59

Cost of Reform. In addition to the danger of moving in the wrong direction
through uninformed or impulse direction, re is always a cost associated with
drastic changes that is often overlooked or ignored. Of special note is the fact that
disruption from poorly designed changes in service delivery systems creates more
problems for the customers of government than any one else. ajor changes should

made only when a reliable analysis demonstrates there is truly a need for such
change. Failure to first establish a credible case for contemplated reform adds great-
ly to organizational and political resistance to change.

Recognizing the need for true reform on occasion, we nonetheless need to also in-
crease our ability to make frequent, if not continuous, adjustments to organizations
and processes so they can remain abreast of the continuous changes that character-
ize a dynamic society such as ours. Unfortunately, too often these incremental ad-
justments are more a gradual accumulation of procedural barnacles than the desir-
able process of modernization to keep pace with changing conditions.

soned judgment is required to know when incremental improvements are not
aufficient to meet current needs. On those occasions when reform is genuinely need-
od, farther incremental steps constitute mere tinkering that delays and ultimately
increases the cost of more fundamental change when it does occur.

SIZE OF GOVERNMENT

Successful harnessing of the energies and cooperation or career people requires
candid explanations of the objectives and processes of an upcoming reform.
Downsizing is especially threatening to begin with and requires a special effort thet

was missing in

"The NPE emphasis on reducing the number of employees by a precise amount
with no credible rationale for the number is another example of action before analy-
sis that was compounded by a widespread view that the NPR leadership was not
leveling with the troops on the true reason for the cuts. The whole NPR became in-
terpreted by employees as simply an excuse for achieving a hidden agenda, that of
reducing the budget and the employment rolls, with better government largely win-
dow dressing. This mistake gravely hurt the credibility of the NPR from the begin-

ning.

‘The FTE Mythology. It is also unfortunate that the Clinton Administration, as
well as many members of Congress from both parties, has further undermined NPR
grediblity by equating the size of government with the number of federal employees.
This is wrong. As pointed out by Paul Light in his recent book, “Thickening Govern-
ment,” the number of federal employees has remained virtually constant over 30
years, while the number of contract employees has increased substantially and the
real expenditures of government have increased dramatically through new and ex-
anded programs. Government employment growth has been in the state and local
levels which, interestingly, Mr. Osborne and other architects of NPR philosophy sug-
gest offer road maps for federal government reform. Our preoccupation with the one
non-growth element of the government reflects a superficial approach at both ends
of Pennsylvania Avenue in addressing the size of government and how to curb its
overall growth.

A MISSING CORNERSTONE OF NPR REFORM

One can view institutions, both private and public, as being comprised of three
basic components; structure, systems, and people. The last component, people, is the
most critical of the three.

There is a widespread view that the most serious gap between NPR promise and
delivery has been in the area of human resource development and management,
Anyone who has managed organizations knows full well that no amount of innova-
tive change in structure or systems can substitute for qualified personnel. Without
capable and well trained people, policies cannot be implemented and programs don’t
work.

‘These points are so basic that one might think an effort to reinvent government
would give the highest priority to enhancing the quality of the workforce and provid-
ing an environment in which men and women were protected from political manipu-
lation in the course of reinvention. Wasn't that the spirit of the NPR in empowering
public servants to do more with less? Instead, we find increasing evidence that the
opposite road is being taken.

fessionalizing the Career Service. First, we started off on the wrong foot by
relaxing the Hatch Act provisions designed to prevent politicizing the career service.
Second, the NPR then failed to follow through on its original plan to emphasize the
need for new training to equip men and women to function effectively in a new envi-
ronment with wholesale changes in roles and assignments. A person should not be


25

initiative, (3) a federalism initiative, and (4) further implementation of the phase
I recommendations.

Thus far, NPR II has primarily taken the form of periodic announcements regard-
ing either proposed restructuring or changes in the administration’s regulatory aj
proach. Even less has been announced regarding the federalism initiative, althougl
several of the agency restructuring initiatives involve devolution of authority to and
performance partnerships with state or local governments. NPR staff are conducting
@ spring 1995 reassessment of agencies’ implementation of the phase I recommenda-
tions, but that reassessment has not yet been available to us,

Agency Restructuring Announcements

According to NPR, the objective of the agency restructuring initiative is to
“{e]xamine the basic missions of government to find and eliminate things that don’t
need to be done by the federal government and sort out how best to do the things
the federal government should continue to do.” Several such efforts have been an-
nounced in recent months:

* On December 19, 1994, the President meposed restructuring three cabinet
departments (Energy, Transportation, and Housing and Urban Development)
and two major agencies (the General Services Administration and the Office of
Personnel Management).

* On January 3, 1995, the Vice President sent a memo to the heads of all
executive departments and agencies asking them to form teams to fundamen-
tally rethink their missions. Information from these agency teams is being used
within the administration to decide how the agencies will be reinvented.

* On March 27, 1995, the President announced restructuring and streamlin-
ing initiatives at four more departments and agencies the Department of the
Interior, the National Aeronautics and Space Administration, the Small Busi-
ness Administration, and the Federal Emergency Management Agency.

* On April 12, the Vice President announced a set of reinvention initiatives
for the Social Security Administration.

To date, NPR has targeted a total of 10 departments and agencies for restructur-
ing. NER stall told us that others are due to be announced every 2 to 3 weeks until
june 1995.

Regulatory Reinvention

The NPR II reinvention of federal regulatory processes is focused on the way the
federal government both regulates and enforces its regulations. On March 4, 1995,
the President directed the heads of all departments and agencies to:

* conduct a page-by-page review of all of their agencies’ regulations, which i
to be completed by June 1, 1995, and eliminate or revise those regulations that
are outdated or otherwise in need of reform;

« change the way they measure the performance of both their agencies and
their frontline regulators to focus on results, not process and punishment;

* convene groups of frontline regulators and the people affected by their regu-
lations at various locations across the country; and

* expand their efforts to promote consensual rulemakings.

On March 16, 1995, the President announced the first of what is expected to be
a series of agency -apecific and governmentwide regulatory reforms. Initiatives for
the Environmental Protection Agency focused on such issues as cutting paperwork
burdens, incentives for self-disclosure and correction, and extended use of emissions
trading. Proposed reforms for the Food and Drug Administration included allowing
changes in certain manufacturing processes, elimination of certain special drug re-
quirements, and exemption of additional categories of low-risk medical devices from
premarket review. Proposed governmentwide changes included:

« allowing small businesses that are first-time violators of regulations an op-
portunity to avoid punitive actions by correcting the violations;

« allowing agencies to waive up to 100 percent of any punitive fine on a small
business if the sum will be used to correct the underlying violation; an

© requiring regularly scheduled reports only half as often, wherever possible.

Our Observations on NPR I Also Apply to NPR II

We have not assessed the specific proposals in either NPR II's restructuring or
regulatory initiatives. However, based on our limited review of the administration's
recent announcements, we believe that the themes and issues that we emphasized
in our 1993 and 1994 reports about NPR I are also applicable to the NPR I! propos-
als. We strongly believe that Congress and the administration should work together
as much as possible on restructuring initiatives and regulatory changes. For exam-
ple, as the administration announces its proposed changes to agencies’ structures
and programs, Congress is considering its own proposals to eliminate certain depart-



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

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Mlinoi

DAN BURTON, Indiana HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
STEVEN SCHIFF, New Mexico MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
WILLIAM H. ZELIFF, JR. New Hampshire JOHN M. SPRATT, JR., South Carolina
JOHN M. MCHUGH, New York LOUISE McINTOSH SLAUGHTER, New
STEPHEN HORN, California York

JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennaylvania
PETER BLUTE, Massachusetts GARY A. CONDIT, California
THOMAS M. DAVIS, Virginia COLLIN C. PETERSON, Minnesota
DAVID M. MCINTOSH, Indiana KAREN L. THURMAN, Florida

JON D. FOX, Pennsylvania CAROLYN B. MALONEY, New York

RANDY TATE, Washington
DICK CHRYSLER, Michigan

GIL GUTKNECHT, Minnesota BARBARA-ROSE COLLINS, "Michigan
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, District of
WILLIAM J. MARTINI, New Jersey Columbia
JOE SCARBOROUGH, Florida JAMES P. MORAN, Virginia
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
MICHAEL PATRICK FLANAGAN, Hlinois CARRIE P. MEEK, Florida
CHARLES F. BASS, New Hampshire FRANK MASCARA, Pennsylvania
STEVEN C. LATOURETTE, Ohio CHAKA FATTAH, Peansylvani
MARSHALL “MARK” SANFORD, South —

Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR., Maryland (Independent)

JAMES L. CLARKE, Staff Director
KEVIN SABO, General Counsel
JubITH McCoy, Chief Clerk
BuD MYERS, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman
MICHAEL PATRICK FLANAGAN, Illinois = CAROLYN B. MALONEY, New York

PETER BLUTE, Massachusetts MAJOR R. OWENS, New York
THOMAS M. DAVIS, Virginia FRANK MASCARA, Pennsylvania

JON D. FOX, Pennayivania ROBERT E. WISE, JR., West Virginii
RANDY TATE, Washington JOHN M, SPRATT, JR., South Carolina
JOE SCARBOROUGH, Florida PAUL E. KANJORSKI, Pennsylvania

CHARLES F. BASS, New Hampshire

Ex OFFICIO

WILLIAM F. CLINGER, JR. Pennsylvania CARDISS COLLINS, Illinois

J. RUSSELL GEORGE, Sta/f Director
ANNA D. GOwANS YOUNG, Professional Staff Member
ANDREW G. RICHARDSON, Clerk
DAVID MCMILLEN, Minority Professional Stoff

(I)


68

+ plans in Phase Ii to cut and consolidate programs, and to reorganize whole
agencies and departments, including Housing and Urban Development, Trans-
portation, and Energy, and agencies such as FEMA.

NPR officials estimate that they are probably about a quarter of the way toward
a wholly “reinvented” federal government.

Determining both the reality and the implications of some of these claimed accom-
plishments naturally requires verification, evaluation, and judgment. For example,
concluding whether a government agency has been “reinvented” or otherwise
brought up to peak performance depends on what criteria are applied. The proposed
consolidation of programs in the Department of Housing and Urban Development,
for instance, is a significant move toward the clarification of HUD’s core mission
and objectives. However, the proposed consolidation of administrations in the De-
partment of Transportation may contradict the principle—widely followed in recent
government restructuring abroad—that basic operating units should focus on a lim-
ited number of clearly compatible objectives.

‘Some of the more measurable tai are themselves problematic. For example,
position controls (regulating the number of full-time equivalent, or “FTEs” an agen-
cy can have) can create serious management problems, a Boint ‘that the NPR report,
itself izes. To begin with, “FTE ceilings” can quickly become “FTE floors:”
agencies that should be substantially reducing their workforee may be protected
from doing so by fixed FTE allocations. “Managing to position” can also result in
across-the-board cuts in agencies with growing as well as declining workloads; the
loss of people with important expertise; the retention of people with outmoded skills;
and the failure to hire new people with needed skills, ReTepectives and energy.

Agencies may resort to contract work just to reduce 8, even if contracting can-
not not save money or improve performance. To make matters worse, agencies may
avoid hiring employees skilled in negotiating and monitoring contracts, a certain
formula for corruption as well as poor and costly performance. And since’ all “FTEs”
are counted as the same whatever grade level, agencies are encouraged to retain
high level and more costly positions when lower skilled and less costly personnel
would suffice.

NPR officials recognize these problems, but believe that some agencies, such as
the Department of Interior, Customs Service, and General Services Administration
(GSA), have demonstrated that it is possible to avoid them.

Am important omission is the definition of goals or means of determining whether
the changes proposed by NPR ultimately will produce results for the American peo-

le across the broad array of government programs and actions. To be sure, well-

Formulated customer service standards constitute important results in and of them-
selves in those instances where government is engaged in direct service delivery.
And the NPR’s embrace of the Government Performance and Results Act (GPRA)
is an important step toward clarifying and measuring results across a broad range
of government programs. But how will the federal government determine if the
many actions it takes and programs it funds, whose outputs or outcomes are not
immediately or easily measurable, are contributing in a cost-beneficial way to their
intended public purposes?

How can we be sure that the NPR—whose laudable objective is to shift from a
preoccupation with procedure to a focus on results—does not itself slip into advocacy
of yet another generation of procedures that become detached from results?

ACCOUNTABILITY

The NPR raises several important issues of accountability.

First, the drive to empower employees, respond to customers, and encourage en-
trepreneurship, all need to be accompanied by clear measures of performance and
means of holding employees accountable for results. This will also require a culture
which tolerates reasonable and responsible risk-taking in pursuit of mission results.

Second, individual performance needs to be linked clearly to agency or organiza-
tional performance. “Performance management systems” for individuale need to be
linked systematically to “performance management systems” for agencies, of the
kind ired by the GPRA. (The GPRA is an important tool for deregulation and
decentralization of responsibility, and so needs to be effectively implemented.)

Third, the definition of agency performance must be derived from statutory man-
dates established in public law. The NPR’s focus on the “customer” is a useful
means of drawing agencies’ attention to satisfying the people they are supposed to
serve, but it cannot be permitted to divert agencies and employees from their re-
sponsibilities to define customer service in the context of law and to meet other stat-
utory requirements.



79

TABLE 1.—SMALL NUMBERS OF FEDERAL EMPLOYEES LEVERAGE HUGE PROGRAMS

* Pension and Welfare Benefits Administration, Dept. of Labor; *621 employ-
ees supervise $1 trillion in private sector pension funds
Health Care Financing Administration, Dept. of Health and Human Serv
ives; *4,129 employees to manage Medicare ($176 billion in FY95) and Medicaid
($96 billion in FY95)
Defense Contract Audit Agency, Dept of Defense; *5,138 employees to over-
see $120 billion in defense contracts
* Food and Inspection Service, Dept. of Agriculture; *7,200 inspectors for
6,000 food processing facilities
In me short run, the will unquestionably produce short-term savings, but the
big puzzle is what effects the strategy will have over the long run. The worst waste
of the taxpayers’ money is to create ambitious programs but manage them poorly.
The NPR now risks ringing up short-term savings at the expense of building the
capacity needed to make government work better—and cost leas—over the long
aul,

UNANSWERED QUESTIONS

At the center of this risk are seven critical questions for which the NPR has not
yet produced good answers.

1, What kind of civil service do we need to accompany these reforms? Creating
a government that works better and costs less will depend ultimately on the govern-
ment’s ability to build the capacity to do the job. Government’s problem is a people
as well as a process problem. Real reform hinges on government’s ability to find,
attract, promote, train, guide, and motivate the workers needed to do its work. The
Clinton administration has not yet defined how to reform the civil service system.

2. How can we make the up-front investment on which long-term savings often
depends? Some savings, from improving defense contract management to reducing
Medicare costs, government will need to invest in new technology. The incessant
drive for deficit reduction, driven by the first round of the NPR and by the restruc-
turing efforts—both Democratic and Republican—now underway, can make that in-
vestment impossible. Reengineering the federal government anticipates that ad-
vanced technology will make it possible to reduce the number of workers. The num-
ber of workers, though, is being reduced far in advance of even the promise of new
investment. Getting it backwards risks driving costs up instead of down.

3. Who will be in charge of mating reform work? The NPR has been driven mostly
by a skeletal staff suppl mented by detailees rotating into its office. The strategy
helped bring in fresh ideas and provided great energy. But it has neither provided
sufficient ongoing leadership or the leverage needed to couple management reform
with the executive branch's basic processes. Indeed, the NPR report argued that
central management agencies, especially the Office of Personnel Management and
the General Services administration, ought to devolve much of their power to the
operating agencies. This tactic, however, provides no way to ensure that the accu-
mulated decisions of millions of government employees are consistent with each
other, the NPR's philosophy, the law, or the public interest. If government is to
steer policy, someone will have to keep the compass, Moreover, any reform move-
ment requires ongoing leadership to maintain it. What is not clear from the job is
who will have either job. Without a central voice and strong leverage, the initial mo-
mentum will be hard to maintain.

4. How will the reform movement be coupled with congressional policy? NPR offi-
cials originally believed that they could pursue most of their actions without having
to deal with Congress.

Several early cases, however, proved this wrong. Debate between Congress and
the Clinton administration over the size of the workforce reductions increased the
target from 252,000 to 272,900, but Congress also voted to exempt favored depart-
ments from downsizing. A Department of Labor plan to consolidate 154 federal job
training programs foundered amid congressional opposition. NPR officials soon
learned that they could not sustain any of their reforms without congressional sup-

rt. The NPR has yet to develop a strategy for securing congressional cooperation
for the reform effort.

5. How can public managers be encouraged to take risks when surrounded by
media “gotcha” stories? Many of the NPR's goals requires bureaucrats to take more
risks in the hunt for greater performance. The key is neither to take imprudent
risks—putting taxpayers’ money at risk—nor to avoid all risk—playing it too safe
can paralyze performance—but to develop bureaucrats’ judgments about what risks
are prudent and to improve the system's ability to reduce the level of risk in gen-
eral. Getting the balance right is very hard, especially given the penchant ofthe



15

is exciting, it is not proceeding as if everything has to be docu-
mented in the old adversarial negotiating process. What we have
is truly a partnership designed to improve performance.

Mr. Horn. I’m curious, who has examined the work rules that
have been negotiated agency by agency, commission by commission,
and to what degree has that analysis percolated up the hierarchy
for review by OMB and/or OPM?

Mr. KoSKINEN. OPM oversees most of the work rules. There are
national contracts that are basically negotiated group by group and
are reviewed at the highest levels by OPM.

Mr. Horn. Does your office look at those on behalf of the man-
agement side of an administration?

Mr. KOSKINEN. Thus far we have not. We are primarily on those
areas, particularly our work with the Partnership Council on re-
inventing government, looking at going forward so we are spending
some time with OPM looking at civil service reform issues and the
President’s Management Council has spent a lot of time working
on the changes that are needed. However, the actual day-to-day
management of labor contracts is within the ambit and authority
of OPM.

Mr. Horn. Well, the reason I asked that, having been in a very
bureaucratic system of higher education, I often found personnel
people when I wondered who they were working for at various
times. They certainly weren’t working for management, or at least
they weren’t always working to achieve the overall goals. I am sure
they felt that they were doing God’s work, but the end result from
Management’s side was that you never knew quite where they
stood. They were a little soft on everything they did. And I just
wondered if that is your experience in the executive branch.

Mr. KosKINEN. I have not seen that problem thus far, and hav-
ing spent a lot of time as a trustee of university I understand your
experience.

Mr. Horn. Well, before you leave, Dr. Rivlin, let me ask you a
couple of questions which I think only you can answer. We under-
stand the administration wants to alter the government’s payment
operations by allowing the Social Security Administration rather
than the Treasury to make the social security benefits payments.
Is that true? What do we know about that?

Ms. RIVLIN. This is a proposal under discussion that the Social
Security Administration, because it is so large and now an inde-
pendent agency, should have independent disbursement authority.
There has been no recommendation on this proposal yet.

Mr. Horn. What are the pluses and minuses? For example, my
understanding is that the Financial Management Service of the
Treasury does rather well printing up and disbursing the millions
of checks. Have we found something wrong with the existing sys-
tem?

Ms. RIVLIN. I don’t want to get ahead of our process because
we're having a meeting next week to explore the pros and cons of
this and I want to play it very straight as to what the advantages
and disadvantages might be, and I don’t want to speculate about
it at this moment. As I said, it is not a proposal that has been
made by the administration.


74

« Promoting cooperative interaction among the sectors and levels of govern-
ment through the use of public;private partnerships and collaborative problem-
solving.

* Providing those direct services that the federal government can do most ef-
fectively and efficiently, such as Social Security and the operation of national

arks.

of the above types of federal activities should specify the results they intend

to achieve, including the outputs of government organizations, the social or eco-

nomic outcomes to which they contribute, and their impact (i.e., the difference be-
tween what happened and what would have happened without government action).

Organizational Design

The achievement of results depends on the type of organization to which programs
are entrusted. Even within the federal sector, there is a wide range of organiza-
tional options, including:

« Executive departments, which typically are an agglomeration of operating
units that serve a broad federal mission. In an evaluation of the proposed ele-
vation of the Veterans Administration to a cabinet department, an Academy
panel offered a set of generic criteria for helping to determine whether any
agency should become, or remain, a cabinet department.

‘* Agencies, which are supported by appropriations, can be designed in a wide
variety of ways tailored to specific missions, and can employ an array of tools,
such as franchises, vouchers, contracting out, regulation, and internal competi-
tion.

© Government corporations, such as Amtrak and the Tennessee Valley Au-
thority, which generate revenue, can benefit from the discipline of a well-de-
signed corporate structure even if they receive a subsidy. Academy panels have
recommended the corporatization of several federal agencies, or parts of agen-
cies, such as the Bonneville Power Administration, the Naval Petroleum Re-
serves, the Federal Aviation Administration (FAA), and, most recently, the Fed-
eral Housing Administration (FHA).

« Government-sponsored enterprises, such as Fannie Mae, which are privately
owned and for-profit, enjoy benefits ‘not accorded to other businesses in ex-
change for the pursuit of a specific public purpose.

Performance Capacities

The ability of federal organizations to carry out their missions effectively and effi-
ciently depends on their performance capacities. This is a critical part of the deci-
sion-making process that is too often ignored. Keeping the mission while cutting the
capacity to perform is self-defeating. Actually, after large cuts are made, the capac-
ities required to carry out the remaining missions may need to be reenforced.

In a large body of its work, NAPA has examined the performance capacities of
numerous federal organizations, and recommended ways to strengthen them. The
basic management framework and philosophy the Academy has espoused in that
work includes the following key imperatives of performance capacity:

* clearly define missions and goals, derived from public law, placed in the con-
text of long-term strategic thinking, and refined according to such consider-
ations as customer service:

* specify the intended results and measures by which performance will be as-
sessed;

* recruit and develop capable people, with the appropriate leadership, mana-
gerial, technical, and operational skills;

« develop effective and integrated management systems, including budgeting,
financial management, information management and technology, human re-
sources management, procurement, program management, and auditing;

ive managers the resources, latitude, and incentives to manage;
Senchmark performance with similar operations, including those of the
best—or better—performers;

« build incentives and culture for continuous improvement by involving those
who do the work, customers, and suppliers in the change process and tolerating
reasonable mistakes and risk-taking;

« regular reporting of results to responsible officials; and

hold people accountable for results; and reward them according to their per-
formance with compensation, recognition, promotions, redeployment, demotions
and terminations, as appropriate.

Based on these criteria, many federal organizations, are seriously deficient in per-
formance capacity. In most cases, the problem is not that they are unable to develop



32

like to get your views on how we can measure productivity more
effectively? How we can perhaps really accomplish what we all
want to accomplish, which is to make this as efficient a govern-
ment but as productive a government as it can be?

Mr. BowsHEr. I think what you need is an annual report from
the 24 largest agencies in the government, which lines up with the
CFO Act. And I think you need an annual congressional oversi ht,
hearing as to how well each of the agencies is doing against the
results-oriented indicators that they should come up with. They
should say, “This is what we think we should be producing, this is
what kind of results we should be achieving,” and each year it
should be reported.

I think it should be reported to the Congress, I think there
should be a hearing, and I think GAO or some organization like us
should review that information and audit it, you might say, and re-
port as to whether they have achieved their goals or not.

And sometimes, as Mr. Flanagan’s questions indicate, in the first
couple of years you are going to be hearing that they don’t have
the data to tell whether they have achieved their goals or not. But
are they getting there? Are they getting to the point where they
can have, let’s say, a clean certificate on their financial information
that they are sending up to you?

So I think some combination of an annual oversight hearing b
Congress and an annual report by the head of the agency is need-
ed. The data should be produced ahead of time as to what are the:
going to try to achieve and some audits should be done of that. If
youve got that going on a concurrent basis, whether the Repub-
licans or the Democrats are in the White House, if the Congress
would do that, on a continuing basis, I think then you'd start to
get into a management structure that people would start to pay at-
tention to.

Right now one of the big problems is that people don’t pay atten-
tion a lot of times to these reform efforts because it doesn’t look
like it will continue. Or they say that maybe it won’t continue, like
a lot of them haven’t, and I think you’ve got to overcome that situa-
tion.

Let me ask Nye to respond.

Mr. STEVENS. The legislative underpinning in such an effort is
the Government Performance and Results Act, which extends from
the previous administration. That act really provides the basis for
what the Comptroller General is talking about: defining agencies’
missions in terms of outcomes rather than processes and outputs.

And second, I think the NPR deserves some credit for not having
abandoned that initiative even though it was inherited from the
previous administration. One of the NPR recommendations is to
proceed forthwith and really go full scale into implementation of
GPRA, and that is to be commended. Very often, as you know, re-
formers come in and they try to wipe out everything they find rath-
er than pick some of the most beneficial parts.

Mr. CLINGER. I think that has been one of the most encouraging
things that we do see is there has been a continuation of emphasis
on that act as a way to achieve what we are all trying to achieve.
I allude to the fact that we tend to go through cycles, but in FAA
every time you turn around there is a new director of FAA and new


103

T’ve talked to people in agencies who say the best people are leav-
ing and some of the people who are staying are not the best. So
I don't think it was the right answer. Do I have a better one? ’'m
not sure off the top of my head I do.

Mr. FoSLER. I think I agree entirely. That is a serious concern.
We're losing a lot of good, experienced people. I think we’re going
to pay the price for it, and I think the answer to it frankly is just
good, tough management.

We need to define what it is that the agencies are supposed to
be doing and we need managers who have both the skill and the
determination and the courage to say this is the work that needs
to be done. These are the people we need to do that work and these
are the specific people who we must and will retain. The others we
don’t need and they are going to have to go.

Mr. KETTL. You look at the way in which the decision was made
to try to shrink the Federal Government by 272,900. In fact, there
is no good explanation for it. There is no single, coherent, logical
explanation for why that figure above any possible alternative was
chosen or what it is that that downsizing figure is going to produce.
What it will produce is 272,900 fewer Federal employees, and be-
yond that we can’t say much of anything.

If we're going to try to shrink the bureaucracy, which we need
to do if we are going to try to restructure it, which we need to do,
we need to think about what it is we’re trying to accomplish in the
process and make sure that as we do it we don’t run the risk of
making things worse as we go along.

Mr. Horn. Ms. Maloney, any more questions?

Mrs. MALONEY. I have no other questions, but, Mr. Chairman, I
would like to have my opening statement inserted in the record.
Thank you.

Mr. Horn. Without objection, the ranking member's opening
statement will be put in the record at this point, as will the state-
ment of Mr. Bass of New Hampshire, who unfortunately was not
able to be here.

{The prepared statements of Hon. Carolyn B. Maloney and Hon.
Charles F. Bass follow:]

PREPARED STATEMENT OF HON. CAROLYN B. MALONEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK

Mr. Chairman. Thank you for initiating this series of hearings on the National
Performance Review. There have been a number of success stories over the past two
years that have made the government work better and cost less. Many of these were
described in a Special Order last February. But the job is far from over, as anyone
in the Administration will tell you.

I won't recount all that was said during the Special Order, I would rather focus
on where we go from here. But first, it is important to congratulate the President
and Vice President who brought the vision of the NPR to the Federal government.
We also should salute the thousands of Federal workers who are responsible for im-
plementing the ideas of the NPR, and without whom none of this could happen.

Any process to bring drastic change to an organization faces a serious set of obsta-
cles. The first steps are often the easiest. In most organizations there are surface
changes that can make a dramatic impact. We saw examples of this in procurement
reform. For example, the introduction of a credit card for basic purchases cut out
the $50 of paperwork required to buy a $4 stapler.

Next, and significantly harder, are changes in the culture of the organization.
This means changing the way people think about their job. It means those on the
front line delivering services to citizens have to change how they think about and


39

Mr. Horn. In your budget to the Congress for the GAO, have you
asked for additional investigators?

Mr. BowSHER. We did up until 1992, but since 1992, we have
been under budget pressure, so we haven’t asked for any additional
people.

Mr. Horn. Do you have the authority to reprogram and reassign
positions within the agency if you cleared it with the relevant con-
gressional committees?

Mr. BowsHER. We do. I might point out that Gene has reminded
me that the IG’s functions were formalized in 1978, and so they do
much of this work. A lot of their staff are investigators an
much of the investigation work is done by them today, whereas in
the old days—in the 1950’s and 1960’: ‘AO did that work.

Mr. Horn. Do we have a series of studies going on as to the ef-
fectiveness of the Inspector Generals?

Mr. BowSHER. We have reported on the effectiveness of the IGs
from time to time.

Mr. Horn. Well, is there_a systematic way to report on what they
are doing as we report on Chief Financial Officers?

Mr. BowsHER. We have done it just periodically. We have not
done it systematically as we have with the CFOs.

Mr. Horn. Now, if they are the ones you are counting on to do
the basic investigations and they have been around almost two dec-
ades, it would seem to me it is certainly appropriate that we in-
clude them in a similar ORS of oversight hearings of this commit-
tee, with reports by the GAO as a basis for that oversight hearing,
as to their effectiveness.

I hear various things on IGs. Some are great, some aren’t. You
wonder if they are captives of the agency or antagonists of agency.
Personally, I don’t want either. I would just like to see some objec-
tive work done by the people that have the authority to do it.

Mr. BowsHER. Let us give that some consideration and we will
come back to you on that.

Mr. Horn. Any other questions by members of the committee?

Mr. BowsHER. If I could raise one more point that we have not
talked about that I probably should have added to one of my an-
swers to you. I think that Congress and the executive branch have
to work together on what I would call program simplification. In
other words, right now as part of the Phase II of the NPR they are
looking at missions and they are trying to sort out whether there
are certain areas the agency shouldn’t be involved in. But once you
have decided that you should be in an area, then I think it is im-
portant that the laws and regulations underlying that program
area are such that people can handle them in a reasonable way.

For example, when I went out and visited with some of the farm-
ers some years ago while looking at some of the farm programs
with my agricultural team, the farmers explained how they just
couldn’t understand the regulations coming out of the agricultural
department, because they were so complicated. They were hoping
their county executive could understand them. Well, the county ex-
ecutive at this place turned out to be a Reserve Navy captain who
had just returned from the Gulf war, and he was a very able per-
son. However, as he said, it practically takes a Philadelphia lawyer
to understand the regs that have been coming out.



64

system are being approached by OMB and GSA in a professional way by qualified
personnel. It remains to be seen how well agencies retrain their procurement offi-
cers to be effective in a new environment which calls for more emphasis on seasoned
judgment and less on the “command and control” style that has been generated bj
‘a procedure dominated field of activity. It will also be important to now take a quicl
look at the possible impact of Oklahoma City on any future plans for future
downsizing of GSA building protection staff.

CONCLUSION

In summary, I would argue that a majority of the NPR concepts were worthwhile
and deserving of support. But the government-wide approach to implementation of
Phase I, with the exception of a heroic personal effort on the part of the Vice Presi-
dent, has encountered significant problems of organization and execution. Too much
restructuring was attempted before missions and roles were established.

It is my impression that Phase II is better organized. There also seems to be a
better recognition of the need to work with Congress as reforms evolve. Particularly
important, Phase II appears to be looking at missions and roles before embarking
on further changes for the sake of change. OMB plans, in conjunction with the
President's Management Council, contemplate much better analyses before leaping
forward.

Despite progress by OMB and the President's Management Council, however, im-

rtant issues crossing organizational lines are still not sufficiently coordinated.
NPR is faced with a particularly difficult challenge in addressing issues crossing
agency jurisdictional lines which have an impact on individuals and communities
throughout the nation, a task made more difficult by last year’s OMB reorganiza-
tion. It is quite late in the life of this presidential term to just now be defining mis-
sions and roles on which broad reforms can be intelligently based.

Despite numerous criticisms of the central implementation effort during Phase I,
some agencies believe they are using the freedom provided by the NPR to undertake
positive changes that are said to cut staff and costs while improving performance.

suspect this is true, and NPR should be given credit for these advances as they
are verified and announced. Perhaps more of these advances will emerge than are
now apparent.

I would hazard a guess that in the long run those agencies which have a tradition
of good management and are reasonably well protected from political interference
in their management activities, such as the Department of Defense, will use the
flexibilities of NPR to advantage in major improvements of processes that are self
contained within an individual agency. As things stand now, I fear that less fortu-
nate agencies which are more susceptible to political pressures will in the long run
encounter a series of failures born of NPR, particularly through the abuse of the
very management flexibilities we have worked for so long to achieve.

Mr. Chairman, this Committee and its staff should be commended on the time it
is devoting to the NPR and believe that it has a reat opportunity to work with the
Executive Branch on a bipartisan basis to move Phase IJ in a constructive direction
that can more nearly realize the NPR promise of more effective government.

Mr. Horn. Thank you.

We will now take a 10-minute recess.

All four of you have written excellent statements. We talk a lot
in this town about wise men and wise women in foreign policy and
defense policy. There is no question that on this panel we have four
of the wisest on public administration. So I thank you once again
for coming.

[Recess.}

Mr. Horn. The hearing will now resume. We are going to begin
with Mr. Fosler. After your presentation, we will have to leave for
another vote.

Mr. Foster. Thank you, Mr. Chairman.

As you know, the academy is an independent, nonpartisan, non-
profit organization chartered by Congress to identify emerging is-
sues of governance and provide practical assistance to Federal,
State and local government on how to improve their performance.



35
CPO ACT RELATED PRODUCTS—Continued

Report Tike Report Number Dae ised
Financial Audit: Customs Forfeiture Fund's Financial Statements for 1981 and

1990 - AFMD-93-55. 05/13/93,
Customs Service Performance Indicators ‘AFMD-93-47R 03/10/93
Financial Menagement: Customs Needs to Establish Adequate Accountablity and

Control Over Its Resourees ‘AFMD-92-30 04/25/92
Financial Management: Customs’ Controls Over Sensitive Computer Programs and

Data Wer Weak (inte Oil Ue en coy can be made aalale vpn

request.) . AIMD-94-140 7/12/94

Education:
Financial Audit: Federal Family Education Loan Program's Financial Statements for

fiscal Years 1993 and 1992 ..... NMO-94-131 06/30/94
Financial Audi: Federal Family Education Loan Program’s Financial Statements fo

Fiscal Year 1992 .. NIMO-934 05/30/93
Financial Audit; Guaranteed Student Loan Program's internal Controls and Strc-

ture Need Improvement . AFMD-93-20 03/16/93
‘Student Loan insurance Fund Interim Management Letter for FY 1991 ‘AFMD-92-26ML OV/3/92
‘Student Loan Insurance Fund Management Letter for FY 2990 nu ‘AFMO-S1-53ML 04/12/91

GOVERNMENT CORPORATIONS
Federal Deposit insurance Corporation
Financial Audit: Federal Deposit Insurance Corporation's 1994 and 1993 Financial

Statements senneenc snc AIMD-95-102 03/31/95
Financial Audit: Federal Deposit Insurance Corporation's 1993 and 1992 Financial

Statements NIMD-94-135 06/24/94
Financial Audit; Federal Deposit insurance Corporations Internal Controls 25 of De-

cember 31, 1992 ‘AMO-94-35 02/04/94
FDIC Letter - security controls (Limited Official Use ay ‘8 copy can be made

available upon request)... ‘AIMO-94-186ML 08/29/94
FOIC Management Letter as of December 31, 1993 ‘AIMO-94-160ML 08/29/94
FDIC Management Letter AIMD-94-30ML 0/24/94
Financial Audit: Federal Deposit Insurance Corporation's 1992 and 1981 Financial

‘Statements ‘AIMD-93-5 06/30/93
Financial Audit: ank Insurance Funds 1991 end 1990 Financial Statements AFMD-92-73 06/30/92
Financial Audit: Bank Insurance Fund's 1990 and 1989 Financial Statements AFMD-92-24 1/12/91
Financial Audit: Savings Association insurance Fund's 1991 and 1990 Financial

StateMeMts «io ‘AFMD-92-72 06/30/92
Financial Audit: Savings Association Insurance Fund's 1990 and 1989 Financial

‘Statements AFMD-92-21 0/08/92
Financial Audit: Savings Association Insurance Fund's 1969 Financial Statements AFHD-91-31 03/0/91
Financial Audit: FSLIC Resolution Fund's 1991 and 1990 Finanevel Statements AFMD-92-75 06/30/92
Financial Audit: FSLIC Resolution Fund's 1990 and 1989 Financial Statements ‘AFMD-92-22 12/17/91
Financial Audit: FSLIC Resolution Fund's 1989 Financial Statements AFMO-91-69  0w/02/91

Resolution Trust Corporation
Financial Audit: Resolution Trust Corporation's 1993 and 1992 Financial State-

ments .. —_-RIMD-94-148—— 06/27/94
Resolution Trust Corporation Management Letter for 1993 .... AIMO-94-181ML 08/30/94
Financial Audit; Resolution Trust Corporation's 1992 and 199) Financial Stat

ments... AIMD-93-6 06/30/93
Financia! Audit: Resolution Trust Corporation's Internal Controls

1992 . ‘AIMD-93-50 09/28/93
Financial Audit; Resolution Trust Corporation's 1991 and’ 1980 Financial State-

ments... mn . AFMO-92-74 06/3092
Resolution Trust Corporation Management Letter for the Year Ended December 31,

1991 ssn set ‘AFMO-92-90ML 8/14/92
Financial Audit: Resolution Trust Corporation's 1990 Financial Statements AFMD-92-20 10/25/91
Financial Audit: Resolution Trust Corporation's 1989 Financial Statements ‘AFMO-S1-57 04/04/9)

Pension Benefit Guaranty Corporation:
Financial Audit: Pension Benefit Guaranty Corporation’s 1994 and 1993 Financial
— enn z AIMD-95-83 03/08/95
it Guaranty Corporation's 1993 and 1992 Financial
‘AIMD-94-109 05/04/94
Pension Benefit Guaranty Corporation Management Letter for Fiscal Year 1993 ‘AIMD-94-168ML 08/29/94
Financial Audit: Pension Benefit Guaranty Corporation's 1992 and 1991 Financial
StatemeMts ‘AIMD-93-21 09/29/93,



67

congressionally-directed study of the Global Positioning System (GPS) in the De-
partment of Defense.

We would be happy to share with the Subcommittee these and any other project
reports, and statements by Academy standing panels (including those, specifically
addressing issues germene to the NPR). My testimony today draws on this body of
work to address the subject of this hearing.

THE NATIONAL PERFORMANCE REVIEW (NPR) IN PERSPECTIVE

Viewed in broad context the National Performance Review follows in a long tradi-
tion of initiatives to reform the organization and operation of the federal govern-
ment (there have been at least ten in this century). The NPR also is akin to restruc-
turing initiatives undertaken in recent years by virtually every sector of society, in-
cluding businesses, nonprofit organizations, state and local government, and the
governments of America’s trading partners.

This nearly universal institutional restructuring is driven by now familiar forces:
new technologies, changing markets and demography, global economic competition,
the increasing importance of knowledge and information, and the fragmentation
that derives from specialization and the division of labor. Governments, moreover,
are contending with the simultaneous increase in the demand for public services
and growing resistance to taxes.

‘The responses to these forces are also strikingly similar. The Organization for
Economic Cooperation and Development (OECD) has found common trends among
the government restructuring efforts in 22 countries, including: focusing on results
and costs; improving services and customer orientation; performance targeting,
budgeting, measurement, and management; and better use of information tech-
nology. This package of concepts and techniques is now widely characterized as the
“new public management” movement, The NPR falls squarely within this move-
ment, and indeed is frequently viewed as a catchup effort by foreign governments
that have been actively restructuring for a decade or more.

ROLE AND MISSION OF THE NPR

The President and the Vice-President, who leads the NPR, define its role and mis-
sion as making government “work, better and cost less.” These are the principal con-
siderations of “elfectiveness” and “efficiency” that have driven most of the other fed-
eral government management reform efforts in this century.

Phase I of NPR focused on the question of “how” government works. It addressed
such classic elements of government operation as systems, processes, and people,
placing special emphasis on improving government service to “customers.”

Phase I of the announced by the nt in December, 1994, and elabo-
rated in a January 3, 1995, memo from the Vice-President to agency heads, under-
scores the concerns with how government works, adding a special interest in im-
proving the regulatory process.

But Phase 1] also expands the NPR's concerns beyond “how” government works,
to “what” government does, Specifically, it. asks whether government should cease
doing certain things, by privatizing them, devolving them to state and local govern-
ment, or simply terminating them.

GOALS AND ACCOMPLISHMENTS

The NPR has established several goals and targets by which to assess its own per-
formance, and claims progress toward achieving them, including:
© position reductions of 105,000 of a targeted 272,900 (which Congress in-
creased from the initial NPR target of 252,000);
$63 billion in savings of an anticipated eventual total savings of $108 bil-

lion;

« improvements in key administrative systems, including personnel and pro-
curement;

© progress towards an intended 50 percent reduction in “internal regulations;”

+ implementation of 25 percent of specific recommendations;

+ establishment of customer service standards in 150 agencie:

* initiation of 130 “reinvention labs” designed to experiment with better ways
to operate;

* “reinvention” of specific agencies, including the Customs Service and the
Bureau of Reclamation; progress toward restructuring others; and the formula-
tion of plans for still others, such as the proposed corporatization of the air traf-
fic control system and the Federal Housing Administration;

‘* changes in the culture of federal agencies, by “empowering employees” and
legitimizing positive, performance-oriented behavior;



104

talk to the citizens they serve. It also means managers must change how they work
with those they supervise.

We have seen examples of this as well—most notably in the Veterans Administra-
tion. Hopefully we will soon see a similar culture change here in Congress. 1 hope
these hearings will be the beginning of a culture where we work to support the Ad-
ministration in these difficult endeavors.

What remains is perhaps the most difficult change for both the Administration
and Congress—investing in the future. Much of what has been gained so far has
been short term, quick savings. Much of what remains will generate even greater
savings, but not the kind that can be scored by the CBO. Investment in manage-
ment and technology often pays huge dividends, but is only accounted for as a short
term cost. Investment at the Social Security Department has alleviated the need for
hundreds of employees. But those savings are never counted.

Similarly, investment in management reaps enormous rewards that are rarely ac-
counted for. A Civil Service Subcommittee hearing last month on contracting out
government services showed clearly that the single largest weakness is the lack of
personnel to manage the contracts. The investment in training those managers will
payoff handsomely down the road. But where will the money for this investment
come from in the current political climate. If we don’t realize that improving the
government also means investing in it, we will do little more than make matters
worse,

Finally, I would like to emphasize a point that Dr. Kettl will make in her testi-
mony. Congress has move quickly to force downsizing of the government workforce,
and continues to do so. Almost daily we hear reports of this or that agency proposed
for elimination. But if there is any lesson to be learned from private enterprise, and
from state and local governments, it is that downsizing for the sake of downsizing—
without a plan for why and how it should be done—does more harm than good.

It is time for Congress to play a constructive role in the NPR’s reinvention efforts.
I hope that these hearings will provide the basis for that bipartisan effort. Thank
you Mr. Chairman.

PREPARED STATEMENT OF HON. CHARLES F. Bass, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEW HAMPSHIRE

Mr. Chairman, I would like to thank our distinguished guests for agreeing to tes-
tify before us today. This is the first in a series of very important hearings, and J
am looking forward to their input.

I am particularly interested in this hearing on the National Performance Review,
or NPR, as I am also a member of the Civil Service Subcommittee. In that Sub-
committee, we have already looked into the downsizing of full-time equivalent, or
FTE, personnel that has resulted from NPR. I expressed my concern during that
particular hearing that the Administration is taking almost all of its FTE reductions
out of the Department of Defense, and that some FTE cuts are represented by posi-
tions that were never even filled.

Tam also interested in hearing the perspective of Mr. Dale from the New Zealand
Treasury. New Zealand has been aggressively reforming its public sector for the last
decade, and I believe we have much to learn from their experience.

I thank the Chairman.

Mr. Horn. Let me just say in conclusion, while I would love to
have this go on, we have another vote and we are all saved by the
vote. I am not, but you are.

I want to thank the individuals on both staffs that have helped
contribute to this hearing. Anna Young, to my left, your right, is
the professional staff member primarily in charge. J. Russell
George, the staff director for the majority; Mike Stoker, counsel;
Mark Uncapher, counsel; Mr. Mark Brasher, professional staff
member; Tony Polzak, our legis fellow; Andrew Richardson, clerk;
and Wallace Hsueh, staff assistant have all been helpful. And I
know Mrs. Maloney has a very competent staff because I frequently
borrow ideas from them. We also thank the official reporter, Rich-
ard Whalen, for taking down this hearing.


45

This distinction does not mean that no attention is being paid to outcomes. Quite
the opposite - it has reaulied in much greater focus on what outcomes the govern
ment wante to achieve and alternative ways to achieve them.

Integration of Budgeting and Accounting systems

‘A second important. aspect of the New Zealand approach is the integration of the
budgeting and accounting systems. The budget is prepared using the same set of
accounting rules used to prepare ex post reports (generally accepted accounting

ractiee.
PUthis provides a strong reporting feedback loop, essential for good accountability.

Becade generally acorpled accounting practice is uned to prepare the bath the
budget and the ex post Crown financial statements, these processes are relatively
free from accounting gimmickry and manipulation.

CONCLUSION: THE IMPACT OF PUBLIC SECTOR REFORM

After a decade of economic reform, which included reform of the public sector, the
resulis are now beginning to show Uhrough in good economic performance. Cur-
rently:
%, economic growth (GDP) is running around 5-6% and it expected to settle at
around 34% pa;

* inflation ie around 1.5% pa and forecast to stay at levels less than 2%;

* government expenditure is forecast to drop from around 40% of GDP in the
mid 1980's to around 30% in 1996/97;

* the fiscal position which was a deficit of around 9% of GDP in 1983/84 is
now in surplus (on both a cash and accrual basis) and forecast to reach 7% of
GDP by 1997/98;

* public debt is dectining and projected to be around 17.5% of GDP by 30 June
1998 (down from a peak of around 60% of GDP in the late 1980s);

It is difficult to separate out the impact of the various reforms on this improved
performance. However, it is widely accepted that such a dramatic turn around
Would have been unlikely without public sector reform.

‘This ends my formal testimony.

Mr. Horn. Thank you very much, Mr. Dale.

Your paper is really a fine paper that gives us a lot of ideas, and
we're counting on this panel to provide not simply the foreign per-
spective that you have but the views of New Zealand, which is
doing what a lot of us think ought to be done.

But we are delighted to have Mr. Wyse here from Oregon, and
we've all heard about that benchmarking project. The States are
truly, as Justice Brandeis said, real laboratories for the system of
federalism. And now, Mr. Wyse, we would like to hear your exhib-
its on how things are working in Oregon.

Mr. Wyse. Thank you, Mr. Chairman.

My name is Duncan Wyse. I am the executive director of the Or-
egon Progress Board.

Td like to offer three points to the committee today. The first is
that if we are going to reinvent government at the Federal level,
we really have to think about federalism. That’s because most of
the Federal agenda is actually delivered by State and local govern-
ments, not the Federal agencies themselves.

The second point I would like to make is that the system is bro-
ken. The National Performance Review recognized that. I think
that there is a wide recognition that the intergovernmental system
doesn’t work and that it needs reform.

And the third and final point is if we are going to reinvent that
system, we have to reinvent Congress, not just the executive
branch.

Congressman Flanagan said if you ask the wrong questions, you
will get the wrong answers. I would suggest Congress systemati-
cally has been asking the wrong questions over the years. I’l] offer


87

Analogies With State and Local Government. Some analogies between state/local
governments and the federal government are seriously overdrawn. For example, the
supervisory and accountability challenges in contracting out for garbage collection
in Sunnyvale, CA have litle or nothing to do with those involved in contracting out
for building guided missiles or communications satellites.

Analogies With the Private Sector. Emulating the successful experiences of the
private sector is praiseworthy. But following the unwise path pursued by many com-
panies of “cut first, analyze later,” is fraught with danger to the public interest.

The NPR's recommended 12% staff reduction is based partly on the assumption
that the 7 to 1 ratio of employees to managers should be changed to the alleged,
private sector ratio of 18 employees to each manager. But the 15 to 1 ratio is not
supported by official Department of Labor statistics that Teper ‘a total workforce
non-supervisor-to-supervisor ratio of 6.3 to 1. (Reference: DOL Employment and
Earnings, January 1993, Table 22). When asked about this, NPR personnel said
that 15 to 1 was the ratio in a few companies which they considered, such as the
Ritz-Carlton Hotels. One might ask what connection there is to the supervisory ratio
for chambermaids and that for persons overseeing the clean up of toxic wastes.

IMPLEMENTATION CHALLENGES

There are invariably difficult issues that arise in the implementation of the most
well-conceived recommendations. And here, the very process by which the NPR re-
port was produced compromised the prospects for successful follow-through.

Role of Congress. The NPR report virtually overlooked the necessity for gaining
congressional cooperation under a Constitution of shared powers and in an era of
@ resurgent Congress. The NPR clearly overestimated the ability of the executive
branch, alone, to implement a large proportion of the recommendations. Further, it
freatl underestimated the ease with which the culture—not just of the executive

ranch, but of Congress as well—can be changed. Plans for NPR II, perhaps rec-
‘izing the outcome of the 1994 elections, seem to reflect the NPR’s realization
that Congress must be a full partner in reinvention.

Glarifying the Objectives of Federal Programs. Clarifying program objectives is an
NPR goal that all can support. However, the proposal fails to recognize that many
complex and obscure statutes arise from the trade-offs and compromises that arise
in the legislative process, often with intentional ambiguity as to the objectives and
beneficiaries. Many court cases have identified the diametrically opposed interpreta-
tions given by Members of Congress of the same provision while it was being de-
bated on the floor of the chamber. The Administration will have to work very closely
with Congress if it is to achieve this goal.

Weakening the Central Staff Agencies. The capacity of the central staff agencies,
and of the executive branch as a whole, to implement the NPR’s ambitious agenda
is limited; in several respects, the recommendations would probably weaken the
central staff agencies and, hence, the ability of the President to manage effectively.
This subcommittee might want to address the issues of the resources and capacities
of the General Services Administration and of the Office of Management and Budg-
et. The Civil Service subcommittee might focus on the Office of Personnel Manage-
ment’s capacity.

Decentralization and Internal Deregulation. Allowing federal managers more
flexibility and discretion in administering their programs by means of internal de-
regulation, including in personnel, procurement, property management, ete. is lon
overdue. But the report overlooks the fact that managers are often ill prepared and
ill equipped to fulfill the more demanding tasks of supervising delegated functions.
If these recommendations are to be successfully implemented, they might call for
more middle managers rather than fewer. There is also a substantial need for su-
pervisory training if these actions are to be taken without jeopardizing the public
interest. Unfortunately, to the contrary, funds for training are being sharply re-
duced to meet new budget restrictions.

In eliminating or modifying regulations that are unnecessary, overly-prescriptive
or confusing, the delegating agency (which must remain accountable) needs to pro-
vide background information and guidance to assure proper, consistent and efficient
execution of the relevant laws. Requiring agencies to develop their own expertise in
the newly-deregulated environment may call for costly duplication in some cases. It
is not at all clear that the Office of Personnel Management and the General Services
Administration, for example, are equipped to guide and monitor the delegated func-
tions adequately.

Contracting Out and Privatization. The report recommends significantly greater
reliance on the private sector to perform functions of such agencies as GSA, De-


8

USDA’s state directors to help direct these funds to each State’s highest rural devel-
opment priorities.

THE UNFINISHED AGENDA

As we continue to reinvent government, we need Congress’s help to tackle a series
of other important items that are central to the task:

© Civil Service reform, which is in your committee’s jurisdiction, is an impor-
tant part of the reinvention effort. Organizations are changing the way they
perform work, shifting authority to the front lines and empowering employees.
We need to bring the civil service system in line with this new reality.

« A second procurement reform ‘in, which builds on the landmark measure
enacted last year, will help streamline large dollar-value purchases—as we did
for smaller buys last year—and reduce runaway procurement litigation on infor-
mation technology contracts.

Changing the way we plan for, acquire, and manage our information tech-
nology systems will allow us to increase the performance of these systems,
which are increasingly important to the management of the federal government.
and its programs.

« Financial management and budget account reforms will help us relate cost
to performance as part of the budget process.

The Administration views these items as high priorities and plans to increasingly
focus on them in the coming weeks. We plan to seek your help.

CONCLUSION

In conclusion, our success to date is encouraging but we can by no means declare
victory. The effort to make government work better for Americans will require years
of effort and continued long term attention from the highest levels of government.
Our bottom line should be: Do Americans trust their government more today than
in the past?

Mr. Chairman, Members of the Subcommittee, this completes my prepared re-
marks. I would be happy to answer any questions that you may have.

Mr. Horn. Thank you very much, Director.

A quorum was established before the Director began on Phase II.
We are delighted to have the vice chairman of the committee with
us here. The ranking member is delayed in New York.

Let me ask a few questions just to get the background here. You
mentioned that most of the work was done within the government
through task forces and that sort of thing. Were there particular
organizations and groups that drafted the proposed legislation that
has already been submitted to Congress? Was this primarily the
Vice President’s group or were there other outside groups involved?

Ms. RIVLIN. Drafting legislation is always a cooperative effort
within an administration. It involves consultation with Congress
and sometimes with affected parties.

Legislation is usually drafted by the agency most affected. The
effort is coordinated by the Office of Management and Budget,
along with the Vice President and others.

Mr. Horn. Does OMB take primary responsibility for making
sure that the draft legislation is not in conflict with the existing
law?

Ms. RIVLIN. Yes.

Mr. Horn. And other proposals?

Ms. RIVLIN. Yes. That’s part of our responsibility.

Mr. Horn. Please describe the process by which the administra-
tion has established a position with respect to the management and
organization features of the proposed legislation. In other words, to
what degree are Cabinet officers involved in this process? Are the
agencies routinely consulted prior to a final decision being made?


THE NATIONAL PERFORMANCE REVIEW

TUESDAY, MAY 2, 1995

HOUusE OF REPRESENTATIVES,
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 10:03 a.m., in room
311, Cannon House Office Building, Hon. Stephen Horn (chairman
of the subcommittee) presiding.

Present: Representatives Horn, Flanagan, Davis, Tate,
Scarborough, Clinger, and Maloney.

Staff present: J. Russell George, staff director; Anna D. Gowans
Young, professional staff member; Jonathan Yates, assistant coun-
sel; Andrew G. Richardson, clerk; Wallace Hsueh, staff assistant;
and David McMillen, minority professional staff.

Mr. Horn. The hearing will come to order, and we will begin.

Ms. Rivlin, as you know, the procedure of the committee is to
swear all witnesses as well as any associates. So if you don’t mind,
please raise your right hand.

[Witnesses sworn.]

Mr. Horn. Both witnesses affirmed. Very well, I am glad to wel-
come you to the subcommittee. Let me open with a brief statement
and then we will begin.

Today we begin a series of hearings on Making Government
Work. These hearings are intended to move the debate forward in
the direction of a clear understanding of how best to achieve the

‘oal of a more efficient and effective Federal Government. It has

een said that if Rie do not know the direction you are headed, you
can’t really get there. We hope that the hearings will provide us
with a comprehensive picture of what government should do.

The administration should be commended for its reorganization
initiative. However, making government work is not solely a mat-
ter of reorganizing. Any attempt to reinvent government has to
come to grips with the need for downsizing and a change in direc-
tion.

As Chairman Clinger has said, “The administration’s National
Performance Review continues to be an important effort. Improving
how our government operates is both necessary and appropriate.
But in addition to improving efficiency in government, Republicans
believe we need to limit the ever-expanding size and increasingly
intrusive role of the Federal Government in our lives.”

We are meeting here today to hear the views of the interested
parties on the administration’s National Performance Review ini-

q)


42

at all on departments. They can employ people as they wish, pay
them what they wish, change the mix of capital and. labor and
other inputs as they see fit. The constraint is that they have to de-
liver their outputs in accordance with the price and the quality and
the quantity measures that have been agreed.

There are some other features outlined in my testimony, but I
think these aspects, Mr. Chairman, provides the basis of our sys-
tem.

[The prepared statement of Mr. Dale follows:]

PREPARED STATEMENT OF TONY DALE, HARKNESS FELLOW, THE COMMONWEALTH
FuND oF NEw York

INTRODUCTION

Thank you for the opportunity to take part in this hearing on the National Per-
formance Review by providing some insight into New Zealand's experience with gov-
ernment reorganization.

Over the last decade successive New Zealand governments have undertaken ex-
tensive reforms of the New Zealand public sector. This has included reform of gov-
ernance and financial management arrangements for:

* the trading activities of goverament;
« the “core” (departmental) public sector;
* the education and health sectors, both of which are primarily funded from
general taxation revenues;
«local government.
My testimony today will focus on the first two of these reforms.

ORIGINS OF NEW ZEALAND’S PUBLIC SECTOR REFORMS

The origins of New Zealand's geblie sector reform lie in the significant economic
and fiscal problems the country faced in the 1980's.

In 1984 the newly elected Labour Government inherited an economy that was
characterized by comprehensive controls on the financial sector, extensive subsidies
for farmers and exporters, and a highly sheltered private sector. It also faced a sig-
nificant financial deficit, growing levels of public debt, large current account deficits,
high underlying inflationary pressures, and a history of slow economic growth.

e first plank of the Government’s economic policy was to put in place a set of
economic reforms designed to create an open, externally focused, internationall:
competitive economy. Over the remainder of the decade this involved reform of al-
most every sector of the economy.

However, in 1984 fegcrament expenditure (including transfers) accounted for
around 40% of GDP, This meant that an economically inefficient public sector would
drag down the performance of the economy as a whole. This realization led to the
second economic policy plank: public sector reform.

The objective of public sector reform was to design a public sector management
system(s) that created in a resource efficient public sector that was responsive to

e strategic policy direction of government.

REFORM OF GOVERNMENT TRADING ACTIVITIES

Attention first focused on the numerous tradin, ities of government. These
included banks, petroleum operations, telecommunication services, air traffic control
systems, forestry operations, computer bureaus, electricity generation and distribu-
tion, and coal mining. Most of these activities were being run by government depart-
ments who also had policy advice responsibilities. Nearly all of them ran at a loss
and required taxpayer support.

Corporatization

Reform initially took the form of corporatization - establishing these trading ac-
tivities as government owned companies called State Owned Enterprises (SOEs).

‘The objectives of this policy were that the SOEs should:

« have clear, commercial objectives;

© operate in a competitively neutral environment;

« have greater managerial flexibility and authority over key decisions;
ebe subject ‘to greater performance monitoring;

« be funded by explicit grants to cover non-commercial objectives.



3

APPENDIX TO STATEMENT By R. ScoTT FOSLER
RETHINKING THE FUNDAMENTALS OF GOVERNMENT

Rethinking the federal government's performance fundamentals requires asking
basic questions about purpose, mission, and results; organizational structure; per-
formance capacities; and individual programs and activities. Put another way, what
are the mechanics of what needs to be done? The following is an illustrative’ set of
questions,

Purpose and Mission

What is the public purpose? The Constitution defines the basic public purposes
of the United States, and of the federal government. Foremost among these is to
“preserve, protect, and defend the Constitution” itself. But the Constitution leaves
wide latitude in its definition of other public purposes, such as economic growth,
public safety, safe and affordable housing, good transportation, and a clean environ:
ment. To be sure, these purposes are not the exclusive preserve of any government,
let alone the federal government. a

The federal government should first attend to its unambiguous constitutional re-
sponsibilities for national defense and protecting the constitutional rights of Amer-
ican citizens, It has important roles for matters which cross state lines, such as air
pollution and air traffic control, and instances in which nationwide consistency and
equity are necessary, such as Social Security. And it must be concerned about the
country’s overall economic strength and the government’s fiscal soundness.

If any federal program or activity is not addressing a public purpose, it should
be terminated. But simply addressing a public purpose does not necessarily justify
its continuation,

Defining public purposes is appropriately and necessarily a political function. Un-
fortunately, our mechanisms for building and communicating political consensus on
public purposes, and distinguishing them from government missions, are not work-
inj

ich sector of society should be principally responsible for given public pur-

es? Our Constitution and traditional culture presume that individuals should be

left to pursue their own interests, both private and public, unless a compelling case

can be made for government action. There are many institutions that help meet
public needs, including:

« civil society, or the civic sector, in which individuals act collectively through
their families, communities, religious institutions, voluntary groups, civic orga-
nizations, and a multitude of other associations;

* market economy, or the private sector of businesses and other economic or-
ganizations that produce goods and services and provide employment and in-
come to individuals; and

* government, whose roles include making authoritative political decisions
and enforeing them, providing the framework for civil society and a market
economy, and providing some services directly.

Of the governmental responsibilities, which level of government—federal, state,
local, or regional—should assume them? The 10th Amendment to the Constitution
presumes that whatever powers are not specifically given to the federal government
reside with the states and the people. In recent years, the courts have ruled that
there is very little in which the federal government cannot involve itself. Therefore,
the federal government must set its own limits.

Practical questions of economics, finance, and operational effectivenose—if not the
changing political climate—are forcing us to rethink the appropriate roles of the
various levels of government, including the “devolution,” “sorting out,” or “swap-
ping” of primary governmental responsibilities for such areas as welfare, health,
transportation, housing, economic development and the environment.

Given the federal role defined in this context, what are the specific missions, goals
and expected results for federal programs and activities? The federal role can take
several forms, inchading:

* Creating the framework for a healthy civil society and a competitive and
productive market economy. Are there more cost-effective approaches to regula-
tion, such as the market mechanisms discussed in the Academy study, The En-
vironment Goes to Market?

¢ Creating a more productive federalism in policy areas that require intergov-
eramental participation by limiting unfunded mandates; making more effective
use of block grants; and clearly identifying and carrying out such specific re-
sponsibilities as planning, goal-setting, financing, information gathering,
benchmarking, or assessing activities that are principally state and local operat-
ing responsibilities.



82

ployees in a relatively remote country with a small population. It is quite an-
other to consider privatizing the n. aystem, with its 30,000 employees
and many of the world’s busiest airpo Equipment in the American systems
badly needs to be upgraded, but the risks of tinkering with the world’s finest
air-traffic control system suggests great caution in drawing the wrong lessons
from a non-comparable case.

CONCLUSION

The federal government badly needs to improve its performance. That is the over-
whelming message from public opinion polls, elections, and street comer discussions.
The great danger, however, is that the incredible pressure to shrink government's
size and enhance its outcomes will drive officials to seek quick wins and symbolic
results by following the wrong lessons from cases that poorly match.

‘The NPR has proven that government, in fact, can be reformed. It has also proven
just how hard the work is, and how critical it is to focus on the right problems.
James Champy Prevents a chilling warning from private sector restructuring that
has gone badly. The revolution he and coauthor Michael Hammer helped launch has
only gone half-way. “I have also learned that half a revolution is not better than
none. It may, in fact, be worse.”13 As the Subcommittee launches its careful study
of how best to reform American government, that is the most important lesson of
all: How can we focus on the right questions? How can we ensure that we will not
sacrifice long-term results for short-term wins? And where can we go to find the an-
swers?

We cannot afford to duck these questions. Neither can we afford to tackle them
with answers that go only half way. If the public is cynical now, nothing could be
worse than raising their expectations and failing to deliver. The real lesson that
comes through laser-sharp from the review of all reforms—federal, state, and local;
public and private; and international—is that success comes from making reform @
process, not an event.14 It is not something that is done and then completed. Suc-
cess comes from a lasting commitment to fundamental change and long-term im-
provement.

Mr. Horn. Thank you very much, Mr. Kettl.

Mr. Jasper.

Mr. JASPER. Mr. Chairman, I appreciate the opportunity to offer
my comments on the NPR.

Despite the concerns which I have expressed in my prepared
statement, I believe the general direction of most of the NPR rec-
ommendations was sound and welcome. I also list several specific
NPR accomplishments which I think are impressive.

However, for every employee who has been touched personally
and positively by reinvention, there may be 10 who have not been
touched at all or have experienced negative impacts. Some of that
results from the deficiencies in the process itself. Of some 250 indi-
viduals on the task force, only a few were specifically sought out.
The great majority were assigned by their agencies, and not nec-
essarily because they had particular knowledge and experience
about government reform.

Those who worked on the agency teams chose their agency as-
signments, though generally not the agency where they were em-

loyed. This had the advantage of assuring fresh perspective but
it inevitably led to naive and uninformed proposals.

I'll comment briefly on some of the problems which I think stem
from those deficiencies and what this committee, the Congress, and
the administration can do or are doing about them.

First and foremost is that it’s disappointing that the NPR failed
to perform any analysis before reaching many of its conclusions.
Unfortunately, short-term political considerations engendered the
proposal to cut personnel by 252,000 without any rationale for that
number or of the consequences of this “ready, fire, aim” approach.


THE NATIONAL PERFORMANCE REVIEW

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

MAY 2, 1995

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

ee

U.S. GOVERNMENT PRINTING OFFICE
24-999 CC WASHINGTON : 1996

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

ISBN 0-16-052875-5





30

Mr. FLANAGAN. Namely, a customer is one who enters into a sim-
ple contract with a purchaser to acquire something or to sell some-
thing.

Mr. BowsHER. Yes.

Mr. FLANAGAN. I am wondering if we are approaching this cor-
rectly just in the overall way, and I wonder if the approach that
we are taking naturally and systematically results in the inability
to collect the information that we need to evaluate whether it is
doing well. It is the classic case if you ask the wrong question, you
are not going to get the right answer, and I wonder if we are ap-
proaching this problem right.

Mr. BowsuHeER, I think the customer-based orientation is one of
the things that most of the organizations that are trying to improve
their operations in both the private sector and the public sector
have come to believe is important to have that focus, and even the
quality management people also generally talk about the internal
customer. In other words, are the overhead departments or the ad-
ministrative departments like the personnel or the accounting de-
partment servicing the needs of the people on the line? Because
that’s their internal customer. So what you are trying to do is get
a government that is more responsive to how they deliver the serv-
ices and how they deliver the programs both to the American tax-
payer but also within themselves in that.

d I think part of your earlier question was whether the execu-
tive branch views Congress as a customer. I think that is impor-
tant. In other words, I think the executive branch should have in-
formation available to the Congress at any time on any subject. I
think lots of times in the past they have failed to be able to
produce that kind of information, and that has led to some of the
mistrust and some of the micromanagement that has developed,
unfortunately, as a result of not having it.

Mr. FLANAGAN. Perhaps you could just take a minute and ex-
pound a little bit more on your opinion of the changes that need
to occur in the agencies to enact them to develop reliable pro-

‘ammatic and financial information that they need; to develop,
implement, and evaluate the proposals; and perhaps in the course
of answering you could describe the reasons why the GAO had in-
sufficient information to comment on 86 of some such recommenda-
tions from the executive departments?

And I don’t ask the question in a blame-laying way. I refer you
back to the previous questions that we might not be approaching
this exactly the way it needs to be done to get a good result.

Mr. BowsHER. I think most of the time when we could not com-
ment we had not done work in that area.

Mr. Doparo. That was part of it, Congressman. The other part
of it was that the proposals themselves were not quite specific
enough for us to understand exactly what was being proposed. So
in those cases, the reason we couldn't comment was due to that.

I think your point about the reliability of financial data is a very
good one. We have been trying to work very, very hard through im-
plementation of the Chief Financial Officers Act to get more reli-
able financial information and cost data from the agencies. Right
now most of the agencies cannot pass the test of an independent
audit so you have no assurance that the information that’s being


89

ers, In recognition of this need, as a private consultant. I have developed a course
on “Congress as a Customer.”

Regulation of the Private Sector. There is widespread agreement on the concept
that reducing regulatory burdens is desirable but the reality is that the federal gov-
ernment has statutory responsibilities for regulation whose impact on the public can
not always easily be lightened. Congress and its committees often have very strong
interest in aggressive enforcement by regulation of statutory mandates. Implemen-
tation of this recommendation, accordingly, will require careful and sensitive con-
sultation with Congress.

MISTAKES

There are a number of proposals that I believe are mistakes. I'll illustrate this
with two examples.

Air Traffic Control Corporation. The report recommends restructuring the Air
Traffic Control (ATC) system into a government corporation, governed by a board
of directors representing the sys m’s customers. Splitting FAA into two parts would
reverse the decision to vest all air safety functions in a single agency as the main
objective of the Federal Aviation Act of 1958. It would be a very complex undertak-
ing and would require extensive coordinating arrangements between the two enti-
ties in order to assure that there would be no risks to safety through delayed or
inconclusive actions. Not well publicized is that the task force commissioned to work
out the dividing lines between the new corporation and the remaining FAA esti-
mated that 200 additional positions would be needed to provide each with the req-
uisite expertise!

The parts of FAA not included in the corporation would still be subject to all the
impediments that argue for corporate status for ATC. Further, the public interest
in an ATC system that is both efficient and economical would not be well served
by vesting governance powers in a board of users.

A far better solution to FAA's problems, would be to convert the whole of FAA
to a government corporation, headed by a single executive. There might be an advi-
sory board, representing not only ATC users but the public as well. The corporation
should not be in the Department of Transportation (where it might be subject to
micromanagement by departmental staff) but should be subject to the policy guid-
ance of the Secretary of Transportation.

Broadening the Role of the Inspectors General. The existing statutory role and
status of Inspectors General (IG) makes them semiautonomous. They report directly
to the Congress as well as to the executive branch. Many informed observers believe
that the law establishing the IGe unwisely transferred agency audit responsibilities
and staff to the IGs, thus assigning an essential tool for management to an official
not fully responsive to the agency head. The IG statute already makes them respon-
sible for prevention of wrongful acts, as well as for their detection. But IGs have
found that they get their recognition and rewards for detection, so prevention has
not been a priority for them. I think it is worth serious consideration whether the
remedy lies in narrowing their functions rather than in broadening them. I under-
stand that the committee will be reviewing these issues in a subsequent hearing.

IMPORTANT ISSUES OMITTED

The NPR report failed to address several of the most serious management prob-
Jems confronting a modern-day President.

Number of Political Appointees. The number of political appointees has more than
doubled since 1960—while total employment has declined markedly. Most of the su-
perfluous layers in executive departments appear to be populated by political ap-
pointees. There is a mistaken impression that this group of appointees js necessary
to assure that the Administration can control the bureaucracy. Nothing could be fur-
ther from the truth. In fact, bureaucrats are eager to discern new political directions
from an incoming Administration. They often find, however, that political ap-

intees have their own agenda—not necessarily that of the President. Volcker

‘ommission concluded that the large number of political appointees actually im-

aired the Administration's ability to take charge. If one wants to flatten
ierarchies, this is the place to start. Perhaps this committee could address the mat-
ter at a later date.

‘The Appointment Process, Presidents have experienced increasing difficulty in fill-
ing political positions. There is also a clear need to orient and train political ap-
pointes. The consequences for effective management of short service by political ap-
pointees, together with extended vacancies in such positions, were not discussed by
the NPR. Reducing the numbers would help, but there ought to be a concerted effort
to simplify the recruitment, selection and confirmation processes.



84

agency missions, which several people have said is where we
should have started. Even 2 years late it’s OK to do that. Once we
establish the missions, we need to free up managers to figure out
how best to accomplish them.

My solution to the problem is to do away with FTE ceilings, leg-
islate restrictions in funds equivalent to the FTE ceiling reduction
savings, and then allow managers to do what we call manage to
budget. That gives them a pot of money and lets them use it for
high-grade employees, or low-grade employees, contracting out or
doing work in house. That kind of flexibility is the way to run the
government better.

Finally, I would like to point out, as I described at the end of my
statement, where staff reductions occur if you did a business proc-
ess reengineering the right way. I outlined some 10 steps at the

end of my statement, and cutting personnel is the ninth step, not
the first.

Thank you Mr. Chairman.
[The prepared statement of Mr. Jasper follows:]

PREPARED STATEMENT OF HERBERT N. JASPER, MCMANIS ASSOCIATES

Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity
to offer my comments on the design and implementation of the National Perform.
ance Review (NPR) Phase I recommendations and Phase II initiatives. My views are
shaped by my experiences as: a career civil servant in the federal executive branch,
an employee of the U.S, Congress and two of its staff agencies, a trade association
executive, a management consultant, and a Fellow of the National Academy of Pub-
lic Administration (NAPA). Much of my career has focused on government-wide or-
ganization and management issues. The views that follow are my own, and do not
necessarily reflect those of NAPA or McManis Associates.

NPR'S MISSION AND ACCOMPLISHMENTS:

MISSION. In March 1993, President Clinton gave Vice President Gore a broad
charter to improve federal management. The Vice President captured the essence
of his mission in the title of the NPR’s September 1993 report, “Creating a Govern-
ment That Works Better & Costs Less.” Both the President and Vice President de-
serve great credit for developing the bold and far-reaching agenda reflected in the
NPR report. It is quite encouraging (and also unusual) to have a commitment to
management improvement from the Chief Executive. That commitment is under-
scored by his giving the leadership responsibility to the Vice President, and by his
prompt implementation of several recommendations through a number of executive
orders and memoranda.

ACCOMPLISHMENTS. The general direction of most of the NPR recommenda-
tions was sound and welcome. The Administration has engendered a refreshing spi
it of change, experimentation, and innovation. Reinvention laboratories are burgeon-
ing, and agencies are reevaluating and redefining their missions, reengineering
their core business processes, streamlining their structures, and striving to improve
their customer service. Consolidating or terminating programs, combining or abol-
ishing agencies, and other more fundamental change will, however, have to await
the outcome of NPR II.

Since others have addressed some of the specific accomplishments of the NPR, I
shall simply list a few of them to show that, despite the misgivings that I state
later, I recognize and applaud these management improvements:

delegation of GBA and OPM authorities to operating agencies

* establishment of customer service standards

« simplification of applications for federal benefits

« closing of field offices

« flattening of headquarters hierarchies

» establishment of President’s Management Council

« reduction of employment (so far, principally in the Defense Department)
3 simplification of approval processes for government travel and hiring

S increased use of electronic payment systems

« substitution of electronic for paper records and processes



12

an agency, or establishes regulations for that agency or is, I sup-
pose, to some extent could be a customer to that agency from time
to time, particularly when they request information. Do you have
some particular focus on how that relationship can be better fos-
tered, or how that relationship can be more effectively fostered?

Ms. RIVLIN. The—.

Mr. FLANAGAN. The reason I ask the question, it seems a little
nebulous. We are talking about steering more and rowing less, we
are talking about being more customer active. We are talking about.
trying to be more focused like a business upon the actions of poten-
tial recipients of benefits or recipients of information or other
things they might require from a particular agency, to step forward
and say, “Help me, please.” There is quite a bit more that these
agencies do apart from that, and what I am asking is, where are
we going in those areas?

's. RIVLIN. I guess the important thing, it seems to me both for
the government as a whole and for the Congress, is to be focused
on the overall results. What an agency is doing not just for a par-
ticular Congressman's constituents, obviously, but what are the re-
sults that the taxpayer is getting for the money being expended by
this agency? Can we measure it? Is it improving? Is it deteriorat-
ing? What can we do about it?

Mr. KosKINEN. One of the things that I think is going to be a
watershed in the relationships of the government with the public
and the executive branch with the Congress is the Government
Performance and Results Act which this committee played a major
role in establishing. It contemplates, as Director Rivlin said, that
we will start to focus on the performance of government activities,
and answering the question what do we get for the money we
spend. This will cause us to start defining the objectives and goals
of the agencies and their programs.

The statute very clearly specifies that goals in a strategic plan
will be developed in consultation with the executive branch and the
Congress. It will cause us all to engage in a very important dialog
about what are we actually trying to accomplish with a particular
government activity, what’s the proper measure of that accomplish-
ment, and what are the actual achievements.

If we can spend in the future more of our time asking questions
about performance, we will find that we will spend more of our
time actually doing what the chairman was talking about, which
is ensuring that the efficiencies, the streamlinings and the reorea-
nizations of the government that we want to have happen will
sustained over time.

Mr. FLANAGAN. Correct me if I am mistaken, Phase I involved
what government does and Phase II then only discussed why we
are doing it. Is there a reason it was created that way? It seems
opposite to what you are talking about in better serving customers
and trying to streamline and organize, make government more re-
sponsive and make it better, why would he not logically approach
what government does first and then how it operates; as opposed
to the other way around?

Ms. RIVLIN. Well, I think that might have been a logical conclu-
sion, but what we were most focused on at the beginning was how
to take the things government was already committed to doing and


54

cently. I would address the processes and organization of NPR as
I see it, as requested by the committee.

First, 1 am among many people who welcomed the President’s
initiative. While I don’t agree with everything in the NPR, I think
it is a very courageous effort, I do agree with the majority of con-
cepts and fee) they deserve bipartisan support.

mplementation, of course, is essential for concepts to have any
value. There have been problems in Phase I that I will touch on.

First, the consultation with Congress was noted for its absence,
which I think was a real mistake. Career people were utilized in
the NPR design, but often not well. Too often they were placed in
areas in which they had very little background and, given very little
time to become acquainted with those new areas.

The process was more open than some we have had in the past,
such as the Grace Commission, but not as open as other reform ef-
forts we've had. I think it is unfortunate that there seems to be
such a denigration of Federal managers, for reasons still not clear

0 me,

Some of the examples of experiences elsewhere that were used in
the design missed some of the most relevant cases such as public
corporations, the early space program, and the old Atomic Energy
Commission.

What about central leadership for NPR? Just about everyone
agrees that the Vice President provided tremendous political lead-
ership and I think he should be commended for his continued lead-
ership. But the Office of the Vice President is not the place to pro-
vide professional, continuous leadership in moving forward govern-
mentwide management reforms.

The OMB has had an uncertain role and there has been under
Phase I too much tension between the Vice President’s office and
the OMB. The problem was exacerbated, in my judgment, by the
reorganization of OMB, which placed the management people in
the bud et areas. This approach had failed twice before in the Bu-
reau of the Budget and the OMB.

OPM has become a serious problem. The emphasis on cutting
OPM regulations and staff, however one might value that, in the
process the leadership role contemplated under the civil service re-
form in the statute of 1978 has been largely lost. I think that is
a serious problem.

The Merit Systems Protection Board has been very quiet. I be-
lieve the next 2 years will determine whether its role as con-
templated under the Civil Service Reform Act is fulfilled or wheth-
er it needs greater independence. GSA, I think, has done reason-
ably well with NPR.

ne of the problems is its sequencing. Some of the processing
streamlining was very appropriate in Phase I, but what functions
agencies should be performing should have started at the outset.
There's too much reengineering and restructuring before one knows
what that agency is going to do or even who does it. Too much
change for the sake of change.

There has not been enough in-depth analysis before the changes
went forward, with too much reliance upon opinion polls and com-
plaints. In HUD, unfortunately, the NPR has resulted in reverting
to an old-fashioned, stovepipe-type of operation which gives too


96

to get the award.” Why spend tens of millions of dollars and 18
months competing something when you know what the outcome
ought to be?

Now, do I mean to suggest that if you proceeded in that fashion
there would not occasionally be some mischief? Well, of course, but
there is mischief conducted under the present procurement process.
We're reading all the time about scandals in the defense procure-
ment process, as tight as it is.

The problem is that the procurement officers are not sufficiently
oriented toward achieving the objectives of the agency. They are
oriented toward covering the bases, I guess, to be more discreet—
making sure that nobody will criticize them for not having com-
peted Something.

Recently, in the private consulting firm I’m associated with, we
were asked to compete on a $10,000 purchase order where it was
obviously known who was going to get the award. Three firms were
asked not because the agency wanted their proposals for consider-
ation. But because they could justify it in the record that they com-
peted it. That’s the kind of idiocy that I would like to see stripped
away.

Mrs. MALONEY. How do you guppest to change that?

Mr. JASPER. Well, you probably need a wholesale psychiatric
evaluation of procurement officers in the context of the new pro-
curement law. It really requires a major cultural change. Every
chance I get—I’ve talked to John Koskinen about this earlier, and
he agrees that it is problem—you need to re-educate, re-orient, you
need to acculturate the procurement officers to a new idea. That is,
their job is to help get the mission accomplished, not just to keep
somebody from complaining that a procurement should have been
competed when it wasn’t.

Mrs. MALONEY. I would like to ask each of you if you—what
should be the top two things we should try to accomplish through
the National Performance Review this year if we could? What are
your feelings—what top two things would really make government
operate better, more efficiently and more responsively?

Mr. Foster. I think the key to the reform that we are talking
about is whether we can define precisely what we are trying to ac-
complish, determine what measures we can use to assess progress
and get that institutionalized so it’s very clear what it is that agen-
cies are supposed to be doing, what the Congress is going to hold
them accountable for.

In that regard, I do think that the Government Performance and
Results Act, which is on the books and in the process of being im-
plemented, is quite key to this entire effort. I would put that as a
very high priority. Making that GPRA legislation work. That’s key.

‘The second is capacity. There is a real problem with lack of ca-
pacity to be able to carry out and sustain these reforms even if they
are implemented. We don’t have the people now with the skills that
are required. Because of the FTE ceilings, there is an emphasis on
getting positions down without attention to who is getting pushed
out.

Are we bringing in the new people with the new skills that we
need? If we don’t get those new skills either by retraining the peo-
ple that are there or bringing in people that have those new skills,


1b)

such capacities, but that they have not been given the direction, incentive, re-
sources, or latitude to do so.

Every federal organization should be regularly tested against such criteria. And
before any new federal policy is adopted, it should be subjected to the test of wheth-
er the federal government can and will create the performance capacities required
to make it work effectively and efficiently.

Mr. Horn. Thank you very much. We will recess for approxi-
mately 10 minutes.

[Recess.]

Mr. Horn. The hearing will resume. I apologize for the delay, but
that’s democracy in action. So go ahead, Mr. Kettl.

Mr. Kettv. Thank you, Mr. Chairman. It’s a great pleasure to
appear before this subcommittee this morning to discuss the Re-
inventing Government initiative of the Clinton administration.

I'm a professor of public affairs and political science at the Uni-
versity of Wisconsin at Madison and a nonresident senior fellow at
the Brookings Institution Center for Public Management, where
we've been conducting an ongoing study and survey of the National
Performance Review. As I’m here this morning, I want to make
four basic points.

The first is that, indeed, the National Performance Review has
made substantial progress in reforming government over the last
18 months.

The second is that although the National Performance Review
has achieved substantial savings, the drive for short-term savin,
risks hurting government performance and can cost more in the
long run.

Third, the progress is not self-sustaining and many critical ques-
tions remain to be answered.

And fourth, although there are many potential sources of an-
swers to these questions, from experiences abroad, from reforms in
American, State and local governments, and from restructuring in
the private sector, these answers are often at best a poor fit. In
some cases, the prescriptions are fuzzy; in other cases, they are a
poor fit for the often unique and daunting problems with which the
Federal Government must deal.

As we've heard earlier on the first point, we have in fact accom-
plished a substantial amount. One thing that I think deserves a lot
more attention than in fact it’s received so far is the considerable
effort made in the reinvention laboratories around the country,
which have become the great proving grounds for success. There is
widespread innovation afoot in more than 100 labs, producing evi-
dence that the Federal Government can be substantially changed.

On the second point, on the matter of trying to judge e savings,
there are two things that I want to say here. The first is that al-
though in fact we have substantially downsized the Federal bu-
reaucracy already and there’s undoubtedly more downsizing on the
way, only rarely have these cuts been made in a way that reflects
any careful thought about which cuts ought to be made, where the
Federal Government can be successfully downsized, and which ca-
pacity needs to be strengthened. This, fear, suggests the need for
much more careful thought and the potential for greater cost and
risk in the long run.

These reductions, and this is my second point here, run the risk
of hurting government performance in the long run—in part be-


36

CPO ACT RELATED PRODUCTS—Continued
Report Title Report Number Date Issued
Financial Audit: Pension Benefit Guaranty Corporation's 1991 end 1990 Financial
Statements AFMD-92-35 03/0492,
Financial Aut: System ond Control Problems Further Weaken the Pension Benefit
‘Guaranty Fund AFMO-92-1 11/13/91
Financial Audit: Disclaimer of an Opinion
cal Year 19902 .. so AFMD-91-48 0/25/91
Miscellaneous Corporations:
Financial Audit: Federal Financing Bank's 1993 end 1992 Financial Statements .. AIMD-95-4 12/06/94
Financial Audit: Export Import Bank's 1990 and 1989 Financial Statements ....... AFMD-92-6 0704/92
Financial Audit: Ofice of Thrift Supervsion's 1989 Financial Statements... APMD-92-11 024/92
Financial Audit: Resolution Funding Corporation's 1989 Financial Statements... AFMD-91-49 04/02/91
DEFENSE
Army
Financial Audit: Examination of Army's Financial Statements for Fiscal Years 1992
and 1991... AIMD-93-1 06/30/93
Financial Manageme ‘Strong Leadership Heeded to Improve Army's Financial Ae-
: AIMD-94-12 12/2093
i: Army Real Property Accounting and Reporting Weaknesses
Impede Management Decision-making .. AIMD-94-9 11/02/93
Financial Management: Rlablty of Weapon System Cost Reports s Highly Ques-
tioneble . AIMD-84-10 10/28/93
Financial Audit: Examination of the Army's Financial Setements for Fiscal Year
1981... AFMD-92-83 08/07/92
Army Aviation Systems Command Year-End Adjustments AFMD-93-28R 12/23/92
Financial Audit: Weak Financial Accounting Contos Leave Commodity Command
‘Assets Vulnerable to Misuse ‘AFMO-92-61 09/04/92
Financial Management: Immediate Actions Needed to Improve Army Financial Oper-
‘ations and Controls AFMD-92-82 08/07/92
Financial Audit; Immediate Actions Needed to invon my Financial pets
Nd CONLFIS enon T-AFMD-92-14 08/07/92
Air Force:
Financial Audit: Aggressive Actions Needed for Air Force to Meet Objectives of the
CFO Act AFMD-92-12 02/19/92
Financial Audit: Status of Air Farce Actions to Correct Deficiencies in Financial
Management Systems AFMD-91-55OS/16/91
Financial Audit: Financial Reporting a
ter AEMD-91-4 04/08/91
Financial Audit: Financial Reporting and Intemal Controls atthe Air Fore Sptens
Command... AFMD-91-22  OV29/91
Navy:
Navy Financial Repots ... ‘AIMD-94-166R 08/11/94
Other Defense:
Facial onanemet: DOD Hs Rat RespededCesiey Sis, an
ing Problems ..... T-AIMD-93-1 07/0193,
00's FMF Asetions . so . AFMD-93-61R 04/27/93
NASA FMA Assertions and CFO Plan esses AFMD-93-65R 06/11/93
Defense Finance and Accounting Senvce ..- AEMD-92-116R 08/25/92
Hote: Copies of 37 management letters to various commands/bases providing sugges”
tions for internal control improvements are available upon request. If copies are de-
sired, call 512-3423,
(OVERALL ASSESSMENTS.
GAO High-Risk Series... HR-95-1 thru HR- 2198
95-17
OMB’ Hghsk Program: Comments onthe Status Regated in te Presiden’ Fiscal
Year 1995 Budget AIMD-94-136 09/20/94
AO High-Risk Program NIMD-94-72R 01/27/94
Financial Management: CFO Act Is Achieving Meaningful Progress TAIMD-94-149 06/21/94
Government Corporations: CFO Act Management Reporting Could Be Enhanced NIMD-94-73 09/19/94
Francial Management Sts of CFO At Implemetton atthe Department of
merce TAMD-94-150 0/28/94
Financial Autits: CF0 implementation at IRS and Customs .. T-AIMD-94-164 07/28/94
Financial Management: Status of CFO Act at the Department of the Treasury. T-AIMD-94-157 07/13/94



48

of—we looked at family stability, early childhood health, and work
force development.

Just to give an example, on family stability, we are measuring
child poverty, paternity, child support, teen pregnancy and we are
trying to think through how the Federal dollars can be focused on
those fundamental goals. And we are crafting strategies through
welfare reform proposals to make a difference. In the area of work
force, in early childhood development we have a series of measur-
able goals related to how children are doing in their early years
and again we are trying to aim the Federal dollars to make a dif-
ference on those. The immunization example I gave earlier is but
one of the examples we are looking at a classic Federal funding
streams aiming toward the fundamental results.

Finally, in the work force area we are looking at measures of
high school performance as kids move from the school to the work-
place. We are setting a series of measures relating to the work
force, as well as what we call the transitional work force, our abil-
ity to focus people moving back into the workplace. In each case,
ve are setting measurable standards for ourselves and asking how
the Federal Government can make a difference in achieving those
goals.

1 will tell you, as we go through this process, a lot of the red tape
and lot of the problems can be directly associated with Federal law.
it’s not simply executive agencies. And as I mentioned earlier, if we
are going to change the system, we've got to rethink how the Con-
gress writes laws.

And I want to offer in closing what I think the questions the
Congress needs to be asking not just in this committee, which I
seally appreciate the oversight, but also in all committees these are
the kinds of questions we believe need to be asked if we are going
to make a difference in the way government works.

‘The first question Congress should ask as it approaches legisla-
tion is what results do you want to achieve. The second is how are
we going to measure the results, how can progress be measured as
we take a look at the changes we are asking for in America. And
then who are the Federal Government’s partners, how are we going
te achieve this result, looking at State and local government and
the nonprofit and private sectors as partners in this undertaking.
And then, what is our strategy shared by the partners for achiev-
ing the result.

Then and only then do we ask what the Federal role is in terms
of achieving the result. And with that Federal role in mind, then
we ask what new laws and funding streams need to be established
to achieve the work and talk about how we monitor and reward
success.

I would argue if those series of questions were asked consist-
ently, you would be leading a revolution. In Oregon, the legislators
started asking these questions and when agencies come in and are
confronted with them, it changes behavior very dramatically and I
think it would at the national level as well.

Thank you, Mr. Chairman.

The prepared statement of Mr. Wyse follows:]


53

very exciting concepts to the table. The New Zealand experience,
I think, will be very helpful to us.

I understand that you, Mr. Wyse, have been working with Sen-
ator Hatfield on the Senate side.

Mr. Wyse. Yes, I have.

Mr. CLINGER. We will have the companion piece here in this com-
mittee and your input will be very welcome as we move forward.

I think, as Chairman Horn has said, the scenario you set forth,
the questions that you ask are absolutely on point and the type of
questions we don’t ever ask around here, unfortunately, and need
to start doing.

So I commend both of you. Thank you very much for your testi-
mony.

Mr. Horn. Thank you, Mr. Chairman.

We are delighted to have the ranking minority member, Mrs.
Maloney of New York.

Mrs. LONEY. I have no questions, but I do want to thank you
for initiating these series of hearings on reinventing government
and I join you in your comments that these types of questions
should be attached to all legislation so that we know the results
that we are trying to achieve. It would be better thought out and
a better way to measure if we are in fact achieving those results.

Thank you.

Mr. Horn. We thank you all for coming. You have been the
shortest panel, but let me just say, with no denigration to the pre-
ceding panels, the information you have shared with us I think is
extremely significant. And as the chairman and the ranking minor-
ity member said, we are looking forward to trying to use many of
the ideas you have suggested and see if we can’t get the disease
of accountability, if you will, as this is a good disease, spread across
the Federal Government, and that it would include not simply the
executive branch. We will leave it at that.

Thank you so much for coming.

We have Dwight Ink, Institute of Public Administration; Scott
Fosler, National Academy of Public Administration; Don Kettl, the
Brookings Institution; and Herbert Jasper of McManis Associates.

If you gentlemen will raise your right hands, we will administer
the oath.

[Witnesses sworn.]

Mr. Horn. All four witnesses having affirmed, let’s begin with
Mr. Ink and just go down the line. As you know, we have 4 5-
minute rule, so please summarize your statements.

Mr. Ink please begin.

STATEMENT OF DWIGHT INK, INSTITUTE OF PUBLIC ADMINIS.
TRATION; R. SCOTT FOSLER, NATIONAL ACADEMY OF PUB-
LIC ADMINISTRATION; DONALD F. KETTL, THE BROOKINGS
INSTITUTION; AND HERBERT N. JASPER, McMANIS ASSOCI-
ATES

Mr. INK. Thank you, Mr. Chairman.

These are my personal views, not those of any organizations with
which I am associated. I am, however, wearing a button which is
honoring Public Employees Recognition Week that I think has par-
ticular significance in view of what happened in Oklahoma City re-


49

PREPARED STATEMENT OF DUNCAN WYSE, EXECUTIVE DIRECTOR, OREGON
BENCHMARKING PROJECT

EXECUTIVE SUMMARY—THE OREGON OPTION
A PROPOSED MODEL FOR RESULTS-DRIVEN INTERGOVERNMENTAL SERVICE DELIVERY

Federal, state, and local government attention should focus on mutually agreed-
upon measurable outcomes for public service delivery. The intergovernmental re-
lationship should be a partnership, not an adversarial or competitive system.
Federal financial support should be provided to achieve broad goals, but also
should provide latitude and flexibility in how to accomplish them and be tai-
lored to real local needs. Rather than defining accountability by inputs, trans-
actions, error rates, and failure to progress, the federal government should hold
state and local governments accountable for performance. The system should
support and reward what works, rather than imposing rules and sanctions on
the majority because of errors or omissions by the minority.
—NATIONAL PERFORMANCE REVIEW, 1993
‘The Proposition

Oregon has a Proposition. Our state and local governments want to join with the
federal government to act on the recommendations stated above.

We propose a special intergovernmental, interagency partnership and long-range
demonstration project with the federal government to redesign and implement inter-

vernmental service delivery based on principles advanced in the National Per-
formance Review. This approach would focus on results and treat results as the crit-
ical measure of success. In the model we propose, the federal government and our
governments will mutually identify results to be achieved and we will be contracted
to achieve them. To help us achieve these results, the federal government will
merge funding categories and streams, create funding incentives which reward de-
sirable results, and reduce micromanagement and wasteful paperwork. This collabo-
ration will empower our communities to identify local needs to be met by federal
and state programs, to make their own decisions about how to address those needs,
and to be accountable for results.

The Problem To Be Overcome

This proposal accepts the premise of the National Performance Review: that the
intergovernmental system for delivering assistance and services through federal
grants and mandates to state and local governments has broken down in a tangle
of good intentions gone awry. There are too many funding categories, suffocating
regulations and paperwork, a misdirected emphasis on remediating rather than pre-
venting problems, and no clear focus on measurable outcomes. The system stifles
initiative and squanders resources without achieving sufficient results. We have
been attempting to correct similar problems in state government. We are delegating
greater responsibility for program design, delivery, and results to the local level, an
we are encouraging more service integration and a preventive approach to problems.
Why Seize This Opportunity With Oregon?

Oregon is an ideal partner for thi jive. The test of a results-based intergov-
ernmental system will be more successful where state and local government are al-
ready using an outcomes model for establishing a long range vision, setting public
priorities, allocating resources, designing services, and measuring results. Oregon is
well along in a pioneering state and local effort--Oregon Benchmarks—to do all of

ese things.

Benchmarks, begun in 1991, grow out of a statewide strategic planning process
that identified three broad goals for Oregon: increase jobs and incomes by creatin,
a diversified, productive economy, protect and enhance Oregon’s quality of life, and
invest in the capability of Oregonians. Benchmarks—272 altogether—are the meas-
urable indicators of progress toward these goals, For example:

Historical Target
1980-1990 199520002010

mo 196 8998 80 80
. 83% 90% 99% 99%

Benchmarks

Pregnancy rate per 1,000 females age 10-17 ... sens
Percentage of LIth graders who achieve specified skill levels in reading
Miles of assessed Oregon rivers and streams not meeting state and federal in-

stream water quality standards nnn : sete

1100-72375 0


78

Managers were amazed that ideas that had lain fallow for years suddenly sprany
to life: Small but important reforms thet top managers had previously dismiss
suddenly received higher level approval. The frenzy of activity did not, convince all
of the cynics, especially long-time mid-level government workers who had watched
waves of reform wash over the bureaucracy for years without effect. But the NPR
unquestionably fueled new excitement and energy.

GAUGING THE SAVINGS

The first 18 months of the NPR has generated more progress than almost any-
one—indeed, perhaps more than the reinventers themselves—imagined possible.
get the NPR moving, the reinventers understandably made short-term tactical deci-
sions to get quick wins. The quick wins however have come at the cost of building
the foundation for lasting success. As a result the NPR is not now sustainable.

core of the problem lies in the NPR’s very mission: to create a government
that works better and costs less. From the first days of the effort, the twin goals
have been in constant tension. On one level, of course, they are perfectly compatible.
A government that works better should cost less. The trick lies in the route chosen
to reach the objective. Most strategies to make the government work better produce
cost savings only after the reforms become established. On the other hand, many
strat

In

ies to shrink costs in the short run can hurt performance.

e first year of the NPR, the defining reality quickly became the promised
$108 billion in savings. The most immediate and visible of these savings was to
come through a reduction in the number of government employees by 272,900. The
savings through reducing the federal workforce are real. But several points must be
made about these buyouts.

First, by far the largest share of the reductions to date have come from the De-
fense Bepartment, which was already undergoing a substantial downsizing in the
aftermath of the Cold War. In fiscal year 1994, nearly three-fourths of the 86,000
persons (full-time equivalent, or FTE) who left the federal government were civilian
employees in the Department of Defense. In fiscal 1995, 98 percent of the 34,900

positions scheduled for elimination will come from the Defense Department.2
It is very hard to separate the savings produced by the NPR’s initiatives from those
savings that would have come in any event from the inevitable reduction of the De-
fense Department's civilian workforce.

Second, even though the buyouts made available by other departments are much
smaller, they have only rarely been driven by a careful plan about where cuts
should be made. Much of the work-force reduction, in fact, fell into place before any
plan hed been approved. The federal government undoubtedly has too many bureau-
cratic layers, too many workers in the wrong kinds of jobs. The federal workforce
undoubtedly could be reduced. But the reductions to date have occurred hap-
hazardly, with little assurance that the jobs that should be eliminated are elimi-
nated.

Third, as a result, there is a great risk that these haphazard reductions will hurt
government performance in the long run. In part, this is because the very real shock
of such a substantial work-force reduction—about one in eight federal workers—has
shaken workers’ morale. In part, this is because fewer workers are left in most
agencies to do the same amount of work. In part, this is because the performance
improvements promised in the NPR, which would have made workforce reductions
possible, have yet to occur. And in part, this is because virtually no effort has been
made to match the foveramente capacity, human and technological, to the job that
needs to be done. This combination could well produce poor management of pro-
rama whose long term costs could swamp the short-term savings.

‘This is @ special risk in the two kinds of goverament work that most federal em-

Joyees do: providing direct service to citizens, in programs like Social Security and
Department of Veterans Affairs hospitals; and overseeing the work of contractors

'} grantees who in turn produce many of the federal government's goods and serv:
ices. In the latter case, a small number of federal employees often leverages huge
amounts of federal dollars and private assets, (See, for example, Table 1.)

Fourth, round two of the NPR, launched by the Clinton administration after its
devastating setbacks in the November 1994 congressional elections, increases these
concerns. Vice President Gore has challenged federal agencies to “put customers
first” while “cutting back to basics” in an effort. to produce even larger savings. Fed-
eral agencies have responded with bold plans to restructure their operations, reduce
their headquarters staffs, realign field offices, and further reduce their employment,
Round one promised a balance between the NPR’s “works better” and “costs less”
components; round two focuses overwhelmingly on the latter. The same is true of
the sweeping restructuring in Republican proposals.


88

fense, NOAA, Labor and HUD. Unfortunately, it docs not distinguish clearly be-
tween contracting out and Privatization:

‘There already is a broad spectrum of programs that e1 the private sector in
the pursuit of federal objectives, including through contracting, loans and loan guar
antees (both direct and through rivate institutions), vouchers, food stamps and in-
surance, both explicit and implied. (For example, the government made good on sav-
ings and loan deposits at failed institutions without regard to the expressly-stated
limit on account insurance.)

Not addressed by the NPR report is how to remedy the existing deficiencies in
oversight and management capacity, let alone how to prevent their exacerbation as
the federal workforce is reduced by 252,000 persona (later increased to 272,900 by
Congress). Contracting out does not eliminate the need for public management; it
only changes its character. As long as public funds or authority are involved, public
accountability and control are essential.

‘An additional problem not addressed in the NPR report is the possibly-excessive
use of contractors by certain agencies. Functions that should probably be performed.
in-house have been contracted out in such ncies as NASA and the Department
of Energy. Staff capacity to monitor and evaluate contractor performance has often
been inadequate, Congressional committees have identified such problems. For ex-
ample, it was found that contractors had even written congressional testimony for
the Secretary of Energy on the issue of contracting out! The concept that there are
inherently governmental functions that must not be privatized or contracted out can
not be found in the report.

In the case of privatization—where the government actually relinquishes its au-
thority and responsibility, such as to a government sponsored enterprise (GSE)—
there may be a requirement for continued oversight. This will be so if the public
may look to the government for redress upon failure of the enterprise, as is often
the case with GSEs. The existing capacity of federal agencies to protect the govern-
ment’s (i.e., the public's) interest in the hundreds of billions of dollars at risk is woe-
fully inadequate. I believe this is another problem that warrants the attention of

‘ongress.

Procurement deregulation. The NPR focuses attention correctly on the cum-
bersome and costly procurement rules and regulations, which often go beyond what
the laws require. But it must be recognized that the laws and regulations have
grown so complex in reaction to procurement fraud and abuse. Simply streamlining
the rules, without instilling a culture of honesty, and without an audit capability
to identify the inevitable abuses, would be a formula for calling the detailed pre-
scriptions back into effect.

loreover, procurement officers often have little regard for economy or efficiency.
They are typically concerned with avoiding not only abuse, but also criticism. They
have become virtual “czars” of the procurement process, substituting their judgment
for that of program officials as high as the agency head. Thus, procurement reform
will not result from the new procurement legislation unless procurement officers are
retrained, and reoriented—in short, unless they adopt a new culture.

Empowerment. Empowerment in quality management circles means capturing
employees’ creativity by engaging them in the study of work processes; it does not
necessarily mean, as used in the report, delegating decision-making power. Holding
public employees accountable for “results” may a frightening and unrealistic
standard fand, therefore, a disincentive), considering the constraints within which
they must operate. Further the emphasis should be on managerial accountability for
results, while recognizing that managers should hold employees accountable for
their performance.

Customer Service. The NPR report’s chapter on “Putting Customers First” is a
very encouraging charter for improving the responsiveness of the bureaucracy. Cus-
tomer service is a hallmark of Total Quality Management (TQM), as practiced both
by public agencies and private companies. But telephone information calls to Social
Sbchrity field offices now may receive a message warning callers that the waiting
time is 10 minutes or more! One wonders how a 12% personnel cut—not related to
process reengineering—will be compatible with giving customers the improved serv-
ice standards promised by the NPR. Will this meet the President's standard in Exec-
utive Order 12862 “to provide service to the public that matches or exceeds the best
service available in the private sector”?

In the public sector, especially, the concept of multiple customers needs to be rec-
ognized. Por example, no agency would be wise to overlook the fact that Congress,
as well as the President, is a “customer” in TQM terms. Arguably, many of the stat-
utory constraints imposed on federal managers have their origins in the failure of
agencies to recognize that Congress is a customer under our system of shared pow-



43

In practice this meant establishing SOEs under private sector company legisla
tion, with private sector Boards of Directors and government Ministers as share-
holders, SOEs were required to operate as profitably as comparable private sector
companies, borrow from the financial markets and pay dividends and taxes at com-
mercial rates.

‘They operate outside the government's normal budgetary and reporting processes
but are required to agree a 5 year business plan with their shareholders each year
and are subject to an extensive monitoring and reporting regime.

Regulatory reform proceeded in parallel with the SOE reform so that market com-
petition was maximized.

The results of Corporatization have been dramatic. All SOEs now run as profit-
able businesses and pay substantial dividends and taxes. Service to customers has
also improved dramatically.

Privatization

Although the corporatization process resulted in enormous efficiency gains, there
are a number of reasons why an SOE is still e sub-optimal form:

© They tie up money that could be used to repay debt;

© They are not subject to the ultimate discipline of the market. Although
SOEs trade in the debt market, there is a perception that some form of implicit
government guarantee exists. Further, as SOE shares are not publicly traded
an SOE is not subject to the ultimate efficiency discipline of the equity market:

* Governments are generally unwilling (or unable) to invest, the amounts of
capital needed by developing businesses, particularly high-tech businesses. Gov-
ernments have other things to do with their money;

* Ownership of commercial ventures exposes governments to substantial fiscal
risk. For example, in 1990 the Government had to fund a substantial rescue
package to save the government-owned Bank of New Zealand.

For these reasons successive New Zealand governments have privatized commer-
cial activities that they considered the government did not need to own. Major pri-
vatization have involved:

© financial institutions, including two trading banks, a merchant bank, a
rural Joan bank and a general insurance company;

© financial assets, including prime rate housing mortgages, and farm mort-
gages;

© transport operations, including a shipping company, an international air-
line, a railway company, and a bus network:

« infrastructural assets, including New Zealand’s major telecommunications
company and two computer companies.

© industrial operations, including a petroleum/petrochemical company and a
part share in a steel company;

other trading operations, including a hotel chain, the Government printer,
and forests.

REFORM OF THE “CORE” PUBLIC SECTOR
Attention then turned to the “core” departmental public sector.

Separation of policy advice and service delivery functions

The first initiative was to separate policy advice and service delivery functions
into separate agencies. For example in a reorganization of environmental activities:
*° anew istry of the Environment was established to provide advice to
government on environmental issues and manage regulatory and funding func-
tions; while
« service delivery functions such as protecting endangered species and manag-
ing national parks were made the responsibility of the Department of Conserva-
tion.
The primary purpose of this structural reform was to create greater clarity of ob-
jective. It allowed:
. Policy advice agencies to focus on assessing outcome achievement and devel-
oping policy prescriptions for improving outcomes; and
* service delivery agencies to focus on running their operations as efficiently
as possible, given the policy parameters established by the Government.
It has the added advantage of reducing the opportunity for producer capture,
whereby policy advice is (deliberately or ott erwise) biased in favor of interventions
managed by the agency concerned.



CONTENTS

Hearing held on May 2, 1995 ..
Statement of:

Bowsher, Charles A., U.S. Comptroller General, General Accounting Of-
fice; L. Nye Stevens, Deputy Director, General Government Division,
General Accounting Office; and Gene L. Dodaro, Assistant Comptroller
General, Accounting and Information Management Di neral
Accounting Office ...

Dale, Tony, harkness fellow, the Commonwealth Fund of New Yo
and Duncan Wyse, executive director, Oregon Benchma Project ....

Ink, Dwight, Institute of Public Administration; R. Scott Fosler, National
Academy of Public Administration; Donald F. Kettl, the Brookings In-

tion; and Herbert N. Jasper, McManis Associates .
Rivlin, Alice M., Director, Office of Management and Budget; and John
Koskinen, Deputy Director, Office of Management and Budget
Letters, statements, etc., submitted for the record by:
ass, Hon. Charles F., a Representative i in ‘Congress From the State
Bet New Ham hie, Bre pared statement of
Bowsher, Charles A. Comptroller General, General Accounting Of-
fice, Prepared statement of .
Dale, harkness fellow, the Commonwealth Fund of New York,
prepared statement of
Dodaro, Gene L., Assistant Comptroller General, Accounting and Infor-
mation ‘Management Division, General ‘Accounting Office, information
concerning financial audits and reviews ..
Flanagan, Hon. Michael P., a Representative in Congress from the ‘State
of Illinois, prepared statement of .
Fosler, R. Scott, National Academy of Public Administration, prepared
statement Of ...sseceeersnesensere
Ink, ‘Dwight, Institute of Public Administration, prepared statement of
rbert N., McManis Associates, prepared statement of .
Pain fi Donald P, the Brookin Institution, prepared statement of
Maloney, Hon. Carolyn B., presentative in Congress From the State
of New York, pre: rd statement of
Rivlin, Alice M., Director, Office of Management and Budget, prepared
statement of ...
Wyse, Duncan, executive director, Oregon Benchmarking Project, pre-
pared statement of ..

dl)

104
23
42


66

and FEMA and academy panels concluded in each instance that
substantial improvements can be made in management through
immediate actions taken by the agency and the executive branch
itself.

However, one of the principal obstacles to effective management
in each case was a lack of clear direction, and cohesive and consist-
ent oversight from the Congress. And I think that the presentation
that you heard earlier on Oregon benchmarks and the effort that
is going on within the executive branch at the present time to try
to tie Federal actions to what is going on at the State and local
level is an example of one way that we might move.

Certainly the two branches have their own responsibilities, but
they need to work together to provide the machinery that will per-
mit the government as a whole to deliberate, set, and implement
policy in an effective and efficient manner.

One very important tool for that purpose is the Government Per-
formance and Results Act, as almost everyone seems to agree. This
should help both the Congress and the executive branch to apply
discipline to the definition, measurement, reporting and assess-
ment of results.

So, in sum, the NPR, Mr. Chairman, is an important start in re-
structuring the Federal Government, to address these contem-
porary challenges. But it needs to consolidate the gains that it’s
made to date to correct for the mistakes that we now see on the
basis of experience and to sustain the energy and initiative that it
has brought to this task.

It will need to address key issues of accountability, sharpen the
definition of its framework and principles, and build the capacity
required to carry out this task over the long run. And in that re-
gard, it clearly will need both the support and the partnership of
the Congress.

{The prepared statement of Mr. Fosler follows:]

PREPARED STATEMENT OF R. ScoTT FosLER, NATIONAL ACADEMY OF PUBLIC
ADMINISTRATION

Mr. Chairman and Members of the Subcommittee:

1 am Scott Fosler, president of the National Academy of Public Administration
(NAPA). It is a privilege for me to be here to participate in your deliberations on
the National Performance Review (NPR).

It is both appropriate and timely that two years into the NPR, your subcommittee
is beginning a series of hearings to consider the NPR's accomplishments and how
it can be most effective.

NATIONAL ACADEMY OF PUBLIC ADMINISTRATION (NAPA)

The Academy is an independent, nonpartisan, nonprofit organization chartered by
Congress to identify emerging issues of governance and provide practical assistance
to federal, state, and local governments on how to improve their performance.

To carry out this mission, the Academy draws on the expertise of more than 400
fellows, who include current and former members of Congress, cabinet secretaries,
senior federal executives, state and local officials, business executives, scholars, and
journalists. Our congressional charter, signed by President Reagan in 1984, was the
first. given to a research organization since President Lincoln signed the charter for
the National Academy of Sciences in 1863.

‘The Academy undertakes assignments at the behest of Congress and executive
agencies. Recent Academy work for Congress has included reviews of the Environ-
mental Protection Agency (EPA), Federal Emergency Management Agency (FEMA),
the Department of Housing and Urban Development (HUD), and the General Ac’
counting Office (GAO). Later this month the Academy will release the results of a



52

‘Schools Years 1990 198919930198) 19921983 2000210.

17, Percentage of students free of involvement with
‘alcohol in the previous month

a. Eighth grade m% .. ne 99%
b. Eleventh grade Sy  <, e
18, Percentage of stude
ilcit drugs in the previous month
2. Eighth grade ce BE 90% so 99%
bb. Eleventh £6846 eocesnnneneninneenenen TBE rnc BIB an wees 99%
19. Percentage of students free of involvement wath
tobacco in the previous month
a. Eighth grade a% BK on a vo 99%
. Eleventh grade . vo 81% esc cenen 99%
20, Juvenile arrests per 1,000 juvenile Oregonians
er year 2 3% 3 8 2H
‘Adults and the Economy 1980 1989, 19901981, 1992-1993 2000-2010

21, Real per capita income as a percent-
age of US. real per capita income .... 99% 92% (1988: 91%) 92% 92% 93% 93% 100% 100%
22 Percentage of Oregonians with in-
comes above 100% of the Federal
Poverty HEV ne
23, Percentage of dispiaced lumber and
‘wood products workers. re-employed
within 24 months and eaming at
ieast 90% of previous income ..... ee vo 6% nn TO 1%
25, Average rate of reincarceration of
parvied offenders within three years of
intial release cect cnmetne M%  % 0% 15%

89% mrnnnannines — 88% MK nn 100% 100%

Mr. Horn. I thank you for those suggestions.

I think they are excellent ones and I think the chairman of the
full committee and myself and anybody else that wants to join us,
we ought to hone that down and see if we can’t get a rule of the
House of Representatives that on every single bill coming on the
floor those questions, when relevant, would be asked in that proc-
ess. Because the weakness we have, obviously, and the weakness
administrations have at all levels of government, is you do not
build in the evaluation process when you pass the law.

We ought to agree on what some of the standards of measure-
ment are. Too often it is simply that people can count because
that’s the easy way to do business. It might be money. It might be
total immunizations and so forth. But we need to look at the nega-
tive, if it is total immunizations, at how many people have not been
immunized, and see if, when you are trying to solve a problem, you
can achieve 100 percent efficiency. It is a little hard, but it ought
to be our goal to try to do that and not just say, “Well, we did the
best we can. The best we can isn’t enough”

So I found your testimony, both of you, very fascinating, and I
would like to yield to the chairman of the full committee.

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

T have no questions but I commend both of you for your contribu-
tion to what we are trying to achieve here. I think you bring some


101

systems to be reinvented or restructured without taking account of
the agency performance management systems.

The GPRA provides a good base for the agency system but it
doesn’t talk directly to individual performance. The civil service re-
form proposals that are on their way talk about individual perform-
ance management but it is important that they be linked clearly
to the GPRA. To date, that hasn’t happened.

Mr. Horn. Mr. Kettl, did you have any comment on that?

Mr. KETTL. I think that is right. And if you look at experience
of Australia, one of the things that you see is that, first, there is
increasingly emphasis and importance put on the business of man-
aging for performance. Second, to try to focus agency results on
performance and outcome and output measures. But finally, an ef-
fort to take both of those pieces of the system and use it to try to
create incentives for the behavior of individual bureaucrats. Ulti-
mately what you do is you start with the broadest perspective and
go to the behavior of the individual manager. And the Australians
are quite a bit ahead of us in that, but they give a lesson about
how in part it could be done and the importance of making sure
that all those linkages are created. That, in the end, is the most
important thing.

Mr. Horn. I think that point is well taken. I said the other day
to somebody that there are two studies I have seen in K-12 edu-
cation that make sense to me. The one is that the principal sets
the tone in the school and you can either have a creative atmos-
phere or autocratic atmosphere or anywhere in between.

Before rounding this out, let me ask, as it has been mentioned
by several that the Office of Personnel Management, General Serv-
ices Administration ought to be to, quote the popular term, “de-
volved” to the operating agency. Do most of you agree with that,
and if so, what functions would stay with A, what functions
would go to the agencies, and what would happen to the Office of
Personnel Management?

Scott, do you want to answer that?

Mr. FosLeRr. I would say that we have already seen a substantial
decentralization or devolution, a pushing out of authority to the
agencies, which, by and large, is quite appropriate, and that prob-
ably should continue.

Now, I think it’s also essential that while we are decentralizing
and encouraging the agencies to develop their own systems that.
are appropriate for their missions, that we maintain some kind of
central function that includes leadership in assuring that appro-
priate kinds of principles are applied in the development of these
systems, and assuring that there is attention to building the capac-
ity to make them work even if the central agencies don’t provide
that capacity themselves.

And then oversight, to assure that in fact the system is working
and that the agencies are taking the responsibility that’s being
given to them to determine how to tailor these systems.

Those functions, it seems to me, are critical and they go hand in
hand with an attempt to decentralize responsibility.

Mr. Horn. Herb, any comments by you?


26

ments and ies, privatize several current federal functions, and devolve pro-
gram responsibilities in a number of areas to state and local governments. These
parallel efforts will undoubtedly surface many innovative and thoughtful ideas for
reconfiguring federal agencies and programs. Once surfaced, however, Congress and
the administration should work together as much as possible, particularly since any
systemic changes to federal structures and functions must be approved by Congress
and must be implemented by the executive branch.

Our NPR I comments about the need for sustained leadership and the need to
pay attention to agencies’ capacities are also applicable to NPR Il proposals, Sus-
tained leadership will be needed because implementation of agency restructuri
changes will take longer than implementation of the NPR I recommendations an
the issues are more complex. Capacity issues will be important because not only
must decisionmakers be concerned about the capacities of federal organizations,
they must alao be aware of the ability of nonfederal entities to accept additional re-
sponsi

pport efforts to move to a smaller, more efficient government, However,
both downsizing and estructuring efforts must be done strategically and should be
based on sound workforce plans. These steps are necessary to ensure that program
performance does not diminish and the potential for fraud, waste, and abuse does
not increase. Before major changes are made, decisionmakers should ensure that the
capacities of both the enti receiving additional responsibilities and the entities
responsible for program oversight are able to perform those duties,

e issues we discussed in our December 1994 report about how to move to re-
sults-oriented management are also valid regarding the proposed changes in NPR
IL. For example, we believe that an agency's mission and ais statement should be
the foundation upon which all of its restructuring proposals rest. The agency’s goals
should be clearly stated in outcome-based terms before steps are taken to privatize
or devolve its functions, consolidate its programs, or alter its organizational struc-
ture. Proposals to change the design and delivery of an agency’s programs should
be based on an understanding of the needs of the people the agency serves, the ap-
propriate federal role in these areas, and a clear statement of the outcomes that the
agency is attempting to achieve.

Reliable Information Needed to Assess NPR II Proposals
Once an agency’s mission and goals are clear, congressional and executive branch
decisionmakers will need more reliable programmatic and financial information to
assess the NPR II proposals and to evaluate their implementation. Implementation
of the Government and Performance Results Act of 1993 (GPRA) and the Chief Fi-
nancial Officers (CFO) Act is helping to provide these types of data. Under GPRA,
agencies are to develop strategic plans by fiscal year 1998, prepare annual plans
setting performance goals by fiscal year 1999, and report annually on their perform-
ance starting in March 2000. NPR II may, in fact, result in departments and agen-
cies choosing to accelerate this schedule because restructuring will require some of
the same analysis of goals and strategies. The Government Management Reform Act
recently expanded the CFO Act's requirements to cover all 24 CFO Act agencies and
to require a consolidated financial statement of executive branch agencies in fiscal
rear 1997. Decisionmakers should use these and other data sources in reexamining

longstanding policies and organizational arrangements.

. Chairman, this concludes my prepared statement. We will be pleased to an-
swer any questions.

Mr. Horn. Thank you very much. I appreciate always having

your testimony.

Let me ask you a few questions, You’ve had to go through this

experience yourself in downsizing GAO. Is there anything that you
did there that you have not seen the NPR do that you think NPR
should be doing?

Mr. BOwSHER. Well, I think we put a lot of emphasis on the peo-
le issues. We have changed from the regular GSA 18 levels or 15
levels that you had to four bands. We have reduced—tried to re-

duce—the layering of our organization and get more people who
were in what you might call the review process actually out there
doing the work.

We made a major effort in our recruiting to go to the colleges and

universities and recruit the very best people, and we were very suc-



22

tration’s inspection and approval processes, $1.4 billion; and ad-
minister the employment and training requirements for food stamp
recipients more effectively and efficiently, priced at $1 billion.

So we think that some emphasis should be placed on these areas
in addition to the ones that have already been included in the NPR
report.

fe also pointed out that we thought there were three themes
that were crucial to the long-range success of the NPR. One, was
you really need a good partnership between Congress and the exec-
utive branch. In other words, you are not going to get this job done
unless the two groups are working together.

Two, agencies’ capacity to achieve the NPR recommendations
while downsizing has to be improved, including the capability of
the people, the training of the people, and also the systems. In
other words, today all large organizations are pretty much run
through systems processes.

The Federal Government’s processes and systems are, in general,
not in good shape, so investment in this area, I think, is awfully
important. I was pleased that John Koskinen emphasized how im-
portant it is to get the work processes straightened out as you go
through this whole NPR reengineering effort.

And, of course, the last item is sustained attention. In other
words, you can’t achieve this kind of reform in a year or two. You
have to do it over a number of years, but we do have a problem
in our government with Presidential appointees.

I think your question about the Volcker Commission was a very
key one there. We need good people at the Presidential appointee
level, but we also need for them to stay and do the job. I don't
know whether we need as many as we now have. I think that was
a very good issue that the Volcker Commission raised at that time.
And ink another key is the SES. In other words, the senior civil
servants are very important.

I know at my own organization, at GAO, we have worked to
achieve a really first-rate SES team. I think if all the departments
in the government could achieve that, the government would work
very well. And so you've got to get that achieved, I think, as part
of the sustained attention that you are going to need to achieve
these kind of reforms.

I would just say that on the Phase II effort, which began in De-
cember 1994, we have not had a chance to review much of the
progress there. The OMB people are planning to do a spring 1995
assessment. But these are major initiatives, including agency re-
structuring, regulatory reinvention, and federalism.

So there are some major efforts here in Phase II, and I think
Congress needs to continue its oversight. Starting these hearings,
Mr. Chairman, is an excellent beginning, and I believe the series
of hearings you're planning makes a lot of sense.

What you are going to need is good information on how well
things are going and you're going to need some benchmarks and
some milestone reporting by the executive branch. And I think fol-
lowing it by the Congress is very important. Congressional over-
sight here is very key.

I would just like, in closing, to make a couple of remarks about
the CFO Act and the Government Performance and Results Act.


105

And with that, we will adjourn. We thank the panel and all our
preceding panels, but especially this panel, for the wisdom you
have provided.

Thank you. The hearing is adjourned.

(Whereupon, at 1:46 p.m., the subcommittee was adjourned.]

ie)


34

procedures, they haven't reconciled with Treasury balances, they
aven’t kept documentation, some of it is pretty simple. But that
oversight would force them to really get their act together and
produce good information, because right now it’s not reliable and
there is not a lot of credibility that can be placed in most agencies’
financial or programmatic data as a result.

Mr. CLINGER. Thank you very much, gentlemen, for your testi-
mony.

Mr. Horn. I think those are excellent suggestions that you've
made. Mr. Dodaro and the Comptroller General made a few of
them earlier.

I am well aware of your reports on the Chief Financial Officers
situation. What Id like you to do is see if you can name a few other
reports here and then fill it out for the record in a statement.

would like to know along the line that you commented on the
degree to which the General Accounting Office has filed those re-
ports with Congress. And I would like in general to ask, Mr.
Bowsher, what percentage of GAO reports are internally generated
rather than requested by Members of Congress or a committee?

{The information referred to follows:]

CPO ACT RELATED PRODUCTS

Report Title Report Humber Date issued

CIVIL DEPARTMENTS AND AGENCIES
Internal Revenue Services:

Financial Audit: Examination of IRS’ Fiscal Year 1993 Financial Statements AIMD-34-120 06/15/94
IRS Corrective Actions sent . nnn AIMD-94-184R— 09/12/94
Financial Management: IRS Does Not Adequately Manage Its Operating Funds ...... ‘AIMD-94-33 02/09/94
Financial Management: IRS' Self-Assessment of tts Internal Control and Accounting

Systems Is Inadequate or rcni0ennenre senate AIMD-94-2 10/13/93
Financial Management: First Financial Audit of IRS and Customs Revealed Serious

Problems ...... . T-AIMD-93-3 08/04/93

Financial Audit: Examination of IRS’ Fiscal Year 1992 Financial Statements ..
Financial Audit: IRS Significantly Overstated Its Accounts Receivable Balance
Financial Management: IRS Lacks Accountability Over Its ADP Resources
Financial Management: Important IRS Revenue Information 1s Unavailable or Unre-

‘AIMD-93-2 06/30/93
‘AFMD-93-42 05/06/93
‘AIMD-93-24 08/05/93

liable ... se AIMD-94-22 12/21/93
IRS Information Systems: Weaknesses Increase Risk of Fraud and impair Reliability
of Management information .. — . ‘AIMD-93-34 09/22/93

Observations on IRS’ Performance Indicators ...
IRS Systems Security: Progress Made to Secure Taxpayer Data But Serious Risk of
Improper Access Remains (Limited Official Use only - a copy can be made
available upon request)... tenttinnnnnnnenn
Customs:
Financial Audit: Examination of Customs’ Fiscal Year 1993 Financial Statements ‘AIMD-94-119 06/15/94
Financial Management: Control Weaknesses Limited Customs’ Ability to Ensure
‘That Duties Were Property Assess ..... stennnnnnennsnnn
Financial Management: Customs’ Accounting for Budgetary Resources Was Inad-

AFMD-93-23R 11/05/92

‘AIMO-95-17 122794

‘AIMD-94-38 03/07/94

equate stmt ‘AIMD-94-23 12/14/93,
Financial Management: Customs’ Accountability for Seized Property and Special

Operation Advances Was Weak ..... sss ‘AIMD-94-6 1022/93
Financial Management: Customs Did Not Adequately Account Far or Control its Ac~

counts Receivable ..... NIMD-94-5 11/08/93

Financial Management: Customs’ Sell Assessment of Its Internal Contral end Ac=
counting Systems Is Inadequate so aan
Financial Management: First Financial Audit of Customs Revesled Serius Prob-
WORMS asec eocsscseessnssesnnneonnneeen " sete sesso sree
Financial Management. Customs Lacks Adequete Accountability Over Its Property
We

‘AIMD-94-8 10/27/93,

T-AIMD-94-3 10/05/93

1S nnn sn ne AIMD-94-1 10/18/93
Financial Audit; Examination of Customs’ Fiscal Year 1992 Financial Statements ‘AMD-93-3 06/30/93,


58

It was equally unwise in Phase I for NPR to reorganize HUD headquarters into
an outdated “stove-pipe” series of fiefdoms in the absence of any NPR principles of
departmental organization and before the Secretary of HUD, Mr. Cisneros, had a
chance to review his department’s mission and programs. Contrary to NPR philoso-
phy, this old fashioned type of structure that emerged from NPR is more geared to
the Washington assistant secretaries than to the communities or “customers” HUD
serves.

Principles of Organization. Piecemeal approaches to basic departmental structure,
and “amputation before diagnosis” are not responsible processes for reform. Early
NPR-inspired structural revamping of HUD illustrates why critics have stressed the
need for a conceptual framework before proceeding with basic changes in organiza-
tion. They are right.

Two-track Strategy. Perhaps it would have been useful to proceed with two care-
fully coordinated tracks from the outset, rather than in sequence. One track
to address the crosscutting process issues, and another track to address the more
basic issues of program changes, devolution to state and local government, contract-
ing out and privatization, together with principles of organizing agencies to ca:
out those activities that were determined to be best performed at the national level.

Too big an agenda? In the early 1970s, the most drastic proposal in our history
for consolidation of domestic agencies was forwarded to Congress at the same time
a major multi-pronged attack on government red tape and other systems changes
were charging ahead.

CHANGE FOR THE SAKE OF CHANGE

Phase I has also suffered from a penchant for change just for the sake of change.
Virtually all existing processes and structures were assumed to be “broken” and
automatically in need of overhaul. Without much of a battle plan, troops were then
sent out over the government landscape with a trumpet call to charge up the hill
of reinvention. This type of behavior on the part of incoming leaders is not new. I
believe it has been a political disease for many centuries, going back at least to the
Roman Empire, and probably earlier.

NPR's exaggerated hype and questionable anecdotes were useful for getting need-
ed support for the task of improving government, but not a very good foundation
for sound reform. Little attention was paid, for example, to whether a system or
structure was really a candidate for the junkyard or whether it was suffering more
from an extended period of inept management or political intervention. There cer-
tainly was a lot of bath water to throw out, but should we have looked harder for
a few babies?

There has been a failure to realize that no system or organization has been in-
vented that is effective if saddled with inept management, abuse, or corruption.

Opinions vs Facts. During the “New Federalism” reforms of the 1970s, it was
found that very often the conventional wisdom as to the cause of dissatisfaction was
totally wrong. If one did not dig further to determine what was actually happening
as compared with what someone thought was happening, the cure could be worse
than the illness. The same was trve of the detailed analyses made before designing
President. Carter’s Civil Service Reform. I have seen very few NPR analyses during
Phase I that were very thorough, although I suspect there have been some, particu-
larly in the Department of Defense.

Bureaucratic Fossilization Over-Rated. The NPR also seems to have erroneously
assumed that the “entrenched bureaucracy” has successfully resisted any change in
the past and our agencies have fossilized. Therefore, as a matter of Principle, a good
shaking up of the encrusted bureaucratic culture was thought to be needed.

In domestic agencies, the opposite history is often true. Typically, our federal
managers have had to co] with an almost continuous series of reorganizations and
other changes as political officials with an average tenure of less than two years
come and go. Some years ago we convened a group of assistant secretaries who said
that it was very difficult to complete one reorganization before the next was an-
nounced. We found instances in which various stages of three different reorganiza-
tions in the same unit were in process! In very few of these cases did the political
leadership have indepth knowledge of the organizations or the proerame they were
supposedly reinventing. And where there were highly capable political leaders in the
driver's seat, they were invariably gone before their plans could be carried out.

One situation that often gives the uninformed an erroneous impression of an en-
trenched bureaucracy is the insecurity of an incoming political appointee who nei.
ther understands the programs he or she is to lead nor possesses the managerial
capacity to lead.



76

cause of the risk we'll cut the wrong people in the wrong places,
and not have enough of the right people in the right places. That
will create shock and survivor syndrome that will hurt the ability
of the government employees themselves to perform.

And furthermore, we haven’t thought carefully about where the
government needs to be cut. Consider, for example, the Pension
and Welfare Benefits Administration of the Department of Labor,
which is suffering cuts just like everyone else but where a total of
621 Federal employees are responsible for supervising $1 trillion
worth of private pension funds. This is a place where perhaps we
need even more Federal employees, but the idea of thinking care-
fully and strategically about where we need to marshal the Federal
Government’s manpower is something that for the most part has
not happened.

The third point raises critical unanswered questions, and I'll only
touch on a few. First, what kind of civil servants do we need to
make government work better? If there’s any lesson we can draw
from any experience anywhere, public or private, United States or
abroad, it’s that senior leadership within the country or organiza-
tion is absolutely critical. And that’s one of the things that in fact
has been most lacking in the National Performance Review, a care-
fal look at how to ensure that the right kind of leadership is in
place.

Second, who is going to be in charge of making the reforms work?
If there’s anything that we've also learned, it is that somebody has
to be in charge of making tough calls, There has been a serious
problem there of building the internal capacity.

The capacity issue is also something we need to worry about. The
Department of Energy manages billions of dollars worth of con-
tracts, yet the evidence is that it doesn’t have the capacity to do
the job well. Without the right kind of capacity it is likely, in the
long run, to end up costing even more.

The lesson from this is that in fact we can reform government
but that we run the risk of seeking quick wins and symbolic results
and learning the wrong lessons in the process.

If we’re going to succeed, we need to focus on the right questions,
which means, I think, focusing on the performance and, in the end,
understanding that reform is not a one-time-only event but a long-
term proposal. Unless we approach it that way, we surely will not
produce the kind of results that we want.

[The prepared statement of Mr. Kettl follows:]

PREPARED STATEMENT OF DONALD F. KETTL, THE BROOKINGS INSTITUTION.

It is a great pleasure to appear before the Subcommittee this morning to discuss
the Clinton administration’s “reinventing evernment” effort, the National Perform-
ance Review (NPR). I am a professor of Public Affairs and Political Science at the
University of Wisconsin-Madison’s Robert M. La Follette Institute of Public Affairs,
and a Nonresident Senior Fellow in the Brookings Institution's Center for Public
Management. At the Center for Public Management, I have been conducting a long-
term review of the NPR.
I want to make four fundamental points in my testimony here this morning.
* First, the NPR has made substantial progress in reforming government over
its first 18 months,
« Second, although the NPR has achieved substantial savings to date, the
drive for short-term savings risks hurting government performance in the long
run.



28

Mr. BowsHER. I think it did. Now, I know that you have some
concerns about the particular——

Mr. Horn. Well, I've got another concern that you had written
a separate report on that, but I am now talking about the general
one, that just examines all the services as to what their processes
were and makes what we would like to think was an objective cer-
tification that they have done what they were asked to do.

Mr. BOWSHER. No, I believe that that’s what we have done. I
know that sometimes there are feelings the services or the people
in OSD did something that maybe wasn’t totally objective, you
might say. Sometimes it is hard to find evidence to support those
kinds of situations.

Mr. Horn. Do we run a duplicate analysis of the system when
they use a particular statistical system to get their base data? Does
GAO say, “Let’s test that, let’s see if you have self-fulfilling proph-
ecies in there and you are simply gathering numbers to try and
prove your point when you have no analysis?” Do we ever look at
a detail of their analysis, and does it make logical sense or common
sense in the process?

Mr. BowsuHeER. I think we do. Whether we did it on all the analy-
ses that they did, I am not sure about that. I would have to go back
and check on that.

Mr. Horn. Well, just to whet your appetite, I have looked at that
report. I think it could have been written before anybody went over
to analyze it. It was descriptive in nature, not analytical in nature.
It doesn’t seem to test the systems.

lam thinking of the Navy now, in which I have a little interest,
I will grant you, as to some of their misguided decisions. But what
bothered me was that here the agent of the legislative branch
doesn’t take an objective analysis and say whether this is accurate
not just describe the process, because we already know that.

The question is, did the process make common sense? That we
still don’t know, and the GAO report hasn’t been helpful in telling
us that because there is no depth to it, and that’s what concerns
me. So I just wanted to use that example because it has recently
passed my desk. I think whether I read an executive branch report,
or a legislative branch report, we have got to have critical analysis,
and that is what we count on you to have.

Mr. BowsHER. I agree with that.

Mr. Horn. That’s why I’m bothered that it went through all
these layers. Are they just reading it with the TV on or were they
really looking at it and asking some tough questions?

I wish you as Comptroller General would go back and reread
that report and say if you were the executive, the Secretary of De-
fense in this case, and more important the President of the United
States, would you have faith in that process? And you know if you
can find somewhere where there is a true analysis of the process,
I would like to have it pointed out to me because I have missed
it and I don’t see it. And if I were President I would be outraged,
but I am not President, I am just outraged.

So I would take a careful look at it, and relook at it, and look
at it in relation to past reports because we need some objective
analysis of that type of executive agency decisionmaking process. It
doesn’t matter what decision they came out with; was the process


94

business with ever-new processes, such as ZZB or MBO. We don’t
have continuity because there is not the layer of nonpolitical ap-
pointees at the top levels that there used to be.

Mr. INK. Mr. Chairman, I wonder, would it be possible for me to
respond in writing to questions? I’m going to miss my plane if I
don’t get excused.

Mr. Horn. It will. We will share the comments of your colleagues
with you and we would love to have your reaction. We might even
give them rebuttal rights. Have a good trip.

4 Mr. InK. I hate to leave, but I am going to miss my plane if I
lon’t.

Mr. Horn. As was mentioned, the Hoover Commission rec-
ommendations, created an assistant secretary for administration or
administrative assistant secretary and this position is sort of a
hodgepodge. Some are Presidential appointees, some are secretarial
appointees, and then, added in the 1960’s were assistant secretar-
ies for program evaluation and analysis. That was the trend.

I don’t know if you are suggesting that those were initially func-
tions that should have been under the assistant secretary for ad-
ministration because you said in one department they are divided
six ways. Is that the second way that it can happen?

Mr. JASPER. Generally speaking that’s what happened. It hap-
pened in part because the assistant secretary for administration
used to be a career position, not a political position. So all these
new political positions were created. Eventually all but one or two
departments politicized the assistant secretary for administration
post as well. But nobody ever recentralized. We decided the only
way you could do it is with a higher level job called under secretary
for management.

Mr. Horn. As you recall, some agencies by sheer chance have
had sort of a top civil servant that does carry over between admin-
istrations that Cabinet officers rely upon. In my day in Labor in
1959 and 1960 you had Millard Cass, Deputy UnderSecretary. He
was there with administrations before Secretary Mitchell arrived,
and he was there after him.

And I remember going in when I wanted to check an idea. He
said, “Steve, I’ve got two drawers; one is a Democrat drawer, one
is a Republican drawer. Which would you like me to dip into
today?” And he took his role with good humor and he also got the
job done. And you had an institutional memory there much like
Doc Cooke provides in Defense for Secretaries of Defense.

The question is, do the new appointees use that institutional
memory, and to what degree do some people serve too long in these
areas and have their own fiefdom problems?

But I think basically you are putting your finger on the right
problem, that it is terribly fragmented. On the other hand, can you
get the best people in planning and evaluation if they are simply
a subdirector or some sort of an assistant secretary that performs
management functions?

Now, the undersecretary idea might solve that problem where
you could put all those assistant secretaries together. I don’t know
if you have any other wisdom on this subject.


9

Ms. RIVLIN. It isn’t just a question of consulting agencies. They
are in the driver’s seat. We have not imposed any management
changes on Cabinet officers. If these things are going to work, the
people who have to carry them out have got to be part of it.

Let me speak specifically about the Phase II operations. What
we've done in the last few months, and are continuing to do, is to
have a steering group chaired by myself and Elaine Kamarck, from
the Vice President’s office. John has been working very closely with
this group. The group consists of the Office of Management and
Budget program associate directors, who are responsible for par-
ticular sets of agencies, and their counterparts from the Vice Presi-
dent's staff. They have been working very closely with the agencies.

The agencies have devised the plans, including the legislation
that backs them up, and we have interacted with them, reviewed
the legislation, come to decisions on what to do and then taken the
legislation to the Vice President for his review before it goes to the
President.

Mr. Horn. Does the Vice President have sufficient staff to police
the process, or is that done primarily by OMB?

Ms. RIVLIN. The Vice President has a small staff. But I don’t
think it’s a question of policing, exactly.

yt Horn. Well, making sure things get done when people say
they will.

Ms. RIVLIN. Yes. This is a cooperative effort between OMB and
the Vice President’s staff, the National Performance Review staff.
The NPR staff is small. We have a bigger staff, but we also have
a lot of other things to do.

I think the cooperative effort has worked very well. It has been
different from Phase I where the National Performance Review
teams were more autonomous. The Phase III effort has been fit very
closely together with the regular processes of the Office of Manage-
ment and Budget.

Mr. Horn. Perhaps Mr. Koskinen could describe some of the
processes, as they work now, with what you know of the history of
executive reorganization. I think your knowledge of it goes back to
the Truman administration, the Hoover Commission, all the other
efforts. Is there something that could be done here that hasn't been
done to make sure that what has been developed is actually imple-
mented, that Congress is suitably informed, and that whatever
other groups need to be informed have been informed, to make sure
we have a successful legislative package?

Mr. KoSKINEN. Actually, I do go back some time. I was adminis-
trative assistant to Senator Ribicoff 25 years ago while he chaired
the Executive Reorganization Subcommittee of the Senate Govern-
mental Affairs Committee, and so I’ve spent some time watching
this.

I think one of the differences in the NPR process compared to
some of the earlier commissions is the point that Director Rivlin
made, that the NPR process was not run by outsiders or outside
committees coming in and reviewing the government. The NPR
process generated its proposals and recommendations from govern-
ment employees. The Vice President began by reaching out to gov-
ernment employees and the bulk of the ideas that have been pre-
sented came from within the agencies. In fact, at one point in


77

Third, the progress is not self-sustaining, and many critical questions re-
main to be answered.

« Fourth, although there are many potential sources of answers to these ques-
tions—from experiences abroad, from reforms in American state and local gov-
ernments, and from restructuring of the private sector—these answers are at
best @ poor fit. In some cases, the prescriptions are fuzzy. In other cases, the:
are a poor fit for the often unique and daunting problems with which the fed-
eral government must deal.

Not in a generation has American government faced such fundamental questions,
and never has skilled public management been more important in trying to answer
them. An April 1995 Hart-Teeter public opinion survey shows that public confidence
in the federal government is precipitously low. Americans ranked wasting money
through mismanagement as their biggest complaint about the federal government.
The good news is that a large majority—73 percent—believed that the federal gov-
ernment could be more effective if it were managed better.1 Figuring out how to
do that is the challenge for this hearing.

ASSESSING THE CLINTON ADMINISTRATION'S EFFORTS.

Many cynics quickly dismissed Vice President Al Gore’s NPR when the report ap-
peared in September 1993. Some critics suggested it was just another in a long line
of management reforms that would produce little effect. Some academics criticized
it as dangerous to the public interest. Both are wrong. In its first 18 months, the
NPR has produced some impressive results, in several important categories.

© A quick start on culture change. The report’s theme that government had
to work better and cost less resonated profoundly. Measuring the precise impact
of the report on the culture of government agencies is impossible, and making
such an ambitious change stick will take a generation. But one conclusion is
already certain: After th » neither the behavior of government workers
nor the debate about their can ever be the same. The NPR’s four key prin-
ciples—cutting red tape, putting customers first, empowering employees to get
results, and cutting back to basics—has provided new, if rough, guideposts by
which to steer and judge the federal bureaucracy,

‘¢ Simplification of rules and processes. The NPR has also helped disentangle
some of the rules and procedures that hinder effective federal management. The
Office of Management and Budget has issued waivers to agency officials surveys
to assess citizen satisfaction with public services. The Office of Personnel Man-
agement eliminated the huge Federal Personnel Manual and the government’s
monstrous all-in-one application form, SF-171, and has delegated more person-
nel decisions to government agencies.

« A reform of the procurement process. The Clinton administration’s enthu-
siastic support and hard work dovetailed with ongoing congressional effort on
procurement reform. The result has been an important simplification of the pro-
curement process—the first major reform of the government’s contracting rules
and procedures in a decade.

¢ Improved coordination of the governments management activities. The
President's Management Council (PMC) has helped provide a forum for ongoing
review and coordination of management in the executive departments. Com-
prised of the chief operating officer within each department (typically the dep-
uty secretary), the PMC quickly proved an invaluable arena for discussing
crosscutting management problems, developing new strategies, and building
support for reforms. The PMC has become an important mechanism for focusing
government-wide attention on management issues.

Widespread innovation by federal managers. The NPR encouraged agency
heads to establish “reinvention labs,” and more than one hundred sprang up
throughout the government. While there is no systematic survey of what these
labs have accomplished, conclusive evidence shows that these reinvention labs
represent exciting innovations in the federal government. Not all of the labs are
likely to produce successes; the whole point of laboratory experimentation is to
find what works and what does not. But the labs are generating a mountain
of fresh ideas and information about how government workers can do their jobs

ter.

The NPR has unquestionably generated an enormous amount of activity, enthu-
siasm, and positive effort. Not all of the initial results can be traced directly to the
NPR. Indeed, some of the earliest successes came from experiments started | during
the Bush administration. The NPR, however, unquestionably accelerated the pace
of change and provided political cover for managers trying’ to break out of hide-
bound routines. Most important, the NPR generated a fresh sense of the possible.



83

It made reinvention appear to many employees to be a code word
for reduction in force.

Since the Congress has cupped the ante” to a 272,900 cut by law,
it will be clearly very difficult to correct this problem. Nonetheless,
Tl be bold enough to make a proposal at the end of my statement.

The NPR Teport is certainly in the mainstream of management
thinking but it’s clearly off base in several respects, such as relying
too much on irrelevant State and local experience. The NPR curi-
ously recommended—and you heard John Koskinen talk about it—
that the 7-to-1 ratio of employees to mariagers should be changed
to the alleged private-sector ratio of 15 employees to each manager.
But Labor Department statistics report a ratio of only 6.3 to 1, and
one of the case studies that the NPR used was the Ritz Carlton
Hotel. I wonder what supervision of chambermaids has in common
with supervision of toxic waste cleanups.

The report, as was also mentioned earlier by others, overlooked
the necessity for gaining congressional cooperation, which I’m
pleased to see the NPR II apparently has learned about.

I'd like to say a word about procurement. Much has been said
about procurement reform, but the fact is that the procurement
rules and regulations under the old statutes often went far beyond
what the laws required. Procurement officers are typically con-
cerned with avoiding not only abuse but also criticism. They have
become virtual czars of the procurement process and, unless their
culture can be changed, the procurement statute that was passed
recently will have very little effect, in my judgment.

The NPR also, partly as a result of the staffing deficiencies that
I’ve mentioned, made some mistakes, I believe. Probably the most
significant one is the proposal to split off air traffic control from the
test of FAA. I don’t think that’s going very far in this Congress so
I probably needn’t say any more about it.

Another mistake I think is that it proposed to broaden the role
of IGs. You raised a question earlier about whether we need to pay
More attention to what IGs do. I think the right answer may lie
more in the direction of narrowing their span of responsibility rath-
er than broadening it.

A number of serious problems were overlooked completely by the
NPR. Not by accident; on purpose. For example, the number of po-
litical appointees, about which there was some colloquy this morn-
ing. The number of political appointees has more than doubled
since 1960 while total employment has declined. If we want to flat-
ten hierarchies, I think political levels is the place to start. And it
was a point which they consciously decided not to tackle.

Tm also surprised and disappointed that you can’t find a discus-
sion of the management role of OMB any place in the NPR.

As a result of the 1994 OMB reorganization, and the creation of
the NPR and the Vice President’s activities, which I think are to
be commended, we have governmentwide management responsibil-
ity scattered among: the Vice President, the NER, an interagency
committee and nine different parts of OMB. Again, if we're looking
for something to reinvent we probably ought to look at the scatter-
ing of general management responsibilities.

‘PR II seems to be doing better in a number of respects, includ-
ing keeping OMB and the agencies involved and starting with


5

thing else. We are also working on financial management and
budget account reforms that will help us relate cost to performance
as part of the budget process.

e administration views these items as high priorities and
plans to focus on them in the coming weeks and months. We plan
to seek your help.

In conclusion, while our success to date is encouraging, we can
by no means declare victory. The effort to make government work
better for Americans will require years of effort and continued
long-term attention from the highest levels. Our bottom line should
be, do Americans trust their government more today than in the
past?

Mr. Chairman, we'd be happy to answer any questions that you
may have.

[The prepared statement of Ms. Rivlin follows:]

PREPARED STATEMENT OF ALICE M. RIVLIN, DIRECTOR, OFFICE OF MANAGEMENT AND
UDGET

Good morning, Mr. Chairman and Members of the Subcommittee. Thank you for
the opportunity to discuss the Administration's effort to make government work bet-
ter through the National Performance Review (NPR).

Public trust in the Federal Government is at an all-time low. In 1963, about 76
percent of all Americans believed the federal government, did the right thing most
of the time. Today, that figure hovers near 17 percent. Many Americans sound as
though they want ‘the government to just disappear—except when they need the
government's help.

For all the public anger, however, government remains a vital part of American
life. After all, it is government that delivers the Social Security and veterans’ bene-
fits, provides health insurance for the elderly and poor, builds and maintains the
roads, prevents accidents in the skies, and invests in the kinds of physical, sci-
entific, and human capital that can nourish a strong economy in the future.

Because Government is so vital, we must make it work better. We owe that to
the people who sent us here. The President and the Vice President are investing
an enormous amount of time and effort into doing just that. They are building on
previous initiatives that were already underway in various agencies, as well as on
the Chief Financial Officers Act of 1990, the Government Performance and Results
Act of 1993, and the Government Management Reform Act of 1994. This is a pains-
taking, un-glamorous task, a long-term project that amounts to continuous reinven-
tion 90 that government can cope with new challenges.

Two years into our effort, though, this Administration is making real progress. We
are creating a government that demonstrably works better and costs less; a govern-
ment that measurably serves its customers better; a government that can better tell
taxpayers what they are getting for their money; a government that is a more satis-
fying place to work for people dedicated to public service.

lor am I the only one who thinks so. In late October, Financial World magazine
wrote in an “open letter” to the President,

You've been working behind the scenes to improve government financial con-
trols, contract oversig t, performance measurement, strategic planning, train-
ing, procurement and a host of other seemingly mundane administrative proce-
dures that ultimately determine the success or failure of any federal program.
And we think you are making real progress.

After examining 10 major executive branch departments and agencies, the maga-
zine concluded,

. . - Most of the 10 agencies have improved under your stewardship.

How are we doing it? I will talk today about how the ‘Administration is ‘attempting
to recast the operations of government through the first two phases of our reinvent-
ing government effort, about our success to date, and about the challenges that re-
main,

THE NPR: PHASE I

In March 1993, President Clinton asked Vice President Gore to lead an effort to
reinvent government. Unlike the 11 previous government reform efforts over the
last century, the Vice President turned to the people who work in the government


81

responsibility for results, or holding all of those involved responsible for outcomes.
Nevertheless, the experience of Oregon and other states developing performance-
based management suggests that a movement like the federal Government Perform-
ance and Results Act could prove extremely helpful in improving outcomes.6

‘The performance-based management process it has introduced does offer a very
valuable foundation on which to build more performance-based intergovernmental
partnerships, like the one the Clinton administration signed with Oregon officials.

Lessons from the Private Sector

For a decade, private companies have aggressively downsized and reengineered
their business processes. The results, however, have often been disappointing. Re-
engineering expert James Champy found that many of the organizations he studied
failed to reach their targets by as much as 30 percent.7 A 1993 eurvey by the Wyatt
Company, of 531 American companies, revealed that 86 percent of the companies
surveyed had downsized their work forces and 73 percent had reorganized their op-
erations. Four in ten failed to reduce their costs as planned; fewer than half of the
companies with other goals, including increasing profits and employee productivity,
managed to achieve them. Wyatt’s researchers found that “few companies achieved
their profitability and expense reduction goals through restructuring, and morale
and motivation among the surviving employees suffered."8 Some companies suc-
ceeded, but they were the companies with strong motivation, a clear plan, effective
leadership, and sensitive management of their employees,

* Bublic and private enterprises are so different, however, that drawing les-
sons is deceptively difficult. Most private sector downsizing has come not only
through shrinking the organizational structure but also through transforming
product lines and redesigning the products themselves. Public sector reform in-
volves a very different set of questions that go far beyond efficiency, including
equity, responsiveness, and democratic accountability, for which private reforms
offer little guidance.

There ig one clear lesson from the private sector's experience: The strategies em-

loyed by both Democrats (as seen in Round II of the NPR) and Republicans (in the

‘ontract with America and other restructuring plans) run completely against the
lessons taught by America’s most successful companies. Careful planning and stra-
tegic thinking has to precede, not follow, downsizing. Companies that failed to take
this step have failed to adapt to the fast-changing environment.

Lessons from A broad

Many countries abroad are a decade or more ahead of the United States in re-
forming their public sector.9 The United Kingdom, Australia, and New Zealand
have been especially active. The British reform, for example, has involved selling
off state-owned enterprises, decentralizing authority to local governments, cutting
away red tape, and increasing customer service. The central goal is to provide free-
dom to manage for those responsible for results. Australia has followed much the
same course, with considerable attention to couplin, Peformance based manage-
ment to civil service reform. New Zealand has press e reform movement farther
than any other developed nation, with extensive privatization, competition by gov-
ernment officials for their jobs, and other strategies to shrink the eu lic sector.
NPR has followed the lead of these Westminster countries. The lessons are fuzzy
at best, however, for several reasons.

* These nations all have parliamentary forms of government, which create
very different tensions and pressures than the American separation of powers.
Many of the toughest unanswered questions for the NPR—How many of the
Clinton administration's plans could be accomplished without an active partner-
ship with Congress? How could such a partnership be built?—were not issues
in these other nations.

¢ Despite the considerable experience these nations have amassed, the results
are not yet clear. The devolution movement in Britain, for example, has been
accompanied by more centralization in other areas. There is little convincing
evidence that greater devolution of power has produced better outcomes.10
Meanwhile, the sweeping reforms have created huge political battles.11 In New
Zealand, despite the huge changes afoot, there has been little evaluation of the
results. The first thorough study will be completed during the summer of 1995.
Meanwhile, the reforms have raised as many questions as answers.12

+ Even where similar enterprises in different countries might suggest some
lessons, plucking reforms out of context can prove dangerous. For example, both
the NPR and some Republican reformers have pointed to New Zealand's privat-
ization of its air-traffic control system offers a model for the United States to
follow. It is one thing, however, to privatize a system employing just 700 em-



92

mistakes were made by the 500-person task force in that they did
not involve senior Members of the Congress early on.

The way our government is structured, it’s very easy to stop
something. The trick is to make something happen. And it can only
happen if the two branches work together. So I don’t care what the
distribution of party power is, you’ve got to have the Congress and
executive branch working together if you are going to make any-
thing significant happen.

I think NPR I was dreadfully off base even in the rhetoric where
they asserted that two-thirds of the recommendations could be ac-
complished by executive action. I read the proposals in the main
text of the NPR report. They didn’t call them recommendations;
they called them actions. But of the 117 actions, I counted 60
which could not be done without the Congress. And the same is
true of course of the 384 in the attachment to the report.

So you have to start early. You have to find out what Members
of Congress think are the problems. Just as somebody said earlier,
perhaps you, when you are a management consultant, you go out
and ask the people what they think. Congress is one of the cus-
tomers, by the way, in my parlance. You go out and ask them what
they think the problems are, what they think the solutions are, and
work them out together.

Mr. Horn. Let me list a few types of obvious executive-legislative
cooperation. One, you can involve the Chair and ranking member
of the relevant committees in authorization, subcommittee on ap-
Propriations and oversight, and either have them or their senior
staff as part of a task force. Obviously it’s difficult for us to get
downtown, especially during these first 100 days.

I think we're talking about a mixture of Members and senior
staff as one way to participate in some of the policy formulating
task forces. Other ways you suggest is to come up, touch base with
all those people, get their ideas in their office with a leisurely talk
and see what’s making them tick on this because obviously they
are going to have an effect on authorization, budget, and oversight.

Another way certainly would be to involve them in the period
just prior to the formulation of suggested recommendations to go

efore the full group, maybe spend an afternoon. If we could ever
get the six in the room of oversight authorization and appropria-
tions, that might be a useful aspect. But it is more useful, as Presi-
dent Truman found, to get them involved from the beginning.

Mr. Jasper. Exactly. The earlier the better, and the less formal
the better. I would not formalize the process.

Mr. Horn. Not necessarily in a hearing and all that, but sit
down and touch base with them. Am I missing something? What
else would you do besides the obvious?

Mr. FosLeR. Mr. Chairman, I might mention the academy not too
long ago did a study of the relationship between the Congress and
the executive branch which was put in the report called “Beyond
Distrust: Building Bridges Between the Congress and the Execu-
tive.” It addressed many of the issues that you are raising and sug-
gested various approaches and some specific institutional tech-
niques that might Be used. And I think it might be worthwhile re-
viewing some of those.


60

expected to operate or manage an entirely new process without having an oppor-
tunity to learn that new process. Contracting out, for example, requires shifting
from directly carrying out an activity to administering a contract through which the
activity is conducted, a very different task requiring very different skills for which
people must first be trained to avoid high costs and possible corruption.

Instead of gearing uP to prepare government employees for their new roles and
culture envisioned by NPR, training activities are said to be reduced in most domes-
tic agencies. Some have never had much capa lity. The integrated career develop-

program put together by forrner OPM Director, Connie Newman,
has been dismantled. The Federal Executive Institute no longer has a full-time Di-
rector, and apparently the regional training centers are slated for elimination. The
future of the successful Presidential Management Intern program is uncertain.

It does not appear that we will retain any point of leadership with government-
wide responsibility for helping agencies make the transition to a progressive, skills-
oriented, employee empowered workplace. Do we really believe that none is needed,
or that the policy leadership and oversight can be handed over to contractors?

Instead of moving from rowing to steering, as contemplated by the 1978 Civil
Service Reform and NPR, OPM seems to be moving from rowing to drifting.

DECENTRALIZATION

The NPR recommended delegating a number of central policy agency functions to
the agencies to reduce centralized red tape and permit agencies to better tailor man-
agement to their particular needs, This concept is fully consistent with the thinking
of most students of public administration and should be supported. As with every-
thing else, however, implementation hes its pitfalls and I suggest this Committee
explore NPR experience to date as future hearings are conducted.

fumerous earlier decentralization efforts in the government have been short-lived
because of implementation weaknesses. Too often, highly desirable delegations to
agencies or from agency headquarters to the field have been gradually reversed over
time as confusion, blurred accountability and even corruption have led to recen-
tralizing what had been delegated. There are decentralization flaws that recur time
and again. Several basic elements of decentralization can be stressed.

First, there needs to be an assurance that the organizations receiving the delega-
tions have the capacity to perform the delegated functions. Typically, there are great
variations in the existing capacity of agencies to handle a higher leve) of personnel
responsibilities, from excellent to poor. Second, the delegating agency must remain
accountable for those authorities which have been delegated. Therefore, the delegat-
ing agency needs to have an effective oversight program to monitor performance of
the activities delegated and must retain more than a theoretical ability to modify
gr withdraw the delegations when performance is inadequate over a period of time.
Third, sufficient capacity needs to be retained by the delegating organization to ad-
vise those that need technical assistance. I believe that GSA is trying hard to follow
this course of action, but OPM has evidenced little understanding of decentraliza-
tion and has performed poorly. Effective decentralization is not regarded by most
gbservers as having been a strong suit of Phase I. It is my impression that OMB
has provided litle leadership in how this important component of NPR should be
managed.

RED TAPE CUTTING

One of the success stories of the NPR Phase I appears to be in the area of sim-

lifying regulations and procedures. These accumulate over periods of time to unbe-
Flevable proportions. This io an area where T believe the NPR emphasis on individ-
ual ereaivly and innovation of agency teams is paying dividends,

It_is too soon to make a firm assessment of this encouraging aspect of NPR, but
if NPR ean Teach the point of developing techniques providing eontinaing protection
against future return of red tape, without embedding the reforms in such a protec-
tiie shield they fail to adjust to changing needa, it will have deserved a gold medal.

VERIFICATION

Considerable variation in the quality of performance among agencies is to be ex-

d in any government-wide reform. I believe the Committee will be interested

in ascertaining what oversight mechanisms are established to assess these vari-
ations and move on a timely basis to help strengthen areas in which NPR expecta-
tions are falling short. It is important that agencies arrange for independent ver-
ification of claims of progress to make sure they are accurate and can withstand
outside scrutiny. This should be done as soon as products begin to appear rather
than waiting for the usual post-audit reviews. OMB should be in a position to pro-



56

ess to bring about basic changes that should have been addressed in Phase I. It is
too early to predict with any confidence the extent to which useful results may
emerge.

PHASE I

When President Clinton announced his intention to “Reinvent” government, there
was considerable skepticiam as to whether there was substance behind the rhetoric.
Although I shared that skepticism, I was pleased that an incoming president was
going to at least address the current. problems faced by government, and do it on
a large scale. I was also 9 plensed that he had given the Vice President a leading role
in developing recommendations on how to reinvent government.

‘As recommendations of the National Performance Review emerged, a few strongly
criticized them as being a mishmash with no underlying theory or cohesiveness.
True enough, but pragmatists saw in the NPR a number of things that sounded
pretty fae , theory or no theory.

The NPR goal of cutting red tape is a perennial favorite, even though the red tape
seems to have a remarkable ability to regenerate over time. Cutting costs, providing
more flexibility to agencies, empowering employees, better measurement of perform-
ance, and other objectives were welcomed by many of us. Renewed attention
to intergovernmental problems such as unfunded mandates was also a plus.

The NPR gave a welcome boost to the need for more experimentation and more
pilot operations through accepting offers from agencies to become Reinvention Lab-
oratories. NPR promised a welcome emphasis on results. The greater support indi-
cated by NPR for initiative and creativity on the part of government managers was
long overdue. As one would expect, reducing the size of government appealed greatly
to those outside government, and did much to generate support from Republicans
as well as Democrats.

Not all NPR concepts appealed to me, however. The overkill on satisfying the cus-
tomer has almost replaced the much broader, and deeper, concept of serving the citi-
zen. The customer image is useful up to a point, but it has begun to push to the
background the responsibilities of citizenship. It also tends to move us too heavily
in the direction of listening to the polls of the day and the pleas of the special inter-
est groups in carrying out our laws.

fowever one may judge the quality of NPR concepts, we have to remind ourselves
that concepts for institutional change do not, in themselves, produce results or solve
problems. Even the most simple reform requires implementation design and execu-
tion skills if it is to be translated into effective action. Under the most skillful man-
agement of the change process, such NPR objectives as clarifying program objectives
and measuring results are exceedingly difficult to achieve. Phase I did not measure
up well to the implementation task, as we will discuss.

DESIGN PROCESS

Organization and Staffing Problems. To begin with, a number of knowledgeable
observers have been concerned about the manner in which people were chosen to
work on the NPR teams. At first, there acemed to be a commendable effort to utilize
experienced men and women in the career service. 1 say “commendable” because,
with proper support from political leaders, top career men and women are far more
innovative than the public realizes, and their knowledge of the subject matter can
save time and avoid costly mistakes that tend to plague outside “experts” that are
too often called upon. Not infrequently, however, experienced men and women who
were tapped for initial duty with the NPR crosscutting systems teams, were as-
signed to entirely different areas with which they were not familiar and then given
very little time to understand the territory they were to reinvent or to interact suffi-
ciently with the various stakeholders.

Turning to the internal agency NPR teams, these might be expected to vary con-
siderably in quality and approach from agency to agency, but I doubt the Vice-Presi-
dent is aware of the degree of contrasting styles in how these agency teams func-
tioned. In a few instances, for exemple, some agency personnel most knowledgeable
in the subject matter were prohibited from even talking to the agency NPR teams.
At times the agency NPR recommendations were held very closely and not shared
with agency managers who might have had valuable suggestions to offer. Other
agencies fared better.

‘Surprisingly, very little field involvement was evident, yet the field men and
women have the most interaction with the government’s customers and are in the
best position to provide a grass-roots perspective.

In ‘addition, NPR suspicion of career managers, and the general denigration of
them, has not been conducive to generating confidence or a sense of ownership in


18

one, an executive assistant, the other the administrative assistant,
and I look at who are in these offices now and the vast super-
structure there, I wonder how a Secretary can get anything done
with all the people writing memos to justify their existence.

And the only way I know how to deal with that, and the way
that I have dealt with it when I was in the university, is to just
set a target and say, “That’s it, folks; you pick the parts you want
to remain, but they are coming out of your budget.” How active are
you getting on this idea?

Mr. KoSKINEN. You have to be careful about an interesting bal-
ance. As you look at the private sector, the companies that have
done only targeted work, saying, cut 10 percent, or 10,000 people,
are the ones that discovered that streamlining or downsizing
doesn’t work. What you have to do is take a look at how the work
is done, where the problems are.

You have to have a target but you also have to analyze where
the barriers and the obstacles are, because otherwise what happens
is you simply automatically cut whatever the arbitrary number is
and you don’t change the way the work is done. You don’t change
the number of levels of review, and you don’t, as they say in the
jargon, “reengineer” the operation. The net result is that you have
fewer people working in the same way trying to do the same
amount of work and that can’t be done. You have to have targets
but you ultimately have to tailor them to the situation in each
agency and the agencies ultimately are the ones who have to be the
best judges of that.

Mr. Horn. Thank you.

I now yield to the gentleman from Virginia, Mr. Davis.

Mr. Davis. Thank you. I apologize for coming in late.

Dr. Rivlin, good morning. just had a chance to review
everybody’s testimony last night but I haven’t have an advance
copy of Dr. Rivlin’s. Just looking at it now, you noted civil service
reform was some unfinished agenda. Any thoughts on what some
of the things you would like to look in that? Obviously we are try-
ing to update a system and government is reinvented as our econ-
omy and institutions are reinvented. Any specific thoughts about
what you would like to do on the civil service side?

Ms. RIVLIN. Yes, and we will have more specific proposals fairly
soon. But I think the general objective of civil service reform is to
make it easier for managers in the Federal Government to use
their work force effectively, to reduce the number of categories of
civil servants that impede promotion, and shift people around into
more productive roles. It should also make it easier, although not
absolutely easy, to fire nonperformers. The government is very
cumbersome in its procedures, and I think everyone agrees that we
need to have a way of making sure that people are performing, of
measuring their performance and, when necessary, getting rid of
nonperformers.

ir. DAvis. Thank you very much. I yield back.

Mr. Horn. The gentleman from Florida, Mr. Scarborough.

Mr. SCARBOROUGH. Thank you, Mr. Chairman.

I would like to thank both of you for coming today. Dr. Rivlin,
I would like to commend you on the work you have done in this
area especially. I am a big fan of your 1992 book, “Reviving the


47

solution in Oregon is to have those categories all blended together.
We have a Statewide comprehensive immunization campaign that
involves the private sector, the hospitals, the rotary clubs, a com-
prehensive Statewide effort. We want to bring the Federal Govern-
ment into that partnership. We'll hold ourselves accountable for re-
sults, immunizing the kids, but let’s do it in a focused, flexible way.

All of this builds on our Statewide system of performance meas-
urement and benchmarking. What we are trying to do in Oregon
is to agree as a State on a basic vision for where we want to be
in the future and on strategies for achieving that vision. We then
tie that vision into measurable results. We call them benchmarks,
and then we aim our initiatives at those fundamental benchmarks
and monitor our progress against them.

I have copies of the report, if you would like, to pass around.

Now, the benchmarks we have in Oregon are organized in three
broad categories. We measure how we are doing as a people, start-
ing with babies at birth all the way through senior years. We
measure our quality of life and we measure the economy both in
terms of economic performance and the business climate.

In all, we have 272 benchmarks. We also use the benchmarks for
setting priorities and we've also disaggregated at the county level,
so local communities’ work can be done using benchmarks as well.

The benchmarks focus on results, not effort. A key ingredient of
the benchmark system is that we try to start with the fundamental
results we want for our States. You won't find in the benchmarks
things like school expenditures, prison beds, environmental en-
forcement. What we try to look at first are the outcomes we want
for our State: Literacy, air quality, crime rates. Then we step back
and ask ourselves what do we need to do to achieve those results?
What changes in policy, what new partnerships are we going to
need to achieve the results that we set up for ourselves?

The second feature of the benchmarks, which really relates to
this, is the benchmarks aren’t simply for State government. The:
are as relevant to local government, to nonprofit sectors and busi-
ness, as they are to the State government because they fundamen-
tal—they focus on the fundamental outcomes. Indeed, we are now
asking the Federal Government to join us and think about how
Federal dollars can be used to focus on the outcomes that we care
about.

Examples of benchmarks, reading skills, writing skills in the
school years are examples. Reducing the rate of poverty in Oregon
is a benchmark. Teen regnancy reduction is a benchmark. And as
I mentioned, we can Break all these out as much as we can by
county level.

Now let’s talk about the NPR model and the model we are trying
to build in the Oregon Option. The basic idea of the Oregon Option
is to focus on measurable outcomes as the first point of departure,
then to give communities the power to make decisions using those
outcomes, with those outcomes in mind. Cut the red tape, get out
of the way in terms of the Federal and State dollars, give commu-
nities the ability to achieve results and then hold ourselves ac-
countable for performance. We have applied that model with the
Oregon Option in what we call the human investment framework.
We are looking at benchmarks at several stages. One is in the area


51

Next Steps

We recognize that a great deal of collaborative work lies ahead to take this con-
cept forward. Team structure, benchmark outcomes, timelines, budgets, and organi-
zational logistics need to be established. We are moving on Oregon Benchmarks al-
ready. We are ready to move on The Oregon Option.

APPENDIX A—A MENU OF HUMAN INVESTMENT BENCHMARKS,

The following benchmarks illustrate the kind of results that Oregon seeks to im-
prove the lives of its people.

Family Stability 1980 1989 199019911982 1983 2000-2010
1. Pregnancy rate per 1,000 females ages 10-17... 28.0 19.6 19.7 19.3. 80 80
2. Percentage of children living above 100% of the

federal poverty level cS A% ner AM ene — 92% 100%

3. Mumber of children abused or neglected per 1,000
persons under 18
4, Spousal abuse: domestic violence calls per 1,000
households
5. Parentage of children who are homeless at some

123° «113° «105° «113,108 6D 200

47.9 46.1 453° 457 569 300 © 200

tune in the past year 15% 18% 20% 0% + 0%
6. OF children bor outside of marmage, the percent-
‘age who have legal paternity established in @

tiven year BRK ae WH ne 49% BO 9K
7, Percentage of current court ordered child supper

paid to single parent families a MG ATH 80% nee AH HK 99%

Healthy Babies and Prescheciers 1980 1989 1990-1991 1992 1993-2000 2010

9. Percentage of healthy birthweight babies ........ 95% 95% 95% 95% 95%... WH 9B%
10, Percentage of infants whose mothers did not use

2. *ilicit drugs during pregnancy... 8% 7 woe 99% 100%
b. aleahol during pregnancy (self reported. by

‘mather) 93% ME 95% 95% 99% 100%
tobacco during ears (walt rete y

smother) so 8% TI 19% 9% ae 999% 100%,

11, Infant mortality rate per 1,000 220 88 B30 72 TD ne 600

12, Percentage of two-year-olds who are adequately
immunized ..

13, ‘Percentage of children entering kindergarten
meeting specific developmental standards for their
ae

2. Language and literacy development
b. Physical well being

*Data expected in September 1994.

_ 47% 50% 100% 100%

‘Schools Years 1980 1989 199019911992 199320002010

1M, Student Skills: Percentage of eleventh grade stu-
dents who achieve established skill levels

a, Reading 82% 99%
b. Math 70% 99%
. Witing—Ideas 99%
. Writing —Organization 99%
. Writing—Conventions _ se woos 99%
15. High school graduation rate .. TB% 712% 76% 93% 95%

16. Percentage of high schoo! students enroed in
structured work experience programs 7 8% HHH BSH HEH


80

masa media to focus obsessively on government's problems. Aggressive management
sometimes produces problema. The news media all too often seizes on these prob-
lems as news, and television shows often present the problems as part of an ongoing
pattern of poor performance. The media attention raises the salience of the problems
to a level that neither members of Congress nor senior administrators can ignore.
‘They respond with steps to try to ensure that the problems do not recur. This usu-
ally’ means tightening rules, limiting discretion, and increasing oversight, all of
which muna counter to the reinvention movement's focus on empowering bureau-
crats. Recurring cycles of perceived abuse-attention-crackdown has encrusted the
ship of state with barnacle-like regulations that tend to pile up over time. These
barnacles are hard to remove and makes the ship much more sluggish, more dif-
ficult to maneuver and especially harder to adapt quickly to rapidly changing prob-
lems. This is not an apologia for poor government performance. But if we want gov-
ernment management Yo improve, we have to find a way to encourage, even reward,
government managers for taking the right risks.

6. How can we build the capacity to solve the special problems posed by high-risk

rograms? The NPR paid scant attention to the government’ “high-risk programs,”
Identified by both the Office of Management and Budget and the General Account-
ing Office, which have the potential for costing the federal government billions of
dollars.3 The Department of Energy, for example, has more than $19 billion in con-
tracts under management by major firms and academic organizations. Careful con-
trol of these contracts has been a major and ongoing problem. Savings from solviny
these and other management problems would swamp the savings promised throug!
the NPR. Money saved by avoiding future management problems, however, will not
show up on the budget as savings. It cannot be scored by CBO. Nor can members
of Congress take eredit for saving it or turn around and spend the savings else-
where. ‘The money saved is real, but expenses foregone do not travel politically as
well as bureaucrats shown the door. Without a sustained attack on high-risk pro-
grams, their long-term costs could easily swamp the savings the NPR secks.

7. How can we learn the lessons of reform: which changes work; and which ones
should be avoided? One of the most remarkable features of the NPR is just how
much positive activity it has generated. No part of that activity has been more re-
markable than the inventiveness thousands of government employees across the
country have shown in the reinvention labs. The NPR has worked hard to gather
success stories from these labs, but the NPR's reaming strategy is embryonic.
has been little systematic effort to learn what the labs, or the broader reinvention
movement, have to teach.4 A Department of Veterans Aifairs reinvention lab in Mil-
waukee, Wisconsin, for example, has found a way to restructure the procurement
process, improve everyone's satisfaction, and save $2.8 million on contracts valued
at $33 million. In the process, the Jab developed some extremely innovative strate-
gies for solving nagging problems. The NPR, however, has devised no way to reach
out, collect the information about what works best, digest it, and figure out how to
sharpen the principles of reinvention.

FINDING ANSWERS

The NPR has produced great energy, real savings, and important reform. Along
the way, however, it has raised far more questions than answers. The federal gov-
ernment, of course, has not been alone in this problem. Reform has become the uni.
versal driving force of management—federal, state and local; public and private; in
the United States and abroad. It is scarcely surprising that federal reformers have
looked broadly in the search for answers.

Rich reforms have spread around the world, but the lessons are anything but
clear. Consider the following.

Lessons from the States

In the state of Oregon, the “Oregon Benchmarks” program committed state offi-
cials and citizens to defining policy objectives, defining measurable indicators, and
building partnerships to accomplish goals. The program is fascinating and rep-
resents the most asive application of performance standards in American gov-
ernment today.5 It has also served as the foundation for a far-reaching memoran-
dum of understanding with the federal government (reached in December 1994) to
provide greater flexibility in spending grant money in exchange for performance re-
porting. As fascinating as the Oregon experiment is, however, the results are-not

In.

Many of the Oregon targets are very different from typical federal programs. It
is not yet clear, therefore, just how applicable to federal reform the Oregon experi-
ence will be. The federal government, in most of its programs, is far removed from
direct service delivery. It would have a much harder time defining targets, assigning


13

make them more efficient. As time progressed, I think everybody
realized that is only part of the question. The other part of the
question is, are there some of these things we shouldn’t be doing
at all? Could the private sector——

Mr. FLANAGAN. An excellent question.

Ms. RIVLIN. Could the private sector do them better? Could
States and localities do them better? So Phase II while not abso-
lutely distinct, has focused more on these questions.

Mr. FLANAGAN. I have just one more question. Let’s change gears
here. I will try not to strip you out too badly. The labor-manage-
ment relationships that you have discussed, is nonunion labor
factored into that at all?

Mr. KosKINEN. I'm sorry, is what?

Mr. FLANAGAN. Has nonunion labor factored into that at all?

Ms. RIVLIN. Yes.

Mr. KoskINEn. Yes. We have created under Phase I the National
Partnership Council, which includes the leaders of the major em-

loyee organizations and is working with managers from the top
down into the field in partnerships which are primarily focused on
employee organizations and managers. As I said earlier, the entire
reinvention operation in the government is drawing upon the infor-
mation, experience, and ideas of all employees, and all of the re-
invention and reorganization focuses on those ideas and feeding
them back into their work and trying, as the Vice President says,
to empower employees to be able to perform their jobs better. Those
decisions are being made irrespective of their union or nonunion af-
filiation.

Mr. FLANAGAN. I merely wonder about the impact of organized
labor. They make up less than 15 percent of the work force in this
Nation but they seem to have a disproportional voice, and I was
wondering how that factored into your decisionmaking or informa-
tion-gathering functions that you are doing in regard to labor-man-
agement issues.

Ms. RIVLIN. The government is much more heavily unionized
than the private sector and that seemed very important——

Mr. FLANAGAN. I am trying to pull lessons learned out of the pri-
vate sector and apply them to what we might do there.

Ms. RIVLIN. Right. But in order to have a successful restructur-
ing of the Federal Government it is important to work very closely
with the unions, of which there are a large number, and get them
pulled into partnerships with management.

Mr. KosKINEN. I would note that, both in the private sector and
certainly our experience in the reinvention of government, some of
the best and most creative ideas have come from union members
and union leaders at all levels. My experience as a member of the
National Partnership Council has been that no one has been more
focused on improving the performance of the government than
union leaders. Their definition of a truly successful partnership is
one that improves the performance of the agency involved.

Thus far, employee unions have not been a difficulty, a barrier
or a burden. They have actually been leaders in this move to im-
prove the dialog between workers and managers, to listen to work-
ers more and to build on their experience, which oftentimes, in my


55

much weight to the influence of special interest proups. I happen
to have a high regard for Secretary Cisneros. This decision hap-
pened before he really had a chance to review what was needed.

Size of government is too much equated with the number of Fed-
eral employees. That is the one component of government that has
remained. Rairly constant for about 30 years. I think it was impor-
tant to give attention to the number of employees, but by looking
at that as the total measure of the burden of government on the
taxpayer, we have had a superficial approach to the solution.

‘he experience of corporations and in foreign countries is some-
thing, I am glad the committee is looking at. I would say that there
are some important lessons to be learned. One, determine the roles
and the structures before major downsizing of staff. Second, high
priority should be given to professionalism of those people who are
retained and to the retraining of people to new roles and new cul-
tures. In my judgment, we have done quite poorly in Phase I on
all these counts.

There are some positive aspects of Phase I. Certainly the red
tape cutting is moving forward and I think we'll see a lot of
positives in that area.

It is too early to assess the Reinvention Labs, but I except a
number of improvements to come out of that experimentation and
the pilot operations. Hopefully, the agency performance agreements
will turn out to be useful and there certainly has been a welcome
emphasis on innovation, which I think does credit to the NPR.

Under Phase II, the emphasis on what should be done is cer-
tainly welcome even though it should have begun about 2 years
ago. I think it is better organized than Phase I, has less tension
between the OMB and the NPR, and I am particularly pleased with
the new OMB leadership.

Mr. Horn. I hate to interrupt. We have a vote that is just occur-
ring and we are going to have to leave. When you finish that para-
graph, we will recess for 10 minutes.

Mr. INK. OMB is the bright spot. Mr. Koskinen is very able and
Alice Rivlin is giving strong support.

In conclusion, it is my view that despite the mistakes, and there
have been a number of them in Phase I, we have an opportunity
to move forward in a much more positive way now. I don’t think,
however, we are still well-structured or well-organized to handle
departmental restructuring or some of the other more basic issues.

And finally, I think the problem of human resource development
which is so important in the work of the private sector is a very
serious problem and has been largely ignored by the NPR.

Thank you.

[The prepared statement of Mr. Ink follows:]

PREPARED STATEMENT OF DWIGHT INK, INSTITUTE OF PUBLIC ADMINISTRATION

Mr. Chairman, I appreciate the opportunity to comment on the National Perform-
ance Review (NPR). As suggested in your invitation to testify, I will share my views
of the NPR process and its approach to reorganization. I should like to stress that
this statement reflects my own personal views and not necessarily those of any of
the organizations with which I am currently affiliated.

T have welcomed the President's initiative to improve the functioning of govern-
ment, and support the majority of the NPR concepts. Implementation of the NPR
concepts during Phase I has been quite disappointing in a number of respects, how-
ever. Phase II appears to be better organized, but is appearing very late in the proc-


2

tiative to hear other ideas about government reform. The hearing
will provide the subcommittee with an opportunity to review the
National Performance Review, hereafter referred to as NPR, and
consider whether it represents the best approach to reorganizing
government.

In 1993, the administration embarked on a project to improve
government. After a 6-month evaluation of government operations
and management, a report called “From Red Tape to Results: Cre-
ating Government that Works Better and Costs Less, Report of the
National Performance Review,” was issued which contain over 300
separate recommendations for improving government. At that time,
no other fundamental review was planned. However, in January
1995, the administration introduced a second phase.

NPR Phase II required Federal agencies to reevaluate their basic
missions and develop proposals for changes that they thought were
required. The process is being monitored by a steering committee
consisting of representatives from the Office of Vice President and
the Office of Management and Budget. Whereas the first phase had
focused on how government operates and how procedures could be
improved, the second phase focused on what government does.

Today, we want to take a very close look at how the NPR process
was developed and how it is working. We will hear from the Direc-
tor of the ice of Management and Budget and from several other
qualified witnesses who have examined the NPR process. We will
also hear from witnesses who will tell us about the lessons that
States and other countries have learned about the rewards and pit-
falls inherent in reforming government.

I look forward to everyone’s testimony and to learning from their
varied experiences how to make government work: work more effec-
tively, provide better services, and be more efficient. We hope that
at the end of the hearings we will have a coherent, comprehensive
vision of where we as a government should be going, what reforms
are needed and what steps should be taken to achieve the results
we want.

Welcome, Dr. Rivlin. We are delighted to have you with us.
Please proceed. As you know, we have a general rule in the com-
mittees of trying to summarize your written statement in 5 min-
utes and then proceed to questions, and I assure you we will get
all your points out before you leave.

STATEMENT OF ALICE M. RIVLIN, DIRECTOR, OFFICE OF MAN-
AGEMENT AND BUDGET; AND JOHN KOSKINEN, DEPUTY DI-
RECTOR, OFFICE OF MANAGEMENT AND BUDGET

Ms. RIVLIN. Thank you very much, Mr. Chairman.

I am very pleased to have with me today my very able Deputy
Director for Management, John Koskinen, a man who has consider-
able experience in restructuring private sector operations.

I think we all realize the importance of having government serv-
ices that work well and don’t cost more than is necessary to get the
job done effectively. There is a lot of negative rhetoric these days
about government, and a lot of stereotypes about government bu-
reaucracy. While this rhetoric has some foundation, it also has a
large component of myth.


72

ment capacity, and clarify the appropriate roles for its use among central manage-
ment agencies, departments, and agencies. Most successful private and public im-
provement jatives have depended on the decentralization of power to operating
units, the equivalent of bureaus or similar agencies in the federal government. How-
ever, central organizational capacity is also needed to take on the continuing respon-
sibility for imp lementation, modification, or regulation of specific NPR proposals.
Sustained work by a knowledgeable staff with across-the-government perspectives
could help to produce the best results from the reinvention effort.

Related issues of organizational responsibility and capacity also need to be ad-
dressed for such systems as budgeting, financial management, human resource
management, procurement, information management, asset management, perform-
ance management, audit and evaluation, and the technical assistance and training
required for these and other functions. Equally important is the need to integrate
these systems—and the various independent initiatives that are attempting to re-
form them—at appropriate government-wide, department, and agency levels. Such
an effort involves all of the central management agencies, including the Office of
Personnel Management and the General Services Administration, each of which is
engaged in its own reform efforts. But the principal responsibility for seeing the sys-
tem whole and aesring the integration of related reform efforts falls to OMB,

And, indeed, the OMB leadership has been giving increasing attention to these
over arching issues. For example, the NPR established Chief Operating Officers
(COOs) in each of the departments and major agencies; the COOs in turn comprise
the President's Management Council. The Chief Financial Officers (CFOs) and In-
spectors General (IGs) also have their own councils. The Deputy Director for Man-
agement, as the focal point for these three councils, appropriately views the integra-
tion of their agendas as an opportunity for bringing greater coherence to manage-
ment improvement efforts across the government and within departments and agen-
cies. Such integration should also include related initiatives for the other manage-
ment systems as well.

deed, if the NPR is to be successful, such basic questions of organizational re-
sponsibility and capacity for the increasingly ambitious and wide-ranging reform
agenda—questions of leadership, systema development and integration, technical as-
sistance and training, and oversight—will need to be addressed across the broad
range of reform initiatives and management responsibilities.

The third type of capacity concerns the ability of Congress and the executive
branch to work together to create a high-performance federal government.

In recent studies for Congress of HUD, EPA, and FEMA, Academy panels con-
cluded that one of the principal obstacles to effective management in the executive
branch was lack of clear direction and reasonable and consistent oversight from the
Congress. While the two branches of government each have their own responsibil-
ities, they also need to work together to provide a machinery of government that
will permit each branch, of whatever political persuasion, to formulate and imple-
ment policy in an effective and efficient manner.

Here again, the GPRA should help both the Congress and the executive branch
to apply iscipline to the definition, measurement, reporting and assessment of re-
sults.

In the meantime, the Congress needs to build its capacity to better understand
the operations of the executive branch, and to help design and oversee the complex
organizational changes that are underway, and can be expected in the future.

‘An Academy panel also has addressed other ways in which the Congress and ex-
ecutive branch can build bridges to improve its working relationship.

CONCLUSION

Mr. Chairman, the National Performance Review is an ambitious attempt to re-
structure the federal government, in keeping with the tradition of previous reform
efforts in this century and world-wide efforts among institutions in all sectors to ad-
dress contemporary challenges.

The movement from the Phase I concern with “how” government works to the
Phase IJ concern with “what” government does is an appropriate and constructive
expansion of scope.

ut if the NPR ia to consolidate its gains to date, and sustain the energy and ini-
tiative it has brought to the task of improving the federal government, it will need
to address key issues of accountability, sharpen the definition of its framework and
rinciples, and build the capacity required to carry out this task over the long run.
Fewill also need the support and partnership of Congress in what can only succeed
as @ joint effort to make the federal government fully capable of performing in the
interests of the American people.


27

cessful. Before we started to downsize we had 5,000 to 7,000 appli-
cants for 250 positions from the best universities, and even people
from the private sector were coming to GAO.

I think promotion is very key. We promote on a merit-based sys-
tem. I think the selection into the SES is very crucial. We do that
through a board system of selecting people. We don’t just take the
person, as I often said when I served as Assistant Secretary of the
Navy. I had the impression sometimes that the person who flew
the most flights off the carrier deck was promoted to admiral, and
the job of admiral is quite different than being the pilot off the air-

carrier. So we select our people into the SES on the basis of
the leadership capabilities of those people for the future as we give
them the various assignments.

We are working very hard on improving technology, too. We
brought in video conferencing. We brought in the computers. We
are networking the organization. We have cut the number of our
offices in half. So we're tightening up, you might say, the organiza-
tion as we work here. So those are some of the key things that we
have worked very hard at GAO to try to achieve.

Mr. Horn. Let me ask you, now you have a large agency.

Mr. BOWSHER. Yes.

Mr. Horn. When reports are done analyzing the executive
branch activities, how many layers do they go through of review?

I will give you an example, and maybe you can tell me. Under
the law, you had to do an overall review of each of the base closure
analyses as to how particular departments, in this case the Depart-
ment of Defense, and Army, Navy, and Air Force under it. Did the
carry out the law and were their review processes efficient and ef-
fective and did they make sense? And you just filed that report,
which usually comes out about the time of their recommendations
or when they begin hearings on their recommendations. How many
layers did that go through within GAO?

Mr. BOWSHER. Our typical report first gets reviewed by the issue
area director, who is the SES person in charge of that issue area.
Then the leadership of the division—in this case our defense divi-
sion—would look at the report which is generally done concurrently
by the head of the division and what we call the “P and R” direc-
tor—the senior review authority in that area. Then myself and
maybe my deputy up there at the top would look at it, too. We do
a lot of that on a concurrent basis, but we get four or five people
taking a look before a report like that would go out.

Mr. Horn. Who are in a supervisory layer in the reporting line?

Mr. BowsHERr. That’s correct, yes.

Mr. Horn. Did anybody in the immediate Office of the Comptrol-
ler General look at that report?

Mr. BowSHER, Yes.

Mr. Horn. Who all reviewed it in your office?

Mr. BOwWSHER. Well, Dexter Peach. He’s my Assistant Comptrol-
ler General for planning and reporting, and then myself.

Mr. Horn. Did you have a chance to read the whole report?

Mr. BOWSHER. Yes, I did.

Mr. Horn. What's your reaction to that report? Do you think it
did the job that Congress expected it to do?


70

In short, in the fourth stage, organizations are not merely restructuring, reinvent-
ing, redesigning, reengineering, and otherwise reforming themselves. They are also
fundamentally rethinking their basic purposes and means for achieving them. The
most successful ones—recognizing that the process of restructuring is a long, soli-
‘ay struggle—are committed to continuous improvement.

lacing the federal government as a whole within this sequence is difficult be-
cause it is a vast and varied institution. Some parts of the federal government have
gone through substantial restructurings that reduced costs and improved perform-
ance. The military, for example, both downsized and improved its ability to perform
in such combat missions as Storm. Examples can be found in civilian agen-
cies, as well. Indeed, at a time when the public’s confidence in government has
reached all-time lows, we should take care to avoid portraying the whole federal
government as inept and unable to carry out important functions which in fact are
competently performed.

But taken as a whole, the federal government has yet to reach the fourth stage
of fundamentally rethinking its purposes. Phase II of the National Performance Re-
view appears to be moving in that direction. And the 104th Congress clearly is ask-
ing fundamental questions about the role of government.

e key question is whether the federal government will leap-frog the unproduc-

tive middle stages of the common path of restructuring and go directly to the issue
of performance.

‘A FRAMEWORK FOR PERFORMANCE

To move successfully toward addressing fundamental questions of performance,
the NPR will need a clearly articulated framework, or at least a robust set of prin-
ciples that can drive the effort. The four principles articulated for Phase I (putting
customers first, cutting red tape, empowering employees, and cutting back to basics)
may have offered a practical way of focusing the initial NPR agenda. But they do
not provide the scope, depth, or staying power to drive and sustain the effort. The
“decision tree” suggested in Phase [I—which asks such key questions as whether
program missions are appropriate to the federal government—moves in the right di-
rection, but does not go far enough.

‘The Academy suggests a framework in an appendix to this testimony. It begins
with public purposes, and asks first what institutions other than government—in-
cluding business, nonprofit organizations, and civil society—can best achieve those
public pu: 8. To the extent there is a legitimate government role, it asks whether
state and local governments can better perform that role. If there is a federal role,
then an additional series of questions regarding organizational design and appro-
priate performance capacities need to be ncldreased. Such a framework also suggests
the need to examine entire policy areas in a more comprehensive manner, suc
the Academy has done in its recent studies of EPA, HUD, and FEMA.

Against such a framework, current federal programs and activities can be
screened according to the following considerations:

1) Keep anc strengthen those programs which fit a federal mission and which
work, or can be made to work, consolidating programs and eliminating duplica-
tion where appropriate, and reengineering core processes.

2) Terminate those programs which do not fit a federal mission and do not
work, or cannot be made to work, or do not work at reasonable cost.

8) Privatize or devolve those programs which work and have value but do not
fit a federal mission.

‘4) Give further consideration to those programs which do not fall clearly into
one of the firat three categories.

Cases requiring further consideration include programs or activities that are not
working well but might serve a federal mission if they could be made to work. These
require special examination, and should be given a regimen and time-schedule for
improving their performance, as an Academy panel recommended for HUD.

Other cases warranting further consideration include those problems that require
some kind of federal response, but about which too little is known to determine ex-
actly what to do. For these, it may make sense to experiment and find out what
works and what does not. For example, political scientist James Q. Wilson sug

sted in a Wall Street Journal article that nobody really knows what kind of we

fare program will work, and recommended that the states be permitted to experi-
ment widely, with minimal federal involvement, to discover arrangements that
work.



63

It would be interesting to learn what the public image of private sector manage-
ment would be if it were subjected to (a) the incessant criticism that government
management receives from aspiring politicians, (b) the pervasive detailed reports of
multiple government oversight entities who gain their recognition and praise from
negative reports rather than balanced observations, (c) a press that also feeds on
the negative in government rather than the positive, (d) special interest groups with
the power to force an ever mounting pile of restrictive red tape on managers, and
(e) a board of directors numbering in the hundreds, each of which is entitled to look
into the smallest detail of day-to-day operations.

In addition to the attention these corporations and governments have given to
professionalism in the change process, most of them have learned the importance
of first deciding what the organization is to do before launching major restructuring
reforms.

Organizations the Committee can draw upon for information about private and
foreign restructuring practices include the National Academy of Public Administra-
tion, the Council on Excellence in Government, the Conference Board, and the
American Consortium for International Public Administration.

CENTRAL POLICY LEADERSHIP

Office of Management and budget. Phase II appears to be functioning better than
Phase I in several reapects. Perhaps the most positive development in the Adminis-
tration’s organization for Phase II is a key appointment in OMB. Director Alice
Rivlin and the White House have selected a topnotch manager, John Koskinen, to
the post of OMB Deputy for Management. The highly respected Ms. Rivlin appears
to be backing up this appointment by giving Koskinen strong support. It is my view
that Mr. Koskinen is already demonstrating impressive leadership as Phase II of
the NPR gets underway. Some members of the interagency President’s Management
Council appear even more optimistic.

Director Rivlin is giving heavy prominence to the second phase of N{R in the
OMB Spring Review, an excellence mechanism for dealing with such matters as goal
setting, performance measures, and program evaluation. She and Koskinen are
striving to develop more coherence among NPR, GPRA, and agency Performance
Agreements. I find these elements of leadership most encouraging.

‘One also gets the impression that Mr. Gore's role remains a highly important one,
and the -OMB tension is much reduced. Time will tell to what extent Mr.
Koskinen is able to overcome the OMB organizational difficulties he inherited. Fur-
ther, there is the question of what happens when Koskinen and Rivlin are no longer
in OMB. A number of us continue to urge serious consideration of an Office of Fed-
eral Management for the future.

Office of Personnel Management. Because I was in charge of the design phase of
the Civil Service Reform and wrote the final report on which the Reform was based,
IT have firm views on what was intended by the 1978 law. I cam assure you that
the new OPM role under the NPR falls considerably short of what the Reform in-
tended. And as you and your colleagues in Chairman Mica’s Committee talk with
knowledgeable people, I believe you will find widespread doubt that OPM is exercis-
ing the leadership contemplated under existing law. The extent to which current
management of the agency may be setting precedents that increase vulnerability of
the career service to political manipulation is also a troubling question.

The greater the degree of institutional and program changes, and the larger the
staffing cuts, the more emphasis that has to be placed on training and retaining
highly qualified professional agency personnel.

ability of any Administration to sustain the type of operational flexibilities
introduced by NPR, one of its most valuable features, depends in no small way on
a future career workforce that is professional and nonpolitical.

T urge the Committee to take the time to review the excellent report “Rebuilding
the Public Service” that was issued by the National Commission on the Public Serv-
ice.

Merit Systems Protection Board. The MSPB and the Special Counsel are now fac-
ing the most severe test of their ability to safeguard the career service against prac-
tices prohibited by law and which undermine the professionalism of the workforce.
Vulnerabilities develop most easily during periods of large and rapid change. Not
too much activity concerning NPR has been yet observed by the outside world, and
one wonders whether their important roles as envisaged by the Civil Service Reform
are alive and well. The next two years should demonstrate whether they have suffi-
cient tools and independence to succeed.

General Services Administration. Most of my reports concerning GSA are positive,
although my current information is limited. Proposals to simplify the procurement



20

ice. They recommended a significant reduction in the number of po-
litical appointees in order to enhance the President’s capacity to
manage. They claim that often the short-run political consider-
ations which are usually the focus of political appointees may con-
flict with the long-run interests in more effective and efficient gov-
ernment.

Has the NPR steering committee any plans for curtailing the
proliferation of political appointees, particularly in the light of the
administration’s difficulty in filling political positions? We're talk-
ing now about schedule C, may I say, not simply Presidential ap-
pointees.

What is your reaction? You have served inside a number of ad-
ministrations. You have watched a lot of others from the Brookings
Institution, where you and I used to be.

Ms. RIVLIN. There are certainly more political appointees than
there used to be. You referred to the Eisenhower administration.
I served in the Johnson administration and there was a much thin-
ner layer of political appointees in those days.

Whether there are too many now I think is not a question that
the NPR has really addressed. There are about 3,000 political ap-
pointees out of roughly 4 million government employees, includin
the military. That may or may not be an excessive number. I thin’
jt would be sensible to look at the actual performance of political
appointees in various agencies and see whether there could be
fewer of them. The administration has not actually filled all of the
political appointee positions.

Mr. Horn. One of the things that concerns me and I think NPR
might have discovered this, is that there are 32 layers between the
Secretary of Transportation and the controller in the Los Angeles
International control tower. Not that I want the Secretary phonin
him or her up and saying, “By the way, there is a plane on the let
side,” but it just bothers me that there are these many layers of
communication. Could we not really try to cut some of these layers
out besides the staff interchange? Sure, you have got to get a gen-
eral counsel sign off on things and so forth, but it is the number
of layers that bother me. What do you feel about that?

Mr. KoSKINEN. That’s right. In fact, that’s the real question. It
is not so much whether we have political appointees in those jobs
or career appointees because in those 32 layers, a number of those
are career managers. The real question is, what's the right number
of layers, what’s the right level of supervision, and what’s the right
span of control for supervisors. In some of the reorganizations that
we've looked at. already , when we talk about consolidating positions
we are talking in effect about eliminating political positions in
some cases because we are going to abolish those jobs.

But we're not doing it because it’s a political position. We're
doing it for just the reason you raised, and that is because we need
to improve the efficiency and the speed with which an agency can
respond to what’s going on in the real world. I think that is ulti-
mately going to be the driving force for looking at this issue.

Mr. Horn. Very good.

Does anyone have any additional questions?

If not, we thank you both for coming. You have started us off
with some stimulating discussion and ideas, and we wish you well.


37

CPO ACT RELATED PRODUCTS—Continued
Report Title Report Number Date Issued

Financial Management: Financial Control and System Weaknesses Continue to Waste
DOD Resources and Undermine Operations T-AIMD/NSIAD-94- 04/12/94

14
T-AIMDAGGD-94- 02/23/94
T-0CG-94-1 01/27/94

Improving Government: GAO's Views on H.R. 3400 Management Initiatives

Improving Government: Actions Needed to Sustain and Enhance Management Reform

Major Issues Facing a New Congress and @ New Administration 01/08/93
GAO High-Risk Series ... 12/93
Government Management - Report on 17 High-Risk Areas ov/oa/93
‘OMB's High Risk Program: Benefits Found But Greater Oversigt 08/06/92

Financial Audit: Aggressive Actions Needed for Air Force to Meet Objectives of the CFO

Att i ss T-AFMD-92-5 02/19/92
Government Management: Major Issues Facing the Congress o T-AFMD-92-4 02/06/92
Financial Management: Factors VA Needs to Consider in Implementing the Chief Finan-

cial Officers Act of 1990
‘The Chief Financial Officers Act: A Mar fe nagem
Government Management: Status of Progress in Correcting Selected High-Risk Areas
Bank and Thrift Regulation: FDICIA Safety and Soundness Reforms Needed to Be Mai

‘AFMD-91-37 07/24/91
AFMD-12.194 09/30/91
T-AFMD-93-1 02/04/93

tained T-AIMD-93-5 09/23/93
Condition of the Bank Insurance Fund: Outlook Affected by Economic, Accounting, and
Regulatory Issues ... vw TAFMD-92-10 06/09/92

Mr. Horn. How much initiative are we taking here to deal with
that cost accounting system? I know you have done a great job on
the Chief Financial Officer Act. We are going to hold those over-
sight hearings. We held them in the last Congress, and we are
going to be holding them every Congress that I think any of us

ere have anything to do with.

What about those other areas that you are talking about? Have
we taken the initiative and laid that out for the Congress? Are you
not just laying it out once but are you keeping after it?

ir, Doparo. I might point out, Mr. Chairman, in the CFO Act,
for example, we are right now under the pilot legislation that was
put in Blace in 1990. We took on some of the more difficult finan-
cial audits ourselves. For example, we are in the third year now
of auditing the Internal Revenue Service. And we are about ready
to release our third audit opinion later this month. So we are main-
taining continuity there.

Now, that audit is covering not only the $7 billion or so that IRS
uses to run its own operation but it is covering the $1.3 trillion
that they collect on behalf of the Federal Government. So we have
done that. We have audited the Customs Service back in 1992 and
1993. We have now turned that over to the Department of Treas-
ury Inspector General. They are continuing with that audit re-
quirement. We have done audits of the Air Force and the Army. We
did those for 2 years and then turned them over to the Air Force
and Army audit services and we are reviewing their work.

We are beginning the first-ever audit of the Department of the
Navy. We have also conducted financial audits of the student loan
insurance fund program for 2 years. We have now turned that over
to the Department of Education IG. We audit the bank insurance
fund the FDIC fund every year. We have audited for the last 2
years the Pension Benefit Guaranty Corporation. We are in the
process of turning that audit now over to the IG in at PBGC. We


57

the outcomes they are expected to implement. As a result of a less than open proc-
ess, it has been difficult to extend the enthusiasm of the NPR teams to the bureauc-
racy as a whole where we find considerable confusion and low morale.

Several reforms have been much more open than the NPR, but the NPR failed
to acquaint itself with earlier successful techniques that could have improved its
performance enormeusly,

Central Leadership Organization. In addition to the frequent, poor utilization of
goed people in the NPR teams, there has been a lack of individuals in the Vice:

ident’s Office with leadership experience in broad reforms that extend beyond
departmental lines. Neither has the monitoring capacity of that office been ade-

quate.

This problem has been seriously compounded, in my view, by an OMB reorganiza-
tion which folded much of an already weakened management staff into the t
units. Placing management in a budget dominated environment has failed twice be-
fore. Such an approach works against the need for addressing crosscutting manage-
ment and organization issues, and tends to place priorities too heavily on the short-
term annua) budget cycle. The budgetary environment also tends to be more control-
oriented than is consistent with NPR philosophy. Finally, in the past, when the two
functions were merged, the inexorable pressures of the budget squeezed manage-
ment out of the radar screen of OMB leadership.

The Vice-President was an excellent choice on the part of President Clinton to
provide the political leadership for reinvention of government. But it was the OMB,
not the vice-presidents office, that should have been tapped for the day-to-day. "
ordination of the government-wide effort. OMB has an institutional role which,
when properly organized, can supply the necessary professional leadership which
the political and transitory environment of the vice-president’s office cannot. Setting
up a competing NPR staff under the Vice-President left agencies somewhat caught
between the two and NPR accountability was blurred.

Adding to the leadership problems, the Office of Personnel Management (OPM)
seems to have focused primarily on cutting pages of procedures and reducing staff,
that its vital role of human resource leadership during periods of reform was lost.

SEQUENCE OF PHASES

We have heard considerable criticism that NPR has put the cart before the horse.
It is said that the NPR should have looked first at what changes needed to be made
in the roles and programs of departments and agencies before trying to improve the
processes through which these programs should be managed. We hear that NPR IL
should have come first, and I second. I agree, with some exceptions.

Some Areas Sequenced Properly. There are a number of cross-cutting administra-
tive issues that did not need to await reviews of the roles of the national govern-
ment or changes in missions and goals. In fact, it was very wise to take advantage
of the first year of a new administration to move ahead with them while a window
of opportunity existed. Simplification of government-wide personnel and procure-
ment regulations, and the roles of the central policy agencies of OMB, OPM, and
GSA are not materially affected by individual changes in roles and programs of
other agencies now under consideration. Neither do I see these central streamlining
efforts having to await a determination of the ultimate extent of downsizing. NPI
was correct in regarding these as appropriate for early attention.

Elements Out of Sequence. Agency-specific roles and processes are affected di-
rectly by program decisions, however, and in these critical areas we have put the
cart before the horse by moving process ahead of substance. HUD, for example, ap-
propriately moved quickly under strong leadership of Secretary Cisneros to clarity
some of the tangled delegations of authority that handicapped effective delivery of
department services. On the other hand, the more basic decision made at the outset
of the incoming Administration to eliminate the regional offices struck many of us
as an example of NPR “amputation before diagnosi

Little thought was given to why these regional offices had been established in the
first place as a part of earlier decentralization. They were designed to bring decision
making out of Washington and closer to the communities HUD served. Personnel
levels never permitted the staffing of local HUD offices so they could perform what
the regions were designed and equipped to accomplish, Before determining the size
and structure of the delivery system, there should have been a review of what
programs or activities could be devolved to state and/or local governments. There
should have been analyses of current community needs requiring a continuing fed-
eral involvement similar to the type that was done before the regional offices were
established.



23

Ms. Rivlin mentioned that the taxpayers no longer trust the gov-
ernment as much as they used to. I think the CFO Act is very key
to improving that trust. In other words, accountability—how well
their money is being accounted for after it comes into the govern-
ment.

The financial management systems of the Federal Government
have been in terrible shape for many years, and I think the pro-
gram the Congress has enacted calling for audited financial state-
ments of the 24 largest agencies and a consolidated financial report
sent out to the taxpayers in 1997 is exactly what is needed to try
to rebuild the confidence of the American people.

It’s also important in judging how well all this reengineering and
improved reform management reform is working. A gentleman
from Australia pointed out that having good cost information fi-
nally became important to the managers in their government once
they were held accountable for that. In other words, they didn’t
want to be held accountable for program results when they didn’t
know whether the cost information was any good or not.

So I think as part of the CFO Act getting good cost information
is very important. Regarding the Government Performance and Re-
sults Act, there are now about 75 demonstration projects that GAO
will audit, review, and report on to the Congress. Those audits, I
think, are going to be very important to see how well the agencies
can do.

So on balance we think that the NPR is a good effort. It has cer-
tainly set up a good umbrella here for improving the government
operation. And I think that we look forward to working with the

ongress to try to monitor it and see how well it does. We'd be
happy to answer any questions.

[The prepared statement of Mr. Bowsher follows:]

PREPARED STATEMENT OF CHARLES A. BOWSHER, U.S. COMPTROLLER GENERAL,
GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Subcommittee:

Tam pleased to be here today to discuss the administration's National Perform-
ance Review (NPR) initiative. The first phase of NPR began in March 1993 and fo-
gused on how existing government programs could operate more efficiently and ef-
fectively. The second phase, commonly referred to as NPR Il, began in December
4994 and focuses primarily on what government should do, My testimony today will
discuss our perspectives on each phase of the NPR initiative based on our NPR re-
Ports and our limited assessment of the NPR II proposals that have recently been
announced.

NPR—PHASE I

In September 1993, after 6 months of study, NPR made 384 recommendations de-
signed to make the government “work better and cost less.” The recommendations
covered 27 federal agencies and 14 crosscutting government systems, such as pro-
curement, human resource management, and budgeting. Following an interim sta-
tus report issued in December 1993,! we issued an in-depth analysis of those rec-
ommendations in a December 1994 report, noting whether we agreed or disagreed
with each of the recommendations and describing their implementation status.’

We reported that over 90 percent of the recommendations had been acted upon
in some fashion but few had been fully implemented. More specifically, only 4 per-
cent of the recommendations had been fully implemented by the fall of 1994—1 year

Management Reform: GAO's Comments on the National Performance Review's Recommenda-
tions (GAO/OCG-94-1, Dec. 3, 1993).

2Management Reform: Implementation of the National Performance Review's Recommenda-
tions (GAO/OCG-95-1, Dec. 5, 1994).


90

Departmental Management. While the designation of Chief Operating Officers
(COOs) in each department, as proposed by the NPR, is a good idea, the report did
not address the dispersal of management responsibilities among a number of assist-
ant secretaries in most departments. As members of the President’s Management
Council, these COOs are contributing significantly to improved federal management.
Since most of them occupy the second-ranking position in their departments, how-
ever, they will not be able to devote sufficient time to coordinate the performance
of the scattered management functions. This problem will probably be addressed in
a subsequent hearing, but I urge that consideration be given to the establishment
of an Under Secretary for Management position in each department that does not
already have one.

Government-Wide Management. There was an apparent effort by the NPR to
weaken the role of the Office of Management and fidget (OMB) in general. The
Vice President’s staff and NPR staff seemed to view OM’ entirely through a budget-
ing and control perspective. It was surprising that a report on ating a Govern-
ment that Works Better & Costs Less” had no discussion at all of the management
role o .

‘Whereas Congress only recently established the post of Deputy OMB Director for
Management (DM), the role of this official may have been seriously weakened by
the internal reorganization in OMB that dispersed virtually all of the general man-
agement staff and functions among the budget examining divisions. The rationale
for delegating agency-specific management functions to the newly-named Resource
Management Offices may be sound, but it does not explain or justify the dispersal
of general management staff to agency-oriented units of OMB. Where will there be
expertise, for example, on government structure, corporate enterprises, government-
wide management initiatives like the Government Performance and Results Act, or
separation of powers issues—all of which once resided in the predecessor organiza-
tion to that now headed by the DDM?

ticular concern is that the Executive Orders and presidential memoranda
issued to carry out NPR recommendations raise doubts about the expertise or so-
phistication of those drafting and reviewing these documents. For example, the au-
thors do not apparently know the difference between independent regulatory agen-
cies, and independent agencies. These terms are used inconsistently (as well as in-
correctly), both within the same document and in the several documents. There are
a number of other defects in these documents and it appears that OMB was either
not involved in their drafting and review, or no longer has the requisite expertise
or “clout” to protect the President—and the presidency—from carelessly crafted ex-
ecutive directives.

Having the DDM Chair the President’s Management Council (PMC) could make
that officer a “major player” in management matters. But there is no substitute for
his having a stron; neral management staff reporting directly to him. Unfortu-
nately, I understand that the PMC has elected not to have its own staff which could,
perbaps, substitute for the general management staff which the DDM no longer has
in .

As a result of these developments, we have government-wide management respon-
sibilities scattered among the Vice Presidents’ Office, the NPR, an interagency com-
mittee and at least nine parts of OMB! If the NPR were still looking for systems
to reinvent or reengineer, probably the dispersal of general management responsibil-
ities ought to head the list.

NPR IL

NPR II seems to be better conceived than was NPR I. For example, the appro-
priate roles of OMB and its DDM appear to have been reestablished. OMB is play-
Ing a major role in the NPR II Steering Committee and Advisory Teams. A genuine
emphasis on management issues, connected with implementation of the Government
Performance and ults Act, has been built into the budget examining process by
Director Rivlin. The agencies are also full partners in the NPR II exercise. One as-
sumes that the distrust and secrecy that compromised some of the NPR | activities
is well behind us.

SOME SUGGESTIONS ON “HOW TO DO IT RIGHT”

Substantively, NPR II is now addressing some of the issues which should have
preceded the prescriptions for downsizing. Challenging, evaluating and deciding
upon agency missions is the starting point. Modification, termination, combination
or devolution will be addressed. After that is the time to reengineer (or to engineer)
the processes which are needed to carry out the redefined missions. That would, of
course, be the right time to decide upon downsizing.

5



44

Public Sector Management Reform

The second reform of the core public sector was even more fundamental. It sought
to redefine the nature of the accountability relationships between government
isters and their departments and to improve the incentives on departmental man-
agers to respond to the government's policy priorities.

‘The key features of the new public sector management system are:

appointment of departmental chief executives on limited-term, performance
based contracts;

annual agreements between Ministers and their chief executives specifying
the performance expected of the chief executive;

© annual assessment of chief executive performance against the agreement es-
tablished at the beginning of the year;

defining performance in terms of the things the chief executive can be held
accountable to deliver i.e. outputs NOT outcomes;

* recognition that as well as being a purchaser of a department’s outputs
(goods and services) the government is also owner and that good “ownership”
performance (i.e. the best possible return on resources) is also a key dimension
of chief executive performance;

a budgeting and appropriation system which allows Ministers to make deci-
sions about the outputs to be delivered and the price/cost of those outputs rath-
er than input line items;

© the near total delegation of input control to chief executives, including per-
sonnel levels and rates of remuneration, and the mix of labor, capital and var-
ious operating items;

‘* the use of accrual accounting to measure the true cost of departmental oper-
ations and their assets and liabilities rather than just the cash flows for the
year;

« regular ex post reporting that mirrors the budgeting reporting at both de-
partmental and whole of government level.

Outputs vs. Outcomes

A key distinction in the New Zealand system is that made between outputs and
outcomes.

‘The distinction has proved useful in a number of ways:

« It is has allowed enhanced departmental accountability. For example it is
not possible to hold the Commissioner of Police ‘accountable for the crime rate
because it is influenced by many factors outside his or her control, such as un-
employment, family conditions, perhaps even the weather or lack of success of
a sports team. On the other hand it is possible to hold the Commissioner unam-
biguously accountable for the delivery of outputs such as policing services and
crime prevention programs;

As a result of this unambiguous accountability it has allowed the near total
delegation of input control to departmental managers. This has resulted in rein-
vigorated, innovative management and substantial efficiency gains;

It has made clear (for the first time) what goods and services the Govern-
ment is actually buying from its departments and agencies and the cost of those
service, This has raised questions about why some of these goods and services
are being produced at all by the government and/or why they cost what they

lo;

«It has allowed greater contestability between suppliers of similar goods and
services and/or price benchmarking. This creates ongoing pressures to improve
departmental efficiency;

« An outputs focus provides a set of budgetary levers that allow significant
expenditure reduction with a reasonable undersianding of the service delivery
impact i.e. expenditure cuts are made by reducing th4e quantity or quality of
outputs purchased from agencies;

It has made elected representatives not bureaucrats responsible for deter-
mining outcome priorities and the output/regulatory intervention mix to achieve
them tooth of which ‘ire a series of value udgients to be made);

«It has highlighted the severe technical difficulty in establishing causality be-
tween outcomes and interventions (outputs, transfers or regulatory interven-
tions). This has helped focus the policy advice function on assessing outcome
achievement and causal factors;

« It has ensured that the whole public sector management system does not
get sidetracked by the severe technical difficulty of measuring outcome achieve-
ment.



85

« eliciting ideas for improvements from employees
pan gatablhment of performance agreements between the President and agency

ea

« establishment of performance agreements between agency heads and subor-
dinate officers

* one-stop-shopping

+ increased use of government purchase cards,

+ rescinding, consolidating or simplifyii lations

* development of federal agency-private business partnerships.

These improvements are impressive, many managers and employees have been
stimulated toward reexamination and innovation. But for every employee who has
been touched personally and positively by “reinvention, there may be ten who have
not been touched at all, or who have experienced negative impacts. Accordingly, I
think I can be most helpful to the committee if I concentrate on what the various
“actore” in both branches can do to capitalize on the NPR’s strengths, while secking
to mitigate the risks that it poses to good government. I will begin with some obser-
vations on the NPR process that, I believe, had built-in weaknesses.

‘THE NPR PROCESS

Several aspects of the NPR process directly affected the scope and quality of rec-
ommendations made by the task force. Understanding these factors better may pro-
vide a context within which to view the NPR’s initial effort and, one hopes, deter-
mine the most constructive next steps that will make up for some of the NPR's defi-
ciencies.

The NPR task force was composed primarily of some-250 individuals borrowed
from the major Federal agencies—without benefit of any statutory foundation or, of
course, of any earmarked appropriations. They were augmented by representatives
from the Texas State Comptroller's Office familiar with the Texas Performance Re-
view, upon which the NPR structure was largely based, and outside consultants,
such as David Osborne, co- author of Reinventing Government. Several members of
the task force were specifically sought out by NPR leadership. However, the great
majority of NPR staff were gssigned to the task force by their agencies.

e Vice President asked each major federal agency to provide three individuals
to work on the task force. Without questioning the talents or abilities of the individ-
uals assigned, it appears that many Federal agencies responded to this request by
assigning people who, in simple terms, would not necessarily be missed. Thus, the
bulk of the NPR staff were not selected in a way mindful of the task. e.g. individ-
uals with particular knowledge and experience about government reform.

Moreover, I understand that the team members who worked on the NPR's 22
Agency Teams (more than half the total staff) were self selected, based on each indi-
vidual’s particular interest at the time. The general rule was that individuals could
not work on a team representing the agency where they were employed. While this
assured fresh perspectives, it inevitably led to naive and uninformed Proposals. This
problem was exacerbated by the distrust evidenced in a number of cases toward
staff of the agencies being studied—and by a policy of keeping agency staff “in the

fark.”

Pethaps the greatest flaw in the NPR process, therefore involved the rec-
ommendations developed by the agency teams. At the NPR's inception, I understand
that these teams were given broad authority to develop any worthwhile rec-
ommendation, regardless how bold or far-fetched. About halfway through the six-
month review, however, the NPR agency teams were told that all agency specific
recommendations were required to have the approval of the agency heads them-
selves. This evidently caused a major watering-down of the boldest. proposals.

The systems teams were more often staffed with experts in the subject matter
under review. Not surprisingly, then, the quality of their recommendations was gen-
erally higher than that of the agency teams.

‘As discussed more fully later, the proposed 252,000 personnel reduction did not
arise from thoughtful analysis, but was injected for political reasons at a late date.
Unfortunately, this has led to “one-upmanship” in government downsizing with the
Congress and the Executive each trying to appear tougher than the other. (It is
reminiscent of the competition for tax-cutting credit in 1981, which produced our
persistent deficits.) Clearly this competition is not strengthening the intellectual de-

ate on government reform efforts. Instead, we appear to find ourselves in a race
for “quid fixes” and apparent reform. I hope that we do not turn to “shuffling
boxes” and organizational realignments during NPR II in the name of reform, but
without the prerequisite analysis.



62

ciples yet developed by NPR that will provide a general framework as individual
agencies are redesigned, consolidated, or abolished. Each proposal for a government
corporation, for example, has thus far been developed independently, generally by
people who know little about government corporations. No credible mechanism has
yet been established for addressing the complex question of consolidation and/or
elimination of departments and agencies. Inexplicably, field organization issues are
being addressed almost as an afterthought, whereas I believe they should have been
one of the principal starting points for both structural and syatems reforms. This
low priority for the interface between the federal government and its “customers”
illustrates why some of us believe that NPR suffers from a common “made-in-Wash-
ii nn” malady that needs to be corrected in Phase II. Here is another instance in
which a willingness to profit from past government experience might have enabled
early NPR implementation efforts to more nearly match the NPR concepts.

Because Phase I was 80 loosely organized and eschewed the use of unifying orga
nization principles, it has, in my view, established a piecemeal pattern that will

ifficult to overcome in considering departmental reorganization. NPR is now faced
with severe time pressures since major changes in government operations that take
place during the last year of a presidency do not survive the next election very well,
even when the same Party remains in control. In recent years we have lost the in-
stitutional capability to design reforms from the standpoint of the total impact of
the many arms of government programs and processes on citizens, businesses and
communities. This is a serious loss, and warrants attention by this Committee as
well as the NPR. The recent OMB reorganization further weakens this capaci ty.

T would suggest that this Committee look at NAPA Panel reports, the Hoover
Commission reports, and the comprehensive 1971 proposals of President Nixon to
develop a sense of the type of organization principles which large-scale restructuring
might update and follow.

RESTRUCTURING EXPERIENCES ELSEWHERE

I am pleased that the Committee is looking at restructuring practices in our pri-
vate sector and also in other countries. Much has been happening, and some of
these practices will be of great interest and widen our perspective of types of
changes to be considered in government.

I would first note that a number of major corporations and Commonwealth coun-
tries have found their early slash-and-burn approach to downsizing before needs
were assessed was counter-productive. I understand the Committee staff is looking
at other corporate downsizing approaches that have proven more effective.

‘The emphasis on professionalism that is characteristic of foreign and private sec-
tor changes is an area that I believe needs to be given considerable weight as we
see where we might benefit by taking advantage of these other experiences. It is
my impression that most of the successful corporation downsizing programs in this
country have taken considerable care to retain and retrain their best Praple: Simi-
larly, the very interesting government reinventing programs in New Zealand, Aus-
tralia, the United Kingdom and Canada have also given much greater attention to
the importance of professionalism in the public service than we have to date.

In assessing the applicability of advances in British Commonwealth countries to-
ward leaner and more flexible government institutions, we have to consider care-
fully one basic difference between those countries and the United States. All of
these promising foreign advances have occurred in governments which had only &
fraction of the political appointees we have here at home. For this, and other rea-
sons, their government operations are far lesa vulnerable to political pressures and
interventions in their operations than is true in the United States non-defense agen-
cies.

This is a fundamental difference we ignore at our own peril.

Privately, many of those closest to the foreign restructuring programs express
doubt that the United States can sustain the NPR concepts of flexibility and innova-
tion in a system in which the career service is so denigrated and overlaid with nu-
merous political appointees. The political pressures on personnel actions affecting
career men and women and the award of contracts, combined with the short tenure
of most political appointees who tend to leave about the time they understand their
responsibilities, andt the constant destructive attacks on the career “bureaucrat” by
U.S. politicians are serious problems they see as severely limiting the chances of
NPR long-term success.

Bureaucrat Bashing. The negative rhetoric we keep hearing concerning agency
managers is not helpful in attracting and retaining the most qualified people. The
taxpaying public is shortchanged if we do not make every effort to draw upon the
best professional to carry out the public business.



86

DISAPPOINTMENTS, IMPLEMENTATION CHALLENGES, MISTAKES AND OMISSIONS

Because of the very nature of the NPR process, there were high risks of failure,
or worse—of counterproductive results. As a long-time public management practi-
tioner, and as a management conaultant engaged in helping federal agencies, I see
both great promise and, alas, some danger in the work of the NPR to date. From
time to time, and at the end of my statement, I shall address what corrective steps
this committee, the Congress, and the Administration are taking or could take.

Disappointments. No effort to reinvent the federal government in six months
could have been conducted completely without fault. However, several aspects of the
NPR’s work are a disappointment.

Lack of Analysis. It ite disappointing that a reinvention process designed to
encourage the use of a1 ical techniques, such as holding managers accountable
for measurable results, should have failed to perform analysis before reaching con-
clusions. Agencies are striving to meet ever-increasing demands, but with ever-de-
clining resources. So a report that should have been helpful to the agencies, unfortu-
nately became one that could exacerbate their problems. That was because short-
term political considerations intervened—notably, the proposal to cut personnel by
252,000 without any cogent analysis of the rationale for that number, or of the con-
sequences of this “ready, aim, fire approach.”

jis top-down, arbitrary figure overwhelmed such meritorious ideas as abandon-
ing full time equivalent (FTE) ceilings and employee empowerment. It made “re-
invention” appear to many employees to be a code word for “reduction in force.” And
the subsequent decisions to mitigate the effects of downsizing on employees led to
the use of “early-out” and “buy-out” techniques. This, too, compromised the pros-
pects for achieving a government that “works better.” A large proportion of those
accepting these opportunities to bail out are among the government’s best and
brightest—persons who have good prospects for employment elsewhere. No thought
has apparently been given to who will replace these people, or even if they will be
replaced as agencies struggle to comply with reduced FTE ceilings.
ince the Congress has not only adopted the 12% cut in personnel proposed in
the NPR, but has “upped the ante” to a 272,900 cut, by law, it will clearly be very
difficult to correct this problem. Nonetheless, I will be bold enough to make a pro-
posal at the end of my statement.

“Hollow Government.” Hollow government refers to statutory promises that are
not backed up with resources, including people and money. The hollow government
phenomenon may contribute significantly to the dismal evaluation of the govern-
ment by the public. The arbitrary 12% personnel reduction will likely make the gov-
ernment even more hollow singe NPR | declined, for the most part, to address the

rogram terminations or reductions that could offset this danger. Of course, NPR
it is belatedly addressing these issues.

Major Inconsistency. There is a heavy dose of top-down, or “command” philosophy
in some of the recommendations, which is antithetical to the quality management
and reengineering efforts also advocated. Examples are the 12% personnel reduc-
tions, the 50% reduction specifications for mid-level management and for regula-
tions, etc. Quality management teaches us that empowered employees and man-
agers will often exceed the expectations of their leaders if they are allowed to work
through self-managed teams or similar methods, but without goals, targets or man-
dates. I address this issue later, as well.

Government Bashing. Notwithstanding the obligatory statements about the tal-
ents of bureaucrats who are being repressed by the “system,” the report lends sup-
port to the idea that the government is broken, inefficient, overstafled and ineffec-
tive. The public does not distinguish between “tarring” bureaucrats and tarring the
bureaucracy. Thus, the NPR adds fuel to the fires of government bashing and bu-
reaucrat bashing which have been prominent during the past 25 years.

‘The President can not lead “troops” who are demoralized or disillusioned. Perhaps
the President and the Vice President eventually perceived this problem. In various
places, both of them have sought to commend federal employees for their commit-
ment and wisdom since the report was issued. For example, in his New Year's
message, the Vice President told federal employees that he and the President were
“puilding on your ideas” and that “the most rewarding part of reinvention has been
seeing first hand the talent and dedication you bring to your work.”

CONCEPTUAL WEAKNESSES

While the NPR report is in the mainstream of management thinking regarding
such issues as defining missions, reengineering work processes, measuring results,
empowering workers, cutting red tape, and serving customers, it is “off base” in sev-
eral respects.


31

rovided to the Congress, to the customers, to the citizens, to any-
Body is really a reliable portrayal of exactly what was spent for
that particular program or activity.

That also impairs the ability to judge the cost of various govern-
TMment programs and performance. You have little reliable informa-
tion on performance measures themselves in terms of gauging per-
formance measures. So that is one area where we think that the
underpinnings of a good management structure need to be put in

lace to run the government, whether it is being run under an

‘PR proposal or some other type of management reform effort. The
guts of good information is not there and needs to really be worked
on.

Mr. FLANAGAN. The fact that it is not there leads me somewhat
to believe not that they are hiding anything or don’t want to pro-
vide it; it is that they are incapable to provide it in the way that
we are asking for it. And I wonder if that is part of the systemic
problem we are trying to fix or we are trying to do something that
cannot be done and that question continues to pervade as we go
through this.

Thank you, Mr. Chairman.

Mr. Horn. Thank you very much for those helpful questions.

I would like to yield to the chairman of the fall committee, Mr.
Clinger of Pennsylvania.

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

Mr. Bowsher, always a pleasure to see you. Unfortunately, I have
not had a chance to read your testimony and I apologize for not
having been present for it to hear your oral statement, but I just
had a general thought I wanted to get your reaction to.

I have been around as you have for a fairly long time, and I have
observed that we go through these cycles of reform and regenera-
tion and whether it is management by objectives or zero-based
budgeting or NPR, we have had—almost every new administration
has a new idea about how to go about reforming and making gov-
ernment more effective—and yet we never seem to solve the prob-
lem. We are continually going through the process and somehow
we never really do get to the bottom line.

The thing that I am wondering about if we are judging productiv-
ity in the private sector, we judge it by the bottom line. What is
your productivity? How much money is your firm making? How
many people are you using to do that with?

It is harder to do that in government, and yet it seems to me
that a lot of what we have done in the past has been process ori-
ented and not productivity oriented. We have really been focused
on how efficiently we are carrying out the process, how efficiently
we are meeting the requirements of process to do this, and perhaps
too little emphasis has been given to the—what should be I think
the crux of our examination, which is, how do we make this govern-
ment more productive.

It gets to be a very difficult area, it seems to me, because you
are talking about making it more productive. Obviously one ap-
proach is, we will just cut funding and sort of the meat-ax ap-

roach to this thing and say we are just going to cut everybody

ack, across-the-board cuts, and make them do the same job for
less money. That doesn’t really answer the question. I would really


7

the Midwest after the floods, in Los Angeles after the earthquake, or, most re-
cently, in Oklahoma City after the bombing.

* The Custome Service is eliminating {te regional offices, cutting its head-
quarters by a third and reallocating resources to its front line operations to help
implement the GATT and NAFTA agreements.

© The Occupational Safety and Health Administration cut its operations man-
ual for inspectors by more than three-quarters, freeing inspectors to spend less
time following rules and more time protecting workers.

© The Small Business Administration has slashed paperwork requirements for
certain loans from a few inches to a single page.

* And those thousands of Agriculture Department field offices that I men-
tioned earlier? The Department is busy closing 1,200 of them and creating “one-
stop shopping” centers for farmers.

As we continue to improve “how” the government works, we have more recently
addressed the question of “what” government should do. That is the central question
of Phase If, to which I will now turn.

THE NPR: PHASE II

Late last year, the President launched Phase II of the NPR, shifting attention
from “how” government should operate to “what” it should do. He asked the Vice
President, his senior advisors, and the departments and agencies themselves to de-
velop bold new ideas about what the Federal Government should do, and what it
should mip doing.

The NPR and OMB set up teams to study every function and activity of govern-
ment to decide which ones the Federal Government should continue to perform,
which it should eliminate altogether, and which it should shift to the States, local-
ities, or private sector. On this task, these teams worked closely with each major

agency.

The first output of Phase II came in December when the President and Vice Presi-
dent announced the restructuring of five major agencies—the Departments of En-
sey ‘ransportation, and Housing and Urban Development, the General Services
A ration, and the Office of Personnel Management. Since then, we have an-
nounced the restructuring of five other major agencies as well as steps to continue
our efforts to reform the regulatory system. (In the coming weeks, we plan to an-
nounce the restructuring of other agencies as well as further regulatory reforms.)

For tote Baeray De to $10 billion by the

The Energy Department proposes to save over illion by privatizing t
Naval Petroleum Reserves, terminating the clean coal program, selling uranium
no longer needed for defense purposes, and significantly cutting costs through
auch initiatives as contract reform and restructuring nuclear waste clean-up ef-
forts.

° HUD is refocusing its mission to concentrate on economic development for
communities and transitions to economic independence for families. The depart-
ment will consolidate its 60 programs into three broad, flexible performance
funds and end public housing as we know it by providing funding to families,
not public housing authorities. It also will create a more entrepreneurial Fed-
eral Housing Administration by converting it into a government corporation.

* NASA proposes to save $8 billion by restructuring its field centers to reduce
duplication and align the organization for a smaller mission. It will change the

it works with prime contractors, making its process more results-oriented
and returning ‘NASA to its original role of a research and development agency.

A major part of Phase II involves the creation of “performance partnerships”
among. e Federal Government and States or other service providers. In his fiscal
1996 | budget, the President proposed to consolidate 271 programs into 27 such part-

ips.

These partnerships are based on the twin goals of trust and accountability. The
Federal Government will trust States by giving them greater leeway to spend Fed-
eral resources to solve their own problems. In exchange, the States will provide
greater accountability for how the money was spent—that is, what it actually ac-
complished.

The partnerships will consolidate funding streams and eliminate overlapping au-
thorities, reward desirable results, and reduce micromanagement and paperwork. Of
the partnerships in the President's budget, one would combine 70 education and job
training programs, allowing States and localities to develop comprehensive ap-

roaches to meet their particular needs. Another would consolidate 108 Buble

fealth Service programs Into 16 grant categories, based on state-local performance.
A third would combine funding for 14 rural development programs and authorize



46

a new set of questions which I think could revolutionize the way
government works.

I am going to offer—this is not only a hearing room but a seeing
voom here this morning—let me see if I can focus on that.

Let me first speak to the intergovernmental model, the model as
we find it. This diagnosis is really taken from the National Per-
formance Review, which I had the opportunity to work on one of
the teams in the NPR. If you look at intergovernmental system,
there are three basic problems with it.

First is that there are too many programs. They are far too frag-
mented. For clients this creates huge, enormous confusion about
eligibility. It also creates balkanization of services.

‘his desk we found in Roseburg, OR, in a rural county cost
$5,722. It was paid with WIC funds. An accountant from the Fed-
eral Government discovered that the desk was also being used for
other health-related services when it was idle for WIC purposes,
and therefore, there was a fine back as the desk was used for an-
other purpose.

That balkanization of programs, with different accounting sys-
tems, really adds to the expense at the local level and it makes it
hard for us to use resources wisely.

The second problem in government is that there is too much red
tape. In Oregon, we have tried to diagnose this problem and look
at how many dollars—and how much time our State employees
spent responding to the regulations and requirements of Federal
directives. It is an enormous cost. In the smaller agencies relating
to Federal programs, it is upward of 50 to 60 percent of the time
is spent workin, with Federal regulations. Even in the large agen-
vies, such as welfare and food stamps, we find 20 percent of the ad-
ministrative costs are dealing with regulations. Too much money
and time is spent on dealing with regulations.

The third problem with intergovernmental regulations is that the
dollars tend to focus more on remedial problems, or maintenance
concerns like Medicaid, welfare, food stamps, foster care, instead of
the preventive efforts that would avoid the need in the first place.

One quick example. The Federal Government matches our wel-
fare expenditures 60 percent, 40 for State. There is no similar
imatch for the preventive efforts like teen pregnancy reduction, im-
proving high school outcomes that would reduce the need for wel-
Yare in the first place. Indeed, as our welfare caseload and poverty
drops, we lose Federal money in the preventive programs.

And so there is a real systemic bias against the preventive efforts
that we all know will make the biggest difference. So what’s the
solution?

We proposed using the NPR recommendations as the base for the
Oregon Option Model. It was really what Dr. Rivlin mentioned ear-
lier. We think if we start by focusing on the outcomes in the inter-
governmental system and focus on the prevention efforts and then
aold the system accountable for the results but give greater flexi-
bility at the State and local level, you can do a great deal of good
in terms of improving the performance of government.

Let me just give you one example we're looking in the Oregon
Option. We took a simple example: Immunization. We found eight
Federal categories related to immunization of children alone. Our


6

to help identify the problems. He believed that—contrary to popular belief—the
problem was not the people; it was the systems in which they were forced to work.
In addition, he laid out a clear vision of how to proceed: He focused attention pri-
marily on the “how” of government—the processes, personnel rules, procurement
regulations, and other mechanisms that determine how government functions. In
se I, was designed to help improve performance in areas where policy
makers and the public had decided that government should play a role.

e Vice President spoke with federal employees at every major agency and fed-
eral centers across the nation to get their ideas. NPR teams spoke with hundreds
of different organizations, state and local officials, and business leaders who have
restructured their organizations or used innovative management practices to turn
their companies around. More than 30,000 citizens wrote or phoned in. In the end,
the NPR developed over 1,200 recommendations, which the President adopted in
September 1993.

‘or instance:

Despite the focus on customer service in the private sector, few Federal
agencies recognized that they had customers. Consequently, had no customer
service standards, We recommended that all agencies develop, post, and meas-
ure standards as first steps toward changing their agencies’ cultures.

« Nearly one of three federal employees—more than 650,000—was engaged in
a central control function (eg. headquarters staffing, supervisory, personnel,
budget, procurement, financial management). The Government's focus on con-
trol severely limited efforts to streamline operations and prompted most Federal
employees on the front lines to treat headquarters as their primary customer.
We recommended a reduction in Federal employment by 272,900 by cutting
headquarters in half and streamlining agency overhead, both in Washington
and the field.

* Agencies had created complex regulations, imposing them on themselves
and the public. Disability claims can often take hundreds of days before a final
decision 1s reached; in some agencies, travel administration costs more than the
travel itself, procurement procedures add billions of dollars in costa, without im-
proving the products being purchased. We proposed to radically redesign man-
agement systems in order to cut unneeded internal regulations and pat in place,
through executive order, a process for reviewing regulations imposed on the pri-
vate sector.

‘¢ The Federal Government was doing things that no longer made sense. For
example, many of the Agriculture Department’s thousands of field offices were
in place before modern highways and communications were available. The De-
fense Department was training doctors in a DOD medical school when doctors
could be trained through scholarship programs at one-fifth the cost. The Federal
Government had over 160 job training programs in 14 agencies. The Defense
and Commerce Departments were separately building similar satellite systems.
We recommended ways to save billions of dollars by eliminating unnecessary ac-
tivities.

All told, the NPR's report of September 1993, From Red Tape to Results: Creating
a Government that Works Better and Costs Less, contained recommendations that
were designed to save $108 billion over five years. Since then, the Administration
has worked hard to implement those recommendations, some through its own ac-
tions and some through legislation on which it has worked closely with Congress.
By the end of 1994, the Administration had:

¢ taken steps, largely with Congress, to save an estimated $63 billion over
the next five years;

‘© cut federal employment, as measured by full-time equivalents (FTE), by
more than 100,000, putting us ahead of schedule to meet the mandate of
272,900 fewer FTE by 1999; .

published nearly 1,500 customer service standards in over 100 agencies
that, in turn, plan to report on their progress on meeting them later this year;

¢ worked with Congress to enact a landmark procurement reform bill that
will streamline the Government’s system of purchasing equipment and supplies;
ani

spurred the creation of labor-management partnerships across the govern-
ment, helping to design and implement the changes needed to reform govern-
ment.

Just as important, some agencies are reinventing themselves from top to bottom,
shifting their focus to provide better customer service and results.

* As the President likes to say, the Federal Emergency Management Agency
has gone from a disaster itself into an effective disaster response agency. It is
serving more disaster victims than ever and doing so effectively—whether in



40

So what we have in government today is we have a lot of pro-

ams and lots of legislation and lots of regulations. It seems to me
that one of the things that NPR ought to take on, working very
closely with the Congress, because they will have to, is streamlin-
ing those programs to the point where they’re systems and people
working with the customer, that are doable. Right now we've got
some of the areas so complicated they’re hardly doable. I think
that’s an important part of it.

Mr. Horn. I think that’s an excellent suggestion and that’s one
of the reasons this committee recommended, and the House passed,
a moratorium on regulation because we ought to have a chance to
sort this out.

Mr. BowsHeER. Right.

Mr. Horn. And it seems to me whether it be the NPR vehicle,
GAO, or the various congressional committees, there is a unique
opportunity here to ask the question of why. Why are we doin;
this? Why is it written this way? Can anybody understand it? An
maybe get the idea in a focus group. which the politicians are so
used to doing, be they in the ‘ite House or the Congress, and
saying, “Read this and tell me what you make of it.”

And when you said a Navy captain seemed to understand it, I
can understand why when you've had 30 years of punishment in
the Pentagon or in the field. reading Pentagon regulations. Thank
you for coming. I appreciate it.

The next panel is panel three: Tony Dale, Harkness Fellow, The
Commonwealth Fund of New York; and Mr. Duncan Wyse, execu-
tive director of the Oregon Benchmarking Project.

h Gentlemen, if you would come forward and raise your right
ands.

[Witnesses sworn.)

Mr. Horn. Both witnesses have affirmed.

Please be seated. And, Mr. Dale, please begin.

STATEMENT OF TONY DALE, HARKNESS FELLOW, THE COM-
MONWEALTH FUND OF NEW YORK; AND DUNCAN WYSE, EX-
ECUTIVE DIRECTOR, OREGON BENCHMARKING PROJECT

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

Over the last decade or so successive New Zealand Governments
have undertaken extensive reforms of the New Zealand public sec-
tor. This has included reform of the governance and financial man-
agement arrangements for; the trading activities of government;
the core departmental sector; the education and health sectors,
both of which are primarily funded from general taxation revenues;
and local government.

My written testimony focuses on the trading activities and the
core activities, and in these comments I would like to focus just on
the departmental sector reform.

There were two major planks to that reform in New Zealand. The
first was a structural reform whereby policy advice functions were
separated out from service delivery functions. So, for example, in
the environmental area, responsibility for advice to government on
environmental issues and for managing regulatory issues became
the responsibility of an environmental ministry, while a service de-
livery agency, the department of conservation, was established to


19

American Dream,” and in fact when many agency heads come here,
T have been quoting you quite frequently talking about the need of
moving authority away from agencies and back to the States.

I think your blueprint was visionary in 1992, and I would just
like to ask you if you feel the administration is moving in that di-
rection through doing this and if you proceed to both of the propos-
als in the coming years.

Ms, RIVLIN. Yes, I believe we are moving in that direction and
the President, having been a Governor, cares very much about. ey
ing flexibility to States and localities in doing what they need to
de

lo.
The concept of a performance partnership is one that I think is
very important, and we are working very hard on that. The objec-
tive there is to reduce the number of categorical programs that the
Federal Government has and consolidate them, while maintaining
a focus on the results that both the State and Federal Government,
or the locality in some cases, want to achieve and how to measure

em.

That is a little different from devolving functions to State and
local government. I think there is a role for that, too. But many of
the things that the Federal Government has done over the years
are still things in which people have the sense there is a national
interest. But the Federal Government, under its present structure,
is micromanaging too much and impeding the effective use of re-
sources at the State and local government level.

So I believe this performance partnership concept is a very im-

ortant one and moves us in the direction that I was talking about
in the book.

Mr. SCARBOROUGH. Do your goals in 1995, are they still in line,
do you feel, with your goals in 1992?

‘or instance, I think you talked about a productivity agenda, or
I forget the exact terminology, but moving education and labor.
Again, I am not just talking about simply evolving and certainly
I am not trying to pit you against the President. I am just saying,
is your long-range goal, do you believe this government's long-
range goal should be to have the productivity agenda through edu-
cation and labor to be handled more on the State and local govern-
ments if they can—if they prove themselves capable to doing it 30
years later when they may not have been able to do it as effectively
in 1964 and 1965?

Ms. RIVLIN. Yes, I do think that. But I think the Federal Govern-
ment has a role to play and can facilitate reform at the State and
local level. We have emphasized that in Goals 2000, for instance,
which is not a Federal program in the sense of the Federal Govern-
ment telling the States and localities what to do, but rather it is
the Federal Government helping to develop a process of focusing on
goals. So, yes, I think my goals are very consistent.

Mr. SCARBOROUGH. Great. I thank you for your time. I thank
both of you for your work on this, and again, this isn’t about ideol-
ogy, it is about what works and what didn’t work, and we certainly
hope we can continue to have a partnership with you in this area.

is. RIVLIN. Thank you.

Mr. Horn. Director Rivlin, before you leave, let me ask you about
the Volcker Commission, the National Commission on Public Serv-


14

experience in the private sector, is often much better than the ex-
perience of the managers.

When we did turn-arounds of large, troubled enterprises, we
talked to people who actually did the work. Often no one had
talked to them before, or more importantly, no one had ever lis-
tened to them before. Unions in the government have been great.
leaders in getting managers to understand that we need to listen
to what the workers have to tell us about how to better run the
Programs in which they are involved.

ir, FLANAGAN. I agree as long as we are indeed listening to the
workers and not to the labor leadership, which is not always the
same thing.

I thank the panel.

I thank you, Mr. Chairman.

Mr. Horn. Thank you very much, Mr. Flanagan.

Let me pursue that a little bit. I completely agree with you in
the value of asking the people that do work how we could improve
it, because they know, and that is mostly what management con-
sultants do when they are hired in private industry or universities
or government; they go around asking people things that, if man-
agement had had their ears open, they would have discovered. So
those ideas are there.

But what concerns me is that in the agreements drafted even
within the Federal unions, on work rule changes, do those sugges-
tions pass up the hierarchy and get to the top managers of the de-
partment review by OMB and OPM? What is that process like, and
are we limiting the line officers from a major role in looking at
those agreements before they are signed off on by Federal nego-
tiators?

Mr. KoSKINEN. What is exciting, is what’s happening with part-
nership, and we are now taking the National Partnership Council
on the road and every other month we are going out into the field
and listening to employees tell us about what’s happened in their
areas. The partnership concept is proceeding outside of the collec-
tive bargaining process. What you have under partnership is that
the management at the local level and employees, both union and
nonunion, are agreeing that they will talk about and jointly discuss
what needs to be done without defining whose rights are involved
and who has the authority.

Some exciting things are going on. We were in Chicago last
month looking at the Customs operations in Chicago. There, out-
side of the kind of narrow confines of collective bargaining agree-
ments, the unions and the management have totally redone the
way cargo goes through the port of Chicago. This is not part of a
collective bargaining agreement, it is part of a partnership. I asked
just this question, what the impact was going to be on collective

argaining of all the work that has been going on in the partner-
ship. Bob Tobias, the national president who is on the partnership
council, said that, historically the collective bargaining agreement
for the Customs Bureau would take 8 to 10 months. Because of all
the work that is going on outside of that bargaining agreement,
they have actually solved a lot of problems they used to have to
bargain about. He thought they would end up with a collective bar-
gaining agreement negotiated in less than 2 months. What I think


3

But under the rhetoric, we all want armed services that are pre-
pared to defend America’s interests quickly, flexibly, and decisively.
We want a Social Security system that delivers checks on time and
in the right amounts to the right people. We want a Veterans Ad-
ministration that helps veterans get on with their lives. We want
national parks that people can enjoy easily and safely. We want
safe air and ground transportation. We want all of these services
to work effectively, and we don’t want to pay more than we have
to. That is what the National Performance Review (NPR) is about.

Making sure that government works effectively and doesn’t cost
too much is not glamorous work. It’s not easy. It’s not quick. This
administration has put a great deal of effort into taking the steps
necessary to create a government that works better and costs less.

We started the National Performance Review early in the admin-
istration, but it is a continuing effort. It has received the highest
level of effort. The President feels keenly about it. The Vice Presi-
dent has devoted a major portion of his time and energy to it. And
the Vice President didn’t just do that during the first year. He is
continuing to work hard on the NPR. That’s also true of the Cabi-
net and the effective new organization called the President’s Man-
agement Council, which John Koskinen chairs. I had the privilege
of chairing thé council when I was Deputy Director. It consists of
the chief operating officers of the major departments, and continu-
ously focuses on how to make agency operations work better and
cost less.

The Office of Management and Budget is building the efforts to
improve government into our continuing activities on budget and
management issues. But it isn’t just taking place at the top levels,
it much more importantly involves people at the working levels. We
have not extensively utilized outside experts in this effort. This has
been an effort in which government is reforming itself. The people
on the firing line, who know what is happening, are contributing
their knowledge and experience on how to make things work bet-
ter.

The National Performance Review is not an isolated effort. It
builds on the work of bipartisan efforts in Congress over a number
of years. The Chief Financial Officers Act, the Government Per-
formance and Results Act, and the Government Management and
Reform Act of 1994, have all contributed.

The National Performance Review, as you've said, Mr. Chairman,
has had two phases. Phase I focused heavily on how the govern-
ment should get its job done. It defined customer service standards.
It worked on reducing the number of people involved in control
functions. It worked on delayering. It worked on reducing the com-
plexity of internal regulations, and on procurement reform. It re-

uced outdated structures of government, such as field offices.

Where are we now? By the end of 1994, we had taken steps with
the Congress to save an estimated $63 billion over the next 5

ears. We had cut Federal employment substantially, and pub-
ished 1,500 customer service standards. Working with Congress,
we passed procurement reform legislation, and created a new set
of labor-management partnerships.

Many agencies have been substantially reinvented. We are par-
ticularly proud of the Federal Emergency Management Agency


69

Fourth, employees need to be held accountable for important values other than
effectiveness and efficiency. Even effective performance systems are unlikely to pro-
vide foolproof and exclusive means of determining whether important goals have
been achieved, especially in those government operations where the “bottomline” is
difficult to measure. Central management agencies and top managers need to be at-
tuned to questions of process in order achieve effectiveness and efficiency. But the
values of effectiveness and efficiency also need to be balanced with the protection
of such democratic values as honesty and fairness, and such institutional values as

d the knowledge and flexibility to address unforeseeable
challenges.

Fifth, the National Performance Review itself needs to be accountable. The NPR
is directly accountable to the Vice-President, and through him to the President. The
President established the NPR as an interagency task force using employees de-
tailed from agencies. This is certainly acceptable as a one-time, short-term under-
taking. But should it become a permanent entity, it could raise questions as to the
NPR's responsibility vis-a-vis entities constituted by law to perform similar func-
tions, such as the Office of Management and Budget (OMB), with its Deputy Direc-
tor for Management (DDM).

As part of the executive branch, the NPR is also responsible to the Congress. The
challenge to Congress is to determine how to play a constructive role in support of
the shared goals of the NPR while also holding the overall effort. accountable. Over
the long run, the intent of the NPR is that Congress shift its oversight from a pre-
occupation with inputs toward the assessment of the results achieved by federal
agencies, based on goals set by the Congress. For example, Vice President Gore has
invited the Congress to focus on customer service standards in its oversight hear-
ings.

IMPLEMENTATION

If indeed the NPR is similar to restructuring efforts of other institutions in both
the public and private sectors it is worth considering that those efforts. taken as
a whole, have tended to follow a common sequence of responses.

First, when eonfronted with pressures for change, most organizations simply deny
them or presume that they will soon go away.

Second, when the pressures persist, they engage in incremental adjustments, or
“patching” problems, as Peter Drucker has put it.

Third, organizations take deep, cost-driven cuts into their existing structure and
resources. Such radical downsizings have yielded mixed results at best. Some orga-
nizations have found that major layoffs of employees were insufficient to meet com-
petitive cost pressures. Frequently, they were forced to cut even more. Many busi-
nesses have discovered they had discarded employees needed to run their business
and generate revenue, including high performers who were the heart of their oper-
ation. In short, they had engaged in “amputation before diagnosis.”

The typical consequence is that organizations end up with a smaller version of
what did not work before. Many of the remaining employees, moreover are left
angry, uncertain, mistrustful, depressed, and overworked, all of which add up to a
demoralized workforce expected to take on even greater burdens. If employees fail
to rise to the occasion, organizations in these circumstances tend to search for the
silver bullet—usually the latest management fad—that will solve their problem.

Fourth, organizations return to the fundamentals of performance: mission, capac-
ity, and results. Organizations in this stage ask fundamental questions about pur-
pose: What is our mission? Who are our customers? Do we have the right mission
and the right customers? What resources, processes, and other capacities are re-
quired to produce results with quality, speed, and at least cost? How should we de-

fine our mission given the resources and competencies available to us?

The emphasis on performance in no way ends the concern with cost, or pressures
to downsize. But by focusing on what they should do—identifying core purposes and
missions, and strengthening their core competencies—organizations have been able
to cut costs by:

abandoning entire missions and lines of business;

° jettisoning marginal or unproductive resources that were not contributing
to their basic Purposes;

* outsourcing necessary work that can be performed by other organizations
better or at less cost; and

* reengineering work prneesses, often by employing information technology,
and thereby sharply reducing the resources required to accomplish core mis-
sions.



24

after they were announced. Another 37 percent of the recommendations had been
partially implemented. Slightly more than half had been acted upon in some man-
ner but not to the point where we considered any of the recommendations’ goals to
have been achieved. No action had been taken to implement about 5 percent of the
recommendations.

‘Overall, we “agreed” or “generally agreed” with more than three-fourths of the
NPR recommendations. This level of agreement is not surprising given that NPR
emphasized many of the basic themes that we have stressed for years. We had in-
sul ficient information to comment on 86 of the 384 recommendations but disagreed
with only 3.

Although NPR’s recommendations addressed a wide range of issues, we noted in
our December 1994 report that they did not address many other critical manage-
ment Problems. For example, they did not address a number of issues that the Of-
fice of Management and Budget and we consider to be high-risk areas. These issues
include defense inventory management practices that have resulted in unneeded in-
ventory valued by the Department of Defense at $36 billion and problems plaguing
federal information technology initiatives, such as the Federal Aviation Administra-
tion’s air traffic control modernization project.

e NPR recommendations also did not address nearly three-fourths of the issues
we identified last year for the former chairman of this Committee as the most im-
portant management problems facing 23 federal agencies. These issues include the
jack of effective controls over Department of Defense disbursements and inadequate
project management and Plannin in the Department of Energy. Therefore, while
we believe the recommendations NPR made are an important contribution toward
improved federal management, we also believe that significant additional opportuni-
ties remain to make government work better and cost less.

Observations on the Long-Range Potential for NPR I Changes

In both our 1993 and 1994 reports on NPR, we said three themes were crucial
to the long-range success of the reinvention effort. First, the administration must
work in partnership with Congress to develop mutually agreed-on goals and imple-
mentation strategies, particularly on some of the more contentious and difficult
changes NPR recommended. Second, attention should be paid to agencies’ capacities
to take on the additional responsibilities that NPR envisions in a downsized, decen-
tralized, and deregulated environment. Careful workforce planning and reengineer-
ing of outdated systems and structures are needed to ensure that downsizing does
not diminish program performance and increase the potential for fraud, waste, and
abuse. Third, because some of the NPR recommendations will take several years to
implement, sustained attention is needed from top political and career leadership
to create and guide these long-term management improvement efforts.

The NPR recommendations were organized around four general principles: cutting
red tape, putting customers first, empowering employees to get results, and cutting
back to basics. However, the recommendations addressed an amalgam of issues anc
proposed an array of seemingly unconnected solutions. In our 1994 report we noted
that to be successful in the long run, NPR would need to sharpen its focus and bind
the recommendations together into a more coherent framework that could better
permit the government reform movement to take root and flourish.

One way to provide that focus is to more clearly define government management
in terms of results or outcomes to be achieved. Today, government management pri-
marily focuses on the efficient use of allocated resources, adherence to procedural
requirements, and accomplishment of certain output-related tasks, such as the num-
ber of claims processed or the number of inspections completed. A reinvented gov-
ernment, while not ignoring these traditional management elements, should focus
more on defining and measuring programmatic results, such as reduced infant mor-
tality or effective collection of taxes.

To make the transition to reinvented government and results oriented manage-
ment, we said three things are needed. First, agencies’ goals must be clearly stated
in outcome-based terms, and means must be developed to measure progress toward
achieving those goals. Second, decisionmakers must have much more reliable pro-
grammatic, financial, and operational information that will enable them to know
Whether agencies’ goals are being achieved and systems to bring that information
to decisionmakers in a timely manner, Finally, management structures and proc-
esses need to be redesigned to reinforce the focus on outcome-based management.

NPR—PHASE II

The second phase of the NPR effort began in December 1994 and has four pri-
mary components: (1) an agency restructuring initiative, (2) a regulatory reinvention


10

Phase II we noted as we were looking for “bold” ideas that what
we were coming up with were not bold ideas, but old ideas that
people had not paid attention to earlier. We were delighted to fold
these ideas into the process.

Because the ideas have originated in and been generated by the
agencies, we're having much preater success at seeing them imple-
mented. The difficulty with having an outside commission or re-
view is that their recommendations often are not owned by the
agencies and therefore it is a question of implementation. If you
look at the success thus far in the first 2¥2 years of the NPR, you
will see a significant number of programs implemented agency by
agency. The agencies themselves are monitoring their program.

The budget process is driving it to some extent in terms of the
allocation of resources, but I’m satisfied that we’re headed in the
right direction.

The Congress thus far has been very supportive. I think you are
exactly right; it really requires a multifaceted approach. However,
at this point I don't see any need for changes. Al] we need to do
is continue to build on the progress that we've already achieved.

Mr. Horn. One last question on this, then I'll yield to the vice
chairman. One of the things President Hoover had that I think was
very helpful was the idea of a National Citizens’ Commission to
help implement the ideas of the first and second Hoover commis-
sion. Once that commission disbanded, the momentum was lost.
That’s usually the case with efforts, they come, they go, and they
disband. Obviously OMB has the key role in keeping the,ball going
as far as both budget authority and management decisions are con-
cerned to encourage the success of some of the reforms.

What I’m wondering is, would an outside commission of very dis-
tinguished citizens on a bipartisan basis be helpful, former mem-
bers of the Cabinet, for example. These people who would be have
really had to grapple with some of these problems as well as some
gcho ars. that have studied the issues. Would that be helpful to

eep reform moving, gaining public support encouraging people to
contact their friendly Member of the House and Senate, and so
forth and so on?

Mr. KoSKINEN. Well, we can certainly use any support from any
level that would be available for this effort. However, my experi-
ence, for 20 years of reorganizing failed private-sector companies is
that for reorganization to work, and your point is very well taken,
they ultimately have to become institutionalized in the agencies or
the organizations themselves. Relying on an outside commission as
a way to insure progress would not by itself accomplish as much
as is being accomplished now.

One of the things that the Vice President and the agencies have
focused on in Phase I of reinventing government was the point you
made, and that is looking at customers. For the first time the gov-
ernment is viewing itself as servicing customers. As a result of
Phase I, there were over 1,500 individual customer service stand-
ards that the agencies have designed themselves in consultation
with the recipients of grants and with the other people that they
interface with. I think that monitoring the performance under
those standards over time will provide a more effective way to en-


29

by which they reached that decision adequate? Did it come to the
conclusions and are there supporting evidence back of them, or
again might we have just locked them in a room for 3 hours and
said, “Make some decisions and don’t pretend you have a process,”
because my impression is they have got a process and they didn’t
follow it. So that fascinates me and I will obviously continue that
inquiry because I am irked at it.

Now, let me ask you in general here: in your opinion, are there
other management problems crucial to improve Federal manage-
ment that NPR has ignored, and if so, what are they?

Mr. BowsHER. I think the big areas were the high-risk ones that
I have already mentioned as part of my testimony. And I think
there are some issues in the systems area. In other words, I think
you have some major computer systems going on in the government
at any one time, and some of these are very crucial to the oper-
ations of these departments. I think that they were not as well in-
tegrated into the NPR process as they could be.

Mr. Horn. OK. The gentleman from Illinois, Mr. Flanagan, the
vice chairman, has 5 minutes.

Mr. FLANAGAN. Thank you, Mr. Chairman.

Mr. Horn. Or 10.

Mr. FLANAGAN. Five will do nicely, probably not even that much.

Thank you Mr. Bowsher, for coming in today and talking to us.
Your testimony has been very frank.

The fact that we are having an NPR at all indicates that we are
not exactly sure how government works, at least not to the level
of specificity that we would require to make it better. Con-
sequently, it is a fair question to ask if, in your opinion, the n-
cies themselves are capable of capturing and recording the data
needed to accurately measure waste and duplication and whatnot?

Mr. BowSHER. Could you repeat the last part of the question?

Mr. FLANAGAN. Are the agencies capable of providing the infor-
mation which you would need to specifically evaluate the areas of
waste duplication or whatnot?

Mr. BowSHER. They are sometimes and sometimes they are not.
That's one of our real problems in doing our work lots of times, is
whether the information and the data is really there to analyze.
What we find as we do these reviews is a mixture—sometimes it’s
there and sometimes it isn’t, and that is a problem. That’s why I
think it is important that this committee speak to how important
it is for the agencies to develop the milestones, the benchmarks,
and just the data that you need to know whether you are on a suc-
cessful track or not.

Mr. FLANAGAN. Do you think it is possible when weighing
against the traditional governmental functions which provide infor-
mation and work for a systematic system by which the elected bod-
ies, the Congress, can provide benefits through an agency, with
which the President can provide information to the people through
an agency? Do you think that looking at it on a customer-provider
basis is really the proper model?

Mr. BowSHER. Well, I think the customer basis is one of the
proper models.


98

a little bit of buy-in on the part of the Congress, and so it can be
more meaningful.

At the risk of seeming to over-simplify the problem, however,
since you asked for two suggestions, | would say at the very top
of my list would be reducing the number of political appointees. I
think that’s a major part of many of our management problems.

Mrs. MALONEY. Thank you. And very last, I know the chairman
has scheduled a hearing tomorrow really in response to security for
government employees at the General Accounting Offices and other
general services offices, and I’m very troubled by a lot of the sort
of hate language toward government employees that we are hear-
ing about that is taking place across the Nation.

d I would just like an open question if any of you would like
to comment on it, on what steps government should be taking to
lessen this type of anxiety, this type of talk, and to protect public
servants.

Mr. KETTL. Mrs. Maloney, one thing that I have been struck by
over this last week, is on the one hand, the enormous national
depth of feeling for the enormous tragedy that occurred in Okla-
homa City, but a lack of recognition that almost all the people who
died were either Federal employees or those in the office building
to visit and do business with Federal employees. The victims were
really people there trying to do their jobs. On top of that, these
were the folks who represent the typical Federal employee.

Eighty-eight percent of all Federal employees work outside of
Washington in offices just like the one in Oklahoma City that was
bombed, and I think greater recognition of the fact that here were
people, honest people, good people, trying to do their jobs in the

est way they knew how and met tragedy in this way might be the
foundation at least for stopping to ask what it is that we want to
accomplish here.

Mr. Foster. Certainly the United States in particular has a long
tradition of mistrust of government. That was the nature of our
founding. But we also see the problem as being very deeply in-
grained in industrial democracies throughout the world. We're not
alone in the problems that citizens have in their feeling that gov-
ernment is not living up to their expectations.

I think it makes sense for us to look at some of the deep-seated
reasons why that’s the case. I think that there is progress being
made, as we've noted. The restructurings that are going on aroun
the world in government as well as other social institutions suggest
we're dealing with some very fundamental change issues.

To the extent that committees like yours can take seriously the
issue of changing the structure and the operation of government so
that it can perform as well as can be expected and that citizens can
see that change, I think that the government and the people who
understand the importance of government, will be on much more
solid ground to be able to say, “We are doing the best that we pos-
sibly can.” And beyond that the question becomes very much one
of perception and thetoric.

Mr. JASPER. I would like to add a couple of quick points. Every-
body from President Clinton and Vice President Gore to Speaker
Gingrich has, from time to time, said good things about bureau-
crats but often bad things about the bureaucracy. The idea that


91

To begin with, agencies and managers need to be liberated and empowered in
ways not discussed in the NPR report. They should be given freedom to man:
their resources in the most effective way in fulfilling their missions. One approacl
toward this end is to allow managers to “manage to budget.” Under this concept,
PTE ceilings would be abolished. The same savings to be realized by the 272,900
reduction in personnel could be accomplished through the budget and appropriations
process. For example, that represents about a 13% reduction in personnel. And per-
sonnel costs represent about 8% of the budget. So Congress could require a 1.1%
cut in overall expenditures (or whatever percentage would yield the proposed sav-
ings). This cut would be allocated among agencies by OMB.

"Giang rs, in turn, would have flexibility and authority to use the funds in the
most efficient and effective manner. This will not only enable, but encourage, man-
agers to contract out where it will save money, while retaining appropriate over-
sight capacity.
a fallcblown manage to budget scenario, managers would also be given substan-
tially greater personnel authority. Merely abolishing the Standard Form 171 job ap-
lication and the Federal Personnel Manual will not “do the trick.” They need to
ave greater authority over not only appointments, but position classification. As
suggested earlier, program managers should no longer be subordinated to procure-
ment officers.

Pressures to cut personnel, flatten hierarchies, and close offices need to be re-
sisted until sufficient analysis has been conducted. There is no real mystery to re-
invention or reengineering. They are tried and true processes. But they take time
if they are done rij e first step is to define the mission. This step is being
taken through the NPR Il process. After that, the agencies should be required to
take the additional steps involved in a full-scale reengineering. The several steps
are:

Establish vision and set goals
« Analyze and evaluate core processes and support systems
irk against superior methods
« Reengineer process
* Establish measurement systems
» Pilot test reenginered processes
« Revise and implement.
« CUT PERSONNEL AND REDEPLOY RESOURCES AMONG PROGRAMS
AND PROCESSES TO BE RETAINED (N.B. This is the first point at which
atalf cuts can be made rationally—and without jeopardizing program effective-
ness.)
‘ Evaluate periodically and revise as needed.

If NPR I had “practiced what it preached,” we would be further 21908 in our quest
for successful reinvention and reengineering. Let us hope that NPR Il, OMB and
the agencies will profit from experience.

Mr. Horn. You've all contributed very helpful comments. You
have fulfilled my instinct, although unfortunately I didn’t insist on
it in this hearing. This is an excellent hearing, but I think that in
any congressional hearing the critics ought to go first so those im-
plementing policy and their staffs can hear some of the comments
and we can get a little closure when we've got those people before
us,

So I’m sorry you came at the end. That is my fault. And next
time it will be different because we could take a few hours ques-
tioning each of you.

Let me just start with Herb. Since you were the last to get your
turn at bat, we might as well start with you. You mentioned the
degree of congressional cooperation. And I am just curious, how do

ou feel such cooperation should be manifested? What do you see
is the right way to ge about it if you are trying to get a manage-
ment review of the Federal Government and you are in the execu-
tive branch?

Mr. JASPER. Let me start with a programmatic example because
it may resonate. You may have read the New Yorker piece on Hil-
lary Clinton and health reform. In it, she admitted that serious



11

sure that we continue to make progress, that we continue to listen
to the public and their views of the service from the government.

Ms. RIVLIN. There is also a whole establishment of institutions
like, first and foremost, the General Accounting Office, and you will
hear from the Comptroller General later, that are there to help
focus attention on these subjects. Then there are the academic in-
stitutions like the National Academy of Public Administration who
have taken it upon themselves, and we have been very grateful for
that, to mobilize the academic interests and to criticize while keep-
ing attention focused on what we're doing.

ir. HORN. Thank you.

We will yield now for some questions to the vice chairman, Mr.
Flanagan of Illinois.

Mr. FLANAGAN. Thank you, Mr. Chairman, and thank you for
having these hearings today.

Welcome, Director Rivlin.

I ask unanimous consent to place a statement in the record.

Mr. Horn. Without objection, so ordered.

[The prepared statement of Hon. Michael P. Flanagan follows:]

PREPARED STATEMENT OF HON. MICHAEL P. FLANAGAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS

Thank you Chairman Horm. I appreciated you calling this hearing to day to dis-
cuss how the National Performance Review has been successful and ways to make
the NPR and it’s initiatives even more effective. While I strongly believe in an effi-
cient, cost-effective federal government, I know there is a right way and a wrong
way to achieve that goal. I do not feel that it is fair to ask the agencies themselves
to suggest cuts, redistribution of agency goals, importance of their agency's initia-
tives and customer appraisal of their performance. Can these agencies be expected
to be non-bias and completely fair in their responses? | tend to think these employ-
ees have too much at stake or are simply unable to answer these questions.

1 also question the NPR in that Phase One and Phase Two do not compliment
each other and in some cases work inst each other's initiatives. This inconsist-
ency leads to wasted time, money and prolongs the process of decreasing the size

e federal government that Americans are demanding. I am interested to hear
the remarks of our witnesses that will help me understand how a Program that was
originated to make government better has gotten bogged down in the very proce-
dures it was created to reform.

Mr. FLANAGAN. You were just talking about customers and I
wonder if you could define the term for me. We've had some dif-
ficulty with contributions and other things in the past and the
word customer seems to have kind of a nebulous meaning. I won-
der if we can nail it down a little bit as to what a customer is and
to whom we are being responsive, or trying to be more responsive.

Ms. RIVLIN. I don’t think there is a single definition; it really de-
pends on what the agency does. The customers of the Social Secu-
rity Administration, for instance, are, to a large extent, the bene-
ficiaries of the program, the elderly and disabled who get the
checks. The customers of the Veterans Administration are veter-
ans, and the customers of the National Park Service are people
who visit the parks.

But that doesn’t mean the government only has customers. It
also has owners in a sense. The agencies have to be responsible not
only to their customers, but to the taxpaying public-at-large. Both
of those things are important.

Mr. FLANAGAN. So the taxpayer can be both an owner and a cus-
tomer, and when the Congress itself requires particular things of



97

it is not likely that we are going to make the kind of headway in
changing the systems and changing the culture, the attitude, the
behavior that’s critical to the implementation of NPR.

Mr. KETTL. I’m going to sound like a broken record. I had men-
tally jotted down my list of two, which are exactly the same. The
first_is the idea of performance and the great risk of trying to go
to big symbolic changes. We are going to shrink the bureaucracy
by “pick your favorite target.” You are going to succeed but get per-
formance down much lower.

If we are serious about trying to make fovernment work better,
we've got to figure out what that means. How to talk about it and
how to engage everyone, Members of Congress, members of the ad-
ministration, members of the media, citizens around the country in
a discussion about what it is that we want government to do. Only
when we begin focusing on the results are we likely to improve the
way in which government works.

e second thing is, once we’ve done that, we clearly need to try
to improve the government's capacity to do it. And by capacity I
mean two different things. The first is Rotting the right people in
the right jobs trained with the right skills. We have a problem, for
example, in the procurement process where we often don’t give
nearly enough attention to the people that have to make the tough
multi-million, multi-billion-dollar decisions and then wonder some-
times why the programs don’t work well. They are not going to
work well without the right people doing the right jobs.

Along with that, as we've heard all morning long, is the empha-
sis on the right kind of strategy in information systems. We can’t
audit information that we don’t have. We can’t administer fiscal
controls where we don’t have good financial bookkeeping. We sim-
ply have to be able to follow the results of whatever it is we do if
we are going to focus on performance and management. So if there
are two things that we need to do, it is making sure that first we
figure out what’s most important to concentrate on and how best
to accomplish it, and second, making sure that we've got the tools
to do the job.

Mr. FOSLER. We seem to have a consensus.

Mr. Jasper. Without trying to take anything away from the first
points made by both Scott and Don, I'd like to express a cautionary
note that I think I mentioned it in my prepared statement. That
is, the idea of getting the Congress to Tegislate with greater speci-
ficity about the objectives of programs is, I think, probably going
be illusory, as you two probably know better than I.

Legislation is the result of compromise and often that results in
obfuscating the purposes so that each Member who votes for it fig-
ures that he or she got what he or she needed. So the result is the
laws are frequently very obscure.

Given that possibility, I think that, however, the first step still
is better definition of agency missions. That’s the starting point: to
set goals and objectives, then to identify processes and reengineer
the processes, then to downsize and contract out. But, as we said
in our earlier colloquy, part of that process of defining missions
could take place in a joint congressional-executive conversation.
That way, when the agency decides what the new mission state-
ment is, and what the vision is, and what the goals are, there is


102

Mr. JASPER. I agree completely with Scott. The key is guidance
and assistance on one hand and oversight on the other. Those are
the key ingredients.

Mr. KETTL. By way of emphasizing that point, Mr. Chairman,
New Zealand has decentralized those functions out as broadly as
almost anyone in the world. What they have discovered is a risk
of going too far.

They are in the process right now of trying to redefine what the
central mission ought to be, but they are rediscovering the fact that
there has to be one. They are in the process right now of rethinking
what it is that the central government agencies have to do in pro-
viding basic guidance, basic support, basic information collection,
but most importantly, basic leadership for the way in which those
systems ought to operate.

Mr. Horn. I think it’s obvious that there ought to be a central
contract in a way for delivering paper to the Federal Government,
of which we complain and discuss regularly. There are certain
things that we can do on a centralized b basis to get economies of
scale, and that was the whole purpose of the Hoover Commission
recommendation in that area.

But would you say we have failed to achieve the mission that the
first and second Hoover Commissions suggested? We hear nothing
but complaints about GSA; the current administrator wants to sub-
stantially reform the agency to try to take into account those com-
plaints.

Mr. FosLer. I think we go through different swings of centraliza-
tion and decentralization and to some extent one extreme leads to
problems that results in going back in the other direction.

I think where we’re headed—and the restructuring that’s going
on in the private sector demonstrates this—is being much more se-
lective in looking at those functions that ought to Se decentralized
and those that can be better performed on a centralized basis. If
there are substantial savings to be made from bulk purchases, for
example, there is no reason why it shouldn’t be done. If there are
savings to be made and if performance is to be enhanced by decen-
tralizing responsibility for some kinds of functions on purchases of
items, that should be done.

Corporations are discovering this. One of the latest inclinations
of corporate restructuring is to recognize that some of the decen-
tralization has gone too far and that there are certain functions
that may be better brought back into a centralized office.

Mr. Horn. Let me move from that to the buy-out system that’s
used in various personnel plans of the Federal Government, the

rivate sector, and the nonprofit sector. Should there be more flexi-
Bitity in the use of buy-outs? Should we not tie the offering or non-
offering of a buy-out to people that are stars in the agency?

I find when you. pet into this situation you lose some marvelous
good people as well as the people you are glad to say good-bye to,
and that worries me. Are there some solutions to that one?

Mr. JASPER. I think it’s a major problem which I touched on in
my Prepared statement. In order to mitigate the adverse impacts
on people of downsizing through reduction in force, we went to buy-
outs and early outs and so forth. I think we have created our own
“brain drain.”


65

The role and mission of the National Performance Review to
make government work better and cost less is similar to at least
10 previous efforts in this century to improve the effectiveness and
efficiency of the Federal Government, and viewed in a broader and
contemporary context, the NPR is akin to restructuring initiatives
undertaken in recent years by businesses, nonprofit organizations,
and State and local governments within this country and abroad.

All of these institutions are confronting the same forces that are
compelling a fundamental change in the way they function. In fact,
several of America’s trading partners have been restructuring their
national fevernments for more than a decade, as you heard from
New Zealand earlier, and many view the NPR as a latecomer to
this movement.

The question confronting the Federal Government is not whether
to restructure but how to do it and how quickly to do it. We've
learned a great deal from the mistakes that have been made by
other institutions going through these kinds of restructurings.
Some simply try to patch their problems. Others engage in “ampu-
tation before diagnosis,” creating even greater problems. And still
others simply try to squeeze current structures and end up with a
smaller version of what didn’t work before.

We urge the NPR and the Federal Government as a whole to at-
tempt to leapfrog these common way stations on the path to re-
structuring, and go directly and quickly to where the Federal Gov-
ernment is likely to end up sooner or later, which is addressing
fundamental questions of performance: What is our purpose, our
mission, our capacity and the results that we want to achieve?

Phase II of the NPR appears to be moving in that direction, ex-
panding its focus beyond how government works to what govern-
ment should do and should not do. And the 104th Congress clearly
is asking fundamental questions about the role of government.

If it is to move successfully toward addressing such fundamental
questions of performance, the NPR will need a more clearly articu-
lated framework and a robust set of principles that can drive the
effort and keep it on a steady course.

The four principles articulated in Phase I, putting customers
first, cutting red tape, empowering employees, cutting Back the ba-
sics, may have been a practical way to begin but they don’t provide
the scope, the depth, and the sustaining power to drive and sustain
the effort.

We suggest one possible approach in the appendix to our testi-
mony. But while setting an appropriate direction to restructuring
is necessary, it is not sufficient. The NPR can’t accomplish its am-
bitious goals without the capacities to implement it and make it
work. These capacities include people with the right skills and the
organization and systems within the executive branch to assist and
facilitate the restructuring and continuous improvement.

We would also urge the Congress to build its own capacity to bet-
ter understand the operations of the Federal Government and to
help to design, to Support the implementation, and to oversee the
complex organizational changes that are under way and that can
certainly be expected in the future.

In recent studies for the Congress, the academy has comprehen-
sively examined such policy areas and such agencies as HUD, EPA,


71

CAPACITY

While setting an appropriate direction and design for restructuring is essential,
the NPR also needs to assure that the necessary capacities are developed to make
it work. Three kinds of capacities should receive priority attentios

‘The first and most critical capacity is people with the right ski Current person-
nel processes frequently are a barrier to attracting and retaining the best people.
Needed reform legislation to improve these processes is under development by the
Administration but to date has not been forthcoming. The Academy is current),
completing a project on behalf of a consortium of 32 agencies that will identify
changes needed to make the personnel system more responsive to mission results.

The National Performance Review's initial call for a reduction of 252,000 positions
was based on the assumption that 350,000 positions could be eliminated but that
100,000 new ions providing new skills would be created. This point seems to
have been completely lost.

The GPRA also recognized the need to train current employees in the develop-
ment and use of performance measures. But to date there has been no such orga-
nized training.

Businesses going through restructuring regularly have discovered that they need-
ed to invest heavily in providing new skills to employees. Top-rated companies com-
monly invest as much as 10 percent of payrol costs in training and development.
By contrast, the federal government spends .75 percent of payroll costs.

The problem for the federal government is all the greater since career profes-
sionals no longer fill the highest policy and management positions, a condition that
has been central to the design and implementation of major restructuring in both
business and other governments. High-level professionals have been particularly im-
portant in the restructuring of other national governments. The U.S. federal govern-
ment is the only major industrial government where political appointees—currently
some 4,000—go so deeply into public agencies.

‘The conventional wisdom—and political theory—is that the President needs a
large number of political appointees in order to implement his or her policies
throughout the executive branch. But whatever truth this assumption may have had
in the past, the reality today is that the large number of political appointees may
actually give the President less control and ability to carry out his policies, Political
appointees often lack the knowledge and experience required to manage large and
complex organization; turnover among political appointees is high, so they are un-
likely to have a sustained impact in improving management; and some respond
more to their political sponsors, and their own agendas, than to the will of the Presi-
dent. Academy panels and the National Commission on the Public Service (the
Volcker Commission) have recommended that the number of political appointees be
sharply reduced.

The second type of capacity is organizational.

One of the conspicuous gaps in the NPR is the lack of examination of the roles,
missions, and capacities of central management agencies and of the Executive Office
of the President more generally.

The principal formal responsibility for management in the executive branch cur-
rently is lodged in the OMB, in particular in the Deputy Director for Management
(DDM). As part of its recent reorganization (OMB 2000), OMB shifted most of its
management staff to newly named Resource Management Offices (RMOs) with the
intention of strengthening the program and management orientation of its budget
examination function. Combining management and budget functions in this way
challenges the conventional wisdom that in such circumstances budget consider-
ations inevitably drive out serious attention to management. However, the leader-
ship of OMB—persuaded by the importance of improving performance and manage-
ment in order to constrain costs and achieve policy goals—argues that this is the
most effective way to integrate management and budget concerns. Whether such an
organizational arrangement will achieve that end depends principally on the effec-
tiveness and resolve of the OMB leadership and the support it receives from the
White House.

In the meantime, through the NPR process a cadre of some 200 federal employees
has been applying and increasing its knowledge about the organization and manage-
ment of government. In essence, the Executive Branch has been rediscovering the
value of a central management staff with first hand knowledge of how programs and
agencies work, and of the principles, practices, and techniques of effective manage-
ment (features similar in some respects to an office of federal management long ad-
vocated by some management experts).

While the Administration apparently views the NPR staff as temporary, it should
consider preserving and more fully developing some form of this general manage-



16

Mr. Horn. Do we know if the removal of that function from the
Treasury would obstruct or interfere with the collection of delin-
quent Federal debts that are owed back to the taxpayers? Is that
a problem?

Ms. RIVLIN. No, it isn’t, and indeed we are focused on improving
the management of delinquent debt and giving Treasury more au-
thority to centralize the debt collection because they have been
very good at it.

Mr. Horn. So if the administration did go ahead with a central
disbursing service within social security, now an independent agen-
cy, would that in any way interfere with debt collection if payments
were made that should not have been made?

Ms. RIVLIN. No, but I don’t want to prejudge the other issue be-
cause we haven't decided whether we want to do that or not.

Mr. Horn. Well, I don’t know the pluses and minuses either, but
what worries me is, would the debt collection be undercut by sepa-
rate agencies?

Ms. RIVLIN. No, it would not.

Mr. KoSKINEN. It would definitely not be. As a separate initia-
tive, as the Director said, we are reviewing the possibilities of im-
proving debt collection. There was legislation last year in H.R. 3400
that did not pass both Houses that would have improved debt col-
lection, and we’re looking at those issues and others. It is clear as
we view this that wherever the checks are written in this particu-
lar area will not interfere with debt collection. In fact we are going
to propose, as we move forward, measures that will improve debt
collection.

Mr. Horn. Moving to another area, you have contacted the agen-
cies in response to the Vice President’s request in January 1995
that kicked off Phase II. Have most of these agencies replied? Has
any failed to reply to the Vice President’s memorandum? Where do
we stand on that?

Ms. RIVLIN. No, it hasn’t—we don’t just send out a memorandum
and wait for the agencies to reply. We have had for each agency
teams jojntly led by an OMB person and a National Performance
Review person—working actively with the agencies. The agencies
have come in with plans. We have been reviewing them. John and
I sit every Friday afternoon on the steering committee that reviews
these plans. It has been a very active interaction.

Mr. KoSKINEN. I would note that not only the major departments
and agencies have proceeded and responded but every agency and
operation, no matter what size. There are 132 small to medium-
sized Agencies and commissions and all of them are under review
as well.

Ms. RIVLIN. This is the kind of activity that gives a true sense
of the scope of the government’s activity. There are many small
agencies, some of which I venture to suggest you may have never
heard of, Mr. Chairman.

Mr. Horn. Dr. Rivlin, I gather from your testimony that the feel-
ing is that 1 in 3 Federal employees have been engaged in a central
control function. I just wonder how that compares to the private
sector.

Are there reductions in the Federal Government that are being
recommended in field offices and regional offices, or are they in


99

you can go around condemning the bureaucracy and exempting the
people who reside in that bureaucracy, I think, is a mistake. I
think if you tar the bureaucracy, you end up tarring the bureau-
crats as well.

The rhetoric of dumping on government is just so endemic that
it’s hard to know what to do about it, but the Congress has a seri-
ous responsibility. For example, at this time of the year, everybody
is acutely aware of how complicated the Tax Code is. People blame
IRS for these obscure regulations, but IRS doesn’t write such ob-
scure regulations because it wants to. It writes them because the
Tax Code is so complicated. And the Tax Code is enacted by the
U.S. Congress.

Mrs. MALONEY. Thank you.

Mr. Horn. You make a very good point on that. As we have said
in previous hearings, and it was repeated by one witness in this

earing, often we have such euphemisms that we use to bring peo-
ple together to get something done, but we don’t really give appro-
priate guidance to the agencies in writing on the specific regula-
tions that carry out the laws that we propose and that the Presi-
dent endorses. So there is no question that’s a problem.

Mr. Jasper, you also mentioned that the focus when you talk
about procurement should be on getting the mission accomplished.
Would you find the same problem exists in terms of the culture of
many Personnel officers, or do you see some changes that have
come along there since OPM was created?

Mr. JASPER. Well, I’m generally with you in recognizing that the
personnel bureaucracy—I'll use that word—has developed a certain
control mentality similar to the procurement mentality. It’s to keep
people from doing the wrong thing rather than to help them to do
the right thing. Whether the “reinvention” of OPM has solved the
problem, I would not be sanguine enough to say so. I think perhaps
not.

I think probably the delegation of authority from OPM to the
agencies, which we are seeing under NPR, may prove to be helpful.
But of course it has a down side, which means we may end up with
a thousand personnel systems and then mobility and things like
that which are good values may be jeopardized.

Mr. Horn. How much mobility do we really have in the existing
system? I don’t see much in the Senior Executive Service and that
should be the one where we should encourage mobility.

Mr. JASPER. You are absolutely right. There used to be a fair
amount of mobility at middle ranges and that has declined. And
partly because it is hard to have mobility when you are downsizing.
It is easier to have mobility when things are stable. It is going to
be hard to have much mobility in the current environment.

Mr. FosLer. I might mention, Mr. Chairman, with the decen-
tralization in the personnel or human resource management area
this does open up a great opportunit to try to basically rethink
that function and how it can be more Closely tied to achieving agen-
cy mission.

In that regard, the academy is working with a consortium of 32
Federal agencies and the human resource management people in
each of those agencies to really fundamentally rethink what is the
purpose of the personnel or HRM function. How can it be restruc-


21

Ms. RIVLIN. Thank you. We would be happy to answer any fur-
ther questions you have.

Mr. Horn. Sure. Thank you so much.

Panel two is called forward. The Comptroller General of United
States, Mr. Bowsher; Mr. Stevens, Deputy Director of the General
Government Division; and Mr. Dodaro, the Assistant Comptroller
of the United States for Accounting, Information and Management.

If you would raise your right hands, gentlemen, we will swear
you in.

[Witnesses sworn.]

Mr. Horn. The clerk will note that all affirmed.

Mr. Bowsher, please begin.

STATEMENT OF CHARLES A. BOWSHER, U.S. COMPTROLLER
GENERAL, GENERAL ACCOUNTING OFFICE; L. NYE STEVENS,
DEPUTY DIRECTOR, GENERAL GOVERNMENT DIVISION,
GENERAL ACCOUNTING OFFICE; AND GENE L. DODARO, AS-
SISTANT COMPTROLLER GENERAL, ACCOUNTING AND IN-
FORMATION MANAGEMENT DIVISION, GENERAL ACCOUNT-
ING OFFICE

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

I will summarize my statement. We issued a report on the NPR
in December 1994, and at that time we said about 90 percent of
the recommendations in Phase I had been acted upon in some fash-
ion. A few had been fully implemented. Only about 40 percent have
been partially implemented at this time, as Alice Rivlin indicated.
There was no action on 5 plus percent of the recommendations that
they had in the Phase I report.

fe generally agree with more than three-fourths of the NPR rec-
ommendations, and many of the NPR recommendations actually
are basic themes that we have been stressing with our GAO re-
ports for the last several years. We do have some concerns. NPR
addressed a wide range of issues, but not what we think are some
of the central management issues that are facing the government.

On page 5 of our report, we said that the 384 NPR recommenda-
tions touch upon a wide range of issues in need of improved man-
agement. However, many critical management issues were not dis-
cussed. For example, although the NPR recommendations were re-
lated to 13 of the 18 GAO-designated high-risk areas and 34 of the
84 OMB-designated high-risk areas, the recommendations did not
touch upon several of these high-risk areas such as the Farmers
Home Administration’s farm loan program, which has had many
problems; the defense weapons systems acquisition; defense con-
tractin, Pricing; defense inventory management; and several other
areas that are listed on page 5 of our report.

We also raised the issue that a number of the recommendations
that NPR said would yield substantial budget savings between fis-
cal years 1995 and 1999 have not been implemented. These rec-
ommendations and the savings that NPR said would accrue during
that period include such big items as improving the Social Security
Administration’s disability claims processing, which NPR priced at
$4 billion; redirect the Department of Energy laboratories to post-
cold war priorities, which they priced at a little over $2 billion; in-
stituting and collecting user fees on the Food and Drug Adminis-


50

Historical Target

Benchmarks —_—_ —* _
1980 19901995 20002010

income ss

Real per capita income of Oregonians as # percentage of US, real per capita
sos sateen . renee ~ 99% 92% 95% 100% 110%

The degree to which Oregon and its communities have embraced the benchmarks
is remarkable. The benchmarks have been adopted by the last two sessions of the
state legislature. They are the basis for building the state budget. Every county has
used benchmarks for children and families, health, and work force initiatives. Seven
of the state’s 36 counties are voluntarily developing comprehensive, locally oriented
benchmarks systems. The City of Portland, Oregon’s largest city, and Multnomah
County, Oregon’s largest county, have jointly produced city-county benchmarks,

Multno County’s budget, program initiatives, and action plans are built
around high priority benchmarks. Benchmarks are also being used as a part of
funding criteria by one of Oregon's largest foundations and by the Portland area
United Way campaign.

Oregon communities have already achieved notable success using benchmarks,
and they will continue to pursue the progress made these past few years. However,
these efforts would receive an immense boost if federal participation was also fo-
cused and structured to achieve outcomes. Oregon offers an opportunity for the fed-
eral government to join the state and its communities in designing and demonstrat-
ing a more efficient, results-driven model of service delivery.

The Oregon Option

We recommend that “The Oregon Option,” the demonstration project proposed
here, focus on important elements of Oregon’s top strategic priority, its human in-
vestment benchmarks. These benchmarks form a collective effort by state and local
governments, civic groups, nonprofits, and businesses to appreciably improve the
lives of Oregonians as self-reliant individuals, members of healthy families, and
skilled, successful workers. They fit the strategy to enhance Oregon’s economic pros-

ts while getting more people off public assistance and reducing the human and
financial costs of social dysfunction.

Oregon’s human investment benchmarks focus on such outcomes as reduced teen
pregnancy, diminished crime and recidivism, lower unemployment, higher per capita
income, greater early childhood immunization, and stronger K-12 student achieve-

ment, just to name a few. A larger set of human investment benchmarks is ap-
pended.

Benefits

The most important benefit, and the ultimate test of The Oregon Option, will be
results: e.g., higher rates of prenatal care and infant immunizations, lower teen
pregnancy, higher K-12 skill levels, re-employment of dislocated workers. Other ben-
efits include better use of public resources—money and people—at all levels, less
customer confusion and despair, and greater confidence in public sector services.
The Oregon Option also offers a laboratory for federal, state, and local participants
to learn from their efforts and act on what they learn to improve service delivery.
The Oregon Option will advance the Administration’s domestic policy agenda and
the campaign to reinvent government.

Requirements

The Oregon Option demonstration will require a long-term commitment and a
fundamentally different way of thinking about the mission and structure of service
systems by all levels of government. The system envisioned here is customer-cen-
tered, focused on outcomes, decentralized, and accountable. In this partnership, par-
ticipants must be willing to a) contract for measurable results, b) combine fundi:
streams, c) renegotiate funding amounts and rates, d) eliminate or suspend rigi
and costly program restrictions, e) provide multi-year funding, and f) empower those
closest to front-line service to choose the delivery mechanisms, initiatives, and in-
vestment criteria they deem most suitable. The demonstration will ire the waiv-
er of a number of federal roles, and it will require financial and political support.
It is essential that the project have the initial involvement and continuing support
of cabinet or subcabinet officials.



95

Mr. Jasper. I might just say after you name Doc Cooke, I dare-
say you will be hard put to think of another one. We just don’t
have people like that stay in the departments anymore.

Mr. Horn. Ms. Maloney.

Mrs. MALONEY. Thank you, Mr. Chairman. I believe it was Mr.
Kettl mentioned or suggested that it would be better if we put
more thought in where we cut instead of across the board in per-
sonnel,

As a former member of the city council of New York City, we
were constantly confronting budget crises and oftentimes they just
did across-the-board cuts because then, when you came up and pro-
posed various cuts, you got into a fight between the agencies—in
a political fight. It reminds me of the base closings. We could never
agree on the base closings until we finally had a commission come
out with a proposal that we voted up or down.

I would Eke to ask all of you if you have any ideas of how we
could better confront, if you do have to make cuts, a better,
thoughtful way of the doing it. As we are cutting, if you set up a
commission to then study the cuts, you know it is just—what were
your suggestions?

Mr. KETTL. A couple of points here. First an observation. There
is no such thing as an across-the-board cut. What happens is the
instant that 3 percent, 5 percent, 10 percent cut is announced, indi-
vidual agencies begin coming in and saying, “But you can’t do that
to us because we have essential functions.” You don’t want to cut
the police department. You don’t want to cut the Department of
Defense. People begin arguing for exemptions, and at that point the
idea of making it fair and equal across the board begins to evapo-
rate. So what seems like an easy way quickly turns into something
that can be completely random.

It seems to me the only way to do it from the beginning is to
start at the end: That is, to think about what you want to accom-
plish, to think about performance, to try to ask what is it that can

e done to make the job of gettin performance easier and cheaper
and better and effective. Only by focusing on the end product,
which I think the Government Performance and Results Act offers
the potential to do, only by focusing at the end can you figure out,
how you design the beginning and that ought to drive what hap-
pens from there.

Mrs. MALONEY. Mr. Jasper, you mentioned that you didn’t think
we would secure cuts from procurement—rather, savings from the
procurement reforms for various reasons. Would you elaborate
when you read reports on the NPR, the one area where they cite
they will save more taxpayer dollars is through the procurement
reforms?

I would just like all of you to sort of comment on that. I was sur-
prised at your comment that you don’t believe we will save money
through the procurement reforms.

Mr. JASPER. My point is that procurement officers have become
in the phrase I used in my testimony “czars” of the procurement
process. They have more power than the agency head. They can
substitute their judgment for when you need to compete something,
even when the agency head said “no—it’s dumb to compete because
the incumbent contractor has been doing a good job and deserves


33

management procedure and then he goes and some new provision
comes in, we are going to put it in the region, then we are going
to bring it back into Washington, and there has been so much
churning administratively that we don’t get the results.

I am also pleased and I gather you are saying that the Chief Fi-
nancial Officer Act and the Chief Financia icers have to play
a very key role in setting what those benchmarks are and setting
what those standards are and in providing the data to permit a
really good evaluation of how they are performing. Not just wheth-
er they are meeting the process. How do you think the implementa-
tion of the Chief Financial Officers Act is going considering it is
relatively new legislation? Which I frankly felt for some time was
not getting the attention that it deserved.

Mr. BowsHER. I think it got off to a very slow start when it was
first enacted, but they are starting to have some good CFO officers
in there and I think in some of the departments we’re seeing some
real progress. But there is still quite a long way to go. Gene is in
charge of it. I think that the CFO Act is crucial to getting account-
ability in government and the trust of the American taxpayer.

Mr. CLINGER. Thank you.

Mr. Doparo. Congressman, the act is making some progress. I
think Chuck is right, we’ve seen some talented, experienced people
come into the government to take some of these CFO positions,
which is encouraging. I think that there has been renewed focus on
it.

The Government Management Reform Act last year, which made
the requirements of the CFO Act permanent and required for all
the 24 agencies to have an annual financial audit, will make a big
difference. That will ensure continuity and will ensure attention to
it.

On the downside, there is a long way to go to have good financial
systems in the government. Many of them are antiquated, don’t
produce, or were never set up for financial reporting purposes so
there needs to be modernization of the financial systems. There
needs to be a better focus on putting cost accounting systems in
place and integrating the cost accounting performance data with

uudget processes, which is another key goal of the act.

And finally, there needs to be some additional focus on the quali-
fications of the people below the Chief Financial Officers in the or-
ganization, people with systems talent, performance measurement
skills, and a broader range of skills to really have the right infra-
structure in place.

We've seen a number of agencies really struggle to try to over-
come basically about 30 or 40 years of inattention to financial man-
agement when it was sort of an administrative backwater in the
agency. So it is taking great effort now to really turn that around.

The annual audits are getting a lot of focus because you have a
public score card there. You have a bottom line. You either have
a reliable set of financial statements or you do not, and most agen-
cies now do not. The annual requirement and disclosure will moti-
vate them to make a lot more changes and improvements.

And if that could be coupled with the oversight of the Congress
looking and asking, “Why don’t you have reliable information?” In
some cases it’s just because they have not done routine financial


17

central management? Where are these reductions coming from to
meet the President’s goal?

Ms. RIVLIN. They are both and they vary from agency to agency.
I don’t know whether we have done a real study that would tell us
how the proportion of Federal employees in control functions com-
pares to the private sector. The private sector is obviously very
variable on this. But the thing that did strike the NPR upon first
looking across the government is the extraordinarily large number
of people who are involved in personnel functions, budgeting func-
tions, and other kinds of control functions—both in headquarters
and in regional offices.

So we have been consolidating headquarters, regional and field
offices and generally trying to reduce the number of people in-
volved in control functions, quite successfully so far.

Mr. Horn. How are we doing that? Are we setting a percentage
target for the Office of the Secretary, or how do we go about that?

s. RIVLIN. No, it has to be much more individualized by agency,
because it depends on what kind of an agency it is. Some agencies,
by necessity, have more people in headquarters. Some agencies
have hardly any; most of the operation is in the field and should
be in the field. & we have not set arbitrary percentages.

Mr. KOSKINEN. We do have in the NPR a set of what we call “re-
buttal presumptions” based on an analysis of how the management
paradigm has shifted in the private sector. Those presumptions in-
cluded doubling the span of control on average of supervisors from
what in the government was about 1 supervisor for every 7 employ-
ees to 1 to 15.

There was, again, a general assumption that headquarters func-
tions, not geographically located but their functional issues as a
general matter, our goal ought to be to try to cut those by 50 per-
cent to de-layer the levels of review.

As Director Rivlin noted, we stressed to each of the agencies that
those were rebuttal presumptions and, to the extent those did not
apply in their area, they should simply explain that to us.

Your point about what is going on in the private sector, again,
if you take General Motors as an example, it reduced its head-
quarters operation from 13,000 to 1,300. They did that not to save
bodies, but to de-layer the operation and make it quicker and more
responsive in these days of fast change.

To a large extent, while our numbers aren't going to be that dra-
matic, that’s what we are talking about. We’re talking about trying
to remove unnecessary layers of review and red tape so that the
agencies are more responsive, that proportionately more of our
work and FTEs are in the field doing the work as opposed to being
in central headquarters reviewing it.

Mr. Horn. Well, I couldn’t agree with you more. I think anybod:
that has been part of a large ‘Taman organization has those feel-
ings and the corporations and the private sector that survive this
recession that we have been in did that work and they were better
for having done it—for cutting out these thousands of internal com-
munications layers that often block decisionmaking and the imple-
mentation of decisionmaking.

When I think back to the Eisenhower administration that there
were two of us in the Office of the Secretary of Labor who were,


61

vide guidance on verification techniques, and the GAO can test the reliability of the
agency verification mechanisms.

‘A word of caution. Auditing and evaluation activities must recognize the trial-and-
error nature of the experimentation work fostered by NPR. Failures in Reinvention
Laboratories are going to occur, and it is to be expected that certain pilot operations
will not perform sufficiently well for full-scale adoption. Performance measures will
not be perfect. How the verification and evaluation activities are conducted will
have considerable influence on the extent to which employee initiative and innova-
tion fostered by NPR will survive.

PHASE II

Phase II of the NPR is directed toward determining what the Federal Government
should do, a vital step that should have been launched two years ago. An enormous
effort will be devoted to define goals, measure progress toward those goals, and as-
sess Program effectiveness, none of which we have done very well in the past. Al-
though these initiatives should have been launched two. ears earlier, the Adminis-
tration deserves credit for tackling these tough issues. This second phase presents
several important challenges to the President and the Congress, particularly as they
struggle with the deficit reduction issue and new downsizing pressures.

ADDITIONAL DOWNSIZING

Much as I deplore the cavalier manner in which the 252,000 cut (later 272,900)
in employment seems to have been established, as I indicated in the discussion of
the first Phase, I nonethelese believe the federal workforce can be cut even further
if done in the right way. For years we have permitted the spawning of too many
agencies, for example, a development which increases overhead and has led to struc-
tural fragmentation that serves powerful special interest groups better than it
serves the public.

A number of us objected to establishing the Departments of Education and En-

rgy, a8 well as the separate Social Security Administration. Further, I had occasion
to eliminate an entire independent agency, a rare event in peacetime. And if we
move ahead with more program reductions and devolution of functions to state and
local governments, accompanied by additional NPR streamlining of the procedural
requirements placed on federal managers, I see no reason why additional significant
reductions cannot, and should not, take place.

On the other hand, if we persist in the further cutting of career staff before ad-
dressing the program responsibilities and requirements placed on the federal em-
ployee, if we proceed to delegate without oversight, and if we continue our current
negative treatment of federal managers, we will be in trouble. Under these cir-
cumstances in which we perpetuate the mistakes of the first Phase, I believe that
significant additional downsizing is likely to lead to government waste, poor delivery
of services that are retained as government responsibilities, and increased opportu-
nities for abuse and favoritism in administration of these programs. Vulnerability
to corruption must not be discounted,

An exception to this “look before we jump” admonition is that the number of spe-
cial assistants, multiple deputies, and political schedule “C” appointments should be
cut more sharply than I believe current plans envisage. I would urge that the Com-
mittee give serious attention to the Volcker Commission report “Leadership for
America: Rebuilding the Public Service”. Composed of a highly prestigious grou
with extensive government and non-governmental experience, the Commission built
a powerful case for greater professionalism of the public service and a 50% cut in
the number of political appointments. I heartily agree, As an agency head I found
two or three to be indispensable. Beyond that, I found political appointees to be a
major problem in carrying out policies of the President and Congress effectively.

ne can reorganize and streamline to the point of exhaustion, but the results may
be either zero or minus unless higher priority is given to professionalism and protec-
tion from political manipulation and abuse of the new flexibilities than has emerged
thus far from Phase I of NPR.

DEPARTMENTAL RESTRUCTURING

Jam uneasy about the way in which we seem to be approaching large-scale re-
structuring. With the understanding that this Committee will look at substantive
reorganization issues in its later hearings on departments, I will confine my com-
ments to the NPR process.

A serious flaw in Phase I was the failure to address roles and missions at the
outset. We are now in danger of structural reform before we have addressed these
issues except on a piecemeal basis. Further, there is no set of organization prin-


4

(FEMA), which, as the President likes to say, has gone from a dis-
aster itself to an effective disaster response agency. We have seen
FEMAs effectiveness in the substantial number of disasters that
have occurred on our watch.

The Customs Service has eliminated its regional offices, cut its
headquarters by a third and is operating much more effectively.
The much maligned Occupational Safety and Health Administra-
tion, has cut its operation manual for inspectors by more than
three-quarters and is also operating much more effectively.

The Small Business Administration has slashed paperwork and
introduced a one-page form for its loans, and we have substantially
reduced the number of Department of Agriculture field offices.

We are now in the middle of what we call NPR Phase II, which
focuses more on what government should do, as well as on the con-
tinuing effort of how to do it better. We began with five agencies
that we thought were far down the track and could be aggressively
reinvented. We announced those in December: the Departments of
Energy, Transportation, Housing and Urban Development, the
General Services Administration, and the Office of Personnel Man-
agement.

‘We are now moving on a day-by-day, week-by-week basis to the
other agencies of the government and are announcing, as we go
along, new efforts in agencies, such as efforts within NASA to re-
duce duplication and align the organization for new missions.

Let me mention one part of the Phase II effort which I think is
particularly important—the creation of performance partnerships
among the Federal Government, the States, and other service pro-
viders.

In the fiscal 1996 budget, we proposed to consolidate 271 pro-
grams into 27 such Bartnershi Ss. at’s a performance partner-
ship? Is it just a block grant? We don’t think it is. We believe, as
do many on Capitol Hill, that there are too many Federal categor-
ical programs. But we do not think the answer is to consolidate
those programs and have no accountability to the Federal taxpayer.
The answer is to work with the States, and in many cases local-
ities, to not only consolidate the funding streams but to define
what it is that we and they are trying to accomplish together to
define performance measures and actual outcomes and measure

erformance against those standards. We’re working hard with

tates and localities to do that.

This is just the beginning, Mr. Chairman. There is an unfinished
agenda. I don’t think we will see the end of this effort to improve
government in either of our terms of service. We want to come back
to civil service reform, which is under your committee’s jurisdiction.
That’s a very important part of making the government work bet-
ter.

A second procurement bill, which builds on the landmark meas-
ure of last year, will help streamline the government’s large dollar
value purchases, as we did for smaller buys last year, and reduce
runaway procurement litigation.

We are changing the ways we pian for, acquire, and manage in-
formation technology systems. This will allow us to increase the
performance of these systems, which are increasingly important to
the management of the Federal Government as well as to every-


93

I think the key as well is the focus on outcomes or results, and
there the Government Performance and Results Act probably pro-
vides an important framework for beginning to determine where
there is some kind of agreement between the executive and the

‘ongress.

Mr. Horn. Let me ask Dwight. I know you have to catch a plane
and I’m conscious of your time. Do you have a comment on this dis-
cussion?

Mr. INK. One quick comment. There have been some very suc-
cessful instances in which there has been this kind of cooperation
and the committee staff might be interested in looking at some of
those earlier experiences.

Mr. Horn. We would be delighted to have any suggestions you
have. Dwight, before you leave, one of the things that a number of
you have talked about is, how do you get the leadership respon-
sibility in any of these departments to carry over between adminis-
trations?

Obviously, part of it is the new President who might be of the
same party or the opposite party desirous of carrying on such an
effort, but let’s assume they aren’t so desirous. Who would you put
the finger on to provide that continuity in a Cabinet department
or a large independent agency?

Mr. INK. It’s very difficult under our current organization. One,
I think this is aggravated by having too many political appointees
in a department. And the overseas experience that has Been suc-
cessful thus far has been successful in part because that layering
of Political appointees did not exist.

d second, there needs to be on the one hand the ability to re-
spond to political leadership on a timely basis and on the other
hand some kind of protection and insulation from political inter-
ference in personnel actions, and in procurement actions. That kind
of protection did exist in the early space program. It existed in the
Atomic Energy Commission. It has existed in several of our best-
managed organizations over the years.

Finally, we now have a very fragmented system of leadership in
departments. We need to reinvent some modern form of what we
used to have as assistant secretaries for administration. I don’t
think that exact form fits today. An under secretary for manage-
ment has been suggested. There does need to be a focal point which
does not now exist in a department that provides continuity.

Mr. JASPER. Could I add a quick comment?

Mr. Horn. Sure.

Mr. JASPER. The under secretary for management idea is an an-
swer to the scattering of management responsibilities among as-
sistant secretaries. In some departments, as many as six now share
duties that used to be performed by one. That is part of the pro-
liferation of political appointees.

If you had an under secretary for management and you had pre-
scriptions in the statute about the qualifications of that appointee,
I imagine both the President and the Senate would ignore them.
But it’s probably a good idea to write them down anyhow because
it might add a little bit to the understanding of what sort of job
that is. Then, if you had fewer political appointees, you would be
able to have more continuity. That’s why we have this episodic


38

have audited the Resolution Trust Corporation for several years
now. We are continuing to do that.

We have focused our efforts on the Department of Treasury be-
cause of its central function and the Department of Defense be-
cause of their large expenditures and then focused on high-risk
areas across the government. We have tried to train the Inspector
Generals to take over those audits because they have primary re-
sponsibility now to do the annual audits and GAO will be relying
on their work, plus doing our own work, to audit the government’s
own consolidated statements.

As we move to turn those audits over, we are also beginning to
establish a program to go in and look at what extent the CFO Act
has achieved its other objectives, the cost accounting systems, for
example, the people qualifications issue. And we are just now free-
ing up some resources to be able to try to go and try and do that.

‘e have concentrated a lot on getting these audits up and run-
ning for the first time and to try to stay with it, as you are pointing
out, to make sure we come in year after year after year and make
sure the auditing is done in a good manner.

Mr. Horn. In the last Congress a subcommittee of the full com-
mittee looked at Medicaid fraud and abuse in New York. Do you
have major studies underway on both Medicare and Medicaid
fraud? Because there seems to be billions out there.

Mr. BowsHER. There are lots of problems in those areas and we
do have jobs going on most of the time in those areas to work on
those type of programs.

Mr. Horn. Do we have enough so we can turn them over to the
U.S. Attorney in an area? And if not, why not?

Mr. BowsHER. We have turned some over. Our investigative
group is very small, Mr. Chairman. So we have used them in the
two or three areas where we thought the greatest potential was.
One was in the health care area. One was in the financial institu-
tions when we had the S&L crisis but we probably can only report.
on a very limited number of problem areas there because of our
limitation on staff.

Mr. Horn. Who determined that you would have a small inves-
tigative staff, the Congress or you?

Mr. BowSHER. Well, basically the Congress, and the fact that we
have been under these budget restrictions here in recent years.

Mr. Horn. How many do you have on the investigative staff who
are field investigators that can go out and cover some of these is-
sues?

Mr. BowsHER. We probably have about 25.

Mr. Horn. How many did you have 10 years ago?

Mr. BowsHER. We didn’t have any 10 years ago. We started it
about 10 years 2g.

Mr. Horn. Well, I can remember 30 or 40 years ago the GAO
was conducting a lot of investigations.

Mr. BowsHER. That’s right. Yes. We went out of the business
sometime after that period. When I came into office, both the Con-

ess and myself thought it was worthwhile to get back into the
Business in some of these areas. I think our group has done quite
well on some of the things, but it is a small group.


100

tured or focused on program managers in assisting agencies in ac-
complishing their mission?

With minimal resources, I think there is progress being made.
There really are talented civil servants who are yearning for the
opportunity to get out from under these constricted systems that
they have been working under, and I think that this consortium is
providing one opportunity for them to learn from each other and
fundamentally rethink and restructure their operations.

Mr. Horn. I think some of you have heard me on this before but
I will repeat it. When I was in the California State University sys-
tem, I suggested a management track. Essentially it resulted in
four basic categories. They all overlapped everywhere between the
$30,000 level and the $100,000 level at that time. This is the early
1980's, and the advantage to that was to collapse dozens and doz-
ens of formerly civil service positions into broad categories and put
the stress that if you started at the bottom you could work your
way all the way to the top.

There were overlaps between areas and salaries so salary didn’t
become everything, but you rewarded people based on specific goals
set and reviewed at least twice a year as to what that manager was
going to accomplish with the people for whom he was responsible.

d I must say that was one of the great freeing aspects that
occurred because it suddenly let management and their employees
work together to achieve particular goals, and that trickled all the
way up to management. And the president of the university per-
sonally signed off on it and reviewed it.

So I don’t know how much we have achieved getting there. We
have a Senior Executive Service. We have a lot of key positions
that really do the work of the agency experts in science, experts in
administration, and other very complex matters. But why can’t a
system like that start at the very bottom with the supervisor of
janitors, if you will, with the plant and operations. Certainly if you
Maintain the billions of dollars in investment we have in these
agencies, and try to encourage that type of overlap, that type of
focus that we see in the Oregon Benchmark Project, the New Zea-
land project and others will result.

Mr. Fosuer. Well, there have been experiments with broad band-
ing within the Federal Government that have been going on for
years and years and have been quite successful, and we certainly
think it’s time to extend that now much more broadly within the
executive agencies.

I would say in this regard it’s going to be very important to as-
sure—and this is an important role that the Congress and this
committee can play—that the systems that are developed for indi-
vidual performance management evaluation of the kind 1 that will be
forthcoming through the administration’s civil service reform are
clearly tied to performance management systems for agencies as a
whole. Because if these systems are going to work where you estab-
lish clear goals for individuals and then hold them accountable, you
need to be certain that individual goals are tied to organizational
or agency goals.

And it is very simple, especially with the stovepipe cultures that
have been developed within the government, for these personnel


41

look after all the service delivery functions such as running the na-
tional parks, endangered species management and so forth. The
primary purpose of those structural reforms was to provide much
greater focus of objective, much greater clarity for the agencies
about what their line of business is and where they should special-
ize their expertise.

The second and far more reaching reform was the public sector
management reform which included financial management reform.
That reform was far-reaching because it sought to fundamentally
change the nature of the relationships between the agencies and
the legislature and ministers and to significantly change the incen-
tives that the agencies face in their day-to-day activities.

The key features of our new system that has been in place since
about 1989/1990, is, first of all, that all departmental chief execu-
tives are appointed on limited term performance-based contracts,
typically of about 5 years. They also have an annual agreement
with their minister which specifies the performance that is ex-
pected of the chief executive and his or her agency for that year.

At the end of the year, the chief executive's performance is ex-
plicitly reviewed against the performance agreement that was es-
tablished at the beginning of the year. Perhaps most fundamental
of all has been the way we have defined performance in this new
system. We have defined performance on the basis of outputs,
goods and services, not on the basis of outcomes?

That has been driven by a view that it is impossible to hold an
agency unambiguously accountable for the delivery of outcomes. So
many things can influence outcomes that there is always an oppor-
tunity for an agency to say, “That’s not my fault, I couldn’t influ-
ence, that, these things happen regardless of the things that we

ud.
On the other hand, they can be held accountable for the delivery
of goods and services. And in my written testimony I’ve given the
example of the police, where you can’t necessarily hold the Com-
missioner of Police accountable for the rate of crime because so
many things influence that. That’s an outcome.

Some of the things that influence that might well be the things
that the police did, but other things such as the state of the econ-
omy, the degree of unemployment, social factors, the family break-
down, maybe even a sports team result may well influence the
crime rate.

On the other hand, you can hold the Commissioner of Police ac-
countable for delivering policing services, for having particular po-
licing services or particular investigatory services in place and so
forth. That distinction has been very important.

So, too, has the integration of budgeting and accounting systems.
The budgeting and accounting systems are based on outputs, not
on line items, and this allows the legislature and ministers to make
decisions on what will be produced and the price they are prepared
to Pay for it, and that in turn opens up all sorts of opportunities
for benchmarking and price comparisons.

And finally, the other key feature of our system has been because
we've had this unambiguous output accountability system, we have
been able to delegate almost totally the management of inputs of
line items to agencies. There are practically no line item controls