would be your recommendation?

Mr. DEVINE. Well, I think there should be some governmentwide
placement system administered by OPM, some of which could be
decentralized to large agencies like Defense. As far as poor per-
formers, it’s very, very difficult to deal with that under the present
system. I always emphasized—when I was OPM Director—focusing
on rewarding the good ones as opposed to getting rid of the poor
ones.

And unfortunately, since my time, many of the rewards you can
give to the better ones you can’t give anymore because perform-
ance—I mean, merit pay for managers, and some changes in execu-
tive pay—have been eliminated. I am very concerned about how
you are going to motivate the good ones. far as the poor ones
are concerned, I certainly don’t think you can shorten the proba-
tionary period. That’s the time when we do get rid of poor perform-
ers in government, ; .

Mr. Mica. Can we speed up the departure time? I am told it
takes an average of 18 months to go through the process now, so
many people are just frustrated, don’t even deal with it, or the indi-
viduals get put into some other agency or responsibility.

Mr. DEVINE. Well, part of the problem is, if you had one system
that people could appeal to, like the Merit System Protection
Board, and not always have a grievance and an EEO and not all
different kinds of ways of doing it. That’s why it takes so long.

Mr. Mica. So we could speed up the process to a 90-day process
or 120-day or something like that could be constituted?

Mr. DEVINE. Yes, sir.

Mr. Mica. OK. The other thing you said, you think too much au-
thority has been given to the unions and they are now making the
decisions. For example, in the area of veterans’ preference, I read
in your written remarks that now the merit system has been sort
of perverted, that veterans preference is no longer meaningful, that
other individuals have taken precedent.

How would you correct that situation and how would you address
it?

Mr. DEVINE. Well, actually, I didn’t say they were doing it now,
except for one complaint I received, I don’t know, because I haven’t
been there in a long time—but the biggest complaint I received
from the veterans’ organizations was that the agencies didn’t pay
attention to veterans’ preference. And the degree to which you


27

April 1, April 1,
Organization 19931995 Reorganization Notes
Board Board

GM 13-15 SUPERVISORS

Employment Service ..... a 24 29 Some employees reassigned from Washington Area
Service Center
Workforce Training Service/Office of Executive Re- 3620
sources.
Investigations Service... . 21 35 _ Field investigators reassigned from Field Services
Retirement and Insurance Service 1762. Some employees reassigned from Administrative

Offices
Human Resources Systems Servce/Office of Met 3916
‘Systems Oversight and Effectiveness.

Atlanta Field Service ..... 30 14 Field Service Investigators reassigned to Investiga-

tions Service
Chicago Field Service... 35 4 Do.
Dallas Field Service... 38 9 Do.
Philadelphia Field Service 30 9 Do.
San Francisco Field Service ...... 35 uu
Washington Area Service Center .. 30 0 Organization Abolished

Administrative Offices (Personnel, Information 61 19° Some employees reassigned to Retirement and In-

Technology, Contracting, Administrative Serv- surance, Chief Financial Office
ices).
Staff OFF C25 sonnei 106 Some employees reassigned from Human Re-
sources Systems Service
Chief Financial Office 10 7 Some employees reassigned from Administrative
Offices
Office of inspector General ....... soe a. re)
Total 497 279
OPM ON-BOARD STRENGTH
Popuatin Ant, 199 8 Ap 1885 O- Pert Change
All Employees ..... 6,944 we 5,146 -25.9
(Average Grade) (8.16) a (8.28).
All Supervisors: ‘787 IBZ cocsses 426
(SUPV. Ratio) nemo (1 to 7.82) (1 to 10.39).
GS/GM 13-15 Supervisors 7 497... 279 ... 43.9
GS/GM 13-15 Non-Supervisors ....... 655 - 634 — 03,2
SES EmplOyeeS sss cee SD $B occcnnenan 246

‘On-Board Strength Includes All Types And All Work Schedules.

Board Sant For Apa, 198 Does Nat lacie Ver Rigs Pasnne Or White Hous Flows

Employees Defined As Supervisors Are Based On the National Performance Review Definition Of Supervisory Codes 1-3.
‘Average Grade is Based On OS/GM And Equivalent Employees Onl,

(Of The 5146 Employees On Board April 1, 617 Worked intermittent Work Schedules

INVESTIGATIONS

Question 1. The investigative function now performed by OPM is critical not only
to government efficiency, but also to national security since the granting or denial
of security clearances is often based upon the results of these investigations. Please
describe how OPM will oversee privatized investigations in order to ensure that
they are timely and accurate.

Answer. Under a strict privatization model, the responsibility for quality and in-
tegrity assurance gravitates to the agencies for which the investigations are done.
However, one variation under consideration and supported by our customers would
allow OPM to operate as a contract manager with Federal employees responsible
for policy, oversight, coordination, and guidance. This oversight role would include

ality and integrity assurance, ensuring timeliness and accuracy for those agencies
choosing to receive investigative services from or through OPM.

Whatever form of privatization occurs, I have proposed that the Office of Person-
nel Management maintain a staff to carry out policy and oversight responsibilities,
to include ownership and protection of our data base and investigative records and
adherence to all Privacy Act requirements.



70

ing authority and responsibility over a merit system in the hands of the elected
President and his appointed team. Today, we have “none of the above.” Some of the
essentials of the Carter reforms were compromised to assure passage so that we
have two systems operating together, then merit testing and performance pay were
eliminated, and now management rights have been eroded by Executive Order.

I agree with President Clinton that supporting two entirely different personnel
systems over one body of workers makes no sense. There should be either a merit
or @ grievance system. Either career managers, labor-management committees, or
the President should be in charge. I would rather see the Clinton reforms adopted
than continued duplication, irresponsibility, and extra cost. It would tie the Govern-
ment in knots, but at least a destroyed system makes the silent argument that it
needs to be rebuilt.

To some degree the die is already cast. President Clinton has issued Executive
Order 12871 to implement his reform by decree. We shall see how it works. Given
the presidential veto and the incumbent’s need to satisfy the unions, probably no
alternative reform is possible before 1996. Yet, it is necessary to set out the needed
reforms now to prepare the way for that better day.

‘An expert, core workforce will demand merit system hiring, based upon skills and
open to all, with a bit of a tilt toward those who have served their country honorably
in the military. Staffing will need to be flexible, mixing a small permanent contract-
managing core, temporary employment fluctuating with demand, and the over-
whelming majority of the work performed by contractors. Classification would be
made more flexible, but it is too subject to abuse not to be carefully monitored. Per-
formance should be evaluated under mutually defined but managerially decided
standards, directed and run by strong executives responsible to Presidentially-des-
ignated agency leaders. All should be under a single merit system run by the le-
gally-responsible agency heads under the supervision of the President and his
central assistants.

President Carter tried to establish such a system in the Civil Service Reform Act
of 1978, and President Reagan did decentralize the great majority of both the exam-
ining and other personnel functions to the agencies where they now rest. The only
functions held back—as the law allowed—were the President’s right as Chief Execu-
tive to set standards of leadership performance, to oversee to prevent abuse, and
to centralize for common functions in the interests of economy, efficiency and equiv-
alent treatment (much of which could be contracted out). The Clinton reforms would
place their trust in labor-management committees, and would duplicate examining
research and testing, classification system creation, and performance management
support in every agency of the government, at much greater total cost.

Clinton Administration has made much in public relations promotions that
it has cut thousands of pages of “red tape” by dismantling the Federal Personnel
Manual. But all the Fl is, is a centrally-devised repository of laws, rules and
management guidance put in’one place for easy reference at low cost. The FPM is
gone but, today, it is impossible even for Congress to obtain a copy of the regula-
tions, even from OPM itself. What kind of management reform is this—the regula-
tions still exist but cannot be accessed? Personnel officers privately confide that they
have hidden away their old FPM for their own Personal, secret reference. What hap-

ns to this wisdom when this generation of management experts is gone? This
Elinton “reform” is an excellent example of silly, news-release management reform
that ends up being penny-wise and pound foolish for increasingly resentful tax-

ayer
PAyle now live in an era where people are demanding real reform. Personnel policy
must be part of the necessary re-evaluation. Total personnel costs equal 13 percent
of the budget, and overhead adds 4 percent more. It is not a time to decentralize
to labor committees and hope all turns out right, as do the Clinton reforms. Only
an aggressive, centrally-managed policy will insure that real reform takes place.
‘That plan would do the following:

(1) Congress and the President must decide what among the existing func-
tions of the Federal Government should be retained, and devolve the rest to
state governments or the private sector. The 10th Amendment requires nothing
less.

(2) For the remaining functions, Congress must decide where tax-credits,
vouchers, block grants to states or local governments, or direct Federal super-
vision should be ntilized-recognizing that personnel are required least for the
earliest-mentioned solutions.

(3) For those functions retained for direct supervision by the Federal Govern-
ment, Congress must unambiguously set the mission so that it is simple enough
to be performed in a rational manner with the resources available.


63

law that lets executives set standards and to reward those that attain or exceed
them. The proposed reform would not return to the status quo ante but would im-
pose collective bargaining over both the standards of work to be performed by em-
ployees—which some might accept as reasonable—but also the performance of the
work itself. The reform truly would place in law the promise President Clinton gave
to the labor leaders in his Executive Order to make the unions “full partners” with
the career managers in the management of the Federal Government, while the
President, his top appointees and Congress would be left observing from the outside.

Labor Law Reform

The number one goal of the Federal unions has been to weaken the strong “man-
agement righte” section of Jimmy Carters Civil Service Reform Act of 1978, The

inton proposal would eliminate the statutory “permissive” rights of management
to decide appropriate staffing levels needed to perform work and to decide how work
is to be performed.

The managements rights section would be replaced with a so-called “good govern-
ment standard” that would make agencies “obligated to bargain collectively” over
how all work is to be performed in the Federal government including much of Con-
gress). An agency-level “partnership council” of management and unions would be
created to “to develop agency policies and regulations that are binding on agency
components and bargaining units subordinate to the council.” Present appeals to
any “statutory third party’—presumably including the Federal Labor Relations Au-
thority and the impasse panels—would be repealed so that the decisions of the joint
labor-management councils would be final.

It is not clear how impasses would be resolved. Perhaps, it is assumed none will
atige, A majority of either labor or management on the council might be able at the
end to force their position through. If there were a management majority on the
council, the only delay might be that of collective decision-making over that of an
individual executive. The term collective bargaining, however, implies an equality
between the two sides. Perhaps the existing situation applies until a new agreement
is arranged, tying work performance always to the past. The draft specifications do
not specify.

Redesign of OPM and Alternative Personnel Systems

The role of OPM under the proposed reforms is ambiguous, While decentralization
from OPM is an avowed major purpose of the proposed reforms, each of the sections
on hiring, staffing needs, classification reform, performance management, and alter-
native personne! systems authority give some type of oversight authority to OPM
as the central personnel agency. Indeed, under the latter, OPM would have the sole
authority to approve personnel systems radically different than the one proposed to
Congress as the new law. OPM would only be required to “notify” Congress of even
radical departures from the present proposals, although any change would have to
be first requested by a “labor-management partnership agreement:

The difference under the Clinton proposals is the diluted authority for OPM’s
oversight, and the revised object of its enforcement power. OPM is authorized to in-
vestigate complaints brought to it by employees in hiring, to maintain an oversight
program for hiringclassifcationand performance, and’ to enforce all. personnel
rules, But it would be enforcing rules set by the President or the agencies, rather
than merit principles established by Congress in law. OPM could order corrective
classification action but could no longer revoke the authority so that an agency
could continue classifying while not in-compliance. OPM could not set government.
wide performance expectations but the Director of OPM would be the responsible
point of contact with Congress for all executive branch human resources manage-
ment activity.

The only enforcement specified for OPM by the Clinton proposals is informing the
President of violations “involving agency heads and directing corrective action.”
Thus, while the effective power for personnel decisions is given to labor-manage-
ment’ committees, the responsibility rests in the hands of the political appointee
heading the agency, enforced by the President. The power given to the President
is for his OPM Director to cajole his agency heads, But neither they, nor OPM nor
the President nor any other “statutory third party” would have the power to over-
rule their labor-management committees, The only enforcement is for the Chief Ex-
ecutive himself to remove his agency head from office.

Without power to order agency compliance or even the ability to set prior Presi-
dential standards for performance, the OPM Director will be ignored—except by an
annoyed President who will have been notified only when the abuse reaches the
level of a political crisis involving resignation of a top official, or by a demanding
Congress which will hold a neutered Director of OPM responsible for a process he



20

Question 5a. Please explain the factors and considerations that led to the follow-
ing FEHBP decisions by OPM: The issuance of the December 5, 1994 interim regu-
lation asserting unobstructed discretion on the part of the OPM Director with re-
gard to the acceptance of applications for new HMO’s and the annual changes in

nefits.

Answer. In the supplementary information section of the December 5, 1994, in-
terim, Tegulation, we indicated our intention not to accept new plan applications or
benefit changes for 1996. Based on the comments we received, we concluded that
our time frames were too compressed to allow a thorough review of all the con-
sequences of our decision. As a result, we decided to accept both applications and
benefit change proposals for 1996. In conjunction with that decision, we published
a notice of proposed rule-making with a 60-day comment period so that all con-
cemed parties would have ample time to make their views known.

Both the December 5, 1994, interim regulation and the March 22, 1995, notice of
proposed rule-making clarify our policy on accepting applications from HMO’s for
participation in the FEHB Program. Our position is that the Director of OPM has
the authority each year to determine whether it would be beneficial to enrollees and
the program to invite HMO’s to apply for participation.

Our original decision for 1996 was based in large measure on our need to repro-
pram resources in order to focus on contract oversight and compliance issues raised

y the Senate Governmental Affairs Committee’s Permanent Subcommittee on In-
vestigations, as well as by OMB and GAO. We thought we would be better able to
focus on these issues if we could moderate our workload in connection with the open
season.

While we are doing everything we can to streamline our operations, it is possible
that future circumstances that we cannot now foresee night again suggest that it
would be in the best interest of the FEHB Program and the enrollees not to accept
new plan applications for a particular contract year. A specific provision giving the
Director discretion on whether to invite benefit change proposals has been in our
regulations for many years.

fe look forward to receiving comments on our proposed regulation. We also have
invited the HMO industry to give us suggestions on how we can make the applica-
tion review process more efficient.

Question 5b. Please explain the factors and considerations that led to the follow-
ing FEHBP decisions by OPM: The mandate to provide coverage for Autologous
Bone Marrow Transplant (ABMT) treatments.

Answer. Prior to September 1994, Autologous Bone Marrow Transplant (ABMT)
treatment was not universally available under the FEHB Program. We committed
to reviewing the coverage of High Dose Chemotherapy/Autologous Bone Marrow
Transplants for breast cancer under the FEHB within sixty days of our testimony
before Congress in August 1994. We carefully studied and assessed the rec-
ommendations of the National Cancer Institute (NCI) and other authorities, the

ractices of other large employers and insurance companies, and the number of

EHB plans that proposed to add such coverage in 1995 on their own initiative. We
concluded that, as an employer, we wanted to purchase coverage from all FEHB
plans for HDC/ABMT for certain conditions.

lh September 1994, OPM required immediate coverage by all FEHB plans of High
Dose Chemotherapy/Autologous Bone Marrow Transplants (ABMT) for the treat-
ment of breast cancer, multiple myeloma, and epithelial ovarian cancer, in addition
to the other conditions for which it is considered standard treatment, including tes-
ticular cancer. Plans were allowed to place restrictions on the coverage (such as re-
quiring that the services be obtained in specifically approved medical centers). How-
ewer plans could not limit the coverage to services obtained in randomized clinical
trials.

This decision was made near the end of the negotiation cycle for rate and benefit
changes for the 1995 contract year. Requiring this benefit did not affect the pre-
mium rates previously agreed upon between the carriers and OPM for the 1995 con-
tract year. We will make appropriate adjustments for community-rated plans from
contingency reserves in the Employees Health Benefits Fund during the rate rec-
onciliation process in 1995. Any increase in claims due to this decision in experi-
ence-rated plans results in immediate payments from the Fund.

estion 5c. Please explain the factors and considerations that led to the followin,

EHIBE decisions by OPM: The planning and execution of the 1994 “Customer Sat
faction Survey” including the particular contracting arrangements with the publish-
ers of Checkbook. ;

Answer. The Center for the Study of Services (CSS), the firm that publishes
Checkbook, approached OPM in 1994 with a suggestion that we cooperate in a cus-
tomer satisfaction survey of our FEHB Program enrollees. As a result of this cooper-



37

Mr. Moran. I am curious how we can achieve all the personnel
reductions and the dollar savings without even Proposin the guts
of the Reinventing Government initiative, which is Civil Service re-
form.

As I mentioned in my opening remarks, I would have hoped that
that would be one of the first steps before we decided how many
people we could cut and how many dollars we can save, we would
see how much we can reform in a cooperative effort with the legis-
lative branch.

Actually, it would have been a lot better, and of course this is
hindsight, but it sure would have been a heck of a lot better to
have submitted that in a Democratic Congress. I would suggest
that now. But now you're going to have to submit it to a new Con-
gress with a new attitude, and I was disappointed that while the
administration attempted to take credit for all these I think exag-
gerated numbers, it didn’t even come forward with Civil Service re-
‘orm legislation.

Is—I don’t want to over—take too much of—go too far over my
5 minutes, and I suspect we’re pretty close to the time limit.

Mr. Mica. We'll be glad to get back to you.

Thank you.

Mr. Moran. Thank you, Mr. Chairman.

Mr. Mica. Id like to recognize now the Congresswoman from
Maryland, Mrs. Morella.

Mrs. MorELLA. Thank you very much. Thanks, Mr. Chairman.

Thank you, Mr. King, for yor very succinct explanation and tes-
timony. It’s kind of ikke what is happening to your department,
isn’t it, getting succinct and skeletal?

And I guess that’s sort of a concern I wanted to pose for what-
ever reaction you may have. It’s like when we take out everythin;
from OPM, do we need you? I mean I know we need the FEHB
program and others, so I am being kind of facetious, but under-
neath that is the question about are we taking the guts out of the
program when we start privatizing training and investigations?

Would you like to comment on that?

Mr. KING. Yes, I would like to submit that I think the investiga-
tions work is a valuable resource, we all know that, there’s no
question in my mind that it’s valuable. I think the issue is, is it
a core responsibility of the civil service and the merit protection
system. And that’s the test we had as we moved through.

How does it affect employees? Can it be done in another location
off the Federal payroll? Are there successful contractors out there,
models who do investigatory work for the Federal Government?
The answer to that is yes.

That means that this unit, the investigative side, could be moved
into the private sector. Is it an essential part of our agency? It is
not a critical part of the agency. Is it useful? Everything we have
is useful.

There is a fee that these folks pay through the revolving fund to
our central administration. That means when this goes away, that
will affect us back to our administrative overhead. But that again
reduces the government and the budget.

Does it affect our core responsibilities? I would submit, if you
look at the numbers and even the budget, it does not negatively af-


57

Mr. Mica. Well, we thank you for your comments and your testi-
mony and look forward to working with you as we pursue this im-
portant responsibility. And, again, thank you for participating.

You are welcome to stay, or if you have to leave, we understand.
We will now call on Dr. Devine.

b Mr. Devine. Thank you very much, Mr. Chairman, and mem-
ers.

It is a pleasure to be here.

Mr. Mica. And also thank you for the length of your testimony
which, without objection, I will have submitted into the record and
we hope you can summarize. I did stay up, I want you to know,
until 1 o’clock reading it. It is voluminous and we appreciate your
in-depth commentary.

Mr. DEVINE. Unfortunately, that reminds me of a story. Presi-
dent Jimmy Carter, who had campaigned on Civil Service reform,
the night before it was going to be signed, they were going to have
a ceremony in the White House. My predecessor, a Democrat, Alan
Campbell, gave the bill to President Carter. You know he has a
reputation for reading everything he gets. And he stayed up all
night reading the Civil Service Reform Act which, as bad as my
testimony is, it is a lot easier to read than that.

He came down the next morning and Scotty Campbell asked him,
“Mr. President, what did you think of it.” He said, “Boy this is bor-
ing stuff, isn’t it?” So I sympathize with you—with what you had
to do to read this, and I promise you I won't read it all. I don’t
know how much I should read, really.

Actually, I stand in awe, as I always do, of Director Horner’s tes-
timony, of how smooth she can be in making some of the same
points that I make. That’s why she was so much more successful
in government than I was. Those who know me know I draw things
in rather straight lines. Sometimes you run into walls doing that.

I would like to comment on one thing Mrs. Horner mentioned in
her testimony about oversight and leadership and the need for a
central direction, or especially in relation to the testimony of Direc-
tor King, whom I also have great sympathy and understand all the
different pressures he’s under.

That is to focus on oversight. Mr. King was forced—not by any
reason of his own but because of the nature of how things are being
run in this administration—to defer on the most important ques-
tions you asked him: to say that OMB makes those decisions.
That’s exactly why I recommend that at least you begin looking at
combining OPM, OMB, and GSA, because you can’t do your job of
oversight if your responsibility is hidden away in different places
around the Government, with nobody able to answer questions for
you.

There is no central plan from what I can understand from Direc-
tor King. If there is one, it’s in OMB and it’s under Presidential
privilege.

During President Reagan’s first term, with whatever ills or bene-
fits we had, we published governmentwide guidance on how to ad-
minister the downsizing of government. We set an “attrition first”
policy which, in my opinion, is not only cheaper but is by far the

est in terms of dealing with the employees. And I think, frankly,
the lack of a plan is a dereliction of responsibility—not on any ind.


23

This percentage recognizes that 2 components comprise the administrative cost
structure of the program: .

© The expenses which the Office of Personnel Management incurs in administer-
ing the program: $22 million or 0.2 percent of the total,

* The expenses for administration as classified and reported by carriers partici-

pating in the program on a fee-for service basis: $803 million or 6.6 percent of the
total.

‘These amounts do not include the administrative expense of prepaid carriers (pri-
marily Health Maintenance Organizations) which participate in the program. Since
our contracts with prepaid carriers are based on community rating practices, they
do not track and separately record administrative expenses charged to the program.

‘in addition, all Federal agencies expend funds in the program’s administration
(recording enrollments, withholding and disbursing premiums, etc.). These costs are
not captured and recorded, but are probably not significant in the context of the
overall program,

Question 10. How portable is coverage under the FEHBP presently?

Answer. The coverage under the FEHB Program is not “portable” in the sense
that it accompanies a former Federal employee as he or she moves from employer
to employer in the private sector. However, for those employees who are leaving
Federal employment, there are several options for continuing FEHB coverage for
specific periods of time. Employees who separate from Government employment are
entitled to a Temporary Extension of Coverage for 31 days at no charge. Under cer-
tain circumstances, i.e., during hospitalization, this period may extend up to 91
days. Former employees may convert to an individual policy with their last FEHB
carrier during the 31-day extension. period that follows notification by the employing

ncy of the termination of group health benefits coverage. In addition, former em-
ployees may elect Temporary Continuation of Coverage (TCC) for up to 18 months
after the date of separation and enroll for group coverage under any FEHB plan for
which they are otherwise eligible. The former employee generally must ay the full
premium and a small administrative charge of 2 percent for this TCC. We believe
that this accomplishes the goal of being consistent with what is generally available
in the private sector.

Those who retire from the Federal Government can take their FEHB coverage
with them into retirement provided they meet minimum enrollment criteria.
Federal Government continues to pay the employer's share of the premiums during
retirement. During the recent downsizing and Governmentwide early retirement ini-
tiative, OPM relaxed the requirements for continuing FEHB coverage into retire-
ment to make it easier for those who had not planned to retire to do so.

Question 11. Have you considered improving Portability or looked into the possi-
bility of offering complete portability through the FEHBP?

Answer. At this time we feel that the Temporary Extension of Coverage with con-
version privileges and Temporary Continuation of Coverage are sufficient to meet
the needs of our former employees as they move from Government employment to
private sector employment. However, we will continually reassess the situation to
make sure that it is adequate in the future.

Question 12. If so, please explain what you have done and the rationale for any
decisions regarding portability that you may have made.

Answer. Please see above answer.

ADMINISTRATION OF THE FEDERAL RETIREMENT SYSTEMS

Question 1. What are the average processing times for the following categories of
retirement benefits:
a. Normal voluntary immediate retirement
b. Retirement by reason of involuntary separation
c. Disability retirement
Answer. The average processing time (in days) for retirement claims is as follows:

FY 94 Actual FY 95 YTD.

89 2B
258 240

‘Non-Disability Retirements ..
Disability Retirements

Please note that we do not separately track processing times for voluntary and
involuntary retirements because the processing requirements for both are essen-
tially the same.

jese processing times represent the amount of time it takes to fully process a
retirement application, measured from the date OPM receives an annuity applica-
tion until all of the paperwork and procedures associated with the application are


90

Ms. DISNEY. Yes, I believe so.

Mr. Mica. I was just trying to get an idea of how many people
there are in the personnel activity versus the total workforce. How
many DOD retirees are there from the civilian workforce?

Ms. Disney. I don’t know.

Mr. Mica. And the DOD civilian retirees—under what purview
da they come? Do you do all of their files or is that handled by

Ms. DISNEY. No, that’s handled by OPM.

Mr. Mica. OK.

Ms. DISNEY. Just like everybody else.

Mr. Mica. What about active military?

Ms. DISNEY. The retirement system, that’s—I’m sorry. I don’t
deal with the military side.

Mr. Mica. OK. So, again, they have 1,600 people, approximately,
at OPM who are dealing with X number of retirees? I am trying
to get some picture.

Ms. Disney. I’d be happy to get those exact numbers for you.

[The information referred to follows:)

As of September 30, 1994, just over DoD civilian retirees were receiving annuities

from OPM. More specifically, the individuals had retired from the following Compo-
nents:

Army . . . 263,124
Navy . 208,577

Air Force 182,693
Other Defense .... . 25,737

Total .... - se 680,131

Mr. Mica, I think they said 2 million Federal retirees currently,
give or take many thousands. But they said approximately 1,600
individuals in that area. And they’re asking for an increase there.

Are you hearing problems of processing or complaints dealing
with the retiree?

Ms. DISNEY. None have come to my office.

Mr. Mica. OK. So that seems to be handled fairly well outside
your purview.

It’s my understanding that you said, out of the entire 230,000 po-
sitions which have been eliminated, only 8,000 were RIF’ed?

Ms. DISNEY. Under 8,000 in the last 2 years. There were nearly
3,000 for each of these previous years.

Mr. Mica. So that’s out of the 115,000?

Ms. DISNEY. That’s correct. Of the 115,000 separations over the
past 2 years, fewer than 8,000 were a result of a RIF.

Mr. Mica. So we're looking at about 10, 12,000?

Ms. DISNEY. Yes. Yes, sir.

Mr. Mica. And what mechanisms did you employ? Maybe you

could give us a little insight and would include personnel from base
closure?

Ms. Disney. Yes, sir. That's everything.

Mr. Mica. OK. What mechanisms again did you—you described
CARE, was it?

Ms. Disney. Yes, We have—

Mr. Mica. Is that the system that you put in place?


44

of work in order to make the accommodation for the employees who
would be moving into the private sector.

They feel very comfortable right now, and I understand that. And
I’m not being critical of them, it’s a fact of life. We will get to them
as soon as our employees have their proposals together. We'll re-
solve the issues. We have to, there’s no choice in that. And I would
like to report back a success story at the end of the day.

Mr. Mica. What core functions, as far as investigations and
training, do you anticipate would remain with OPM?

Mr. iG. Whether it remains with OPM or another agency
would not be at issue with me. I’m not interested in building an
empire. But what I think should remain is that you'll need a secu-
rity policy base and an area, a unit, that would do policy, and
someone to manage the records that are confidential and should
not just be turned loose.

fr. Mica. Any idea—now between training, I guess, and inves-
tigations, you've got——

Mr. KING. It’s about $164 million, as you know. It’s listed, those
are the total costs in there.

Mr. Mica. But you also have a significant number of personnel,
probably over 2,000. What numbers do you think will be left?

Mr. iG. That’s what we're in the process now. You catch us in
the middle of a transition in which we're in the very—not in the
middle of it, we're at the very early part of that transition now. We
will keep the committee advised.

I don’t have full answers at this moment. Because I really am
looking at both of the units that are involved. And by the way.
training won’t be a single corporate entity, because it does several
different things in training.

Mr. Mica. Now, you also oversee or have some access to what
these other 1,600 agencies are doing, you have some interaction
with 1,600 other personnel departments?

Mr. KING. In the personnel service, yes.

Mr. Mica. Then the 35,000 or whatever is number of personnel.

Mr. KING. Right.

Mr. Mica. Have you seen the President’s budget in regard to
what reductions are proposed in those areas? Do you have any idea
what the impact——

Mr. KING. No, sir.

Mr. Mica [continuing]. Or am I just moving bodies from OPM to
these agencies?

Mr. RING. The agencies, again, can have the service in training
and in investigations done in the private sector and so that they’re
not on the Federal payroll and they’re not located there.

Mr. Mica. The other question is, what will be contracted out to
the private sector, and is there cost savings?

Mr. Kinc. OMB has been the agency that’s looked at that and
told us where the economy is.

We're looking at it from a point of view of pure management, Mr.
Chairman.

Mr. Mica. Well, my intent is to see what’s most cost. effective for
the taxpayers who are footing the bill for the whole show.

Mr. Kinc. That’s a legitimate question, Mr. Chairman. I
don’t—


85

ists, small agencies like the SEC need to rely more on OPM for ad-
vice and technical assistance on complex issues.

I would now like to address three of the key questions that were
posed by the subcommittee.

The first one is, can each agency and department effectively
manage the personnel functions without strong direction from a
central personnel agency?

While I think that this is possible, the best arrangement would
be for OPM to function as a central service and advisory agency.
Its focus should move from direct control of processes and proce-
dures to disseminating broad policy frameworks intended to uphold
the basic merit principles. As long as agencies meet certain mini-
mum standards, they should be able to develop procedures to im-
plement basic requirements which are tailored to their individual
needs.

The second question is which activities should remain centralized
and which can be readily delegated away?

We believe that the regulatory, advisory and coordination func-
tions need to remain centralized at OPM. However, agencies need
more flexibility and authority to accomplish such activities as re-
cruit and hire directly. This means having the flexibility to develo
streamlined procedures for selecting the best applicants while still
being accountable for maintaining the merit system’s principles,
and implementing staff reductions within more flexible guidelines,
to deal with the mandate for agencies to restructure and downsize.

There also needs to be governmentwide consistency on certain
basic issues relating to conditions of Civil Service employment,
such as guidance in the area of benefits, pay determinations, reten-
tion rights, adverse action development procedures and labor-man-
agement relations. In all these areas, OPM could play an important
role by providing interpretive guidance.

In addition to its advisory role, OPM should continue to manage
governmentwide benefits programs such as retirement, health ben-
efits, and life insurance. Central OPM control of these programs of-
fers the advantages of group purchasing power, maximum choice
and lower administrative overhead costs.

OPM should streamline the regulatory requirements involving
the Senior Executive Service and reduce its role in qualifying se-
lected applicants for entering into the SES. Specifically—and_we
feel very strongly about this—OPM should delegate all Qualifica-
tion Review Board decisions to the selecting agencies themselves
and, in addition, eliminate the SES recertification program. We
don’t believe that the recertification program has done what it was
intended to do. It has not. improved performance of SES’ers, nor
has. it served as a tool to eliminate nonperforming members of the

OPM should simplify pay and classification and seek legislation
to authorize pay banding. It should develop several models for pay
banding and update and simplify the classification standards to
help agencies tailor the models to their own needs.

And while we would like OPM to retain policy and consulting ex-
pertise, we don’t believe OPM needs to be in the business of actu-
ally delivering training. Training is an area that could be
privatized. ‘And our experience to date has been that, given the op-


62

centralization of authority to agencies, reduction of the number of appointment
types and elimination of barriers to internal placement. In fact, hiring for over 700
of the government's examinations is already decentralized to the agencies, all but
so-called common-function appointments. The actual purpose is to legalize the prac-
tice of appointing individuals to positions without real RSA examinations, weaken-
ing merit as a principle in appointments, to end the existing special appointment
status for veterans, to legitimize group-norming in examination selection, and to
limit the flexibility of temporary appointments in the government, to encourage ca-
reer employment.

OPM is given the role to protect merit principles of hiring even by the proposed
Clinton reforms. But it is not made clear how. With the stated purpose of the reform
to decrease OPM’s role, effective enforcement would seem at cross purposes with the
whole stated reason for the reform. What is clear is the standards for merit would
be set by the Executive Branch, rather than by law with Congressional participa-
tion, and that each agency and its unions would create their own exams and admin-
ister their separate hiring in the Federal Government, with little oversight or spe-
cial expertise provided by OPM.

Classification Reform

The reforms also propose to enhance agency and union control over pay relative
to that of Congress. OPM is directed to establish its own criteria for pay classifica-
tion, in “consultation with employee organizations,” abolishing any statutory defini-
tion. OPM is then directed to “broadband” existing grades and let agencies increase
pay within the now-higher capped salary grades, without the prior approval from
any central source, except a labor union. The agencies then would make individual
pay decisions from the performance appraisals developed by the labor-management
councils.

OPM’s authority to revoke an agency’s classification authority if abused would be
repealed, as would its authority to review the classification of positions except if re-
quested by the employee. The review, therefore, would only be done to increase the
pay grade of an employee, since no one complains about too much salary. OPM could
review systems for compliance but only to direct corrections, not to force them. With
OPM relieved of the obligation to assure quality, there would be less supervision,
vastly increasing the potential for abuse, over something as tempting as a person’s
own compensation.

The effect of the classification reforms would be to transfer authority over pay in-
creases (other than across-the-board general pay) from Congress and the President
to agencies and their unions. Each agency would undoubtedly create expanded inter-
nal reviews and provide their own control systems, suggesting that more staff would
be required. At this additional cost and duplication, the President, OPM and Con-
gress would be asked to trust the agencies with governmental decisions most that
are most in their interest to abuse. This is a grant of discretion a government em-
ployee would accept at great risk to himself and to the Government.

Performance Management Reform

All Presidential or Congressional standards of Performance expectations are to be
prohibited and replaced with standards bargained between agency management and
their unions. Collective bargaining would be imposed not only for the design of work
lans for all employees but also in the assignment of the work itself. Agencies would
required to create award programs to provide incentives for individual or group
achievements but collective bargaining would be required to set the “substantial ac-
complishment” goals.

Poor performers could be denied a general pay increase. Yet, the probationary pe-
riod could be shortened, Importantly, the procedures for taking action against poor
performers would be “either” to replace the present “dual track for taking action”
(of either merit system or grievance system) with a single system, or by “streamlin-
ing” the current system “without diminishing due process.” Since the second would
seem to be a contradiction in terms—because the complexity of the present system
exists to provide due process, and since no means is proposed to choose either ap-
proach, the former would appear to be the desired Clinton goal. With the remainder
of the proposed reforms adding union grievance procedures at every turn, presum-
ably the purpose of the Clinton performance reform is to eliminate the merit system
(and, ultimately, its Merit Systems Protection Board) and only utilize the expanded
union-grievance one.

Besides eliminating the merit system protections for employees, this “reform” pro-
hibits the President or his government-wide representatives from setting perform-
ance standards and, thus, from managing the Executive Branch. The Clinton re-
forms would effectively repeal President Carter’s performance-based management



86

tions, we're able to choose OPM for certain types of courses that
we find are not available elsewhere; or, conversely, we can let con-
tracts to have independent contractors provide the training.

Finally, OPM should retain a central role in either conducting
background investigations or in credentialing contractors to con-
duct investigations for agencies that need the service. And I think
that’s particularly important for small agencies like the SEC where
we have a relatively large proportion of people who are in sensitive
positions, or who have national security clearances, and we don’t

ave the ability or the capability to either conduct the investiga.
tions ourselves. We absolutely have to rely on OPM to do this for
us. If this were privatized, we would also be concerned about who
would be conducting the investigations.

More specifically, we believe that OPM should at least credential
private organizations to do the job, and with OPM’s blessing I
guess we would have the confidence that the information they ob-
tain is valid, would be kept private and also that they would have
access to the appropriate records—FBI records, court records and
whatever is necessary—to do a full-fledged investigation.

And, last, would SEC be willing and able to assume greater re-
sponsibilities in the personnel area in the face of reduced appro-
priations for administrative functions? The answer is, yes, we
would. We would welcome additional responsibilities within the
policy framework I’ve discussed. However, in order for small agen-
cies to assume greater responsibilities we also need the flexibility
to streamline procedures as well as continued technical assistance
from OPM.

I might add that we have designated our whole personnel system
as a reinvention lab under the National Performance Review, and
we've had a lot of success by having task forces deal with perform-
ance management, alternate work schedules, staffing and so forth.
So we've come up with a lot of innovations, but sometimes we find
that we're unable to proceed because of regulatory restrictions.

Thank you. I'll be happy to answer any questions you may have.

[The prepared statement of Mr. Alegria follows:]

PREPARED STATEMENT OF FERNANDO ALEGRIA, ASSOCIATE EXECUTIVE DIRECTOR, OF-
FICE OF ADMINISTRATION AND PERSONNEL MANAGEMENT, SECURITIES AND EX-
CHANGE COMMISSION

Chairman Mica and Members of the Subcommittee: I appreciate this opportunity
to testify, on behalf of the Securities and Exchange Commission, regarding the Ad-
ministration’s proposal to restructure and downsize the U.S. Office of Personnel
Management (OPM) and its impact on agency personnel programs. My comments
will focus on the impact of the proposed changes, particularly as they relate to a
small agency like the SEC which has only approximately 2,700 employees.

As you know, within the past year and a half, there have been significant changes
in the philosophy and operations of OPM resulting in changes to federal personnel
programs. I think that the personnel community generally agrees that these
changes were needed, and that the federal personnel regulatory framework had be-
come overly complicated with many burdensome and inefficient requirements. The
National Performance Review (NPR) undertook an ambitious process of defining the
needs for reform through seeking input from agency managers and employees, as
well as from the general public. We have been pleased to see OPM move forward
quickly to lead the implementation of these changes, especially during a time in
which OPM has been undergoing substantial internal restructuring.

‘The needs and problems of small agencies are very different from those of larger
agencies. Small agencies like the SEC must perform all of the same personnel func-
tions and develop a similar range of personnel programs as large agencies, but with


31

Thank you, Mr. Chairman.

Mr. Mica. And thank you.

I don’t know of anyone whom I respect more than Mr. Gilman
with his leadership in so many areas in the Congress, and we’re
pleased that you’ve joined us and part of this panel.

Tm going to try to work sort of under a 5-minute rule. We don’t
have a timer, but we'll try to limit it so everyone on the panel gets
equal time and we'll go around as many times as folks would like.

I think it’s very important that you're here today, the day after
the budget has been presented to the Congress. Quite frankly, I’ve
not had a chance to even review the contents of the budget. I was
going to stay up all night and read the multi-volume report.

Mr. KING. You would be a bolder man than you even appear, Mr.
Chairman, if you took that on.

Mr. Mica. But I have a few questions, and we could zero in on
your particular area. Maybe you can enlighten us as to how it
would affect your agency and its operation.

First of all, I keep hearing about this one-third cut. I see some
figures here, and you testified, I guess in April 1993 from 6,944 to
5,341. Is that correct?

Mr. Kine. Yes, Mr. Chairman.

Mr. Mica [continuing]. In February, this year. Is that the one-
third cut that we’re talking about, or are we talking about another
one-third below the 5,000?

Mr. Kine. If, Mr. Chairman, you would think of the Agency in
terms of a simple pie, the pie plate, and divide it into four pieces,
one-fourth, roughly—and this is rough, but I think it’s the easiest
way to visualize it—one-fourth is the core that I addressed. One-
fourth is the retirement and insurance. The other two quarters
would be the investigations and training. Those would make——

Mr. Mica. We have career entry, I have a list that you provided

us.

Mr. KiNG. Career entry would fit up into the core. So training
would be a quarter, and roughly less than a quarter would inves-
tigations, substantially less than a quarter. Those two, training
and investigations, are the areas from in which additional cuts
would come.
fi Mr. Mica. So we will go from a figure today of 5,341, to what

igure?

Mr. Kine. I would think within a year, we'd be down by fully
1,000, and then from there we would have to work on our adminis-
trative services and of course, we would continue to reduce.

Mr. Mica. And most of those cuts would come out of investiga-
tions and training?

Mr. KiNG. That's correct, Mr. Chairman.

Mr. Mica. OK. I see investigations is about the third largest
area, and training might be in human resources development; is
that the category?

Mr. KING. Yes. We would move two activities out of the training.

Mr. Mica. Now, my next question would be, again, we had 6,944,
we have 5,341. What had been the actual reduction in budgets for
personnel? Are those also reflective? What kinds of money are we
spending to finance these positions?


7

with the size of the Federal workforce than the fact we-were trying
to find ways to pay for the crime bill. This shouldn’t have had such
a direct relationship, but in fact did.

Actually, we’ve taken credit for the savings, the 20 odd billion
dollars from reducing the Federal workforce, three times over now.
But the principal place where we took those savings was in paying
for the crime bill. What we should have done in my humble esti-
mation is to follow Sister Mary Ginny Seta’s advice. I remember it
back from fourth grade. She used to say “everything in moderation,
and in good time, Jimmy.”

And when we look back at efforts to reform the Federal
workforce, the one effort that is the most enduring is the Hoover
Commission. And that’s because it took a lot of time, a lot of
thought, and it was a profound change. The other efforts that we
have made were mostly political, and while they may have
achieved their political aims, they had very little impact on the
overall functioning of the Federal workforce.

I think the Reinventing Government initiative is going to have
more impact than most, but they put the cart before the horse.
They really should have determined what functions were expend-
able, what programs can in fact be consolidated and devolved down
to State and local government. Then after that hard work is done,
and after they had consulted with the legislative branch and deter-
mined what changes in the Civil Service code are likely to be en-
acted, what programs are likely to be consolidated, what functions
are likely to be eliminated, then they should have derived a bottom
line of what savings can be achieved at the expense of what num-
ber of Federal employees can be cut.

But we went backwards in doing that, and again largely for polit-
ical purposes. Although I applaud the people in the Vice President’s
office that have been making this effort. This is taking a little
longer than you probably anticipated, Mr. Chairman, but I am
going to lay out where I’m coming from on this because once we
get into the nuts and bolts, we’re not going to have an opportunity
to do this.

I think that much change is going to be effected this year in this
subcommittee. My own personal opinion is that not all of it is going
to be positive. I think we have rushed to judgment, particularly
with regard to the effectiveness of the Federal workforce. We are
assuming now, it would seem, that virtually anything can be con-
ducted more efficiently and effectively at the State and local level.

I think we give very little credit, for example, to OPM’s ability
to maintain the independence and integrity of the Federal
workforce. I represent a fair number of Federal employees, about
70,000, and I’ve been impressed at the number of hard-core Repub-
licans that work for the Federal Government, and are still working
for the Federal Government even under the Clinton administration.
The reason I’ve been impressed is because it underscores the inde-

endence of the Federal workforce. Not only do we not have the
Kind of patronage system we had during Warren Harding’s era, but
we also have a Federal workforce that prides itself on its political
independence and its professionalism. It has become particularly
more professional and capable over the last several years.


46

In the meantime, my time is expired, and I'll yield to the gen-
tleman from Virginia.

Mr. Moran. I thank the chairman very much.

Let me get into some very basic issues. First of all, I want to
make the point that the Federal Civil Service system is the most
efficient and in fact it is the most effective bureaucracy of any na-
tion in the world. That’s true. George would agree with that as
well, I’m sure. And I needn’t ask Connie.

Mr. Mica. And the least corrupt.

Mr. Moran. And that’s the next point I was going to make. Not
only is it the most efficient and effective, it is the least corrupt.

As Mr. King said in his statement, we have gone through an his-
torical transition. We have learned from our mistakes. I thought
that was a particularly telling story that I plan to repeat often
about Abraham Lincoln finally finding something that he could
give to every office seeker when he had smallpox. But we learned
tom that. And in fact it has evolved.

And over that period of evolution, parts of it have become en-
crusted with these ridiculous layers of rules and regulations. It
seems to me that, at least having been on both sides of the legisla-
tive and the executive branch, much of that was legislative branch
not allowing for any kind of latitude or autonomy. And I think Mrs.
Horner is going to share her thoughts on that.

But now we have a choice, whether we are going to continue to
evolve or whether there’s, instead of an evolution, there’s going to
be a revolution.

And I have some very serious concerns, and in my opening statc-
ment I tried to articulate it, that I want to see an evolution of the
role of the Federal workforce and the central agency that leads it,
provides example to it, and in fact coordinates it.

So I think OPM has a very important role to play, particularly
under a strong President that has a vision of what he or she one
day wants out of the entire Federal workforces.

But as I see these reductions being made, which really are very
substantial, they may not be as substantial as other reductions, at
least those that are contemplated, I know Canada is looking at a
much Greater reduction, but I think to reduce 12 percent of the
Federal workforce is very substantial. I don’t see the relationship
between the people being cut and the functions being eliminated.

And in fact, the legislative branch has not approved the elimi-
nation of any programmatic functions as yet, for which any of these
personnel reductions ought to be related. So what. happens when
we, in the rush to achieve personnel reductions and dollar savings,
force out people, particularly the senior managers who have the in-
stitutional knowledge who can operate oftentimes far more effec-
tively than anybody you could find in the private sector, because
they're the ones with the higher salaries, and that program, that
activity, that function, is still required to be performed by not only
the legislative branch of government, but by the American people?

I think we could create a real disconnect between what people
expect and our ability to actually provide that service. And here
we've got all this rhetoric about customer service. If there are no
people who know how to provide that service, then that service is
not going to be provided.


6

with virtually every other arm of the federal bureaucracy and therefore the changes
executed at OPM have ripple effects throughout the government,

Of course, the winds of change already have impacted OPM in a variety of ways,
That venerable application form—the Standard 171—already has been eliminated.
So has the hide-bound 10,000 page Federal Personnel Manual. Attempts have been
made to greatly expedite the hiring process, although reoent recruitment has been
limited. Substantial downsizing at OPM has already occurred.

But now the Administration is embarking on a decentralizing process that will
transfer many personnel functions from OPM to individual federal agencies, large
and small. This process would occur at a time when many of those individual agen-
cies are facing downsizing themselves. So I will be looking forward to hearing from
OPM—and from representatives of two of those agencies—on how personnel policies
will be handled in the future. It is quite possible that larger agencies, even in a
slimmed-down form, will have sufficient expertise to handle their new personnel du-
ties efficiently. My greater conoorn at this point is how smaller agencies, many of
yhich also face downsizing, will be able to adjust to the additional responsibilities.
Will they have sufficient personnel—and sufficient knowledge of relevant regula
tions by those specialists—to comply with Title 5 regulations? Can they handle hir-
ing, as well as retirement procedures, in an expeditious way that properly serves
the needs of the employee?

On a related matter, one area that I hope warrants attention is the future admin-
istration of the Federal Employees Health Benefits Program, which has been run
in a highly-effective and timely fashion in the past. What are the prospects of re-
taining FEHBP within the OPM structure forthe foresceable future? ;

Mr. Chairman, both as a Member of this Subcommittee and as the Representative
of more than 55,000 federal employees and approximately 30,000 retirees, I eagerly
await the upcoming testimony. I commend you for calling this important hearing.

Mr. Mica. Thank you.

I would like to now yield to the distinguished gentleman from
Virginia and our ranking member on the subcommittee, Mr.

loran.

Mr. Moran. Well, thank you, Mr. Chairman. And I am glad to
see my friend, Mrs. Morella, on the subcommittee. I have to say in
responding to your opening statement, you should know that it is
no less an exciting a time for us in the minority. And in fact we
are no less struck y dramatic change in roles.

But having said that, we’re going to try to perform the role of the
loyal opposition in a constructive manner. I am not as excited
about reducing the size of the workforce as others might be. In fact,
even the National Performance Review I think went too far too

‘ast.

I agree with a number of Principles behind it. I do think procure-
ment, for example, was in drastic need of reform, as was the Civil
Service manual. It was far too bulky and it really didn’t allow for
the kind of innovation and creativity that you need in any organi-
zation, particularly as large a one as the Federal Government.

I think much of the fault for this lies with the legislative branch
because we didn’t allow for mistakes within the executive branch.
Any time there was a mistake, it was an opportunity for a press
conference and a hearing to make legislators look good at the ex-
pense of Federal employees.

Of course unless you have an opportunity to make mistakes, you
have very little opportunity to grow. The only way in our own per-
sonal lives as well as in corporate life that you really advance and
grow and innovate, is by having the latitude to make some mis-
takes and to learn from those mistakes.

That hasn’t been the case in the Federal Government. I think
that’s a large part of the problem. As far as the reduction of
250,000 people, that has grown to 272,900, and this had less to do


40

And again, it’s people caring for people in the greatest sense in
the American tradition of what that means, and applying it in a
situation where I think it has been both dramatic and useful for
all the parties.

Would that be fair, Ed? You worked on this on a daily basis.

Mr. FLYNN. Absolutely. I think the experience that we had cer-
tainly is difficult, but when you see the kind of commitment we
made as an agency to help people make successful transitions, I
think it demonstrates not only to those people, but to the people
who remain in the Agency that in the midst of change, people can
move on successfully. And it does help with the morale question.
ts: MorELLA. Have other agencies looked to you for advice on
that?

Mr. KinG. Oh, yes. And that’s why Len Klein’s worked on an
enormous amount, through buyouts, Mr. Chairman, and Mrs.
Morella. And I can’t thank you enough for your work on that, on
the buyouts. It’s made an enormous difference.

The buyouts have been a major emphasis in the transition. You
worked on that. You published a little newsletter. How many edi-
tions have you put out in the past 10 months?

Mr. KLEIN. ut 60.

Mr. Mica. I want to thank you, Mr. King. Also thank the
gentlelady for her questions and also for the experience she brings
to the panel.

Now, yield to Mr. Mascara from Pennsylvania.

Mr. Mascara. Thank you very much, Mr. Chairman. And thank
you, Director King, for your testimony. And I enjoyed the meeting
we had at my office.

I do have a sense that there is a sensitivity among your staff and
others at OPM. But one of those warm bodies that you mentioned
before happened to come into my office. He worked for investiga-
tions, back in the district. And he asked some very pointed ques-
tions.

First of all, one of the questions was is this agency going to cease
to exist on October 1?

Mr. KING. No.

Mr. Mascara. Do you have any idea when that will take place?

Mr, KING. The agency, you mean OPM or do you mean investiga-
tions?

Mr. Mascara. No, no, the investigations.

Mr. Kinc. What we have done is set a date that we would like
to have this resolved on or about October 1, mainly because it’s fis-
cal year and we look forward. I believe that we should have some
kind of a break date.

On the other hand, the cost implications, as you know so well,

o well beyond October 1. And if there were legislative delays, the
Simculty is that we’re in the process of doing something we've
never done before. I can’t honestly give you time lines that I’m to-
tally comfortable with. But we are using October 1 as a target date,
or September 30, as it were, as a target date, sir.

Mr. Mascara. OK. My constituent points out, and rightfully so,
that these investigations in some cases directly impact on national
security, perhaps would not be best handled by the private sector.

What are your thoughts?


19

tions on a rigid, mechanistic formula that weighs veterans preference and seniority,
which to a degree includes performance ratings.

Can we reform this process? It is possible, but I have to say it would be difficult
at a time when so many employees feel vulnerable to RIFs.

The current system is a balance between the interests of management, employees,
and veterans, Shifting the balance at a time when the threat of RIFs is great would
most likely meet strong resistance from our employees and their unions, who might
feel we were changing the rules in the middle of the game.

I thank the Subcommittee for its attention. Now let me take your questions.

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY THE CIVIL SERVICE SUBCOMMITTEE
TO JIM KING

FEDERAL EMPLOYEES HEALTH BENEFITS PROGRAM

Question 1. Many experts consider the Federal Employees Health Benefits Pro-
gram (FEHBP) to be a successful example of a large group health plan. What are
your general views about this program and what changes, if any, do you think
should be made to the FEHBP?

Answer. The Federal Employees Health Benefits (FEHB) Program is a $16 billion
health insurance program, administered by only 154 people in the Office of Person-
nel Management. We contract with 345 private insurance carriers to cover over four
million enrollees and their dependents. Certain program activities are carried out
with the support of agency and carrier personnel, but the overall number of People
involved in administering the program is still small. This operation is a remarkable
private-public partnership.

‘The FEHB fam offers coverage with no restrictions because of age or pre-ex-
isting conditions. During annual open seasons employees can choose from a variety
of plans, including indemnity type plans and health maintenance organizations that
offer a variety of benefit packages at varying prices.

We are regularly surveying our customers to gain a better understanding of their
expectations for their health insurance program and how well we and the insurance
carriers do in meeting those expectations. though there are always areas that can
be improved, overall the FEHB Program enjoys good reviews from those it is de-
signed to serve. We have no recommendations for major program changes at this
time.

Question 2. A principal factor in this perceived success appears to be the delicate
balancing of responsi s between the private sector and the government, to-
gether with strong competitive forces fueled by individual consumer choice. Do you
agree with this characterization of the success factor?

Answer. We agree that the partnership between the Government and the private
sector, combined with the consumer choice to create competition among the private
sector plans, contributes much to the success of the FEHBP.

Question 3. Some observers have suggested ‘a recent tendency on the part of OPM
toward micro-management of the FEHBP. Some may go further and suggest a cer-
tain governmental] intrusiveness in the form of ultimatums. What is your response
to these observations?

Answer. The Office of Personnel Management has focused with renewed intensit;
on contract oversight and compliance issues raised by Congress, OMB, and GAO.
We are dedicated to improving the administration of the program, the benefit pack-
ages available through the program, and the level of customer service provided. We
do not think this oversight and compliance can fairly be characterized as micro-
management, instead, it is the necessary prudent management required in any pro-
gram involving the expenditures of public funds.

Question 4. at is your view of the appropriateness with which OPM has wield-
ed its regulatory authority? Is the agency currently involved in any disputes with
carriers or providers concerning OPM’s regulatory role?

Answer. We are acutely aware of the need to use our regulatory authority in a
very judicious manner in order to balance the sometimes competing demands of our
divergent responsibilities, e.g., as fiduciary, as employer, as program administrator,
and as business partner.

At this time, we are not involved in any disputes with providers concerning our
regulatory role. We have improved communications with the carriers through an on-
going series of formal conferences, informal meetings, and teleconferences. We are
optimistic that these efforts will reduce potential conflict in regard to our regulatory
authority and other oversight and administrative issues.



4

STATEMENT OF JIM KING, DIRECTOR, OFFICE OF PERSONNEL
MANAGEMENT, ACCOMPANIED BY LEN KLEIN, ASSOCIATE
DIRECTOR, EMPLOYMENT SERVICE, PAT LATTIMORE, ASSO-
CIATE DIRECTOR, INVESTIGATION SERVICE, CAROL OKIN,
OFFICE OF MERIT SYSTEMS OVERSIGHT AND EFFECTIVE-
NESS, ED FLYNN, ASSOCIATE DIRECTOR OF INSURANCE
SERVICE, AND GILBERT SEAUX, CHIEF FINANCIAL OFFICER

Mr. Kinc. Thank you, Mr. Chairman, and members of the sub-
committee. I want to thank you for this o portunity to meet with
you all, I hope your reference to Mr. Harding was heartening, be-
cause I know you recollect it and I would submit that I read by
your comments that yours too would be a Velvet Revolution. And

still view myself as being part of the center.

I did want to thank you for the specific questions that you raised
with the Office of Personnel Management, OPM. Let me first ex-
plain that there has already been significant downsizing since I ar-
rived at OPM 22 months ago. The number of employees at OPM
on April 1, 1993, was 6,944. As of February 1 of this year, that fig-
ure was 5,341. That’s a reduction of 1,603 employees, or 23.1 per-
cent of all the people who were on the payroll.

Mr. Moran. That’s impressive.

Mr. Kinc. So the figures do include something else, too. It’s
about a 40.4-percent reduction in our GS-13 to 15 supervisors and
middle managers, I might add.

In addition, Mr. Chairman, last December 19 at a White House
meeting with the Vice President, the Director of OMB and other
agencies’ heads, we announced that as part of the second phase of
reinvention, most of OPM’s training and investigation functions
will in the near future be privatized.

The two units that are scheduled to be privatized are budgeted
for fiscal 1996 at about $164 million. These activities are financed
substantially with reimbursements from the agencies, a revolving
fund as it were.

Let us review our remaining programs which are budgeted at
about $250 million, beginning with the Retirement and Insurance
Service, or RIS. By the way, Mr. Chairman, we've just gone
through cur own redesign, so we’re using some new acronyms. RIS
administers the benefits that we provide to about 10 million Gov-
ernment employees, annuitants, and their families.

Among the programs that our RIS administers is the Federal
Employees Health Benefits Program, which provides health insur-
ance coverage to almost every employee and retiree of the Federal
Government, Congress, and the Federal Court system, and in most
cases their families. FEHBP is widely regarded as one of the best
run public health care programs in the world. Perhaps it could be
administered somewhere other than OPM, but it has done ex-
tremely well with us for almost 35 years, and I would recall the
old saying, “if it ain’t broke, don’t fix it.” I would submit we fall
into that category, Mr. Chairman. But that will be for the commit-
tee’s determination.

Now I would like to discuss OPM’s core mission. First, permit a
bit of history that may be helpful in understanding that mission.
As was suggested by the committee itself, in the mid-19th century,
really from the founding of our republic, our government operated


3

workplace. I look forward to working with each and every member
of the subcommittee and those in the public and private arena to
complete this important mission.

I’ve met informally with all of the members of the subcommittee,
and I again encourage each Member to identify the policy areas
where they believe particular oversight emphasis and work is war-
ranted and needed. It is my goal to treat the minority fairly and
establish an open and productive dialog with both sides of the aisle
during my chairmanship.

Today the subcommittee will examine the proposal by the admin-
istration to downsize the Office of Personnel Management, Yester-
day in President Clinton’s budget, he recommended cutting the
OPM staff by one-third.

I look forward to hearing from OPM and representatives of the
administration and the private sector as to how best to implement
changes in our personnel policy. To add an external perspective to
this set of issues, we will hear from two distinguished scholars,
both of whom have particular expertise in this field.

Today’s hearing will begin the process of gathering information
from the administration and receiving comments from experts in
the private sector and personnel directors from within the govern-
ment. We have a personnel director from a large department and
a personnel director from a small agency, to give us a perspective
on the impact of administration recommendations at several levels
of government.

Effective and efficient personnel policy and activity at every level
of the Federal Government is really our goal. To determine what
role the Office of Personnel Management, the Federal Govern-
ment’s central personnel agency, will play in this environment of
downsizing is really our first task here today. .

So I look forward to hearing from all of our witnesses. I look for-
ward to the participation of all of our members in this and future
meetings. And also I'd like to recognize at this time the gentle-
woman with great experience and credentials and background on
the former full committee, Civil Service and Post Office, Connie
Morella from Maryland. Our entire panel is here, with the excep-
tion of Mr. Gilman and Mr. Sanders.

[The prepared statement of Hon. John L. Mica follows:]

PREPARED STATEMENT OF Hon, JOHN L. Mica, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF FLORIDA

Welcome to the first hearing of the newly created Subcommittee on Civil Service
of the Government Reform and Oversight Committee. It is a privilege and an honor
to serve as the chairman of this subcommittee. I look forward to working with the
chairman of our full committee, Representative Bill Clinger of Pennsylvania, and
Representative Charles Bass of New Hampshire, vice chairman of the subcommit-
tee, in the months ahead. I also look forward to working closely with our ranking
member, Mr. Moran of Virginia, and all the members of our subcommittee and the
full committee.

I have selected the following professional staff on the subcommittee: George
Nesterczuk, staff director; Dan Moll, senior policy director; Gary Ewing, counsel:
Susan Mosychuk, professional staff and Caroline Fiel, clerk. The Post Office and
Civil Service Committee had 74 staff people. Fulfilling the oversight responsibility
of that committee with just six people at my subcommittee, and six people at the
Postal Subcommittee, will bea challenge,

Share of the jurisdiction from the old Post Office and Civil Service Committee.
The subcommittee has jurisdiction over the Federal civil service, which breaks down
into two main areas: compensation and rules of employment. According to some


69

fied freeze. Yet, OMB has neither the needed skills nor will it have the necessary
clear focus upon the mission. The reason is that the budget, not management, nec-
essarily dominates OMB's perspective. OMB only seriously analyzes the cost effects
of personnel to specific programs and agencies, never to true staffing needs, much
less to the overall objective of reducing the size of the bureaucracy.

The Office of Personnel Management, by contrast, need not suffer from these defi-
ciencies. OPM can devise a government-wide plan. it has the knowledge—or can re-
gain it—of agency operations needed to assess true requirements. And through its
special pay rates program, OPM can determine the need for specialized skills and
provide the means to solve them. Thus, under a modified freeze, all agency requests
lor exceptions should be made to OPM and the latter agency should only be limited
by overall budget levels already allocated to the agencies by OMB. Actually, the best
answer, one that could save funds, would be to merge ‘OMB, OPM, and the General
Services Administration (GSA) in to a single Office of Management (OOM), as has
been recommended often before, the last time by the Grace Commission. This would
allow the contracting-out function to receive attention too.

Reductions-In-Force (RIF's) and furloughs should only be utilized when essential
to keep costs within budget or to assure lower long term costs. If RIFs are used at
all—and they must for certain operations if they are restructured—the Government
should adopt the Reagan Administration proposals to make employee retention dur-
ing downsizing based more upon performance than the current seniority-dominated
weighting process, and to limit so-called “bump-and-retreat” rights, under which
lower-level employees are routinely “bumped” out of the service by higher level indi-
viduals with greater seniority who are over-qualified (and overpaid) for the posi-
tions.

Modifying existent practice not only would lead to the better workers being re-
warded and the work-product upgraded, but it would mean also that women and
minorities would not be disproportionally affected by RIFs simply because they tend
to have the least seniority. So-called buy-outs do not make sense either. To give an
employee $25,000 to retire not only increases costs at the time but inordinately in-
creases costs to the retirement system. Ultimately, increased costs lead to more sep-
arations than necessary. Moreover, a “core” employment emphasis relies upon an
expert workforce, and buyouts entice the most skilled to retire.

sy following the Reagan Administration workforce reduction Euidance emphasiz-
ing attrition, but allowing some RIFs and furloughs, it should be possible to mini.
mize the negative effects. Over 90 percent of the Reagan reductions were achieved
by attrition—and many of these were moved to other positions through a newly-in-
stituted placement program. By contrast, during the only other recent administra-
tion to reduce the bureaucracy by any comparable size, under President Dwight Ei-
senhower, almost 90 percent of the cuts were achieved by firings. Following the lat-
ter course is too expensive, and too inhumane. To deny an administration the obli-
gation, the ability and resources to set a policy like attrition as a central policy
would be a dereliction of responsibility, guaranteed to decrease personnel effective-
ness and increase costs.

Indeed, there needs to be a fully comprehensive personnel plan if the currently-
planned reduction is to be rational. Although administrative savings are often
abused as a solution, they too must be part of any overall plan. An “attrition first”
reduction policy is the first step towards an efficient solution. Benefits will also
come under budget scrutiny in this era of limited resources. Federal retirement re}
resents four percent of the budget—going to a relative handful of people. While
these should not be unfairly disadvantaged, they do have earlier retirement and
more generous benefits than all but a handful of their fellow citizens,

If there are not reasonable reform plans, unreasonable ones may be imposed. A
relatively modest pension reform, for example, could simply limit future cost of liv-
ing increases to the maximum dollar amount of the social security COLA increase.
By doing so, it is possible to save a billion the first year, and $20 billion over five
years. Likewise, slowly increasing the retirement age past 55 over a period of time
would save many billions more. And these may ‘be the least disruptive to the
workforce. Other approaches may be better, but someone like OPM must be assess-
ing these from a government-wide perspective if anything rational is to be done.

IV. Conclusion

The national Government badly needs re-invention. Too much of it does not work.
Today, we have the worst of all worlds. The managers’ public administration asso-
ciations would like to go back to the pre-Carter system of decentralized authority
to the career managers. The unions and the Clinton Administration want to decen-
tralize to labor-management committees. I support the Carter-Reagan system plac-


24

completed. They are not a measure of the time it takes for a retiree to begin receiv-

ing an annuity. On average, over 90 percent of ncn-disability retirees are placed in

an interim pay status 9-10 days from the date we receive their application. As a

result, the vast majority of new retirees receive their first retirement check on the
lay it is due.

Question 2. What retirement processing functions now performed by OPM staff
might be performed more efficiently in the private sector?

wer. OPM has a history of being alert for efficiencies that can be gained by
using private sector firms to perform functions for which it is responsible:

. retirement program relies extensively on private sector sources for ADP
services, the most dramatic being its contract for the design, development and im-

lementation of the FERS Automated Recordkeeping and Processing System
'PAPS), a 7-year, $100 million project.

We also use private sector companies to print virtually all of our mass mailin
to annuitants, where it would not make economic sense for OPM to maintain this
capability in-house.

* We frequently use the private sector on an ad hoc basis to provide expertise we
need and do not possess. For example, private companies developed videos and
training programs explaining the operation of FERS after its enactment in 1986,
and we periodically use consultants to improve informational and instructional ma-
terials pertaining to the retirement programs.

« Finally, we have contracted with local physicians to interpret medical informa-
tion and render opinions in support of our processing of applications for disability
retirement. We now incur costs for these services only when needed, as opposed to
employing full-time physicians.

jur large-scale use of private sector resources is one of the most important rea-
sons why we are able to provide retirement services so efficiently, We have
benchmarked ourselves against other entities in our line of business, and have de-
termined that we provide overall services at roughly half the cost of the Social Secu-
rity Administration (measured on a cost per beneficiary basis), and even less com-
jared to the Railroad Retirement Board and the largest State retirement systems.
ile we don’t have as clear a picture of how we compare to the private sector, the
data we possess suggest’ we may be more efficient by a third.

We will continue to find ways to use private sector resources to improve our ad-
ministration of the retirement programs. For example, we are closely studying the
private sector's best teleservice practices as part oF the National Performance Re-
view, and we expect to achieve major gains in this area in the near future.

Question 3. You mentioned a survey of retirees to determine their level of satisfac-
tion with OPM’s level of service. How frequently are these surveys performed?
Would you gene provide the committee with the results of the last five surveys.

Answer. Copies of the four customer surveys we have conducted are attached.
Please note that the most recent survey summarizes and compares most of the re-
sults from all four. With the exception of 1992, we have conducted the survey annu-
ally since 1990. [See Tab B.]

fe have found these surveys very useful in helping us identify the areas where
we are not performing as we should. As a result, we have redirected our efforts, fo-
cusing on those areas of most concern to our customers.

FEDERAL PAY ISSUES

Question 1. At the beginning of the Clinton Administration, the new locality pay
rogram was described (by some Administration officials) as “seriously flawed.
at changes have been made to the locality pay program? Do you believe the pro-

gram is flawed?

Answer. See answer to Question 2.

Question 2. Are there any aspects of the locality pay plan, particularly with re-
spect to various differentials, that you think should be changed?

‘Answer. In the Pay Agent’s November 29, 1993, report to the President, two
methodological issues or flaws in the Federal Employees Pay Comparabilit;
(FEPCA) were identified: (1) system rigidity; and (2) inability to match Federal sur-

vey jobs.

he system rigidity flaw relates to FEPCA’s requirement to adjust the entire Gen-
eral Schedule by a single percentage in each locality. ‘This practice is atypical of
non-Federal compensation practices. The use of a single percentage adjustment fails
to recognize that labor markets differ in geographic scope for different occupational
categories.

Tneaddition, limiting the pay adjustment process to a single adjustment formula
prevents the Government from considering other labor market indicators, such as


10

this process, and me asking questions that may require some catch-
up on my part.

I’ve had the opportunity to talk with Mr. King prior to that meet-
ing, and I appreciate the courtesy extended to me so I am up to
speed. I'd also like to say that I have a Budget Committee meeting
at 10 o’clock in which OMB Director Alice Rivlin is presenting the
budget, and I feel it’s important that I be there for a short period
of time, so I am going to miss your testimony, but I have read it,
and with that I’d like to thank the chairman and I will submit a
short statement for the record.

Mr. Mica. And without objection, anyone who has additional
comments or written testimony will be entered in the record.

[The prepared statement of Hon. Charles F. Bass follows:]

PREPARED STATEMENT OF Hon. CHARLES F. BASS, A REPRESENTATIVE IN CONGRESS
FROM THE StaTe OF NEW HAMPSHIRE

Mr. Chairman, I would like to take the opportunity to thank our witnesses for
appearing at today’s important hearing. Our nation’s Civil Service is in a critical
state of transition, and I am sure that the testimony that we are about to hear will
be helpful in evaluating future policy decisions.

I believe that President Clinton should be commended for the commitment he has
made to downsizing government. The Office of Personnel Management will play a
crucial role in this effort, both in serving to oversee the transition of the Civil Serv-
ice and in creating a blueprint for other agencies to follow through its own
downsizing.

However, I believe that Congress, and indeed this Committee, has a role in ensur-
ing that this process is done right. Reducing our Federal workforce does not have
to mean that we reduce quality. Cutting the Office of Personnel Management does
not have to mean a disruption of services to Federal employees and retirees. The
need for Congressional oversight stems from the fact that a true reinvention of gov-
ernment will impact all of our constituents. That much said, I wish to assure those
representatives of the Executive Branch here today that I do not interpret Congress’
obligation in this respect as a license for micromanagement.

In this spirit, I Took forward to today’s testimony. [ thank the Chairman.

Mr. Mica. Mr. Mascara.

Mr. Mascara. Yes, thank you very much, Mr. Chairman.

Tm delighted to serve, delighted to serve on this committee. I am
pleased to be able to participate in the hearing set to review the
administration’s proposal to restructure and further downsize the
Office of Personnel Management.

This is the first official business of the subcommittee of this ses-
sion and I’m hopeful that today’s meeting and hearing will prove
to be productive and provide us all with insight and knowledge
that we'll need to oversee the evolution of OPM.

Let me start by mentioning that I was involved in reinventing
government before the term became opular. Back in the early
1980's, after being elected chairman of the Board of County Com-
missioners of Washington County, PA, I found myself confronted
with a county government in need of thorough review and a bit of
overhaul. Somewhat like what Ross Perot said, my fellow commis-
sioners and myself “lifted the hood” and we got to work. Believe it
or not, we developed the county’s first organizational chart. And
over a course of several years, we reorganized the county’s depart-
ments and agencies, consolidating functions where appropriate, and
downsizing where needed. But not without sensitivity. A lot of the
downsizing was achieved through retirements and consolidations.


29

individual cultures and needs, and the need for employee involvement in order to
establish credibility in, and acceptance of, the systems designed.

M is proposing both regulatory and statutory remedies for these two fun-
damental problems with the Governmentwide performance management system.
Regulatory remedy:

On January 27, 1995, OPM published in the Federal Register for public comment

major deregulation of the Federal Government's appraisal and awards systems for
non-Senior Executive Service employees. The proposed regulations focus on three
areas. First, they provide agencies more flexibility, within the requirements of stat-
ute, and permit the use of more appropriate results-oriented performance measures,
including team performance and customer, service, Second, decentralizing specific
approaches and procedures will allow agencies to tailor appraisal and awards to par-
ticular missions, work settings, and technology. Finally, the proposed regulations
encourage, within statutory limits, involving employees and their representatives in
the design and implementation of appraisal and awards programs. This would en-
able agencies to make their performance management systems more meaningful,
leading to employee acceptance of the appraisal and award systems and their re-
sults.

Statutory remedy:

OPM and the National Performance Review have been developing proposals for
changes to the Governmentwide Performance management system that would:

* require each agency to establish Performance management and incentive award
programs that improve individual and organizational performance;

© establish a Governmentwide framework of basic ‘irements such as periodic

rformance assessments of each employee to assess idual accountability (this
Framework would include a requirement to involve employees in the design and im-
plementation of performance expectations);

© provide agencies and managers with additional tools to deal with poor perform-
ance, such as—

shortening the period for which an employee performing unacceptably would
be on notice of a proposed removal or demotion;

eliminating the entitlement for appeal to MSPB on denial of a within grade
increase;

authorizing additional base pay sanctions for poor performance.

Question 3. In a decentralized world, what mechanisms will OPM use to ensure
that agencies are conforming to merit principles and observing the laws with respect
to veterans preference? Wilt you need additional tools that are not currently avail-
able to do this job?

Answer. In a reinvented and. decentralized Federal Government, agencies have
the primary responsibility to assure internal accountability with civil service laws
and regulations. A reinvented and downsized OPM has shifted its emphasis to work-
ing with agencies to improve their internal systems for assuring accountability with
Federal personnel laws, rules, and regulations.

Current and continuing efforts to achieve agency accountability with Federal per-
sonnel laws, rules, and regulations, as well as internal agency requirements, are
part of OPM’s “Good Government Framework,” which inclu:

Providing training to agencies to make them aware of their obligations under
the merit systems principles and the prohibited personnel practices set forth in title
5 of the United States Code.

This training is provided, without charge, to ageney human resources manage-
ment personnel, managers, and supervisors. It also is available to agencies in a
“train the trainers” format that is designed to train agency human resources man-
agement personnel in the techniques needed to train agency mangers and super-
visors.

This training emphasizes the development of human resource management sys-
tems that meet agency, needs (i.e, that match the “culture” of each agency) while
being consistent with Federal personnel laws, rules, and regulations. The training
emphasizes that agency managers and supervisors are accountable for assuring
compliance with these laws, rules, and regulations.

« Working directly with agencies to develop an inventory of automated indicators
that can be used to assess agency adherence with Federal personnel laws, rules, reg-
ulations, and merit system principles,

OPM will monitor a specific collection of these indicators that covers a wide range
of human resources management areas in Federal agencies. Agencies are bein,
asked to establish their own sets of indicators that they can use to monitor interna



98

Mr. ALEGRIA. I would totally agree with that. My response would
be exactly the same.

Mr. Mica. I have a couple of quick questions on this second
round here.

What is the normal attrition rate in Federal Government? People
who die, retire, quit, move? Six, 7 percent? Is that a good estimate?
Or 10 percent?

Ms, DISNEY. I would imagine that’s a good estimate. I don’t have
the full Federal figure.

Mr. ALEGRIA. Ours is slightly different, primarily because again,
as I stated before, we have a lot of attorneys.

Mr. Mica. Well, this Federal manual, I don’t know if this is to
be believed, but actually I enjoy reading it. You can tell I’m into
this committee.

Mr. Moran. Well, it’s a choice between the Federal budget and
your performance manuals.

Mr. Mica. This is great reading. Makes you an instant expert.
But I think this says somewhere around 10 percent, doesn’t it? But
we'll say 6 or 7 percent.

And then we look at the figures of individuals. I don’t mean to
be the devil’s advocate here, but you told me you had somewhere
between 900,000 and a million. Now I’m not very good at math, but
over a 2-year period if you had, say, 6 percent times 2 years, and
you had a million or 900,000, you’re looking at about 120,000 peo-
ple that would just normally disappear by attrition. And it says we
got rid of 115,000 in less than 2 fiscal years. So I’m not sure, have
we really accomplished things?

Then the other thing is, my colleague said that we had 100,000
superfluous individuals.

Mr. Moran. Did I actually say that?

Mr. Mica. I have it, and it’s on the record. But a lot of these,
I would imagine, were in civilian backup positions where there
were base closures and other activities where the job has literally
been eliminated.

Ms. DISNEY. It’s gone away, yes.

Mr. Mica. So I’m wondering what the real downsizing is. Some
of it sounds good at first blush, but then you look at the roles they
were playing, normal attrition, and I’m wondering what we've
done.

And then the comments we have about everybody’s performing a
little bit above average, so we've got a lot of the same folks in
place. It doesn’t seem that there has been a real downsizing.

Ms. DISNEY. The attrition that you referred to was a government-
wide figure, I believe, not a DOD figure. And our normal attrition
rate is a bit lower than that because we have the capacity to reab-
sorb people through our mandatory replacement.

Mr. Mica. So yours is lower, 5 percent or something?

Ms. Disney. It’s probably closer to 3 or 3¥2 normally.

Mr. Mica. I would be interested to see what that was histori-
cally. Maybe you can supply us with some of that information.

Ms. Disney. I can give you net loss rates for the last 3 years. I
have those with me. But if you'd like it back further, I'd be happy
to get them for you.

(The information referred to follows:]


91

Ms. Disney. Yes. Well, actually—yes, sir. It is designed to help
the workers who are being displaced in all senses of that term. We
try to help them find new employment. We try to help them find
retraining to qualify them for other jobs. And we try to help them
into retirement if that is the choice they wish to make.

Mr. Mica. What type of activities is DOD doing as far as inves-
tigations and training? Are you paying them for any contract serv-
ices now?

Ms. Disney. Yes, we pay OPM $71 per investigation, per new
employee.

Mr. Mica. And what kinds of dollars are we talking about?

Ms. Disney. About a million and a half a year, I would say. At
the current rates. Because we're now—they’re now doing about
20,000 or so a year for us. In earlier years, of course, when we were
hiring, that number was higher.

Mr. Mica. What about training?

Ms. DISNEY. Training varies, depending upon the kind of train-
ing. I can get you those specific numbers if you would like.

The information referred to follows:]

OPM reports that for fiscal year 1994, approximately 66,000 DoD employees par-
ticipated in OPM short courses, 30 at the Pederal Executive Institute, and 2,100 in
OPM’s Management Development Centers courses. That year DoD spent approxi-
mately $20.8M on OPM courses.

Mr. Mica. But they are conducting training. Do you have a dollar
figure?

Ms. Disney. They have training activities. They have the longer
term Federal Executive Institute Program, where the SES’ers go.
And then there are many short programs of the workshop and
multi-day seminar variety. As our budget declines and our training
dollars decline, we will take less advantage of those programs,
needless to say, than we have in the past.

Mr. Mica. OK. As a contractor, if they get out of this business,
would you contract for those services privately? Would that be your
intent? Or are you encouraging to keep certain activities? Which do
you think would be most cost effective for you as an agency?

Ms. Disney. Are you talking about the security checks or are you
talking about the training?

Mr. Mica. Both.

Ms. DISNEY. If the security check system were changed, one op-
tion would be for us to take that activity in-house.

Mr. Mica. Don’t you do some of that now?

Ms. DIsNEY. Yes, we do. We do the advance-level checks our-
selves.

Mr. Mica. Do you have a number of personnel that are involved
in that?

Ms. DISNEY. Yes, we do.

Mr. Mica. That's within—now, are they —

Ms. DisNEY. We would need additional resources to do that.

Mr. Mica. Is that within the 15,500 or is that outside?

Ms. DIsNEY. No, no, that’s separate. Those are not counted as
personnelists.

Mr. Mica. OK. So if you could also get me the figures of how
many people are involved currently in your investigative area.

Ms. DISNEY. Investigations, yes, sir.


11

And I am here to say that as a union man, I’ve been termed that,
over the course of time segments of the county’s workforce were
unionized, and working with union leadership, we were able to es-
tablish a system of fair wages and benefits in return for getting the
job done. And I mean done correctly.

I must humbly say, by the time I left, which was in December,
the engine of government in Washington County was humming
along at a good clip. The point is, I know something about
downsizing. And these numbers are not astronomical, but every-
thing is relative.

When I took office in 1980, the County of Washington had 1,100
employees. And when I left in December of last year, we had 800.
That’s after assuming some 15 years of Federal and State un-
funded mandates, which I believe all of you are familiar with. But
again, and the Director and I talked about being sensitive to the
problems created with downsizing and displacing employees.

First, let me say that it’s probably wise to decentralize as much
as possible the process of actually hiring and firing the workforce.
The Department of Agriculture’s county extension in Washington
County, in southwestern Pennsylvania, knows more about local
crops and the needs of area farmers than someone sitting behind
a desk at OPM developing a two-page detailed job description.
Really doesn’t cut the mustard as far as we’re concerned. The local
agent, as my grandchildren would say, is plugged in and knows
who in the local workforce can and cannot get the job done. The
agent should have the opportunity to make this kind of personnel
decision.

Second, it is probably not wise to decentralize payrolls, benefits,
or the Federal retirement system. A big department like the De-
partment of Defense clearly has the ability, the know-how, and the
computer capacity to develop a system to handle the hundreds of
calculations and key strokes needed to develop a payroll system.
However, the reality is that many other smaller departments and
agencies do not. Wisdom, common sense, and efficiency probably
dictates that this function should remain centralized.

While I understand Federal retirees are frustrated and angry
about trying to get through to the OPM’s phone lines, I think this
is the type of operation that should be improved, not thrown out.

Finally, throughout the process of reorganizing OPM, we must
not fail to remember why a Civil Service system was established
in the first place. As Director King points out in his testimony,
about the middle of the 1800’s the good citizens of this country de-
cided that politics and the spoil systems were not producing a pro-
fessional government workforce and demanded a system be devel-
oped based on true merit and ability.

Thus evolved OPM, with its employment tests and classification
systems for Federal workers. Granted over the years things got out
of hand and oftentimes got off the course. And oftentimes we look
at 10,000 pages of the Federal Personnel Manual or a lengthy
Standard Form 171, and some of you would agree that causes a
problem,

That is why OPM has rightfully been making efforts over the
past 2 years to tighten its ship. While I am sure there is still room
for improvement, the bottom line is our Federal workforce must re-


97

Mr. Mica. I understand that these people can also be dismissed
without some of the other procedures. Is that true?

Mr. ALEGRIA. Well, it is largely correct. Since they’re not in com-
petitive positions, at least theoretically they can be dismissed. But
since we're dealing with attorneys, who like to make sure that they
get their rights, we treat them basically the same as for the com-
petitive service, and we make a good case before we dismiss them.

Mr. Moran. So they get the quid—isn’t that something? This I
did not know. I don’t want to sound like Johnny Carson, but I did
not know that. That’s amazing. But if you were a normal per-
son——

Mr. Mica. Not an attorney.

Mr. Moran. Right, not an attorney.

Mr. ALEGRIA. Sir, we do have a few normal persons in SEC.

Mr. Moran. How long would it take if you weren’t an attorney?

Mr. ALEGRIA. If you were not an attorney, it usually takes—well,
we estimate about 2 months probably, by the time we go through
the review process, get the list from OPM and go through it.

Now, we do have delegated examining authority in some of our
major occupations, including accountants, for example. And so by
having this authority we've been able to reduce the time that it
takes by not having to go through OPM.

Mr. Mica. So you strongly recommend flexibility?

Mr. ALEGRIA. Exactly. And we can do it in 1 month versus 2
months.

Mr. Moran. How long would it take you to hire a normal person,
Dr. Disney?

Ms. Disney. About the same.

Mr, MoraN. Two months?

Ms. DisnEy. Yes.

Mr. Moran. Not as bad as it used to be.

Mr. Mica. I noticed that the Vice President had unfurled a 171
form, the old one, which is pretty long, and said it’s replaced with
a one-page document. But then I found that there were no instruc-
tions to the one-page document, and that they’re just as long as the
old process.

Then my question always becomes—the problem isn’t hiring new
people. Because we're in this downsizing, there are plenty of sur-
plus personnel. We're trying to find a way to retain and keep the
good folks. It’s how you deal with the others that aren’t as produc-
tive. And the system seems set to guarantee that they stay on and
on and on and have many appeals. Is that your experience or not?

Ms. Disney. Which of us?

Mr. Mica. Go ahead, either one.

Mr. ALEGRIA. Ladies first.

Ms. Disney. Thank you.

I believe that most organizations, private sector as well as public
sector, have what I sometimes refer to as the Lake Woebegone
School of Performance Management, where everybody is above av-
erage. And to the extent that that exists, it becomes more difficult
to discharge when that becomes necessary. So Federal Government
is not unique there.

Mr. Mica. Mr. Alegria?


102

Mr. Moran. But neither of you would want them to be purely an
advisory function?

Ms. DISNEY. No, sir.

Mr. Moran. Which is what is envisioned by the Reinventing Gov-
ernment.

Ms. DISNEY. I think there is oversight responsibility that’s built
into that as well.

Mr. ALEGcRIA. Yes, for my part, I see that as one of their func-
tions, an advisory role. We definitely would like them to continue
advising and give us the right interpretations. But, most of all, we
welcome additional flexibility in the procedures and methodologies.

Mr. Moran. OK. Thank you, Mr. Chairman. Thank you.

Mr. Mica. I also want to thank our two witnesses. We don’t want
to be the devil’s advocate. We didn’t invite you here just to just
beat up on you. But we are trying to find out what’s cost effective
in this, what is most efficient and how we can apply taxpayer dol-
Jars to this. And then come up with some answers to some difficult
questions on how we approach the downsizing and the rightsizing
of OPM and all of the Federal agencies. But we appreciate your
participation, your testimony.

id if there are no other comments, I will adjourn the sub-
committee hearing. And we will leave the record open for addi-
tional responses. Thank you.

(Whereupon, at 1:43 p.m., the subcommittee was adjourned.]

e)


65

of Sylvanus Thayer [of the COE), Arthur {ltmeyer (SSA] and Gifford Pinchot [FS]
looking over their shoulders,” and of J. Edgar Hoover and Commandant John Rus-
sell too. They made government work.

What has happened in the intervening two decades is that government missions
have been made enormously more complex. The COE was made great by instilling

ride in creating engineering masterworks. When the political fashion changed from
dams and hydro-electrical power and canals and flood protection to the environment,
it was clear that mission would have to change. But what made COE efficient was
the ability of the single-minded engineering mission to withstand changes in the po-
litical wind over a half century.

But when the wind came fom too many directions, the mission had to bend or
the Corps would break. In fact, the mission is bending and the COE is breaking too.
For good government management needs simj icity ‘of mission, and in absorbing
environmentalism into the engineering ethos, the Corps is cracking under the am-

valence.

The same is happening to the other elite government institutions. The SSA was
unmatched when it processed claims for old people. But when Congress gave it su-

ervision over disability, its “pay benefits on time and accurately” ethos broke down.

‘ile it was simple to decide how old one was and clear whether one contributed
into social security, evaluating medical evidence was subjective and giving checks
to some and not to others appeared “unfair” to the SSA culture.

The FS foresters were fine at managing their domain until economists, engineers
and conservationists were forced into the Service by Congress. They brought with
them different definitions of “forest yield,” based upon their own conceptions of what
is “good” forest management. Divisions were created that confused mission and re-
stricted performance.

The FBI is cracking too. As the Bureau was pushed more into drug, mob and ga
investigations, its ethos of aboveboard, clean, professionalized and straight-forwa:
investigation of complaints was transformed. Drug, mob and gang investigation all
require undercover, dirty, unorthodox creation of cases, often skirting close to en-
trapment. So the Hoover ethos rebelled; and Waco happened.

ven the Marine Corps is feeling the pressure as society places multiple goals
upon organizations that work best with simplicity. After all, it is difficult to find
“a few good men” when you must hire women.

The paradox is that those who wish government to do all good things are the ones
who destroy it. Government can only work efficiently if it does a few things and un-
ambiguously assigns those missions to a few institutions with sufficient esprit de
corps to do them well. The Founders understood this because they created a govern-
ment. that divided government responsibilities so that it could be administered more
effectively.

What Functions Are National?

Modern times find American Government far from its Federalist roots. Beginning
with the Fair Deal and during World War I, an expert bureaucracy was created that
has continuously expanded the reach of its powers. A temporary weakness in state

vernment and business finances during the 1930s depression led to a New Deal

at, solidified the position of the national fovemment as the preeminent sector of
American society. ‘ith the Great Society of the 1960's, the national Government ex-
panded to spend almost one-quarter of total wealth and exercise regulatory control
‘over most of the economy.

By the 1990's a reaction set in against the extended reach of the national govern-
ment. Even such an establishment figure as David Broder could write that “federal-
ism issues are back on the national agenda in a serious way.” Governors were bar-
gaining with the President and Congressional leaders in a way not seen in many
a year, if ever before. The original Federalist government was to specify, primarily
in Article I, Section 8 of the Constitution, the powers of the national government
and to leave the rest to the states or to the people privately. That idea of the 10th
Amendment, basically disappearing from Court decisions since the 1930's, now
seems to be undergoing a revival.

The discussion on welfare policy reform, for example, has changed dramatically
since the 1994 election, to where both political parties were outbidding each other
to show their desire to decentralize power. There actually were serious proposals to
transfer all of the 96 major welfare programs such as Aid to Families with Depend.
ent Children, Supplemental Security Income, Food Stamps, Public Housing, General
Assistance, Medicaid and on-and-on for the whole $300 billion to the states.

The passage of the Balanced Budget Constitutional Amendment, the promises of
Republican Contract With America and even a Democratic President’s stated desire
to eliminate the deficit all put pressure on the national Government to cut programs



71

(4) For these remaining functions, agencies should provide plans to compete
against private bids for relevant agency work under a revised competition proce-
dure, amending A-76.

(5) OPM should prepare an A-76 competition plan for its own operations, as-
suring it can provide leadership and protect the merit system, and then submit
its proposals to Congress for review.

(6) A model core-and-spoke-and-rim organization should be created by OPM
as a guide to agency implementation, including guidance for effective contract-
supervision and management leadership. OPM should report to the President
regarding agency progress toward that goal.

(7) OPM should immediately produce management guidance for an attrition-
first personnel reduction policy, including use of a personnel freeze, and proce-
dures to protect the pension system from abuse as a result of excessive early
retirements and buy-outs.

(8) OPM should revise the Uniform Guidelines for Employee Selection Proce-
dure to comply with the law on equal opportunity and merit selection, submit
them to the Court, and revise all examinations to be in compliance.

(9) OPM should maintain central and open administration of common func-
tion occupations for efficient hiring, and oversee classification and performance
management, while continuing the general Carter-Reagan policy of decentral-
ized management and centralized oversight.

(10) Congress should re-institute a pay-for-performance system, this time for
all Federal employees and focusing upon contract-management, that preserves
the Carter-Reagan system of responsible political and career executive direction
and control, as well as appropriate employee consultation.

(11) OPM should prepare a series of options for reform of the Government's
compensation structure, including making pension and other benefits more port-
able and more competitive.

(12) OPM should prepare a plan to eliminate the duplicate grievance person-
nel system to as great a degree as possible, abolish appropriate supporting insti-
tutions, and reassign any affected personnel.

(13) Congress should immediately over-rule Executive Order 12871, perhaps
most simply done through an appropriations rider.

(14) 0) should prepare a plan to consolidate OMB, OPM and GSA into a
new OOM, and submit the plan to Congress.

These reforms could not be accomplished overnight. But it is a measure of what
really needs to be done to truly reinvent government so that it works efficiently. Ex-
pecting personnel, managerial, material and property savings of $50 billion piss per
year, and $300 billion over three years, as a result of such reforms would not be
unrealistic.

Reinventing government may be one of the few popular initiatives available to the
Clinton Administration. So far, it has received favorable reaction for proposals that
would make matters worse. The challenge is to redefine government effectively by
devolving functions to local governments and the private sector, and re-structuring
and reforming the remaining Federal functions to work more efficiently. To do this,
one must carefully sort out the devils in the details—which is what we have at-
tempted to do here—for the hopefully-smaller and more efficient government that
survives the Era of the Contract.

Thank you for the opportunity to testify before you. I would be pleased to respond
to any questions you may have.

Mr. Mica. If I may, in starting the questioning, Dr. Devine, how
do you see the role of OPM in this new atmosphere, in this new
responsibility?

What—and I think you also said that you saw a core spoke-rim
concept of government management. How do you see OPM fitting
in and what about its base responsibilities and how would it func-
tion if you were to structure it?

Mr. DEVINE. I think OPM needs to help the President manage
the government to take an overall look at how the government
runs. The President has to rely mainly on his agency heads. There
is no question about that.

Mr. Mica. And oversight function and control?


16

freedom to make choices at the operational level, but with a center
and a central framework in which to do that work.

Question: Which activities should remain centralized and which
can be safely delegated away? For the most part, personnel system
design, administration, and decisionmaking should be and can be
delegated to the agencies. Much of it already has.

We need more decentralization of program design and adminis-
tration, to provide systems that better meet agency needs. Certain
key functions should remain at OPM for the sake of cost effective-
ness and economies of scale, governmentwide equity and merit sys-
tem protection. These include governmentwide merit system policy
and oversight, central job information, centralized personnel data,
and pay and benefits administration. Job information should re-
main at OPM so applicants need not inquire at scores of agencies
to find out about openings.

Question: Who will ensure the integrity of centralized informa-
tion gathering and data bases? OPM and its predecessor, the Civil
Service Commission, have since 1972 operated a central personnel
data file. This automated system provides key data about the Fed-
eral workforce to Federal agencies, Congress, the White House, and
the public. It’s an excellent system and I once again would invoke
the “ain’t broke, don’t fix it” observation.

Question: Who is responsible for tracking programs toward meet-
ing the administration’s personnel reduction targets? Simply put,
the Office of Management and Budget.

Question: Can retirees and others leaving government service be
properly served by a smaller OPM? Mr. Chairman, I believe we
cannot afford a smaller OPM with regard to retirement and insur-
ance. A 1994 survey of customer satisfaction with our retirement
services shows serious declines from our 1990, 1991 satisfaction
levels, when our retirement staffing levels were about 10 percent
higher than today.

uring that period, the number of annuitants we served has in-
creased by 150,000, or about 7 percent of our base. And our num-
ber of telephone inquiries has roughly doubled from 400,000 to
800,000 each year. That_is why the administration’s downsizing
plans do not include our Retirement and Insurance Service. In fact,
the 1996 budget seeks to restore the 10 percent retirement staff
losses of the past 4 years. And we are doing that by reallocating
existing money and staff. If you will, it’s coming out of our hide.

Question: Can we retain the best and the brightest workers
under the current RIF procedures? Can we reform the process to
balance management needs while protecting employees’ rights? The
answer is that, under the law, current RIF procedures consider
both qualifications and performance. But the current system ranks
employees with similar qualifications by a rigid mechanistic for-
mula that weighs veterans preference and seniority, which to a de-
gree includes performance ratings.

Can we reform this process? It is possible, but I would have to
say it would be difficult at a time when so many employees feel
vulnerable to RIF’s. The current system is a balance between the
interests of management, employees, and veterans.

Shifting the bafance at a time when the threat of RIF’s is great
would most likely meet with strong resistance from our employees


99

In FY92, DoD hired nearly 29,000 employees while losing just under 50,000, for
a net rate of 2.4 percent. For FY93, the figure was 6.3%; and for FY94, 5.2%. In
FY93 and beyond, DoD was authorized the authority to offer separation incentives
(buyouts), which has increased the level of attrition. An initial examination of attri-
tion requires a look at separations of permanent appointments who leave DoD each
year, whether through retirement, resignation, transfer to another Federal agency,
death, reduction in force, or any other cause:

FY90—65,000

FY92—50,000
FY93—75,000 (includes 32,000 buyouts)
FY94—65,000 (includes 23,000 buyouts)

Because most departures traditionally have been unplanned and can create work-
load and skills imbalances, many positions are refilled. Relying on voluntary depar-
tures alone would be the same as depending upon lottery results for operational ef-
fectiveness.

Mr. Mica. How many current vacancies are there in DOD and
the civilian workforce? If I ran a check right now on your comput-
ers, what numbers would I come up with regarding current vacan-
cies?

Ms. DISNEY. I don’t know, but I can find that out for you.

Mr. Mica. That would be another good question. I’d like to see
how many there are.

[The information referred to follows:]

We do not maintain any data on vacancies in DoD. We can, however, provide the
number of permanent employee accessions for each year.

FY91—39,000
FY92—29,000
FY93—21,000
FY94—22,000

Mr. Mica. Then another area that sort of mystified me is the
downsizing of the Federal Personnel Manual from 10,000 pages to
a small volume or something. But I understand that each agency,
yours included, has your own personnel manual. And I understand
that that's pretty bulky. And didn’t you mention you’re working on
that?

Ms. DISNEY. Right.

Mr. Mica. What number of pages do you currently have and
what are you aiming at?

Ms. DISNEY. Well, first, I can’t speak for the kinds of personnel
manuals that other agencies have. And we have a system that was
integrated with the Federal Personnel Manual. So what we are en-
gaged in right now is simplifying the way we do business and then
translating the description of that into understandable English. So,
right now, if you think reading the budget is boring, you should
read a personnel manual.

Mr. Mica. How many pages is DOD? If I go look at your person-
nel manual, we pull the manual and all the rules, what kind of vol-
ume numbers, the pages?

Ms. DISNEY. Well, given that it was integrated with the Federal
personnel system, you will see the Federal Personnel Manual, plus
some. And that’s what we're in the process of shrinking.

Mr. Mica. Right now, how many pages would be I looking at?

Ms. DISNEY. Many. I’m sorry, I don’t have the numbers.

(The information referred to follows:]


21

ative effort, we provided our customers, the enrollees, with a survey booklet for their
use during the 1994 open season. We had a memorandum of understanding with
CSS, rather than a Procurement contract. GAO subsequently looked at the arrange-
ment and concluded that it should have been structured as a contract for services
subject to the Federal procurement laws. While we continue to believe that our ar-
rangement with CSS was proper, in order to eliminate any controversy, the 1995
survey vendor will be selected in’ accordance with the Federal Acquisition Regula-
tion.

Question 5d. Please explain the factors and considerations that led to the follow-
ing FEHBP decisions by OPM: The application of the provisions of the Omnibus
Budget Reconciliation Act of 1993 regarding the use of Medicare Part B limits to
physician services for FEHBP enrollees age 65 and over who do not participate in
the Medicare supplemental coverage program.

Answer. Section 11003 of the Omnibus Budget Reconciliation Act (OBRA) of 1993
specifies that for certain physician services provided on or after January 1, 1995,
to retired enrolled individuals in FEHB fee-for-service plans who are age 65 or older
and not covered by Medicare Part B, physicians’ charges and FEHB plans’ benefits
payments cannot exceed the limits established under Medicare Part B.

The provision requires the Department of Health and Human Services (HHS) to
provide the plans with the Medicare Program information they need to determine
the limits on physicians’ charges and the plans’ benefit. payments. The Medicare
Program information the plans need are (1) the fee schedule amounts and limiting
charges for physicians’ services, and (2) the identity of Medicare participating physi-
cians and suppliers. OPM contacted HHS in October 1993, to begin working with
them on the implementation of this law. During our discussions with HHS, and in
particular the Health Care Financing Administration (HCFA), we became aware
that HCFA would not be able to provide the necessary Medicare Program informa-
tion because the information is held by its regional Medicare carriers and is not cen-
tralized within HCFA.

Tn January 1994, HCFA identified the Travelers Insurance Company (now
MetraHealth) as the most appropriate organization to disseminate the information
concerning the fee schedule amounts, limiting charges, and Medicare participation
status of physicians and suppliers. Travelers was already paying Medicare claims
on a national basis for the Railroad Retirement Board and has the most complete
and up to date list of the Medicare participation status of Physicians and suppliers.

OPM worked with HCFA and Travelers to ensure that FEHB plans ‘would of-
fered the opportunity to contract with Travelers to receive the necessary Medicare
Program information. All of the plans implementing the 1993 OBRA provision de-
cided to contract with Travelers. It is our understanding that the arrangement with
Travelers has succeeded in providing the plans the information they need to cor-
rectly process and pay claims under the 1993 OBRA provision.

Question 6. Are there any FEHBP functions performed by OPM staff that could
be performed more efficiently by the private sector?

Answer. Because the FEHBP purchases health benefits coverage from private sec-
tor health plans, the vast majonty of the administrative services of the program are
already performed by the private sector. Moreover, a private firm has conducted the
annual health benefits “open season” for annuitants for over 10 years. It prints and
mails the open season materials to annuitants and processes their requests for addi-
tional information, enrollment changes, and changes of address. It is able to use
technology and processes unavailable to OPM, at significant cost savings.

In 1993 (the most recent year for which we have complete financial data)
OPM’s cost of administering the FEHBP was only 0.2 percent of the total program
costs. The administrative charges reported by the fee-for service carriers amounted
to another 5.5 percent. We do not have data available for HMO’s because they are
not required to track their administrative costs separately.

Recently we decided to use a private contractor to perform certain medical reviews
we previously did in-house. This step underscores our commitment to finding pri-
vate sector solutions whenever we can.

Generally, though, we believe it is important to keep in mind that health insur-
ance, like life insurance and retirement, is an integral part of the compensation
package that the Federal Government as an employer uses to recruit and retain the
quality workforce it needs to do its work. Substantial further privatization risks sev-
ering the critical link to the Government as employer. Since by any standard OPM
has been very efficient in performing its role, nothing would be gained by alteri
the structural relationships that are now in place, and an important element coul

lost.

Question 7a. Are Medical Savings Accounts available to federal employees through
the FEHBP?



50

CLASSIFICATION REFORM.

4. “OPM is then directed to ‘broadband’ existing grades and let agencies increase pay
within the now-higher capped salary grades, without the prior approval from
any central source, except a labor union.”

“The agencies then would make individual pay decisions from the performance ap-
praisals developed by the labor-management councils.”

OPM is not directed to “broadband” existing grades. Rather, the draft specifica-
tions permit agencies to establish broadbanding systems which conform to Govern-
mentwide criteria established by OPM. Systems that cover bargaining unit employ-
ees would be agreed to by the unions that represent them. Agency decisions regard-
ing individual pay determinations would be Based on the criteria and requirements
of their systems. Nothing in the specifications provides that they would be based
on “performance appraisals developed by labor-management councils.” To the extent
pay decisions were based on performance appraisals, such appraisals would be a
management responsibility.

PERFORMANCE MANAGEMENT REFORM

5. “All Presidential or Congressional standards of performance expectations are to be
prohibited and replaced with standards bargained between agency management
and their unions. Collective bargaining would be imposed not only for the design
of work plans for all employees but also in the assignment of the work itself.”

The specifications would not change management rights, which are currently set
forth in 5 U.S.C. 7106(a), including the right to assign work, which is the basis in
law for standards being nonnegotiable.

6. “Importantly, the procedures for taking action against poor performers would be
‘either’ to replace the present ‘dual track for taking action’ (of either merit system
or grievance system) with a single system, or by ‘streamlining’ the current system
without diminishing due process.’ Since the second would seem to be a con-
tradiction in terms—because the complexity of the present system exists to pro-
vide due process, and since no means is proposed to choose either approach, the
former would appear to be the desired Clinton goal.”

Dr. Devine has misunderstood the draft specification proposal regarding the op-
tions for legislative changes to the procedures for taking action against poor per-
formers. The “dual track” refers to the two statutory provisions GUSC. chapters
43 and 75) under which a performance based action may be taken, not to the appeal
or grievance systems. Both of the current laws allow an employee to choose whether
to grieve or to appeal such an action to the Merit Systems Protection Board. There-
fore, abolishing one of these statutory provisions does not in any way affect an em-
ployee’s right to choose between the appeal or grievance systems. The second option
in the draft specifications would maintain both statutory provisions but would re-
move some of the procedural requirements in 5 U.S.C. chapter 43 which have made
this process overly technical and far more time consuming than the chapter 75 pro-
cedures. Neither option includes any change to the current appeals or grievance sys-
tem.

7. “... . this ‘reform’ prohibits the President or his Governmentwide representatives
from setting performance standards and, thus, from managing the Executive
Branch. The Clinton reforms would effectively repeal President Carter’s perform-
ance-based management law that lets executives set standards and to reward
those that attain or exceed them.”

‘The proposed legislation would not change each agency’s authority to set perform:
ance standards for its employees. It is agency heads, acting on directives from the
President, who are in the best position to establish expectations for their own em-
ployees, However, the proposal would limit the ability of certain agency heads to set
Governmentwide performance standards. For example, the Secretary of Labor could
not direct agencies to include in Federal employees’ performance standards a re-
quirement pertaining to occupational safety and health. In any event, nothing in
this proposal would limit the President in the exercise of his authority to hold agen-
cies accountable for carrying out their missions and Administration mandates.


95

Mr. Moran. Well, I understand that. I’m just concerned about
your ability to adapt to new, expanded demands.

And, particularly, I use the case of Europe because you've had
probably a couple hundred thousand civilian personnel at one time
stationed over in Europe, know the language, know the culture,
know the responsibilities. I would think of the 400,000 people who
were stationed in Europe a great many of them are no longer in
the Defense Department. If that was the case and we were to ex-
pand responsibilities, it is those people who would be most appro-
priate for assignment there, but yet you don’t have them available
to be assigned. That’s the concern.

It’s a little different than our domestic agencies. Whereas if you
cut people, generally your customer is going to be aware of reduced
service or changed delivery of service. With DOD, it’s largely pre-
paredness function.

Ms. DISNEY. Yes, sir.

Mr. Moran. And so you don’t know really until there is a crisis
or at least a very visible demand for personnel.

Ms. Disney. That’s why—I’m sorry.

Mr. MoraN. Go ahead, please.

Ms. DISNEY. That’s why, as we design our personnel policies, we
keep three overarching concerns in mind. And the first of these is
the need to maintain readiness. There is no higher objective within
the Department of Defense. We also strive to maintain the quality,
to hiring the best of the best and to maintaining the diversity that
we've developed within the workforce. So everything we do is
against the backdrop of those three concerns.

Mr. Moran. Well, I’m sure that’s the case. I’m not sure how it’s
actually implemented, those three noble objectives.

Let me—let me ask Mr. Alegria, there’s a new—and I won’t take
my second round of questioning, Mr. Chairman.

Mr. Mica. Go ahead.

Mr. MoraN. There’s a new tax proposal called neutral cost recov-
ery. Basically back in accelerated depreciation and you can get 132
percent return from your investment in a capital asset, which
means there are going to be a whole lot of people who will go into
limited partnerships similar to what we had during the 1980's.
Great opportunity—doctors, lawyers, so on—they put in $5,000,
and they’re promised untold riches.

Mr. ALEGRIA. I’m one of them.

Mr. Moran. Based upon our experience in the 1980's, there’s
going to be some accelerated demand for SEC personnel to monitor
their creation and marketing of these limited partnerships to ex-
ploit a tax loophole, essentially.

Now, if I was to have that background, for example, as a stock-
broker and some knowledge of limited partnerships and the legisla-
tion, how long would it take you to hire someone who you needed
to meet a new oversight responsibility of the SEC?

Mr. ALEGRIA. I think that’s a very good question.

First off, we have an awful lot 3 attorneys. And attorneys are
exempted positions so it makes it easier to hire them because we
can—we have clearly a selection process, interview them and select
the most qualified individuals. We can hire attorneys very quickly


33

Mr. SeEaux. Sir, under the discretionary, we're looking at $221
million in fiscal year 1996 as the budget. That’s made up of pieces
of both the transfer of limitations in the trust fund as well as the
salaries and expenses annual appropriation, sir.

Mr. Mica. And how does that compare to 1994?

Mr. SEAUX. We're looking at a net change, if you look at the sala-
ries and expenses, it’s a net change of about $6.1 million from fiscal
year 1995, and an increase of about $7.7 million to the limitation
transfer of trust fund money. So it’s almost a wash there in terms
of the overall, but it’s in fact a 5.3-percent reduction in the salaries
and expenses appropriation that we have in our agency.

Mr. Kine. The transfer is back over to this insurance and retire-
ment group that I addressed a minute ago.

Mr. Mica. This is where I’m confused, because I don’t see the
dollar savings, any real dollar savings here. Maybe I’m missing
something.

Mr. KiNG. There’s a number of things because of the Federal ac-
counting systems that don’t appear, and that includes our retire-
ment, et cetera. But I would leave this to OMB to respond to, be-
cause they looked at the economics of it.

What we looked at were the FTE's, how do we get the agency
smaller, and can this work be done outside, and is it a critical part
of OPM.

Mr. Mica. In addition to the personnel changes that you've de-
scribed within the Agency, how much work has been contracted out
and assumed some of these lost FTE positions?

Mr. Kinc. A substantial part would be contracted out. In fact,
what we would like to see is an employee-owned corporation.

Mr. Mica. Is that counted in these budget figures or on top? So
that’s added on top of this?

Mr. Kinc. No, we haven't contracted it out. Right now we're
doing it with our own operation. The idea here is that we would
move it into a privatized unit to give that service to the govern-
ment.

Mr. Mica. But my question is of what we've taken out, you’ve got
about 1,600 positions. I’m just wondering if we are involved in a
sort of a shell game where the positions—have some of these re-
sponsibilities been given out on a contracting basis?

Mr. KING. No, not right now. Within government——

Mr. Mica. Of the 1,600 positions?

Mr. Kinc. Oh, the 1,600, no, they all work for us.

Mr. Mica. They aren’t. But as far as the dollar amounts, we're
still at about the same balance, when you balance these accounts?

Mr. Kine. Right, because this is a revolving fund and it doesn’t
affect our S&E account or the trust funds which are the two to
quadrants I talked about. The S&E affects our core function and,
in the retirement areas, trust fund moneys. So those are the top,
that top part of the quadrant I mentioned.

The other two at the base that we're talking about are revolving
fund moneys, and therefore are done on a basis that is essentially
contracted. It’s a privatized operation that’s federally managed.

Mr. Mica. A couple of quick questions in conclusion: Approxi-
mately how many personnel offices are there across all of the Fed-
eral agencies?


17

across government and their unions, who might feel that we were
changing the rules in the middle of the game.

Td like to thank the subcommittee for its attention. I know you
have additional questions and we'll try to respond.

Mr. Mica. Thank you, Mr. King.

[The prepared statement of Mr. King follows:]

PREPARED STATEMENT OF JIM KING, DIRECTOR, OFFICE OF PERSONNEL MANAGEMENT

Mr. Chairman, and members of the Subcommittee, I thank you for this oppor-
tunity to meet with you.

T also thank you, Mr. Chairman, for the specific questions you raised about
downsizing at OPM.

To answer your questions, I must first explain that there has already been signifi-
cant downsizing since I arrived at OPM twenty-two months ago.

‘The number of employees at OPM on Aprif 1, 1993, was 6944. As of February 1
of this year, that figure was 5341. That is a reduction of 1603 employees or 23.1%.

Those figures include a 40.4% reduction in GS 13 to 15 supervisors or middle
managers, might add.

In addition, Mr. Chairman, last December 19, at a White House meeting with the
Vice President, the director of OMB, and other agency heads, we announced that,
as part of the second phase of reinvention, most of OPM’s training and investiga-
tions functions will, in the near future, be privatized.

The two units that are scheduled to be privatized are budgeted for fiscal 1996 at
about $164 million. These activities are financed entirely with reimbursements from
the agencies. Our remaining programs are budgeted at about $250 million.

Let me now review those remaining programs.

First, there is the Retirement and Insurance Service (RIS), which administers the
benefits that are provided to about ten million government employees, annuitants,
and their families.

Among the programs that RIS administers is the Federal Employees Health Bene-
fits Program, which provides health-insurance coverage to almost every employee
and retiree of the Federal Government, Congress, and the Federal court system.

[BP’s emphasis on competition, cost-cutting, and customer choice have made
it one of the best run and least expensive public health-care programs in the world.

I will not say to you that the FEHBP could not be administered somewhere other
than OPM. But it has done extremely well with us, and I would recall the old say-
ing, “If it ain’t broke. don’t fix it.”

might also note that the Administration’s fiscal 1996 budget proposes additional
resources for our retirement and insurance operations, all intended to improve our
customer service.

Now I would like to discuss OPM’s core mission.
hint, permit me to give you some history that may be helpful in understanding

at miss

In the mid-19th century, our government operated under a spoils system. Which-
ever ty controlled the White House controlled virtually all executive-branch jobs
and they were bought and sold like used cars.

Perhaps you have heard the story of the time President Lincoln, beseiged by job-
seekers and suffering from smallpox, told his secretary, “Tell all the office-seekers
to come in at once, for now I have something I can give them all!”

Citizen demands for reform of the spoils system got nowhere until the assassina-
tion of President Garfield, by a disgruntled office-seeker, created the national out-
rage that led to Congressional passage of the Civil Service Act of 1881.

is act created the merit system, which provided for hiring based on examina-
tions—not on who you knew but what you knew.

For more than a'century, with bipartisan support, the merit system has expanded
to cover not only hiring and promotions, but also to promote fairness to all appli-
cants.

The merit system also uses training, incentives and recognition, and other means
to encourage excellence in government.

I submit to you, Mr. Chairman, that this century-old, bipartisan merit system has
given our nation, in my opinion, the best civil service on earth.

To preserve and protect the principles of this merit system is OPM’s core mission,
and we pow have four units that contribute to that goal. , a if

e Employment Service develops generic employment-policy and qualification
standards, in accordance with mert principles, manages the hiring system, works
with agencies on hiring that is delegated to them, and uses the latest technology



61

Following the 1994 election, the White House dusted-off its earlier recommenda-
tions to sell bureaucracy reform as a New Democratic initiative to regain the politi-
cal offense. A leaked draft proposed removing “dead wood” personnel from the bu-
reaucracy, and giving agencies more “flexibility” over job classification (and, there-
fore, pay), hiring and performance management decisions to increase efficiency. As
a recognition of the new Republican majorities, the involuntary dues and card-sub-
mission plans were shelved. It sounded good but, as Mr. Ross Perot became famous
for saying, the devil truly is in the details.

Il. Clinton’s Reinventing Government Proposal

Clinton’s Draft Specifications for Reinventing Government

On January 20, 1995, the Clinton Administration released “draft specifications”
for proposed legislation to implement the Report of the National Performance Re.
view (] }), popularly promoted as “reinventing government.” The draft was said
to follow a National Partnership Council set of recommendations for nothing less
than “reinventing the Federal Government’s human resource management (I )
systems and processes.”

‘The draft expanded upon the draft proposals of December 2, 1994, which were in
turn based upon “Council’s recommendations [that] were essentially consistent with
those of the .” The resulting recommendations clearly would “reinvent” govern-
ment as we have known it, The question is whether the proposed revisions would
make government more or less accountable and efficient. With the publication of the
draft, it is now possible to provide an answer for each of its major recommendations.
Hiring System Reform

The proposal would eliminate the statutory definition of merit principles for ex-
amining and allow the President or his principal agent in the field—the Office of
Personnel Management (OPM)—without Congressional action, to define them as
each administration so determined. The law now requires that “selection and ad-
vancement should be determined solely on the basis of relative ability, knowledge
and skill, after fair and open competition which assures that all receive equal oppor-
tunity.” While the rigorous standard of the law is often skirted, the Clinton propos-
als would legitimize present “examinations” that use other considerations. Agencies
would even receive statutory authority to appoint “exceptional” individuals and ap-
plicants for “shortage” positions non-competitively.

ernment unions long have sought to bargain over so-called crediting plans,
setting knowledge, skills and ability (KSA’s) criteria, and replace these legally es-
tablished criteria with seniority or “experience” ones, More recently, ethnic end ‘gen-
der have been used to provide affirmative action criteria too. The Clinton proposals
would transfer the authority to “augment” OPM government-wide skill standards to
agencies and their unions so these other criteria could dominate the KSA’s. More
directly, agencies would be authorized “to determine appropriate evaluation meth-
ods, announcements, and other processes,” and even to determine “when they need
to announce jobs,” limiting open competition. This would effectuate a long time goal
of the unions to give first consideration (so-called “sequential considerati to
present members of their own bargaining unit, rather than to open competition to
every citizen, as called for under present law.

Veterans preference would be diluted by giving all disabled individuals the same
preference as those who have borne the brunt of battle. In addition, veterans pref-
erence would be eliminated from legal positions entirely, and veterans could be
placed within “quality groups” to limit the individual protections to which they are
presently entitled. Grouping could also be used to norm examination results for ra-
cial preference groups at the expense of veterans preference. At present, the great-
est complaint of the veterans organizations is that the agencies do not sufficiently
follow the OPM regulations on preference, a situation that would be aggravated by
devolving examining fully to the agencies.

A second set of proposals under the hiring section would eliminate temporary ap-
pointments and reclassify them as “nonpermanent.” This would place present tem-
porary employees under union grievance procedures (after one year), would allow
them to compete at an advantage to outside applicants (after two years), would
front them health insurance (after a year), and within-grade increases (as earned).

four limits would be eliminated for part time employment and limits on details
would be removed. The effect of these would be to remove many of the flexibilities
and lower cost aspects of temporary employment for the government, and therefore
make it less attractive to government employers.

‘The purpose of hiring reform is stated to be the streamlining of the Federal Gov-
ernment’s “highly centralized” system. The recommendations are identified as de-



4

rough calculations this constitutes nearly $140 billion in annual spending for fiscal
ar 1995. This represents just under 10 percent of the total annual budget of the

Inited States.

In the months ahead we have an ambitious schedule and a number of serious
challenges. It is my intention to conduct a thorough review of all major personnel
legislation, including: the 1978 Civil Service Reform Act, the 1986 revamping of the
Federal retirement system, and a 1990 overhaul of the pay system for Federal em-
ployees. The government-wide jurisdiction of this subcommittee will allow us to ex-
amine virtually all activities of Federal employees, and provide a systemic review
of the downsizing of Government personnel. A reduction in Government and a
streamlining in Government activities, have been demanded by the taxpayers ofthis

It is my deeply held conviction that the citizens of this country deserve a quality
workforce, a workforce that will provide efficient and effective service. During my
tenure as chairman of the subcommittee I am committed to find and institute what-
ever remedies necessary to unburden Federal employees from unnecessary rules,
regulations and red tape. We in the legislative branch must accept a share of re-
sponsibility for creating this sticky web, and now have the task of making sense of

e process. Government must be more responsive, more accountable, less intrusive
and less expensive.

Up to this point, attempts to restructure or downsize have been done in piecemeal
or patchwork fashion, often simply trimming Government around the edges. The
short and long-term impact of these efforts is negative and at times counter-
productive as promises to do more with less have promoted false expectations among
affected constituencies. It is essential that a radical change occur in the way the
Federal Government and its departments and agencies are managed. We must alter
the size and scope of government functions to bring them into line with the needs
and expectations of our citizens. Agencies must be taught to police themselves, by
this I mean they must make continuous improvements at their own initiative. Any
organization needs to alter its structure if it significantly changes its function and
size. Any organization that doubles or triples in size needs to be restructured. Like-
wise, any organization or government entity needs to rethink itself once it is more
that forty or fifty years old to ensure it still reflects the will of the people it serves.
If any institution continues in its old ways, it can become unmanageable, and unre-
sponsive. We are undergoing such a reassessment now and we as the overseer of
our Federal workforce must use this opportunity to streamline and modernize the
rules which guide our workplace environment.

T look forward to working with you and each and every member of the subcommit-
tee and those in the public and private arena to complete this important mission.
I have met informally with all the members of the subcommittee, and I again en-
courage each member to identify the Policy areas where they believed particular
oversight emphasis may be warranted. It is my goal to treat the minority fairly and
eatablinh and open productive dialogue with both sides of the aisle during my chair-
manship.

Today the subcommittee will examine the proposal by the administration to
downsize the Office of Personnel Management (| ). Yesterday in President Clin-
ton’s budget he recommended cutting the OPM staff by one-third. I look forward to
hearing from OPM and representatives of the administration and the private sector
as to how best to implement changes in our personnel agency. To add an external
perspective to this set of issues we will hear from two distinguished scholars both
of whom have particular expertise in this field. Today’s hearing will begin the proc-
ess of gathering information from the administration, and receiving comments of ex-

rts from the private sector, and personnel directors from within the Government.

e have a personnel director from a large department, and a personnel director
from a small agency, to give us a perspective on the impact of administration rec-
ommendations at several levels of our Federal Government.

As we move rapidly to downsize we must ensure a lean, effective and efficient per:
sonnel policy and activity at every Federal level. To determine what role the Office
of Personnel Management, the Federal Government's central personnel agency, will
play in this environment of downsizing, is our first task here today.

T look forward to hearing all of our witnesses. I must ask each witness to please
summarize their testimony. You may be assured your entire statement will be
placed in the record.

Mr. Mica. Are there further opening statements?
Mrs. MoRELLA. If there is time, Mr. Chairman, I'd like to offer
an opening statement, if I may.



93

Mr. Moran. OK. Oh, I see what you're saying, OK.

Ms. DISNEY. We had isolated those 2 years because that was the
period during which the separation incentives were available. They
were not available prior to January 1993. We found them a very
helpful tool to help us avoid involuntary separations.

Mr. Moran. Give me the numbers, if you would, of where you
started in January 1993. What was the total military and civilian?
Was that in your testimony?

Ms. DIsNEY. No, it was not. Can I get back to you with that exact
number?

Mr. Moran. Sure. Of course.

Ms. DISNEY. Because I don’t want to misstate that.

Mr. Moran. That's fine. I'd like to know the extent of the reduc-

Ms. Disney. Over the past 2 years, it has been 115,000.

Mr. Moran. And all civilians, you’re saying?

Ms. DISNEY. I’m just talking ‘about civilians. Yes, sir.

Mr. Moran. You don’t know what the comparable enlisted is?

Ms. Disney. No, sir, I don’t. But I can tell you that the rate of
reduction has been different for the military and the civilians. Be-
cause when a base is closed, the troops can be pulled out. But civil-
ians, because of their infrastructure responsibilities, stay there
longer. As a consequence, we find that the military drawdown is a
little over 80 percent completed, while the civilian drawdown is
just a little over 60 percent completed.

In the years between now and the end of this decade, however,
the percentage drawdown for civilians is going to be significantly
higher than that for the military. It’s just a function of the time
and the infrastructure demands.

Mr. Moran. Id like to know the total numbers of both, cumu-
lative and specific by year.

Ms. DISNEY. Yes, sir.

[The information referred to follows:]

{Rounded to thousands)

Fiscal Yeat Woy & air Ot
scl Yea a a a
Civilian Personnel
FYB9 cnsninininannininnansininminiinininninenmncennnnnennnnnn 408 354 26L 99,17
FY9 ss . a “ 300 M149 1081073
FISD cnn a sts 365-329 233171088
FY92 ... a a os 7 334-309 214149 1,006
FY93 se so omni 294 285202156937
FY984 ... — ' - suomnennvoe 280-269-197 155901
Military Personnel
FY839.. vs 70 790 5712S
751 780 §39— 2,070
75 766 SIL 02,002
610 726 «470-0 1,806
son suv S72 688444 01,708
Fy94 — Sal 643-426 01,610

Mr. Moran. Do you find that people, civilian employees particu-
larly, are waiting for new buyout incentives or anything of that na-
ture?


38

fect that mission. It carries it out. And you are correct, we have to
be very scrupulous during this whole period of downsizing, that
there is that temptation to reach in there and weaken it.

And your point is so well made, I would like to thank you and
I would hope you would continue to hold us to that standard and
that performance level.

Mrs. MoRELLA. Thank you. When you talk about the revolving
fund, too—we are not going to see a budgetary drop because it’s
coming from agencies, isn’t it? So I mean it is swept up within it.

Mr. KING. That’s correct, what they’re purchasing and where and
how it is being done. So that it is being looked at across the board,
and that’s why I wasn’t being in any way evasive, but it’s the Of-
fice of Management and Budget that’s really taken that govern-
mentwide look from a fiscal point of view, and we're responsible
merely for holding the FTE’s and the management side of a par-
ticular unit.

By the way, I have enormous pride in the people who are in
there and their standard of excellence. There is no reflection, nor
should there be, on the character of the people and the work that
is being done. It’s been absolutely outstanding.

It’s an area of enormous personal pride from my perspective and
the perspective of the people who are in the organization. The
question is does it need to be done by the government and by our
agency? And the answer to that is no.

Mrs. MorE.LA. And you will be sure that the investigations that
need to be private will be private—as they are privatized, will be
private?

Mr. Kinc. Well, they would be contracted—we would like to
think that this would bean employee-owned corporation that’s
spun out of our agency, and that we would be coming back to this
committee and to other committees in Congress and would ask for
your help in creating a climate in which a corporate entity that
comes from former Federal employees can in fact be successful. It
will need some help.

Mrs. MORELLA. You'll need some legislation, too, won’t you?

Mr. Kine. Absolutely. That’s why I raise it. The analogy I use,
it’s like an aircraft taking off of the flight deck of an aircraft car-
rier. It’s not going to generate enough power to take off, it’s going
to need a catapult right up front, so that 80 percent of the energy
is going to have to come from that catapult to make it airworthy.
Once it’s airworthy, it will fly. We’re going to have to help it at that
point. It’s going to be a critical point.

Mrs. MORELLA. Are you going to be presenting legislation to this?

Mr. KING. Yes, the legislation is being developed from the bottom
up. Rather than Jim King sitting with Jim King deciding what
should be done, we’re asking our employees, and Ms. Lattimore
just made a presentation to employees looking at a number of dif-
ferent options, just last week. That was last Friday, if I’m not mis-
taken.

And they’re going to come back and we'll continue to work with
them. I would like this to be as a program shaped by the people
that are involved. And that’s the real partnership side of what we
do in the work.


100

Including instructions, guidance, and policy; there are over 4,000 pages in the
DoD Civilian Personnel Manual. Since many of these documents fit with Federal
Personnel Manuals issved over the years, we anticipate the number of pages in the
final DoD Civilian Personne] Manual to be significantly reduced.

Mr. Mica. That would be interesting. I don’t mean to pose that
in jest, but I’m just curious. We talk about the downsizing the Fed-
eral Personnel Manual, and then I wonder what’s left in the agen-
cies. It’s interesting, too, that you have 15,000 people overseeing
maybe a million.

Ms. Disney. These are personnelists. These aren’t the managers
who may be doing the hiring and firing.

Mr. Mica. No, no, I understand that. Right. Which is your com-
plement, you know, human resources. I don’t know what the proper
terms are today. But that speaks to your overseeing about a mil-
lion. And then we have ancther 20,000 that oversee the balance of
the Federal workforce. Would that be a good guesstimate? Accord-
ing to what Mr. King said. And you're trying to get to 7,500. It
sounds like the ratio you need to work toward is about 5,000, 5,000
or 6,000, according to the number that they have involved. But be-
cause you have sort of a consolidated agency.

Ms. DISNEY. No, sir. Our ratio right now is significantly better
than that in the overall government. We have about 60 employees
per personnelist, where the government as a whole has 44. So we
are much better, much more efficient in our personnel management
now. And we're shooting for a hundred workers per personnelist,
which will make us the state-of-the-art.

Mr. Mica. Well, I see that. I have some questions about the exact
numbers and then also about the number of agencies and inde-
pendent groups or small groups. Like you have 24 personnelists to
2,700?

Mr. ALEGRIA. We have about 25 personnelists, and we have 2,700
staff, to provide service for.

r. Mica. So your ratio is——

Mr. ALEGRIA. One to 108.

Mr. Mica. They're doing pretty good.

Ms. Disney. Yes, they are.

Mr. Mica. So maybe that’s what we should be shooting toward.

Ms. DisNEY. That’s why we're going for 1 to 100.

Mr. Mica. And that hasn’t included for this agency what you’re
doing with OPM. Now you may become more OPM reliant than you
are, and that would have to be factored in.

I just wanted to ask, as far as SEC is concerned and some of the
proposals that have been made, I understand you do use investiga:
tions and training. Is any of this contracted out now and could it
be contracted out if OPM goes out of business? And do you think
that would be cost effective?

Mr. ALEGRIA. As I stated before, for the training part of it, we
use OPM to a small measure. We really contract most of it out. We
arrange for most of our training——

Mr. Mica. Is that in training and investigations?

Mr. ALEGRIA. No, I’m just talking about training right now. In
the training area, we do most of our training with private contrac-
tors, rather than with OPM. But we do some with OPM, but a
small portion of it.


41

Mr. Kina. About 5 percent of all the investigations done in gov-
ernment are done by contractors. And from what we can tell—is
that correct, Ms. Lattimore? We've done checks that these are done
correctly, consistent with national security.

One of the issues here is, is part of it is the review, the actual
review by the agency of the material that comes in. I think there’s
a very famous case right now with CIA, where the investigation
work was done. The people analyzing it never made the translation
from the raw field investigation into a policy decision. And that’s
where these things often get lost.

So it isn’t questioning the investigation quality. There are many
thousands of investigations being done by private contractors every
year, the question before us here has other implications.

In this case, does the same individual believe that if he is in or
she is in as a private contractor, then under the new OPM em-
ployee-owned corporation that they would be incapable of providing
the same high quality work they’re doing now? To be candid,
would say no.

I would think that they could do the same work they’re doing
and do it with the same dedication that they’ve done in the past.
It’s really a question of would they want to be in a private cor-
porate entity, and there are some a vantages there.

But that’s another issue, Mr. Mascara, I’m sorry.

Mr. Mascara. No, no, thank you.

And I guess this leads into the next question. We pointed out
that under law many sources of information used in investigations
are only available to representatives of government agencies.

So then I guess the question would be how would one from the
private sector——

Mr. KING. Id like to yield to Ms, Lattimore on this one.

Ms. LaTTIMoRE. Currently the OPM has an automated, inte-

ated data base. It operates out of our Federal Investigations
rocessing Center in Boyers.

Mr. Kinc. By the way, Boyers is the cave up in Pennsylvania,
it’s a limestone cave.

Ms. LATTIMoRE. That data base, through some years of effort and
activity, has worked to have automated linkages to national de-
fense and law enforcement agencies’ data base, which allows us to
do automated checks.

The effort to eliminate the investigation function in OPM and to
rivatize is not a decision that the data base needs to be dis-
anded. With our privatization options, as we look through them,

we're looking at where would it be best placed and is that some-
thing that should be retained in OPM or should it be retained else-
where in government.

Mr. Mascara. My constituent made the point that during the
Reagan administration there were attempts to contract out certain
functions and one, including investigations, and that they ran into
problems and it was abandoned.

Are you familiar with that?

Mr. Kinc. That’s—well, it’s not true, to the best of my knowl-
edge, but I'll yield to Ms. Lattimore.

Ms. Lattimore. I understand that in the mid-1980’s, there were
some efforts to contract out on two levels. On one we had basically