16

So do you feel, Director, that there will be a greater emphasis at
the agency level on coming up with some sensible benchmarks in
consultation with the ultimate consumer, who is the taxpayer?
That is what Oregon has done; they have sat down with a sample
of consumers and said, how should we be judged? Are we going to
do that in OMB, working with the agencies?

Ms. RIVLIN. We have been pushing very hard on this, Mr. Chair-
man. I am not satisfied with the results so far. I think one of the
big problems is that we do not know enough about the specific re-
sults of Government programs to be able to make good decisions
about what we want to do with those programs.

This is a continuing problem that I have been wrestling with
most of my professional life, and others in this room have too. But
what we have tried to do in OMB is to make very clear to the agen-
cies that we must have evaluation information and they must
produce it. And we do that in every way we can, but particularly
in the context of reviewing their budgets.

Mr. KOSKINEN. If I could add to that——

Mr. Horn. Have your people gone out to Oregon to look at how
they are doing this in their Government?

Mr. KOSKINEN. Yes. We have a task force. A White House task
force with agency participation that is working very closely with
Oregon, studying what they have done, but also working with them
on Federal waivers.

I would just note, in further response to your question about per-
formance, which is a critical issue facing the Government, that as
the GAO report on OMB 2000 noted in the fiscal year 1996 budget
process, not only did management issues generally get higher visi-
bility, but there was a significant focus on performance.

Then this last spring, working through the RMOs, we created a
spring review on performance with the agencies in which the
RMOs and the agencies worked on the development of, as you say,
sensible performance measures. In the 1997 budget process, we
asked the agencies to provide even more performance information,
particularly consistent with the discussions they had held in the
spring. We are now working across OMB in an RMO-led GPRA im-
plementation group, working toward doing a dry run on GPRA for
fiscal year 1998 next fall.

None of that would happen or could happen if GPRA were
marginalized by being off on the side somewhere. It is critical, as
the Director noted, that GPRA be viewed as a central, core function
of agency program operations.

Mr. Horn. That is very helpful.

Let me bring up one minor item, but it happens to affect this
committee and the individuals on it.

Under the Chief Financial Officers Act and GPRA, you are re-
quired to submit agency CFO reports with an executive summary
from OMB, if necessary, to the House and Senate committees of ju-
risdiction, that is, this committee and the Senate Governmental Af-
fairs Committee, and perhaps the authorizing committees.

Our records show that only 14 of the 24 agency reports have
been received by the committee, to date; and I have a list here
which shows the date the agency sent the reports to OMB and


37

Previous OMB reorganizations have alternated between integrating management into the
budget review process and creating separate management offices. Congress has also
attempted to increase OMB's attention to management problems, creating three statutory
management offices-the Office of Federal Financial Management (OFFM), the Office of
Federal Procurement Policy (OFPP), and the Office of information and Regulatory Affairs
(OIRA). Congress also gave OMB clear management responsibilities through legislation
such as the Chief Financial Officers Act and the Government Performance and Results
Act (GPRA). Therefore, OMB 2000 is the most recent in a series of attempts to bolster

OMB's management capacity and influence.

Our review of OMB 2000 focused on three issues: (1) changes in OMB's structure,
responsibilities, and staffing, including changes to the statutory offices: (2) changes in
OMB's attention to management issues in the budget process, and (3) the way OMB
planned to evaluate OMB 2000. Concerning the first issue, OMB 2000 reorganized and
replaced OMB's former budget program areas with five resource management offices
(RMO) staffed by employees reassigned to new program examiner positions. Program
examiners’ responsibilities were expanded from those of budget examiners to include
responsibilities for agency management oversight. The RMOs were assigned integrated
responsibilities for examining agency management, budget, and policy issues. In general,
the agency-specific oversight responsibilities of the three statutory offices were shifted to
the RMOs, but OMB decided to retain responsibility for developing governmentwide

management policies in the statutory offices


33

It would also be the catalyst for making sure those issues
progress not only within OMB but within the agency. My position
chairs the President’s Management Council, the CFO Council, the
President’s Council on Integrity and Efficiency and the Federal
Credit Policy Working Group, and provides management leadership
not just to OMB but as a result across agency lines. I think you
need that kind of focus and interrelationship with ongoing RMO ac-
tivities.

Ms. RIVLIN. Can I add a personal note? For awhile before John
came we didn’t have a Deputy for Management. It was in hiatus.
I was then the General Deputy. I had to do both jobs. I do not rec-
ommend that anybody do that again.

Mr. Horn. I have concluded my questioning.

Mr. Davis. I have nothing further. Thank you very much.

Mr. Horn. We thank you for coming. Thank you very much.

Mr. Horn. Moving right along, panel two, our friends from the
General Accounting Office.

(Witnesses sworn.]

STATEMENT OF L. NYE STEVENS, DIRECTOR, FEDERAL MAN-
AGEMENT AND WORK FORCE ISSUES; AND PAUL L, POSNER,
DIRECTOR OF BUDGET ISSUES, ACCOUNTING AND INFOR-
MATION MANAGEMENT DIVISION, GENERAL ACCOUNTING
OFFICE

Mr. Horn. Will the clerk note that the two witnesses have af-
firmed.

Please proceed. Mr. Stevens, you may go first.

Mr. STEVENS. The report that we are prepared to discuss today
on OMB 2000 was a joint effort between two divisions in GAO, the
budget issues group, which Mr. Posner heads, and Federal manage-
ment issues, which I do, and so we would like to share this state-
ment as we shared the preparation of the report.

It is important to us to bear in mind that OMB 2000 is but the
latest in a very long series of attempts to improve the linkage be-
tween the budget and management sides or activities of OMB. We
have recognized the need for a closer integration of budget and
management responsibilities in our 1989 management review of
OMB, and the diagnosis of problems in the management area that
OMB faced in March 1994, which Director Rivlin recounted from
their own self-study, indicated that as of that time, March 1994,
not much had changed. The management side of OMB had prob-
lems of relevance, of capacity, and of credibility, and OMB 2000
was an attempt to energize management not through bolstering its
autonomy or its sequestered resources but integrating it and al of
its agency-specific responsibilities into what had been the budget
si

We did find, through reviews of agency decision documents and
interviews with fully 15 percent of the OMB staff at all levels, that
management issues were given notably deeper and more consistent
attention in the fiscal year 1996 budget development process than
in the one that had preceded it before OMB 2000 was implemented.

In particular, streamlining plans, downsizing plans and a con-
certed emphasis on agency performance indicators and information
came in for heavy scrutiny in the continual back and forth that


42

statutory offices and the RMOs are more effective than the others or whether changes are

needed in the way those approaches have been implemented.

Mr. Chairman, this concludes my prepared statement, We will be pleased to answer any

questions.

(410015)


10

regulations and paperwork. ‘They work with the RMOs and the agencies to assure that the
developed policies are understood and adequately carried out.

For example, OFPP has been working with an RMO to help the Energy Department
improve the management of its contract operations. OFFM and the RMOs held joint meetings
with each agency Chief Financial Officer this fall to discuss each agency"s progress in meeting
financial system requirements. These joint meetings leveraged the specialized technical
expertise of the financial management staff with the program knowledge of the RMOs.

Mr. Chairman, our experience shows clearly that OMB 2000 has successfully integrated
budget and management responsibilities. The most recent review of the organizational and
process changes that OMB 2000 has generated was the General Accounting Office’s (GAO)
December 29, 1995 teport, entitled, “Changes Resulting From the OMB 2000
Reorganization." GAO found that
there was a greater attention to agency management issues in the fiscal year 1996
budget process (after OMB 2000 was implemented) than in the fiscal year 1995
process. A greater variety of management issues were presented in more depth in the
fiscal year 1996 documents than in previous years’ documents. These results reflected
the clear commitment of OMB's top officials to ensure the treatment of management
issues in the budget cycle.
In particular, in the fiscal 1995 budget process we focused on agency streamlining
plans, We wanted to know how agencies were meeting the requirements of the Workforce
Restructuring Act of 1994, But, equally important, we wanted to assess how the restructuring

process was affecting agency operations and programs,


70

could agree without making it a political issue. Because of OMB's
having to play the bad guy in a lot of budget negotiations, it is often
an unpopular institution which members of Congress want to punish
by slashing its funding. This in itself might be one reason to separate
the management from the budget function.

Ability of OMB
to Fulfill its Statutorily Required Duties
Relating to Laws and Regulations

in a Timely Manner

Since there is some variability in the workload required
for OMB to fulfill its statutorily required duties in a timely manner,
OMB can reallocate its resources to focus them upon those projects
OMB assigns its highest priority.

The only concerns the GAO's OMB 2000 survey elicited with
respect to the Office of Federal Financial Management had to do with
agency specific reviews of audited financials and with who would be
responsible for cash and credit management issues. The first does
not require a rocket scientist and the second simply requires a
decision being made.

The Office of Federal Procurement Policy (OFPP) underwent a
staff reduction, but more than half of the staff loss remains available
to OFPP working part-time in a matrix management arrangement
from their new positions in the various Resources Management
Offices. Based on my experience with OFPP 1 believe that this is a
viable arrangement recognizing that OFPP may need more help if it
undertakes a special project. One change which would be helpful in
OFPP’s doing its job would be to give OFPP the final authority on all
procurement regulations in all agencies including the Defense
Department.

The Office of Information & Regulatory Affairs (OIRA) had
virtually no reductions in staff. While I don’t claim special
knowledge in this area, the relatively few complaints 1 have heard
about slow turn around times on regulatory matters I suspect are
more a function of the complexity of the issue than staffing levels.


52

Aggregate impact of Government. I mentioned this is another
problem. We have lost the OMB capacity to assess the total impact
of Government regulations on local communities, businesses and
families, and the reorganization I think makes that even more dif-
ficult. The budget process can provide only limited information re-
garding strengths and weaknesses of agency management.

The downgrading of human resources management under NPR is
a very troubling development which I believe threatens the future
of many of the best objectives of the NPR reforms. The more the
Federal work force is downsized, the more important it is that
those who remain are retrained for their new tasks and are highly
qualified.

OMB has lost much of its capacity, I would say most of its capac-
ity, to address issues affecting field operations where over 80 per-
cent of the Federal employees work, and I do not see that capacity
being regained at all through this reorganization.

Finally, the merging of management and budget staff places
undue reliance on the use of budget controls as the driving force
to implement management improvements and reform. It has been
my experience that far more important are leadership and tech-
nical assistance in ways which give agencies a greater sense of
ownership of the reforms, and a greater likelihood of them being
sustained after there is a change in political leadership.

Management oversight by OMB was weakened long before OMB
2000, but I think this reorganization is likely to weaken it even
further. Rather than one more effort to strengthen the role of the
M in OMB, a strategy which has always failed since the day it was
established, 1 strongly support this committee’s recommendation
that a separate Office of Management be established in the Execu-
tive Office of the President.

I do suggest that this committee ask GAO or some other re-
spected organization to undertake a review of the management role
in OMB as a companion to the review it has just made. I think that
would be very helpful in moving forward with a separate Office of
Management.

Thank you, Mr. Chairman.

Mr. Horn. Thank you, Dr. Ink.

(The prepared statement of Mr. Ink follows:]


50

come to hamper an office as well. So there is a number of issues
that would have to be addressed there.

Mr. STEVENS. I would have to say, based on our 1989 review,
which did deal with that question fairly briefly, is that some of the
same problems that affected or afflicted the management side of
OMB would have to be dealt with in a separate Office of Federal
Management. Who would assure that their phone calls got re-
turned? And the link with the budget process is one way of assur-
ing that phone calls do get returned.

Mr. Horn. Well, I thank you for coming and joining us. If you
don’t have any other remarks to make on the subject, we appre-
ciate your taking the time. Sorry it is a little delayed, but we
thought we would be a little freer this morning than the usual
madhouse of 5 minutes of testimony and then we go to questions.

As you know, all the statements are put in the record right after
we introduce you. And we appreciate your exchange back and forth.
Thanks very much.

Mr. Horn. Our third and last panel is Dr. Dwight Ink, president
emeritus, Institute of Public Administration, and Dr. Harper,
former Deputy Director of the Office of Management and Budget
under President Reagan and current president and CEO of the As-
sociation of American Railroads.

STATEMENT OF DWIGHT INK, PRESIDENT EMERITUS, INSTI-
TUTE OF PUBLIC ADMINISTRATION; AND EDWIN L. HARPER,
FORMER DEPUTY DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, AND PRESIDENT AND CEO, ASSOCIATION OF
AMERICAN RAILROADS

Mr. Horn. We will start with Dr. Ink. As you know, we can’t
read all of these statements, Dwight, since it boils down to about
18 pages double-spaced, but you have been clever and had 9 pages
single-spaced. Be our guest. We will try to cover everything we can
in the next hour.

[Witnesses sworn.]

Mr. Horn. Dr. Ink.

Mr. INK. Mr. Chairman, I am not going to go through my formal
statement but I have 5 or 6 minutes of comments that I would like
to make.

First, it is always a pleasure to testify before this committee, and
many of us who are following management have been very much
impressed with the hard work of you, the Members and the staff
over the past year in this field.

My comments represent my personal views. They result from ex-
perience in which I had responsibility in both budget and manage-
ment functions for several agencies, and having been Assistant Di-
rector for Management in both Bureau of the Budget and OMB. My
staff drafted the reorganization plans which gave birth to OMB,
and I was the chief spokesperson on the Hill in defending the pro-
posal, which was, I think, the biggest mistake I ever made in my
professional years.

The GAO report on OMB 2000 does provide some encouraging in-
formation regarding the budget portion of OMB responsibilities.
And I think credit must be given to Director Alice Rivlin, Deputy
Director of Management John Koskinen, and the OMB staff.


4

Competition With the Budget. The complexity and intensity of budget
pressures makes it unrealistic to expect OMB to find the time and energy
to provide sustained leadership for management other than in those
instances in which there is a direct relationship to the numbers crunching
challenge of each annual budget. Most management issues do not have this
direct relationship and, as the years pass, the budget pressures continue to
increase

Budget Not Focused on Crosscutting Issues. The greatest potential pay
dirt for improving government often involves crosscutting issues that affect
many, if not all, of the government programs and agencies. Productivity
enhancement programs, financial management, intergovernmental actions
‘such as devolution to state and local governments, contract administration,
and techniques of program management are examples of areas that are
difficult to address through any structure that is focused on the budget
process.

Budget examiners are widely regarded as some of the most knowledgeable
and dedicated professionals in government, but their tasks drive them to
concentrate most heavily on how to develop the lowest possible
appropriation level for the budget year, not how to manage most
effectively. Past efforts to combine management and budget staff have
improved the budget process, but only temporarily and at severe cost to the
capacity to assist the president with management improvement or reform
Most departments and agencies learned long ago not to combine the two
functions in the same organization for much the same reasons that such
efforts have not been successful in the Executive Office of the President.

Reorganization. OMB no longer has much capacity to provide meaningful
advice or leadership to departments and agencies on reorganization issues.
There no longer seems to be any conceptual framework. Yet we are ina
period in which structural changes are taking place in many areas, and we
are likely to see more such proposals over the next two years than we have
ever seen before. When in 1981 I had responsibility for eliminating the
independent agency I headed, the management staff of OMB provided
valuable help that I do not see OMB in a position to offer today

Discussions in this committee regarding the possible need for a temporary
ad hoc organization to manage major restructuring, such as the elimination
of the Department of Commerce, illustrates this lack of OMB institutional
capacity. At one time, this commitiee would have drawn upon the OMB


OMB GENERAL OVERSIGHT

‘The capacity of OMB to monitor departmental operations has declined considerably
over the past two decades, and familiarity with field operations has all but disappeared.
The requirements of GPRA should be of assistance in the future, and OMB should be
commended for the extent to which outcome measures are now being integrated into the
budget process. I think this is important.

I would caution, however, that not too many of the agency management
weaknesses which contribute to poor performance are evident through the budget. And
the budget process is not a particularly good mechanism for addressing most of the
deficiencies in agency management that emerge. Neither do most of the inspectors
general offices have this capacity, particularly for detecting problems at an early stage
before much damage has been done. It is not a function that Mr. Koskinen can perform
alone or with only two or three assistants. What is needed is the restoration of a staff of
men and women with strong general organization and management experience who work
with the agencies on an informal and collegial basis to the extent possible. This staff
needs to be concerned with field operations as well as headquarters.

EXECUTIVE BRANCH LEADERSHIP

I believe that the front office of OMB is exercising relatively strong personal
leadership in the executive branch at the present time. But the current structure greatly
handicaps the Director and the Deputy Director for Management in translating personal
leadership into institutional leadership insofar as the "M" mission of OMB is concerned.

Uncertainty regarding the respective roles of NPR and OMB has contributed to
problems we have seen in implementing a number of excellent NPR objectives, but I
think the limited management strength in OMB to address crosscutting issues is the more
basic problem. The fragmented budget approach to so many management issues,
combined with the pressures of the annual budget cycle, creates serious problems in

addressing fundamental government operations from either a presidential perspective or
that of ci

am struck by the fact that it is only in the last year of this presidential term that
OMB has begun to address so many important management problems. By contrast, in
1969, with staff assistance from a somewhat autonomous Office of Executive
Management in the Bureau of the Budget, actions moved very rapidly immediately after
inauguration of the president. Within weeks after taking office, President Nixon issued
executive orders and BOB issued other instructions to implement major decisions made
on organization and management issues. I would stress that these were change actions,


48

Mr. STEVENS. Well, our recommendation is really that they do
this and that they do it as part of their GPRA strategic planning
requirements. The schedule of GPRA is more or less immediate. I
think they should get on it now, and from what they have said to
us, I think that is their intention.

Mr. Horn. Well, it is the old story. You could do it in most orga-
nizations, you are right, if you went around and asked the ques-
tion. Often people are very bashful about telling people in their
own, organization, that affect their promotions, what is really going
on, so that is why you pay consultants.

That is why you have GAO. Presumably they might, unless they
have some assistant to the Director sitting there taking notes of
every interview you have, and I don’t know, maybe that is the prac-
tice. Do they sit in on your interviews with people, or can you wan-
der around and try to ascertain what is really going on?

Mr. PosNER. We were able to interview people on our own. I do
think the idea that, as Mr. Ink noted, that our study was a descrip-
tive study and very self-consciously so, because it was the first year
of this process, I think it would be unreasonable to draw any
broader conclusions from something that just had so many other
influences going on at the time. So you would want to see several
cycles pass to give this a chance to see patterns emerge.

Mr. Horn. Did you find that the RMOs and those that coordinate
that effort within an area had any training in assessing and evalu-
ating performance and development of strategic plans? Are they
being asked to do that?

Mr. STEVENS. There was a good deal of emphasis, in written
guidance and the informal guidance that travels through OMB,
that the Director would be asking a great deal of performance-re-
lated information in both the spring review and the budget review.
There was a 2-day seminar, I think it was called a dialog on the
1996 budget process and what it would involve, that was open to
all OMB staff. A couple of hours of that did specifically emphasize
strategic planning and performance reporting.

We were told, but we didn’t check, that a large majority of OMB
resource or program examiners did go to that. However, they did
not do what the question implies, which some other agencies might
have done, which is to have a dedicated required period of intense
how-to-do-it skills building in this, and OMB rarely has done that.
Their training philosophy is, “Here is the assignment, here is the
emphasis we are going to be placing on it, and there are lots of peo-
ple here know about it, and you better find out if you don’t want
to embarrass yourself and the Director.” That is their normal ap-

roach.
p Mr. Horn. Do they have any plan at OMB, to your knowledge
at this point, to assess the overall effectiveness in management, or
are they just letting the system occur, seeing what happens? Is
there some plan that you know about for evaluation, assessment,
various points?

Mr, STEVENS. You mean a plan for their evaluation as opposed
to—.

Mr. Horn. Yes.

Mr. STEVENS. OMB 2000 itself is a sort of a plan or philosophy
of operating. No, we have not seen that. We have had a very gen-


20

is taking the lag? You are getting them to rewrite it or what? Soft-
en it, whatever?

Mr. KOSKINEN. No, no, no. There have been a couple of cases of
that. What we plan—if you look at those, in the cases where it has
worked more effectively, we have, beyond the auditors’ reports and
the CFO reports, we have had RMO reports. Now, once the CFOs
have understood that there will be more review by the RMOs, they
have actually—part of the time lag has been they have been revis-
ing their CFO letters to, in effect, the Congress and OMB in light
of conversations they have had with the RMOs.

So I think, ultimately what we expect is that the CFO cover let-
ter will reflect the OMB input, and there will not be another layer
on top, other than the transmittal from the Director.

Mr. Horn. It seems to me when you get letters from the CFOs,
that you are correct, they ought to be ground into the review proc-
ess so that they become really meaningful in terms of budget re-
view and management questions that arise therefrom. But I would
hope we do not lag, as we have with EPA, an immensely sensitive
agency, and one in which there is great congressional interest on
all sides. We need those reports to see what the CFO is saying
about an agency.

Mr. KOSKINEN. There is no doubt about that. We should be able
to get those to you in a regular manner very promptly.

Ms. RIVLIN. We will speed that up, Mr. Chairman. But I do not
think you want us to just rubber stamp them and send them on.

Mr. Horn. Well, I do not know. If they are not changed and just
sitting there, I would just as soon have them. And if you want to
give a revised version, fine. I do not have a problem with the cover
letter. But it just seems to me, once we have looked at it, there is
not much we can tell is different. But if you have changed the basic
text that the CFO is sending to us, that, A, worries me; and B, I
can see where it would take some time.

Let me go on to a little broader area. You state in your testimony
that the Office of Federal Financial Management and the RMOs
held joint meetings with agency Chief Financial Officers this fall
to discuss agency progress in meeting the various financial system
requirements.

What do you propose to do about those departments, such as the
Department of Defense? And this committee, as you know, held a
hearing on, can they find $15 billion to $25 billion that is floating
around somewhere over there; and it is not stolen. We think it is
just lost. And part of the loss is, there are 49 separate accounting
systems in the Department of Defense.

So I guess I am saying, what do you propose to do about those
departments, such as Defense, where the systems are not only nu-
merous but they are also inadequate? I think that could be said
about a lot of the Federal agencies.

It could be that Congress is part of the problem there; that basi-
cally the administrations, regardless of party, regardless of ideol-
ogy, ought to be asking for the resources to get these systems in
place, one, for just better customer service; two, because we are
looking for efficiency, and thus saving money in agency operations.


38

Staff reductions in these statutory offices varied, and each office followed a different
approach in devolving its responsibilities. For example, 21 of OFFM's 41 authorized staff
positions were shifted to the RMOs, directly transferring responsibilities and resources to
the RMOs. In contrast, only 4 of OIRA’s 56 staff positions were transferred because OMB
wanted OIRA staff in place to implement Executive Order 12866 on regulatory planning
and review. In OFPP, 10 of the 30 staff positions were reallocated, and 6 of the 10
became jointly managed in a "matnx management’ approach, After the initial
restructuring, each RMO branch chief was permitted to determine what, af any, technical
skills the branch needed to fulfill its new responsibilities and to develop those skills
within given staffing allocations. However, OMB did not provide specific guidance or
technical support in this regard In addition, OMB's General Management Division was
eliminated when two of its branches with oversight responsibilities for the General
Services Administration and the Office of Personnel Management were moved to the

RMOs. The third branch, Evaluation and Planning. was eliminated

Our review of budget documents and interviews with OMB staff indicated that there was
greater attention to agency management issues in the fiscal year 1996 budget process
(after OMB 2000 was implemented) than in the fiscal year 1995 process. A greater variety
‘of management issues was presented in more depth in the fiscal year 1996 budget
documents than in the previous year's documents. For example, in fiscal year 1995

documents for one agency, the discussion of financial management issues was limited to



69

President Reagan found a strong capacity at OMB to launch
these important projects and combine them with several others in an
all out attack on the Federal government's management problems. It
was OMB's leadership that at the President's direction reinvigorated
the Inspectors General program and expanded its scope to all major
agencies and in the process created the President's Council on
Integrity and Efficiency in Government. This Council staffed by OMB
was a key element in President Reagan's attack on fraud, waste and
abuse. The Grace Commission staffed outside of OMB joined the
management improvement effort.

President Clinton has led his Administration to place a high
priority on the National Performance Review's management
improvement activities. In an era of scarce resources he reorganized
OMB in a manner that essentially distributed OMB's management
Tesources among the new Resource Management Offices which
replaced the budget examining groups. The job description of the
Program Examiners in the RMOs have the right words--"plans,
conducts and completes analyses and studies on financial
management and procurement.” “revises reorganization proposals.”
Will the words tum into action?

It depends. It depends on the President's priorities. If
management improvement is a Presidential priority, the words
probably will turn into action, but if the President is consumed with
a fierce budget debate with the Congress, they probably won't And
it depends upon the leadership at OMB. If they push management
issues, they will be addressed

Are the manpower resources adequate? Probably not. As I
look back over the past 27 years three points occur: 1) 27 years ago
examiners felt that the quality of the bureau's work had deteriorated
because they did not have enough time to investigate programs, 2)
the number of OMB examiners has dropped significantly, and 3)
manpower was generally fungible as to whether it was placed on
budget or management projects. This suggests that any increment in
OMB personnel probably adds to OMB's capacity to serve the
President's interest in improving management.

I would hope that the President and the Congress would have
the courage to allocate adequate resources to OMB. I don't know
what the number is, but would hope that the OMB and the Congress


OMB 2000 REFORMS: WHERE ARE THEY
HEADING?

WEDNESDAY, FEBRUARY 7, 1996

HOUSE 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 a.m., in room
2154, Rayburn House Office Building, Hon. Stephen Horn (chair-
man of the subcommittee) presiding.

Present: Representatives Horn, Davis and Peterson.

Staff present: J. Russell George, staff director and counsel; Anna
Miller, professional staff member; Andrew G. Richardson, clerk;
and David McMillen, and Matt Pinkus, minority professional staff
members.

Mr. Horn. A quorum will be established at the end of my state-
ment, not before it. But in the interests of time, I am going to

egin.

Today, the Subcommittee on Government Management, Informa-
tion, and Technology will review how a reform initiative, known as
OMB 2000, has impacted upon management practices in the Office
of Management and Budget, and where OMB is headed as a result
of all this.

And since it was reborn in 1970 from the Bureau of the Budget,
the Office of Management and Budget has wrestled with how to
achieve the proper balance between its responsibilities for manage-
ment practices within the executive branch and its responsibility
for budget formulation. There are some experts who say that a
Proper balance has never been achieved. They question whether it
is feasible to integrate the two functions in one organization, and
suggest that the solution is to set up a separate office within the
Executive Office of the President, devoted entirely to management
issues.

In March 1994, the Office of Management and Budget com-
menced a far-reaching reorganization intended to make OMB more
effective in serving the President. Entitled OMB 2000, the reorga-
nization fundamentally changed the organizational structure of
OMB. The former budget program areas were recreated as resource
management offices, otherwise known as RMOs, staffed by former
budget examiners, who now have both budget and management re-
sponsibility.

The Office of General Management is gone. The staffs of the
three offices mandated by law do remain. They are the Office of

(D


72

With respect to these transfers of responsibility an appropriate
transfer of resources should be made

These transfers would for the first time put in OMB's hand all
of the tools necessary to exercise properly a management oversight
responsibility on behalf of the President.

OMB's Abi

ity to Provide Direction and Leadership
to the Executive Branch

Realistically OMB's ability to provide direction and leadership
depends upon its relationship to the President. Regardless of
institutional structures if OMB is not seen as acting on the President's
behalf it will be ignored. The value that OMB can add to the
management process is knowing the President's philosophy and
Priorities and being able to apply those as he would if he had the
time for detailed management and budget issues

Knowing the President's "mind", OMB's leadership can propose
management initiatives that will provide more specific and detailed
direction and leadership than the President has time to give. OMB
has worked and can continue to work closely with the White House
staff and the Cabinet Secretaries to set the detailed agenda after the
President has set the direction.

Institutional structures having been put in perspective it is
now time to come back to the issues of 1) whether or not there ought
be a separate Office of Management and 2) whether that office ought
be in or outside of OMB.

First 1 believe that all of the elements of administrative
management --personnel, administrative policies on purchasing and
the like ought be brought together in a single place. In fact, the
three statutory offices in OMB are important elements of
administrative management. Thus, | would create an Office of
Management and put into that office all of the management elements
outlined above.

Second I believe that the head of the Office of Management
should have cabinet rank. However, I think it is inappropriate 10
proliferate the number of persons of cabinet rank in the Executive


wal

Information technology is becoming one of the most vital
management tools available to the CEO of any organization. Given the
speed with which the field is changing, its complexity and
importance, this is one of the most difficult functions in the Executive
Office of the President to keep staffed with the technological,
strategic, business and interpersonal skills necessary to move the
government forward in a timely manner.

Without a detailed analysis it is a fair presumption that these
areas probably have enough people to get the job done. With no
reflection on the incumbents I would have an ongoing concern about
the government's ability to maintain and recruit the caliber of people
we should have in the information technology area. In the private
sector a person with the appropriate skills would be making
considerably more than a cabinet officer.

One last issue I would raise in this area is this: Is there a need
for these offices to be statutorily mandated. If we are to be focused
on outputs and outcomes as a management improvement measure
why not start here and give the President responsibility to produce
the desired outcome and let him organize the Executive office of the
President as he sees appropriate to achieve those outcomes.

OMB's General Oversight
of the Executive Branch

OMB has a strong oversight role with respect to the Executive
Branch, but it is unbalanced. It is too focused on the budgetary and
not enough on the management side. OMB's oversight role 1 believe
should be in serving the President as would a Chief Financial and
Administrative Officer would serve his/her CEO in a corporation. To
do this, however, will require some changes.

OMB lacks the kind of personnel policy role that the CF&AO
would have in a corporate setting. Thus, 1 recommend that the
residual policy and oversight functions of the Office of Personnel
Management be transferred to OMB.

OMB lacks the kind of control over administrative policy that
the CF&AO has in a corporate setting. Thus, I recommend that the
policy functions of the General Services Administration procurement
Policy functions of the Defense Department be transferred to the
Office of Procurement Policy in OMB.


74

Mr. Horn. Let me begin with Dr. Harper.

You mentioned the administration which you served—just in
general; you did not pin it to your administration—where if the
President does not have faith in the kind of work product he is
going to get out of BOB or OMB, they are likely to be ignored and
they will figure out some other way to get the job done.

Now, I think under the Reagan administration, there was a dip-
ping down into the organization, as I remember, and making politi-
cal appointees in more of those resource allocation jobs.

Mr. Harper. I cannot remember when the law was changed that
allowed those additional political appointees in the Office of Man-
agement and Budget, but if you go back to the era of when Mr.
Stans was Director, I think there were three or four, if that many,
weren't there, Dwight?

Mr. INK. If I could add to that.

Mr. Horn. Sure.

Mr. INK. The real change came with the establishment of the Of-
fice of Management and Budget. That was the big change in adding
political appointees. And that is one of the reasons that I say that
having drafted that study and that reorganization, I think it is the
biggest mistake I made in my years in public service.

Mr. Horn. Well, as I said earlier, confession is good for the soul.

Was it permissible then under that act that you could reach
down and reorganize some of these positions?

Mr. INK. Yes. Once you had political positions in these posts,
then you could do what you wanted, really. And, of course, what
so often happens is that you have special assistants to the PAPs.
There are a number of ways you can increase the number of politi-
cal appointees.

Mr. Harper. Dwight has had some of these same experiences,
but my first full-time assignment in the Bureau of the Budget was
at the tail end of the Johnson administration, when I was there,
detailed from the Civil Service Commission where I was a
postdoctoral fellow, to work on a major management improvement
project of the Johnson administration, the Program Planning and
Budgeting, or PPBS, System. There we brought together the re-
sources. It was staffed by career people from around Government
and in the Office of Management and Budget, and I think it
worked pretty well.

Mr. Horn. Yet you feel, Dr. Ink, that some of that has not
worked very well in terms of the political appointees. Is that just
a lack of experience?

Mr. INK. It is lack of experience. It also has tended to be a filter
for the views from the careerists. I think it is very important that
a President have information and views and judgments coming
from both the political and the career perspective.

The Joint Chiefs of Staff provide that career in the national secu-
rity area, which the President balances against the political leader-
ship. We used to have that in the Bureau of the Budget. We still
have it, but to a lesser extent because, as I say, the career views
now are filtered through several political levels.

Mr. Horn. Let me ask you about the Director’s role. It seems to
me when a President goes about selecting a Director to head OMB,
given the great time it takes to put a budget together to administer


31

Mr. Davis. When you said the President wanted to reduce Medi-
care spending, you mean he was going to reduce the increase in
spending by $124 billion?

Ms. RIVLIN. In nominal dollars, the Medicare spending will in-
crease. We all know that. We will cut out of that increase $124 bil-
lion over 7 years.

Mr. Davis. But it is a cut from an increase.

Ms. RIVLIN. It is a cut in increase, but not an increase in real
services, an increase in the dollars needed to provide services to
more people who are actually older and sicker.

Mr. Horn, In your testimony you write that the RMOs ensure
effective implementation of Governmentwide management initia-
tives. Could you give us two recent examples of how they are doing
this? What two things have they done recently on the Government-
wide management initiatives that resulted from this reorganiza-
tion?

Ms. RIVLIN. I think the various procurement initiatives would be
maybe the most obvious example, and the RMOs have been work-
ing with the Office of Procurement Policy across the Government
on that. We cite one example in the testimony of working with the
contractors at the Department of Energy. That is one of them, but
it is only one place where we have procurement problems that are
serious.

Then I think that financial management is probably another ob-
vious example where, despite our tardiness in getting some of these
reports forwarded, we believe there has been really very great
progress in improving financial management. That has come
through the RMOs working very intensively—and sometimes it has
slowed down getting the reports forward—with the agencies on this
matter, including DOD, which you mentioned before.

Mr. Horn. A lot of the members of the Cabinet come with great
executive experience. Some come with hardly any. Have either of
you sat down with Cabinet officers or the principal Deputy Sec-
retaries, Under Secretaries, as the case may be, and said, “Look,
give us your fix on what kind of management problems do you
think we ought to be addressing, and what do you see?” Because
a lot of them bring a very good perspective from either the private
sector, the nonprofit sector, whatever it is. They have management
experience. So have we had that discussion with the Cabinet and
whoever on the firing line?

Ms. RIVLIN. We have it all the time. We also have a venue for
doing it continuously, which is the President’s Management Coun-
cil, which I chaired for awhile and now John chairs it. It is the
group of chief operating officers of each of the Cabinet Depart-
ments, and in some cases that is the Deputy Secretary. In other
cases, it is somebody else. But that is a new feature. We never had
chief operating officers before, and we never brought them together
to talk once a month and often in between about management
problems.

Mr. Horn. Has OMB developed performance goals and a per-
formance measurement system so they can track the progress in
the same way agencies are required to do under the Government
Performance and Results Act?

Ms. RIVLIN. Yes.


17

when OMB sent it to the chairman of this committee. The average
time it took to get the report through OMB was nearly 5 months.
Furthermore, in many cases, all that OMB is adding is a trans-
mittal letter from you, the Director. No. 1, without objection, I will
put this chart in the record.
[The information referred to follows:]


23

Mr. Horn. You are saying, they all say it is marvelous, and let
us do it someday, and we agree with it in principle. I want to
know, do they agree with it in action? I am curious what agencies
of the executive branch are not using the standard general ledger,
and if so, does that worry anybody?

Mr. KOSKINEN. We will get you that report.

Mr. Horn. OK. But I am curious, does it worry anybody? Is that
a problem in why we cannot find——

Ms. RIVLIN. Sure, that is what this effort with the CFO Council
is about. It is to get everybody onto the same system. But these
systems are very diverse and it takes a while to do that.

Mr. Horn. I agree, and I am glad you are started on it, and it
is too bad the first Secretary of Defense, in the case of Defense, did
not start on it way back in 1947.

We have not received yet from OMB the Department of Defense’s
CFO report for fiscal year 1994. The Defense Department sent it
to OMB, according to the legislative people. They sent it on time,
which was June 1995.

Who goes to the RMO that is responsible for Defense and says,
when are you going to get this to Congress? Is anybody working on
that?

Mr. KOSKINEN, First of all, Mr. Chairman, I may be wrong, but
my understanding is, we have made sure that all of those reports
have been delivered to your committee early this week or late last
week; so you have those reports.

But second, as I noted, we need to do a better job, especially with
a major agency like Defense, in reviewing those reports and getting
them to you in a timely manner; and we will do that.

Mr. Horn. Staff tells me they did not get the RMO report, they
got the financial statements.

Mr. KOSKINEN. Yes, sir, that is right. We still are refining our
system and trying to make sure the RMOs are responsive in a
timely way. But we were concerned when we discovered that they
had not come and you did not have all the reports; that is why we
delivered all those. But we will get you the RMO reports, and as
I say, going forward, we will make sure the committee gets these
in a timely manner.

Mr. Horn. Great.

Now, { am curious. Do you know whether agencies are paying
more attention to your management advice now that you have reor-
ganized? Do you have any feeling or sense of that?

Ms. RIVLIN. We do think so. But I think there are lots of reasons
for this, and I do not want to claim absolute credit for OMB 2000.

This is an era in which management is absolutely necessary, bet-
ter management is absolutely necessary because of the declining
resources. It is also an administration which has put an enormous
amount of emphasis on management across the board, from the
Vice President’s National Performance Review through OMB 2000.

So I think this is all coalescing to make the agencies much more
conscious of improving their management practices than they were
a few years ago.

Mr. Horn. Have we had any comparison studies done of the situ-
ation in management, in terms of how much OMB pursued that,


19

Mr. Horn. And let me just give you an idea: The Environmental
Protection Agency submitted its report to OMB on April 20, 1995.
The date of the OMB letter is January 23, 1996; that is a 9-month
lapse.

Office of Personnel Management, an 8¥2-month lapse. Depart-
ment of the Interior, a 7-month lapse. Federal Emergency Manage-
ment Agency, a 6¥2-month lapse. Some of it gets down to just one.

Some are questionable. We have not seen them. We do not know
if they have disappeared off the face of the Earth. The Nuclear
Regulatory Commission, the General Services Administration, we
are not sure what those dates are.

The average months lapsed are almost 5 months, 4.75 to be
exact.

I am curious, how can we speed up the process? Five months
seems a long time to make Congress wait for reports which derive
much of their value from their timeliness. These are fine reports.
We would just like to see them not sit on somebody’s desk at OMB.

Ms. RIVLIN. You are absolutely right, Mr. Chairman. And we are
working on that. Let me let John say what we are doing.

Mr. KOSKINEN. Your point is well taken. We certainly need to im-
prove our customer service and shorten that timeframe.

A couple of things first, for the record. I think we have now sup-
plied the committee and made sure the committee has all the re-
ports this week. Second, this last year was the first year in OMB
2000 in which we engaged the RMOs as the primary reviewers of
these statements and engaging in discussions with the agencies;
and that has led us to do a certain amount of on-the-job training
with the RMOs in terms of how to read financial statements, what
they show and what they signify.

Clearly, now, as we move now into the next cycle, our expecta-
tion is we should be able to get those statements to you in a much
more timely manner and make sure all of them are here. We have
arranged that OFFM, which provides the oversight and the policy
guidance to the RMOs, will, in fact, track that.

As I say, we should, I think, get that down to less than 2 months.
But it is important, again, for this process to involve the RMOs in
their discussions with the agencies about how they are doing on fi-
nancial management because that is a critical part of budget execu-
tion.

Again, we could be much more efficient if we just did it all with
a little group on the side, who looked at them and never engaged
the agencies and sent them on to you. But we went through the
first year, and we did not do it in as timely a manner as we should,
but I can guarantee you that this next year, it will be not only
more effective in terms of time, but I think you will begin to see,
and if you discuss with the agencies, there will be more dialog be-
tween the RMOs and the agencies about the status of their finan-
cial systems.

And, in fact, as the Director noted, OFFM and the RMOs met
with each Chief Financial Officer this fall as part of the budget
process to get a report from each CFO about the status of the fi-
nancial planning in each agency. That is a major step forward.

Mr. Horn. Is OMB changing the language that the Chief Finan-
cial Officer submitted to go to the Congress? I mean, is that what


32

Mr. Horn. Is there comparability there?

Ms. RIVLIN. Well, it is all the same thing. We are working with
the agencies as they develop those performance measures and
using them in our reviews of their performance. And, as John men-
tioned earlier, we had a special performance review in the spring,
and we will hope to do that again, where we really focused on what
measures do you have, what are you doing to make them better
and what results do you have, and did this agency-by-agency in a
very time-consuming but I think quite productive way.

Mr. KOSKINEN. I would say internally at OMB as well we have
tracked the OMB 2000 recommendations. One of the recommenda-
tions was to create a management committee that runs vertically
through the agency, so that we have people at the staff level, ca-
reer level and a couple political people. One of its roles is to in fact
do performance measurement: How have we done on things we set
out to do? How are we doing on performance appraisal? How are
we doing on training? So there is an internal performance review
mechanism set in place that monitors how we are doing, as well.

Mr. Horn. I don’t think we are trying to get rid of you, John,
but let me ask this question: The merging of the management func-
tions and the budget functions into a single entity at OMB lends
itself to the question whether a statutory Deputy Director for Man-
agement is necessary. Can you discuss why the management and
budget functions of the Deputy Director should not be merged into
one Deputy?

Ms. RIVLIN. Let me answer that before John does. I have felt
very keenly in the last year or so the importance of having a Dep-
uty Director for Management, never more keenly than when we
shut down the Government. That was a management problem of
major proportions. It had not been done before for more than a few

ours.

To have John Koskinen, with his management experience from
the private sector, with his good relationships with the agencies
over management issues, step into the breach and become Mr.
Shutdown was extremely important. Though none of us would like
to do this again, we know now how to do it, and John is the expert
on how to shut down the Government. But that is just one exam-

ple.

I really think we need somebody at the highest echelon of the in-
stitution that I can rely on to be sure that the management issues
are covered and to work with these teams that cut across the agen-
cy on management issues. You mentioned credit management ear-
lier. That is something that cannot be its own little branch. It oc-
curs in different agencies. John is the one who pulls that together.

Mr. KosKINEN. I think the concept would be similar to the issue
of the analysis of OFFM and the other statutory offices. The fact
is that combining the execution of those policies into the RMOs
does not mean that you don’t need policy-setting special areas, so
that that is really what OFFM and OFPP do now. They are basi-
cally setting Governmentwide policy, and policy that OMB RMOs
have an area of expertise that they can rely on. The position of
Deputy Director for Management should be continued in the future
for the same purpose. It would be a place for a residue of expertise
about management issues.


4

obligational authority, the Congress had not authorized that pro-
gram to operate in 1996, the fact that you had fiscal year 1995
money during a shutdown did not make that money available in
the sense of allowing you to bring Federal employees in who had
not been funded.

So, in effect, the Congress, in that situation, would have voted
no twice. One, it would have voted no funding for the employees;
and second, it would have voted no obligation authority in 1996 for
the program. If Congress had voted yes on one of those two issues,
then the program could continue.

Mr. Davis. So basically that is where the authorizations play a
role, in the fact that authorizations may not have come in and
would have stopped the funding for that period?

Mr. KOSKINEN. That’s correct. But there were a number of pro-
grams that had fiscal year 1995 money and had obligational au-
thority, although they did not have additional funds running
through 1996, and those programs continued.

Then, of course, the well-known example of Social Security,
which is permanently appropriated, and it has been always the po-
sition of the Government and the Office of Legal Counsel that you
can imply congressional authority to make payments under Social
Security because you have a permanent appropriation.

The question you raise is a difficult one where you do not have
an appropriation for 1996, you had 1995 money, but no obligational
authority for that program to continue. And in those cases the pro-
gram stopped.

Mr. Davis. Do you differentiate between trust funds or profit-
making programs versus general funding?

Mr. KOSKINEN. No. Actually, the Antideficiency Act simply re-
quires you to stop when there is no funding. It does not have to
be an appropriation. So revolving funds or trust funds can continue
to fund their operations.

Mr. Davis. If Congress had put forward an authorization in the
continuing resolutions, that would take care of it in the future?

Mr. KOSKINEN. Let me make clear, once there is a continuing
resolution and the agencies are authorized —

Mr. Davis. What if you do not have a continuing appropriation,
but you can do a stopgap authorization, which—at that point, that
would take care of it; would it not?

Mr. KOSKINEN. If you authorize the program without the appro-
priation that said this program has obligational authority by going
forward, that would solve the problem.

Mr. Davis. OK.

Thank you, Mr. Chairman. I will stop there. I may want to come
back and revisit this in some other questions, but I will yield back
my time to the chairman.

Ms. RIVLIN. I think the moral of this colloquy is, it would be a
good idea not to shut the Government down again.

Mr. Davis. I would agree with that.

Mr. Horn. I think the moral is, it would be a good idea to sign
some appropriations bills so we did not have to put people out in
the street, as far as morals go. But let me proceed with the subject
under discussion.


73

Office of the President. Thus, I would put the Office of Management
in the OMB.

Third, in recognition of the fact that the new Office of
Management has been combined with the Resources Management
Office I would recast the post of Director of OMB as Secretary and
Chief Federal Finance and Administrative Officer This would make
the post more directly analogous to that of an Executive Vice
President, Chief Financial and Administrative Officer of a major
corporation.

OMB, even if recast as I have suggested, does not need some
accouterments it has or some proposed for it.. First, it does not need
a proliferation of political appointees. There is a need to develop
career employees and give them more opportunities for upward
mobility. The record of many of those who have been placed at the
senior most levels is outstanding. Thus, I would suggest that those
political appointive jobs below the Assistant Director level with only
a couple of possible exceptions be canceled and filled with career
employees who have at least nine years of federal service.

The other thing OMB does not need is an Inspector General.
During my tenure as Deputy Director of OMB I led the charge to
expand the Inspector General program to all major agencies.
However, I believe the proposal to “establish an Office of Inspector
General in the Executive Office of the President” is inappropriate
The creation of another Presidential Appointee with Senate
confirmation in a relatively small agency seems another sign of
needless bureaucratic bloat. The integrity of the financial systems in
the agency could readily be assured by an annual audit done by an
outside private audit team or by a team of auditors from other IG
staffs,


6

scandal was only one of the negative consequences of this earlier ill-fated
OMB consolidation.

Aggregate Impact of Government. Today we see tremendous concern
about the impact of government on society, and missionary zeal by
Congress directed toward reducing that impact. Yet we have lost the OMB
ability to measure important aspects of that impact, and the current budget
oriented structure of OMB aggravates that deficiency. We no longer ‘save
an OMB capacity, for example, to quickly analyze the total policy or
operational impact of all the regulations and requirements imposed by the
Federal Government on local communities, businesses, and families. Yet
this is an important dimension of factors which fashion the attitude of
people toward their government.

Agency Management. In the course of their work, budget examiners often
learn of a number of management difficulties confronting agencies, and the
utilization of budget information is a management tool which the current
organization has probably enhanced at least temporarily. This intelligence
has had certain limitations, however, because of the dominance of the
annual budget process and the preoccupation with dollars which tend to
distort the information. Further, competition for budget resources is not
conducive to the willingness of agencies to share certain information that is
highly relevant to management activities.

Human Resources Management. The downgrading of human resource
management under NPR is a very troubling development that threatens the
future success of government reform. The more the Federal workforce is
downsized, the more important it is that those who remain are highly
qualified. And the more the culture of the Federal bureaucracy changes,
and the more changes that take place in an employee's assignment, the more
essential it is that training be given high priority. Yet the opposite is taking
place in OPM and most domestic agencies

The quality of agency managers, how they are equipped to manage,
effective internal communications, and the need for training and
development, are critical elements of agency management that have to be
considered in addressing the effectiveness of agencies. OPM has very little
leadership capacity in these areas of human resource management, and
OMB is far less well equipped to play a constructive role than it once was.


6

It is only through the type of cooperative, integrated approach that
OMB exemplifies that we can help Federal agencies grapple with
the complex issues raised by an era of limited financial resources,
downsizing, restructuring and other management changes, and cre-
ate a Government that works better and costs less.

We look forward to working with this subcommittee as we con-
tinue to search for better ways to serve all our citizens.

Thank you, Mr. Chairman.

Mr. Horn. Thank you.

[The prepared statement of Ms. Rivlin follows:]


29

Mr. Davis. I am going to ask you the question the whole town
is asking. The New York Times had an article on Monday that
said, “Shortfall Posted By Medicare Fund Two Years Early.” A sur-
plus was expected. We have gone into deficit.

In this article they quote Richard Foster, chief actuary: “Things
turned out a little worse than we expected. We had projected that
1997 would be the first fiscal year with a deficit.”

What I would like to ask you, it is unclear to me when this infor-
mation was available. This would have been useful during the
budget negotiations. At what time did you become aware of this,
or do you know when the President became aware of this?

Ms. RIVLIN. I believe that this was discussed—these are still pre-
liminary results. I believe that these preliminary results were dis-
cussed by the trustees at their December meeting. I am not a trust-
ee.

Mr. Davis. Did they forward that to you?

Ms. RIVLIN. No, I didn’t know these specific things. What I did
know is that we have a very great concern about the future of the
Medicare trust fund, and every year we have been worrying about
this. In some years the estimates have shown that the solvency
point was pushed out a little bit. This year it got a little worse.

‘hat just dramatizes that we need to do something about this fund.
We have a proposal to do that.

Mr. Davis. I have a very high regard for you and the integrity
you have brought to this office. I am concerned because there was
very key negotiations and a lot of political posturing by both sides
in this whole debate on the deficit and on Medicare in particular.
And of course the trustees included three of the President’s Cabinet
members.

I just wondered if the White House may have known or your of-
fice may have known that this situation was actually more serious
than the American public and perhaps the congressional leadership
were led to believe at the time. It could have had a bearing on the
negotiations.

Ms. RIVLIN. I really do not think so, Mr. Davis. What we were
all saying was that this fund is going to run out of money in about
2002, on current projections at the time we were talking about.
Now it looks like it may be 2001. It does not matter. We have got
to fix the situation. And I do not think it could have had any bear-
ing.

The President has a plan which would extend the life of the trust
fund to 2011. The Republican majority has a plan that would get
it to 2014. We have to do one or the other.

Mr. Davis. Without getting into the specifics, I think we all real-
ize that it needs fixing. The reality is, at a time when both sides
were negotiating on this and one side was showing a little more in-
transigence on this issue than the other—that would be my inter-
pretation, you would look at it differently—if this knowledge had
come to bear it might have shifted the public debate. What I hear
you saying is from your perspective in your office, you were not
really aware of these preliminary numbers until after these nego-
tiations?

Ms. RIVLIN. They are still preliminary numbers, and I don’t know
why we should have introduced preliminary numbers into the de-


65

Testimony
of
Dr. Edwin L. Harper
before the
House Subcommittee
on
Government Management, Information and Technology
February 7, 1996

Mr. Chairman, members of the Committee, I am honored to
have the opportunity to present my views to the Committee. My
name is Edwin L. Harper; the views I present here today are my
personal views based on my experience as a teacher of political
science, a senior government official in two administrations and as a
corporate CEO. My government experience included daily
involvement with the Bureau of the Budget for almost 6 and a half
years over a 15 year period. During 15 months of that time I served
as Deputy Director of OMB.

Before I begin 1 want to commend the Committee and its staff
for a truly outstanding report analyzing and summarizing the
problem of making government work in today's complex
environment. Since [concur with most of the subcommittee’s
Tecommendations contained in its report, I am especially
enthusiastic about the report. You will see, however, that I have
made a couple of additional recommendations and demur in a couple
of matters.

GAO Report on OMB 2000 Reorganization

The GAO's report on the OMB 2000 Reorganization identifies
the critical issue and presents some data, but does not deal with the
issue. The issue is: must the management function be specifically
institutionalized within OMB (or the Executive Office of the President)
for it to survive as a force.

The report notes the study was designed to be descriptive
rather than evaluative. The data collected from interviewing OMB
personnel and reviewing recently prepared documents generally
show some increased attention to management issues, but the data
are mixed. Beyond the mixed data, the study's coming so quickly


67

Returning to OMB 2000 and the institutionalization issue it is
important to acknowledge that OMB Director, Alice Rivlin, and Deputy
Director for Management, John Koskinen, have prepared formal job
descriptions for all OMB staff which explicitly define their
management responsibilities. The leadership that the Director and
Deputy Director have provided to management issues makes it clear
that the M in OMB has not been lost even if the M has less
institutionalized structure than before.

Finally, if the current GAO study does not have much to offer
us, what kind of a GAO study might be useful. I suggest that a
longitudinal study be done which might identify the relative size and
structure of the management function in the Executive Office of the
President and juxtapose that data with evidence of management
improvement.

Capacity available to the President
in OMB to
reform or improve management

"The President needs help.” This was the ringing introduction
to the Brownlow Committee's report in 1937 which created the
Executive Office of the President. This was the first time the
President had any regular capacity to deal with management issues.

The Brownlow Committee saw the President needing help in
two ways: }) a staff and 2) recognition of the President's power. In
fact the report declared that "the Constitution places in the President
and the President alone, the whole executive power of the
Government of the United States." A "thoroughgoingly Jacksonian.”
concept of the Presidency according to Constitutional scholar Edward
S. Corwin. (Edward $. Corwin, i
=1957. 4th ed. New York University Press, NY 1964, p. 96)

Recognition, particularly by the Congress, of the President's
power to improve the management of the federal government has
waxed and waned. The changing nature of that relationship should
be taken into account when designing institutions intended to last for
long periods of time. As President Nixon reached for ways he felt
might improve management--e.g., the impoundment of funds--the
Congress reacted by limiting the flexibility the President thought he
had.


How much staff capacity does the President need to have
available? There is no objective answer to the question, but looking
back at some of the major management initiatives that have been
taken may give us some insights.

When I first worked for the Bureau of the Budget at the end of
the Johnson Administration, the Bureau was engaged in at least two
major management improvement initiatives. One was the
implementation of the Planning, Programming and Budgeting System
(PPBS). Another was a series of studies and experiments to improve
the delivery of services at the state and Jocal level, including a
reorganization of the federal field offices into regions. The teams
working these projects were basically Bureau of the Budget staff
members supplemented by employees loaned from other federal
agencies, such as the Civil Service Commission. as in my case

President Nixon was driven by his conviction that federal
program management was failing the American people. The priority
he placed on management and his initial lack of understanding of
what the Bureau of the Budget did probably were factors
contributing to his decision to appoint the Ash Council which
designed the creation of the Office of Management and Budget. The
President wanted the capacity so he created it

And he used it aggressively to design programs which he felt
would improve the management of federal programs. The revenue
sharing program. block granting of categorical grant programs, the
reform of the regional commissions he proposed were ali viewed by
him as ways to improve the delivery of services to citizens. All of
these programs were designed by the OMB working closely with the
White House Domestic Council Staff.

While his proposal to shrink the cabinet into four super
Departments failed, there can be no question that he was concerned
about management and OMB had the capacity to respond to that
concern

President Carter was a detail manager. He may be most
remembered for his Personnel Management project, but in fact the
OMB in the Carter Administration had developed a couple of very
important projects--debt collection and cash management-- which
had not yet been launched by the end of the Administration.


26

of problems that exist in agencies, to get an outside look that un-
derstands where that experience has worked before. And to try to
bring the best practices to the executive branch of the Government.

If I remember correctly, 30, 40 years ago you had about 50 full-
time equivalent positions of much more generalist management
willing to tackle a real thorny problem and “do something about it”
types, than we have now.

What the worry here is, and as I have told you privately and I
have said publicly, basically for years I agreed with your approach.
I thought that, gee, with that budget clout, they will listen on man-
agement questions. I have become convinced that while that is a
great theory, it just has not worked, and what you need is sort of
a dedicated staff that has that experience.

Granted, they can be involved in the budget process. A good
budget examiner ought to involve them. But basically, I think we
are sort of making little hopes that will never become actuality if
we think the budget clout is going to get an agency head to pay
attention to some of the management. They need help. And if they
had a resource of people that they could count on, that were not
sort of spies for the central administration, regardless of who is
running it—and you know, there have been views about Presidents,
views of their Cabinet officers who wonder who they worked for
since the time of Harding, when BOB was created.

So I am just curious on how we are going to get that general
management capability to help a Cabinet officer solve some of their
problems that are management problems.

Ms. RIVLIN. Can I speak to that?

Mr. Horn. Sure.

Ms. RIVLIN. I think the premise is the right one, that the man-
agement of the Federal Government, if it is to be improved, the
major burden has to be carried by the Cabinet officers. They often
need consulting-firm-type advice. There is nothing to bar them
from getting it, and many of them do. They get in specific teams
of people from the outside who can help them solve specific prob-
lems, and we encourage that. They do that.

The question of what OMB can do is really—it is the President’s
arm. It cannot be something else. It needs to help the President do
the best job he can to encourage better management of the Govern-
ment, and there, we think we cannot act as a little team flying in
from outside at the response of Cabinet officers. We need to look
at the whole resource management picture, and on a continuing
basis, work to see if we cannot improve the way resources are man-
aged at the Cabinet level.

That means focusing everybody’s attention on this. The number
of people who are working on management issues has, by the way
we think about it, greatly increased because we have now made
management of resources the major focus of the entire agency.

Mr. Horn. I now yield to the gentleman from Minnesota, Mr. Pe-
terson. Welcome.

Mr. PETERSON. Thank you, Mr. Chairman. I apologize for jump-
ing in here in the middle, and I may be asking something that is
inappropriate, but something that I am interested in.

T was looking at this one page in the GAO report where they are
showing the staffing levels. I am particularly interested in the im-


78

So when the chief says, we are going this way, you do not have
many people saying, well, what about PPBS? He says, well, I am
over here, we are going over here and we are going to reorganize
things. That is today’s agenda. And that is where everybody goes.

So I think, being flexible—I think, as I have stated, the manage-
ment function is very important in the Office of Management and
Budget, but the shape of it, the amount of resources that it has any
particular day or year, I think, is in the end realistically going to
be a function of the President’s priorities and the priorities of the
Director of the Office of Management and Budget.

I think to set up a structure might be good for the short time
and it may be exactly what we need today. In 5 years, it could be
something else. So those would be my suggestions.

Mr. Horn. I think, as was noted earlier, that the one thing you
can say for it, if the President has an institution in which he ap-
points the director, and now subject to Senate confirmation, you
would pick somebody that has some experience, some credentials
presumably to be director?

Mr. Harper. Right.

Mr. Horn. Whereas, if you pick the Director of OMB, it is prob-
ably a nine-to-one shot the person will have very little experience
in management. There might have been a chief financial officer
somewhere, which means they have, in essence, no Government ex-
perience. And who knows to what degree they have really grappled
with the management problems of a large human organization.
Very complex.

I think at least you would have the focus at that point in time,
somebody in whom the President would have trust, since the Presi-
dent’s the one nominating him or her, as the case may be.

Mr. Harper. Right.

Mr. Horn. I think that is the first thing that can be said for it,
to at least get it on the agenda. I do not know.

Dr. Ink, what else would you say in support of it? You have said
some things, but is there anything else that comes to mind?

Mr. Ink. I support Mr. Harper’s recommendation, which is in line
with the committee’s recommendation, that the human resource
policy, which is languishing in a very ineffective OPM, be brought
into this organization, provided it is separate from budget.

I would hesitate to make that move if it were part of an OMB,
however, because I think it is too budget-dominant. But if there
were a separate office, then I strongly agree, bringing in the policy
from both GSA and OPM.

I would go further than that. I think the operations of OPM
might be broken up and given to other agencies so that you no
longer have an OPM. Again, I am the one that recommended the
Office of Personnel Management. I chaired the task forces that led
to the 1978 reforms that established OPM. But it is not working
today.

Mr. Horn. Any other comments anyone would like to make be-
fore we close the hearing?

Mr. Harper. I think the hearing is wonderful, in that I think you
really have surfaced a tremendous number of issues that need to
be addressed, not only today but on an ongoing basis.


3

It was important when Dwight Ink was running things at the
Bureau of the Budget, and it continues, and it will not end with
this administration. We all need to focus on how to use the re-
sources of the Federal Government most effectively, and this sub-
committee has given enormous leadership in that direction.

The premise from which OMB 2000 proceeded, and which I very
strongly believe in, is that management is about using resources ef-
fectively. It is about how agencies can deploy their resources, their
money, and their people to get the best value from the taxpayers’
dollar. That means there really is no good way to separate resource
management from other management.

It is very hard for me to think about what a totally separate op-
eration would be like. This is especially true in an era of very con-
strained resources. There may have been a time when adding in-
cremental resources is what we were about at the Office of Man-
agement and Budget, and people worried about where to add the
marginal dollar, and that was largely a budgeting thing. That era
is over. We are not doing that anymore. We are managing in an
era of declining Federal resources to get the best value for those
resources for the American taxpayer.

It was with that background and mind-set that we started into
OMB 2000. OMB 2000 represented the most comprehensive self-ex-
amination that OMB has undertaken in recent memory. In the
spring and summer of 1993, a project team conducted numerous
interviews reaching nearly one-third of OMB’s professional staff,
many career and political alumni, personnel from other agencies,
congressional staff and others in the public affairs community. We
had an electronic suggestion box set up through E-mail to encour-
age staff to contribute ideas and received more than 200 rec-
ommendations. The work of all OMB units was reviewed, providing
a snapshot of how the organization functioned and how its re-
sources were deployed.

Based on these materials and the deliberations of a steering com-
mittee of several senior career staff and policy officials, then-Direc-
tor Leon Panetta and I announced our decisions on March 1, 1994,
in a memorandum to OMB’s staff. Most fundamentally, we con-
cluded that OMB’s disjointed approach to dealing with both Gov-
ernmentwide and agency-specific management issues was counter-
productive.

OMB was influencing agency program operations through two
distinct channels, its budget divisions and the units responsible for
discrete aspects of management, the Office of Information and Reg-
ulatory Affairs, the Office of Federal Financial Management, the
Office of Federal Procurement Policy, and the then-General Man-
agement Division.

The budget divisions tried to deal with management issues, but
their impact on agency management was uneven, at best; and man-
agement units often approached management issues without the
benefit of detailed program knowledge. We just felt that this was
not working.

Frequently the results were unnecessary duplication and conflict-
ing signals to agencies. Moreover, agencies gave scant attention to
management advice from OMB’s units because it was divorced from
resource decisions. Consequently, OMB was hampered in its efforts


2

Federal Procurement Policy, the Office of Federal Financial Man-
agement and the Office of Information and Regulatory Affairs. But
their staffs have been reduced. Over half of the authorized staff po-
sitions in the Office of Federal Financial Management were moved
to the RMOs. This reduction was out of proportion to the cuts ab-
sorbed by other areas.

Last year this subcommittee held a series of hearings on Federal
Government management reforms which resulted in a report enti-
tled Making Government Work. One of the findings from that re-
port was that management capacity in the Office of Management
and Budget has steadily declined and now barely exists.

Federal management organization, oversight authority and gen-
eral influence have been consistently overridden by recurring budg-
et crises in a budget cycle demand. This occurred in spite of the
best intentions on the part of OMB leadership to give budget and
management equal voice within OMB.

The intent of the OMB 2000 reorganization was to address the
problem by increasing the attention given by OMB staff to manage-
ment issues. Today we will attempt to determine whether this has
worked. Has enough attention been given to management? Is more
drastic action needed to ensure that OMB increases its capacity to
advise key members of the executive branch on the very complex
problems of management which they confront?

We are pleased to have as our first witness this morning the Di-
rector of OMB, Dr. Alice Rivlin. She will be joined by Dr. John
Koskinen, OMB Deputy Director for Management.

We will later receive testimony from the General Accounting Of-
fice Directors, Nye Stevens and Paul Posner, and they will discuss
the GAO report on OMB 2000 reforms.

We will also hear from former OMB officials Ed Harper, who was
Deputy Director of OMB under President Reagan, and Dwight Ink,
who has served under every President from Eisenhower to Reagan.
Dr. Ink was Assistant Director for Management, Bureau of the
Budget, and also Assistant Director when it became the Office of
Management and Budget under President Nixon.

We thank you for joining us, and I would like to yield to Mr.
Davis, if he has an opening statement.

Mr. Davis. Thank you, no statement. I know everybody is busy,
so I will let them get right to it. I will have some questions.

Mr. Horn. Very good.

You know our tradition here on swearing in witnesses. If you
will, raise your right hand.

[Witnesses affirmed.]

I am delighted to have the Director of OMB with us. We know
she has many things to do and there is never a vacation for the
Director, so please proceed.

STATEMENT OF ALICE M. RIVLIN, DIRECTOR, OFFICE OF MAN-
AGEMENT AND BUDGET, ACCOMPANIED BY JOHN
KOSKINEN, OMB DEPUTY DIRECTOR FOR MANAGEMENT

Ms. RIVLIN. Thank you, Mr. Chairman. John Koskinen and I are
both very pleased to be here, and we share with this subcommittee
the strong desire to improve the management of the Federal Gov-
ernment’s resources. That is a never-ending quest.


15

As I look at the chart in the GAO study before OMB 2000 and
after OMB 2000, in a structural sense, in terms of what box is
where and does it continue, there is very little change that I can
see. The economic policy, for example, has been moved from one
side of the staff line over to the other side of the staff line.

When we get down to health, which was one of the five basic
budget and program areas prior to OMB 2000, we now have health
and personnel, including veterans affairs personnel. And, obviously,
that makes sense, since they are mostly combined in the rendering
of health services.

Going through, I notice we drop credit and cash management
from the Office of Federal and Financial Management. What did
we do with credit and cash management?

Mr. KOSKINEN. Credit and cash management is now in the RMO
for General Government, because major credit agencies—HUD and
Treasury and Commerce—are in that branch. That branch, that
RMO and the people who manage credit management, work with
me in the interagency group called the Federal Credit Policy Work-
ing Committee, a working group which is the group that oversees
credit policies for the Government.

Mr. Horn. Would that not include Agriculture and Interior and
some of their operations?

Mr. KOSKINEN. Those agencies and the RMOs are all represented
on the Federal Credit Policy Working Group.

Mr. Horn. They are really a separate resource management of-
fice. So you are telling me——

Mr. KOSKINEN. They are an interagency group. They have pro-
gram managers and credit managers and financial people from the
agencies.

The way we have moved is to, in fact, engage the agencies in the
management initiatives that we are involved with on the theory
that, ultimately, management take place in the agencies, not at the
central management operations; and that, therefore, the real es-
sence of working with the President’s Management Council, the
CFO Council, the President’s Council on Integrity and Efficiency,
and the Federal Credit Policy Working Group is, in fact, to engage
the agencies in these issues.

Mr. Horn. I note the evaluation and planning function was
moved out of the General Government Division. Now, are you say-
ing that function is in all five resource areas?

Ms. RIvLin. Absolutely. I think you put your finger on what is
really important here, Mr. Chairman. That evaluation, particularly,
cannot be some sort of separate group sitting over in a corner talk-
ing to each other about evaluation. It has to be an integral part of
each agency, of the OMB’s interface with each agency. We have to
be able to work with them on evaluating their programs as a whole
and as an important part of our interaction with them.

Mr. Horn. Well, I agree with you on that, and this committee,
as perhaps you know, is very interested in what type of evaluative
methods we are setting up in the Government. We have looked at
what the State of Oregon is doing. We have looked at Minnesota,
South Carolina and so forth, as well as New Zealand and other
countries that are way ahead of us in this area.


5

In particular, in the fiscal year 1995 budget process, we focused
on agency streamlining plans. We wanted to know how agencies
were meeting the requirements of the Work Force Restructuring
Act of 1994. But equally important, we wanted to assess how the
restructuring process was affecting agency operations and pro-
grams.

Moreover, the consequences of OMB 2000 extend beyond the
budget cycle, although the budget cycle never seems to end. We are
committed to new processes that enable OMB to provide analysis
that cut across traditional organizational boundaries. Under the
leadership of my colleague, John Koskinen, OMB working groups
have addressed a number of issues that have arisen in the last few
years: guidelines for creating Government corporations, acquisition
of information technology, the development of OMB’s spring review
of agency performance measures, the implementation of the Gov-
ernment Performance and Results Act.

These working groups include staff from all parts of OMB, often
with most of the group representing the RMOs. Even in areas as
technical as financial management, OMB 2000 has led OFFM and
the RMOs to work together with the agencies on such matters as
designing the steps needed to meet the audit requirements of the
Government Management Reform Act.

We have enhanced OMB’s impact by having the RMOs deal with
agency management concerns in their day-to-day dealing with
agency staff, collaborate with the OMB’s statutory offices and focus
on common problems in internal working groups. The old idea of
management and budget sides of OMB is rapidly evolving into the
notion of a common core of professionals working cooperatively to
bring their varied talents to bear on the problem of delivering pub-
lic services in the most effective way.

This has been a real culture change, Mr. Chairman. We used to
talk all the time about management and budget sides of OMB. I
have not heard those words recently; they have dropped out of our
vocabulary. We are really all working together to manage more ef-
fectively.

Another key innovation of OMB 2000 was the creation of an
OMB management committee concerned with OMB’s internal
structure and functioning. That committee, which has 13 members,
including John Koskinen and 10 career staff from all levels, has
provided leadership and guidance in, for example, assessing staff
training needs, making the employee appraisal system more effec-
tive. The committee’s work on questions of organizational effective-
ness and work practices can play a major role in institutionalizing
the integration of management and budget activities in OMB.

GAO recommends that we periodically assess the effectiveness of
OMB 2000 and our capacity to provide leadership in Government-
wide management issues. We wholeheartedly concur. As noted in
our written response to the GAO report, we are working on an
OMB strategic plan which will address the integration of manage-
ment and budget responsibilities, including the adequacy of em-
ployee training and different approaches to integration and coordi-
nation among OMB’s various units.

Organizations must adapt to changing needs, priorities, experi-
ence; and we are looking for better ways to implement OMB 2000.



80

some full-time attention if you are going to have the measuring
things that mean something to Members of Congress that are ulti-
mately appropriating the money and something to a President who
has to decide, do we slow this operation, do we speed up this one,
do we eliminate this one, and why? And do you have any good evi-
dence as to what the agency is doing right or wrong and try to
imbue that.

Now, you have seen that, as your examples note, in the corporate
world. I have seen it in the university world. And Dr. Ink has cer-
tainly seen it in all worlds. His familiarity is very broad. I think
you would say that there is no magic number or bullet in how you
evaluate an agency, except ultimately the provision of services at
the least.

It is a utilitarian principle: the least amount of money to get the
greatest amount of quality, certainly. But how do you capture that
at a point in time so you have something? Oregon is trying to do
it, New Zealand is doing it, and so forth.

Mr. Ink. I think we know how to manage a lot better than we
do manage. I think there are many aspects of managing Govern-
ment agencies that we could do far better than we do.

An area in which, in my judgment, we really have not developed
effective mechanisms is in the field of evaluation. We have been
unable, in my judgment, to find a way that evaluation can be done
by people who know the territory, but yet do not have such a vest-
ed interest that that knowledge distorts their conclusions.

One of the problems I have with the Inspector General is that
it has emerged that there has been a tendency to move Inspectors
General into an area which I think they are not capable of doing,
and I think it is counter to the environment in which the Inspec-
tors General function. I think there are other functions in which
that independent investigative capability is absolutely essential,
but we have not done well either in the Congress or in the execu-
tive branch in developing that. And as Mr. Harper is saying, we
should move in that direction.

I would say, first of all, I strongly support the notion of a com-
mission. It would approach things differently than the Hoover
Commission, but the basic concept is very important.

I think there are three dimensions that are involved in any effec-
tive governmental activity: One is the structure, in its broadest
sense; two, are the systems; and three, are the people, the human
resources. And how do you mobilize those ingredients in a way that
can best achieve the objectives that you and Mr. Harper are talking
about is a somewhat broader concept than we have ever done be-

fore.

And I would hope that if some kind of commission were set up,
it could be done very carefully rather than on a 6- or 8- or 10-
month basis, which I think would do more harm than good.

Mr. Horn. Dr. Harper, any other comments on that?

Mr. HarpPER. I find myself agreeing with Dwight, as I have done
many times over the years.

Mr. Horn. Good. And on that happy note, we will thank the staff
and thank you.

The majority staff director, J. Russell George, is back there
watching this whole proceeding, but as staff director and counsel,


21

So are there not OMB circulars that ought to be complied with
and, say, use the U.S. standard general ledger? What is happening
on that front?

Ms. RIVLIN. We are working very hard with the agencies, and
Defense is—I think Defense is not exactly an example. It is such
a big agency and such a difficult problem that it is going to take
a while to get it fixed. It is my perception that the current Control-
ler of DOD is working very hard on merging these systems and has
made a good deal of progress. We are very supportive of that.

Mr. KOSKINEN. Again, I think it is a good example of the impor-
tance, as you noted, of integrating these reviews into the resource
allocation process. Historically, Defense finance and accounting is-
sues have been off on the side, both in the department and in the
executive branch generally, and the dialog has been really only
with OFFM and the financial officers at Defense.

Under OMB 2000, that dialog is now centered in the budget proc-
ess. We are working directly with not only OFFM experts, but also
the RMO, people involved with the development of the Defense De-
partment budget, looking at the issues raised, which are, what are
the resources necessary to solve this problem?

Defense has a program they have worked out, that we have ap-
proved, and moved those systems down to five. Even that, we
think, in the long run would be ultimately, potentially consol-
idatable into a single basic system. But if we can get it down to
five, obviously that will be a significant step forward.

But we get much better response, we get much better dialog as
a result of the fact that that is part of their annual budget review
now and not simply off on the side as part of a second conversation.

Mr. Horn. It is true, is it not, that the OMB circulars say agen-
cies ought to use the U.S. standard general ledger? Is that correct?

Mr. KOSKINEN. Yes. We are working, in fact, to try to get, as you
know, all the agencies to simplify their systems, to develop with
the Financial Accounting Standard Board. FASB is now concluding
its development of all Governmentwide accounting standards. We
would like agencies to use more off-the-shelf software for their fi-
nancial systems.

There is now under the CFO Council a group we are working
with, looking at standardizing financial management systems
across the Government, and that is really our goal.

Mr. Horn. Have any agencies refused to use the U.S. general
standard ledger?

Mr. KOSKINEN. We have actually, thanks to the fact that we have
been able to energize the CFO Council, gotten very good response.
I think the agencies understand their problems. It is really a ques-
tion of—as you say, of resources and time in terms of moving here
to there. There is no one objecting to making these improvements.

Mr. Horn. Well, so they do not object. How many are not using
the U.S. standard general ledger?

Mr. KosKINEN. I do not know the number. I can get you a num-
ber on that.

Mr. Horn. Can we file that for the record?

Mr. KOSKINEN. Yes, be glad to do that.

(The information referred to follows:]


OMB 2000 REFORMS: WHERE ARE THEY
HEADING?

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
SECOND SESSION

FEBRUARY 7, 1996

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

ae

U.S. GOVERNMENT PRINTING OFFICE
40-701 CC WASHINGTON : 1997

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

ISBN 0-16-055068-8



44

Mr. STEVENS. It would probably emerge from something that we
did not do very much of, and that would be consultation with the
agencies themselves and their perceptions as to whether the Gov-
ernment is better managed as a result of the interaction between
OMB and their own efforts. Ultimately, it is the agencies them-
selves and their performance that both OMB is trying to affect and
will ultimately determine the quality of government management.

Mr. Posner. If I could add to that, there are a number of criteria
you would want to look at because OMB has a number of hats. One
is to improve management. I think there are two pieces to OMB
2000 that are interesting in tracking, management-wise. One is
what I would call the big M, and the other is the small M.

The big M has to do with the statutory management policies that
Congress has set forth and tracking how well those have been
adopted and implemented. The small M is the kind of thing that
you could almost just call good budget analysis of implementation
issues. In other words, what you don’t want, what we do not do
well enough, it seems, is we create programs. We don’t understand
the implementation environment and how design in programs and
organizations affects ultimate results.

I do think that was one of the real emphasis in OMB 2000. That
is obviously very difficult to capture, the quality of analysis done
by OMB for its principal client, the President and the Congress,
and how was that improved. That is an important dimension to try
to capture.

Mr. Horn. I think that is a point well taken.

Just to get back to Mr. Ink’s testimony, he notes that budget ex-
aminers are widely regarded as some of the most knowledgeable,
dedicated professionals in Government but their tasks drive them
to concentrate most heavily on how to develop the lowest possible
appropriation level for the budget year, not how to manage most
effectively. Then he goes on to say, most departments and agencies
learned long ago not to combine the two functions in the same or-
ganization, for much the same reasons that such efforts have not
been successful in the Executive Office of the President.

In your studies of departments, do you find that that is true, that
generally a separate management function and a separate budget
function? How do you feel about that?

Mr. STEVENS. I would not dispute Mr. Ink on the point. I do not
think we have made a specific study of either departmental organi-
zations, or I think part of his observation was international, too.
I do not believe we have studied this internationally. I wouldn’t
dispute what he said.

I should note that, as I pointed out at the very beginning of our
statement, at GAO we do have a budget issues group headed by
Mr. Posner, and I head the general management issues. We are in
different divisions. We find it a challenge but ultimately I think we
are quite successful in working together and integrating our two
perspectives, and the process of doing that improves our work.

With regard to the first point that Mr. Ink said, budget examin-
ers tend ultimately to look for the short-term budget cuts, I think
what OMB would say is different is, one, the job description has
been changed. There has been a formal assignment to them of a
much broader range of responsibilities, including what Mr. Posner


resources were deployed. Based on these materials and the deliberations of a Steering
Committee of several senior career staff and policy officials, then-Director Leon Panetta and I,

then the Deputy Director, announced our decisions in a March 1, 1994 memorandum to OMB's
staff.

Most fundamentally, we concluded that OMB's disjointed approach to dealing with both
government-wide and agency-specific management issues was counter-productive. OMB was
influencing agency program operations through two distinct channels: its budget divisions and
the units responsible for discrete aspects of management -- the Office of Information and
Regulatory Affairs (OIRA), Office of Federal Financial Management (OFFM), Office of
Federal Procurement Policy (OFPP), and the then-General Management Division. The budget
divisions tried to deal with management issues, but their impact on agency management
practices was uneven at best, The management units often approached management issues

without the benefit of detailed program knowledge.

Frequently, the results were unnecessary duplication and conflicting signals to agencies,
Moreover, agencies gave scant attention to management advice from OMB's units because it
was divorced from resource decisions. Consequently, OMB was hampered in its efforts to

address and resolve questions of program effectiveness and efficiency.

Under our new course, all OMB activities are part of a comprehensive whole: OMB

must carry out its responsibilities in serving the Presidency -- from policy development through


BEFORE THE
HOUSE SUBCOMMITTEE ON
GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

February 7, 1996

Mr. Chairman, Members of the Subcommittee, I am pleased to discuss with you today
the impact of OMB 2000 on OMB's capacity to improve management practices in the Federal
Government. I am accompanied by John Koskinen, OMB’s Deputy Director for Management.

‘This Subcommittee has had a continuing concern with the development of policies and
Procedures that would improve the management and effectiveness of Federal agencies. I
believe that OMB 2000 has made a significant contribution toward improving OMB’s ability to
provide Executive Branch leadership in this area,

OMB 2000 represented the most comprehensive self-examination that OMB has
undertaken in recent memory. In the spring and summer of 1993, a project team conducted
‘numerous interviews, reaching neatly a third of OMB's professional staff, many OMB career
and political alumni, personnel from other agencies, Congressional staff, and others in the
public affairs community. An “electronic suggestion box," set up through E-mail to encourage
all staff to contribute ideas, received more than 200 recommendations. The work of all OMB

units was reviewed, providing a snapshot of how the organization functioned and how its


57

professional management resources before ever drafting that type of bill
A series of proposals for government corporations have surfaced over the
past two years. Because its management capacity has been decimated,
OMB has been severely handicapped in addressing the task of developing
credible plans for consideration of Congress that reflected consistency in
approach. Mr. Koskinen is now developing some useful policy guidance,
but in earlier years he would have had an inhouse technical resource that
would have greatly reduced the time and effort required to do so.

Long-term Investment. Domination of the budget process leads too easily
to cuts in long term investments such as training, equipment maintenance,
facilities upgrading, and management systems modernization. Computer
modernization has been one of the casualties

Financial Management. We found some years ago that it was only when
financial management was temporarily separated from OMB that a
‘meaningful program of cash management throughout government could be
initiated. Again, it was only after this organization separation that it was
possible to research the total portion of Federal grant programs that was
eaten by overhead. This research confirmed the critics’ allegations that
35% to 40% of the appropriated funds often went into overhead,
information which had tremendous significance for the effective operation
of the expensive grant programs. Similarly, separation from OMB gave
new fife to improvement in the auditing of our assistance programs and
communication within the audit community on new approaches.
Cooperation with GAO on the improvement of financial management was
also enhanced. It may seem a bit ironic that these efforts depended upon
separation from OMB for their success, but this history illustrates why
consolidation of budget and management have so often been counter-
productive.

Scandals. As people have testified in earlier hearings, consolidation of
management and budget functions, far from strengthening management in
the Federal Government, has generally limited the capacity of BOB and
OMB to provide leadership for reform, It can also unwittingly weaken or
block actions to prevent abuse.

A very costly consequence of merging management and budget occurred in
the middle 1970s when the resulting “management-oriented” budget process
prevented GSA from reforming its procurement operations. The furniture


40

impact, did not require an immediate response to a short-term deadline, or did not reflect
the administration's priorities. In particular, they said that the expansion of their
Tesponsibilities as a result of OMB 2000 combined with short-term budget pressures could

limit their examination of long-term management issues,

Some program examiners also said that the reduction of centralized management
expertise in the statutory offices and the elimination of the General Management Division
left them with fewer sources of expertise and assistance. For example, some program
examiners said that they were uncertain how to address certain credit and cash
management questions. Finally, although they said that top OMB officials had focused
greater attention on management issues in the budget, OMB staff also voiced concerns

about whether this focus had become institutionalized for the longer term.

Although OMB initially planned to evaluate OMB 2000 as a distinct management initiative,
it now plans to assess more broadly its overall effectiveness in formulating and
implementing management policies for the government in response to GPRA
requirements. Part of this assessment will be an evaluation of the integration of OMB's

management and budget responsibilities.

Only one budget cycle has been completed since this reorganization. Therefore, some of
the problems OMB staff described may be transitional in nature. OMB's initial experience

with this approach during the 1996 budget process showed the clear support of top OMB

o


81

he makes sure it happens. Anna Miller, to my left, is the profes-
sional staff member directly involved in setting up the hearing; and
our faithful clerk, Andrew Richardson, is here somewhere, in and
out.

On the minority staff, we had a troika today of David McMillen,
professional staff member; Matt Pinkus, professional staff member;
and Mark Stephenson, who is assistant to Representative Maloney,
the distinguished ranking minority member.

And as our official reporters, we had Pam Garland and Rebecca
Eyster, and we thank you all.

And with that this hearing is adjourned.

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]

ce)


28

capacity to have their statements audited, but they are all moving
toward audited financial statements.

The Government Management and Reform Act, passed last year,
requires the full Government to issue a Governmentwide audited
financial statement; and OMB—a group headed by OMB, Treasury
and GAO is working with the agencies to ensure that we can meet
that standard. So we ultimately will have not only audited finan-
cials for each agency, we will have a Governmentwide audited fi-
nancial statement.

Mr. PETERSON. How soon will that happen?

Mr. KOSKINEN. As I recall, the statute requires us to do that—
in March 1998 we have to issue that statement.

Mr. PETERSON. Now, this one area on page 34—do you have this
book here?

Mr. KOSKINEN. Yes.

Mr. PETERSON [continuing]. Where you have reduced the Federal
financial management from 41 to 20. Do you know what that is or
what is going on there?

Ms. RIVLIN. That goes to the basic heart of what we were trying
to do in OMB 2000. Instead of having separate offices like OFFM,
which had the sole responsibility for working with agencies on fi-
nancial management, we wanted to institutionalize financial man-
agement throughout the agencies, and so we moved people into the
resource management operations that interface with the agencies
and have the financial management people working through them
to implement the financial management.

Mr. PETERSON. So you have added positions on the category up
above, and those are the ones that used to be down below; is that
correct?

Ms. RIVLIN. Yes. We have moved people around to make the
interface with the agencies on financial management and procure-
ment and other aspects of management more effective. But I think
this really goes to the heart of what we were trying to do. It is to
make the financial management more important and more perva-
sive in the interface with the agencies.

Mr. PETERSON. Mr. Koskinen, have you prepared a report on
where the CFO Act is at, or is that available?

Mr. KOSKINEN. We have not. We worked, actually—we have been
delighted—there is a CFO Council composed of all the CFOs, and
they have really become a very energetic and dynamic group. They
put out an annual report. There is a 5-year, annual 5-year plan
that is put out that we publish that does give you the status of fi-
nancial systems, the status of audited reports, and we can make
that available.

Mr. PETERSON. If you would send that to my office, I would ap-
preciate that.

Mr. KosKINEN. That would be fine.

[Note.—A copy of the report entitled, “Federal Financial Manage-
ment Status Report & Five-Year Plan” can be found in subcommit-
tee files.

Mr. PETERSON. Thank you, Mr. Chairman.

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


45

talked about, the program implementation, information manage-
ment resources management, procurement and so forth. They are
now expected to know something about all of those things.

And, second, if there is a President who comes in and who does
not have a management agenda, who does not appoint a budget di-
rector who does not do what Ms. Rivlin has done, which is to ask
very pointed questions about management issues, about manage-
ment goals, about accomplishment of those goals, but instead asks
the program examiners, no longer budget examiners, asks them
simply, “Do what you can to cut the budget as quickly as possible
for this year,” I am sure they will revert to that behavior because
they are a very responsive organization to the leadership they get.

Mr. Posner. In some sense there is an inherent tension, if you
will, when you try to manage with and link it with budgeting.
Budgeting, as Mr. Ink indicates, has its own logic. But it also
brings the ability to gain the attention of people in the agencies.
And the other thing that I think is important to recognize is the
initiatives that we have been most concerned about, the GPRA and
the CFO, for example, really all depend for their ultimate effective-
ness on the linkage into resource allocation. At least we believe
that there is great potential for using financial information to in-
form budget choices and provide better information as we go about
doing that.

Certainly GPRA, it is a principal rationale of that, that the ten-
sion there is somehow trying to get these issues dealt with seri-
ously in resource allocation, while at the same time enabling re-
source allocation not to be dragged down into the short-term focus,
which it often tends to happen.

Mr. Horn. My last point, quoting from Dr. Ink, is that he was
struck by the fact that only in the last year of this Presidential
term has OMB begun to address many important management
problems. He notes that within weeks after taking office, President
Nixon issued Executive orders and BOB issued other instructions
to implement major decisions made on organization and manage-
ment issues. He would stress that these were change actions, not
announcements of studies to be made.

Eight months after taking office, the President devoted much of
a Cabinet meeting to reviewing actions that departments had al-
ready taken in such management reforms and streamlining pro-
grams and administrative processes, some of which were dramatic,
and in restructuring of field operations. The point being, there was
a ready capacity of able people in the career service, in OMB, that
one could draw on and move very rapidly if one wanted to move
very rapidly.

My instinct is, having watched BOB and then OMB from prob-
ably the late 1940’s on—I started watching them when I was a
freshman in college, as a matter of fact—and what I find is that
there has been increasing politicizing of OMB by successive admin-
istrations. At the time of President Eisenhower there were very few
political appointees. That was one of the last.

__ It seems to me, whether Democrat or Republican, they steadily
increased, where pretty soon they were pushing political appointees
down into the bowels of the organization. And a lot of those people
simply didn’t have the experience or the knowledge to render the


27

plementation of the CFO Act and the slowness that it has taken
us. I know it is better now than it was, but it is still, I do not
think, where it should be.

What I am concerned about in this one chart here, and I do not
know what these categories are, but under Federal financial man-
agement, you are reducing the staff from 41 to 20, the biggest per-
centage increase. Maybe that is not where this function rests, but
I guess I am just concerned that we are not backing up on trying
to get that accomplished.

Also, I would like to know where that is. Does each agency now
have a CFO?

Ms. RIVLIN. Yes.

Mr. PETERSON. They all have theirs appointed?

Mr. KOSKINEN. We now have three agencies where they had
CFOs that have moved on. One became an Inspector General and
one became the Chief Financial Officer for the control board and
another left. So we have three that we are refilling. But they have
all had CFOs, and up until a few months ago, we had them all
filled.

Mr. PETERSON. If I could further clarify that. One of the concerns
that some people had was that the CFO jobs were being filled by,
in some cases, the old guard budget people who did not want to de-
velop an accounting system. Some people felt like they were trying
to hold back the progress in this area. And there was some concern
about types of people that were being put in these positions, wheth-
er they were CPAs and whether they had the background nec-
essary to try to develop an accounting system so we could get some
way to measure the performance of these agencies.

Ms. RIviin. We worked very hard, and this is before John got
there, actually, to have people with the right credentials in those
offices. We reviewed them in OMB.

But let me ask John to——

Mr. KosKINEN, The process is, no CFO can be appointed without
my approval. And we have moved--historically, what happened
when the act passed in 1990, people were designated as CFO and
a number of those were not, as you note, CPAs or people with ac-
counting backgrounds. But at this stage, if you look at the back-
grounds and qualifications of the 24 CFO Act agencies and their
CFOs, in virtually every case they have not only CPAs or financial
backgrounds, they have actually managed financial systems.

I think the caliber of that office has improved significantly, and
I think it will continue into the future because there is now a
precedent and a tradition that those officers should be filled by peo-
ple who are expert in that discipline.

Mr. PETERSON. How many of the agencies have an accounting
system in place now?

Mr. KoskINEN. I am sorry?

Mr. PETERSON. Do any of the agencies have an accounting sys-
tem, or are they all still operating just on a budget system?

Mr. KOSKINEN. No, the CFO Act required them to have not only
accounting systems, but audited financial statements.

Mr. PETERSON. Do they have them at this time?

Mr. KoskINeN. And they all have audited—they are moving to-
ward—I think there may be a few, a couple, that do not have the


64

IT suggest three considerations: One, all elements of administra-
tive management—personnel, administrative policies on purchasing
and the like—be brought together in a single place.

Second, the person responsible for management on behalf of the
President should have Cabinet rank, but we cannot have more
than one Cabinet-rank officer in the EOP.

And that drives me to my third consideration, that management
ought to stay in the OMB, but perhaps recast the role of Director
of OMB—and maybe we are reinventing the wheel here, but from
time to time reinvention elevates the attention people give to it—
and make it Secretary, Chief Financial and Administrative Officer
of the Federal Government.

Finally, there are two things that I would add from your report
that I do not think the Executive Office of the President does need,
and particularly OMB. We do not need more political appointees in
the Office of Management and Budget. In my special view, OMB
would be strengthened by having fewer, not more, noncareer staff.

And second, creating an Inspector General in the Executive Of-
fice, I think borders on bureaucratic bloat. The integrity of the fi-
nancial systems in the EOP can be easily ensured by an annual
audit done by an outside audit team from agency inspectors gen-
eral or perhaps public accounting firms.

I guess, to summarize my view, let us put more “M” in OMB, but
not set up more organizational restrictions. Thank you.

Mr. Horn. I appreciate both of your very helpful statements. You
bring fascinating perspectives to this problem.

[The prepared statement of Mr. Harper follows:]


4

to address and resolve questions of program effectiveness and effi-
ciency.

Under our new course, all OMB activities are part of a com-
prehensive whole. OMB must carry out its responsibilities in serv-
ing the Presidency from policy development through program im-
plementation in as integrated a manner as possible, not through
two separate sets of organizational and operational procedures.

As Leon Panetta and I wrote in our memo, to be successful in
improving executive branch operations, OMB’s oversight role must
better integrate budget analysis, management review and policy
development roles.

To implement this new vision, OMB established resource man-
agement offices, which combined staffs with the previous budget di-
visions with selected staff from management offices. These RMOs
work with agencies on all facets of policy development and imple-
mentation. They are responsible and held accountable for budget
formulation, analysis execution, program effectiveness and effi-
ciency, annual mid- and long-range policy and program analysis,
implementation of Governmentwide policy, as formulated by OIRA,
OFPP, and OFFM and for program evaluation. They not only re-
view the policy and budgetary implementations of program issues,
they also examine and make recommendations on the effectiveness
with which proposed new policies can be or are being implemented,
ensure that policy proposals to Congress are accompanied by ade-
quate explanation of and resources for implementation; and ensure
effective implementation of Governmentwide management initia-
tives.

OMB's statutory management offices continue to provide leader-
ship and policy direction for the specific areas within their purview,
such as procurement, financial management, regulations, and pa-
perwork. They work with the RMOs and the agencies to ensure
that policies are understood and adequately carried out.

For example, the Office of Federal Procurement Policy has been
working with an RMO to help the Energy Department improve the
management of its contract operations. OFFM and the RMOs held
joint meetings with each financial officer this fall to discuss each
agency’s progress in meeting financial system requirements, and
we believe there has been very considerable progress on this front.
These joint meetings leveraged the special technical expertise of
the nancial management staff with the program knowledge of the

Ss.

Mr. Chairman, our experience so far shows clearly that OMB
2000 has successfully integrated budget and management respon-
sibilities, which was its objective. The most recent review of the or-
ganizational and process changes that OMB 2000 has generated
was the GAO’s December report, entitled Changes Resulting from
the OMB 2000 Reorganization.

GAO found that there was greater attention to agency manage-
ment issues in the fiscal year 1996 budget process after OMB 2000
was implemented than in the fiscal year 1995 process. A greater
variety of management issues were presented in more depth in fis-
cal year 1996 documents than previous years’ documents. These re-
sults reflected the clear commitment of OMB’s top officials to en-
sure the treatment of management issues within the budget cycle.


18

H.R. GRO: 2/7/96

' T
vironmental Protection Agency | 1/25/96 1/23/96 9

1/30/96, 1/22/96 8.5
T a
12695 | 4

4/20/95

5/5/95 Office of Personnel Management;

8/22/95 [Department of Treasury 1/4/96
| 7/6/95 Department of Labor 1 12/15/95 12/8/95
__ 4114/95 Trema 11/1/95 | 10/30/98 | __6.5
__Jul-95 [Department of Education “roves | 10/18/95 | 3
| 7/7/95 _|Small Business Administration | 10/17/98 | 10/10/98; 3
| 2/28/95 _ [Department of Interior t >| 10/4/95 | 7
| 7/28/95 Department of State — 2 toaiss 2
| 3/1/95 Department of Energy 89/95 8/295
No Date [Nuclear Regulatory Commission a | ess |?
| No Date General Services Administration | siigi95_| B95 |?
__ 3/1/95 _|National Science Foundation -4ng9s 1
| 10/31/95 {Department of Transportation T1596 | 1/29/96 30

Average Months Elapsed . 4.75



3

language in the report. On page 20, for example, it is stated that "...OMB's attention
to management issues changed following OMB 2000...", even though the discussion of
‘management is done almost entirely within the context of the budget process. On the first
paragraph of page 32, it is clear that "...changes in the attention OMB gave to
management issues...” was confined to the budget process. How could GAO be
expected to reach broad conclusions on the OMB management role when, by design, its
review excluded so many critical areas of management?

I suggest this Committee discuss with Mr. Bowsher the possibility of GAO
undertaking a review of the "M" function of OMB as a companion to this recent review
which is focused on the budget process. This review should include a look at some of
the ways in which BOB and OMB have provided positive management leadership in the
past. Admittedly, this leadership has not been in great abundance and, when it has
occurred, each time it was snuffed out by transferring most of the management positions
into budget dominated units. Nevertheless, there have been periods in which non-budget
units of BOB, operating with some degree of autonomy, provided the president with
strong management leadership which far exceeds what we have seen in recent years. The
institutional memory of these events probably no longer resides in either OMB or GAO.

I do not believe the 1989 study, or any other GAO review, has looked carefully
at what management functions have worked well on other occasions, and such a review
would seem to be most timely now in view of the structural and management changes
under discussion in both executive and legislative branches of the government.

OMB CAPACITY FOR PRESIDENTIAL REFORMS

Tbelieve the OMB is fortunate in having strong leadership today. Alice Rivlin has
a well deserved reputation in the field of budget formulation, and I am an admirer of John
Koskinen’s personal leadership in the field of management. As this presidential term
nears an end, the OMB team is beginning to show greater promise in addressing several
areas of government management, but we can only speculate on how long this team will
continue to be in place regardless of the outcome of the 1996 election. In addition, OMB
no longer has the structure to facilitate an active management role even when it has good
leadership. It is even further handicapped by the fact that responsibility for reform is still
divided between OMB and the Vice President’s NPR staff.

There are several reasons I continue to be deeply concerned about the last OMB
reorganization of merging much of the management staff with the budget staff, an
approach that failed twice before:


79

And I guess the place I would leave my remarks is that I would
hope this committee would continue its leadership role, perhaps
being more directive in the sense of saying, here are the results
that we are looking for, and not just limit the performance and re-
sults criteria to individual agencies; but perhaps have a top-level
report and say, Mr. President, we are the committee concerned
about a Government management, here are the kinds of outcomes
that we would like to see in the next year or the next 5 years.

Mr. Horn. Well, obviously, a number of Members in the other
body, as well as in this body, have suggested that there be a Hoo-
ver-type commission to take that kind of look, which President
Hoover did take in the late 1940’s and early 1950’s with the two
commissions.

And some have even argued—I do not know if I am too keen on
this one, having been a victim of it—that we might have a base clo-
sure-type process. That, I think, scares more Members than it gets
a majority of votes, but it would be a way to get at some of the
problems we have when we try to change an organization to see if
it is in tune with the needs of the times.

And as you look at the evolution of Cabinet departments in
America, usually they have lagged about 10, 20, 30 years behind
when it became an obvious point that Government was involved in
this area one way or the other, and then often they have lived past
their time—I think that is what we face—different portions of dif-
ferent departments.

As you know, they started out, one group in the Congress this
year with, let us end four departments. Well, we have not ended
any department yet, to my knowledge, although we certainly have
homed in on the Department of Commerce, which is only about 2
Percent Commerce anymore, mostly weather and a few other
things.

Mr. Harper. I am just hoping that if there is another Hoover
Commission or something like that, its scope and mind-set goes be-
yond reorganizing the organizational chart and printing new orga-
nizational charts but saying, rather, here is what we are demand-
ing the executive branch do in terms of management, Mr. Presi-
dent. How are we going to do that?

Mr. Horn. Well, this is in essence what Oregon is doing in say-
ing, what is it the consumer wants? And that is the whole reason
Government exists is to serve people.

Mr. Harper. Yes, sir.

Mr. Horn. And we do not spend much time on how we serve
them and how we know how well we have served them. That is
what you are seeking. I think you are absolutely correct. And by
what do we measure that and are these measurable things?

I have cited before in these hearings, when I was on the board
of the National Institute of Corrections as chairman we got an idi-
otic report from the Department of Justice on the agency. They had
never consulted with us. They found a few things that were quan-
titative and decided they would use that as their measurement.
Well, nothing in, nothing out, as the saying goes; and that is what
that report was.

So that is a very real problem, how do you assess the effective-
ness of an organization? I think it needs to be given some focus and


62

Mr. Horn. I am delighted to have Dr. Harper here. We have
heard about the alphabet soup of Government agencies. Dr. Harp-
er, by experience both after and before, ought to be knowledgeable
in that area. He is a former executive vice president and chief fi-
nancial officer of the Campbell Soup Co. So Ed, you should be able
to understand this Government very clearly.

He is now president, chief executive officer of the Association of
American Railroads. So having spent a few years as Deputy Direc-
tor of OMB under President Reagan, we are interested in your per-
spective on this.

Mr. Harper. Thank you very much. I am honored to have the op-
portunity to present my personal views to the committee, and if it
is all right I will quickly summarize the statement I presented for
the record.

The GAO report. I think the report is to be commended for iden-
tifying the critical issue: Must the management function be specifi-
cally institutionalized within OMB or the Executive Office of the
President for it to survive as a force?

It is intriguing to me that in my career with five different major
corporations, debates over whether or not to institutionalize a
central management improvement function never came up. It was
never an issue. We were always focused on what are the results.

The data in the GAO report suggest that the leadership that Di-
rector Rivlin and Deputy Director for Management Koskinen have
provided to management issues makes it clear the M in OMB has
not been lost, even if the M has a less institutionalized structure
than before.

The GAO study was unable to tell us very much about what re-
sources we need to have available to promote improved manage-
ment. A longitudinal study might be done, tracing the relative size
and structure of the management function in the Executive Office
of the President, and juxtapose that data with evidence of manage-
ment improvement or management failure over the years.

Capacity. Ever since the Brownlow Committee declared in 1937,
“The President needs help,” the President has had some institu-
tional staff to help him in exercising his management responsibil-
ities. The institutions have changed over time and the staff re-
sources have gotten larger and smaller but it seems that whenever
a President set his mind to a management task, he brought to-
gether the resources in OMB to do the job.

The OMB 2000 reorganization by the Clinton administration es-
sentially distributes the management resources among the RMOs
which replaced the budget examining groups. The job descriptions
of program examiners have the right words, but the words will
turn into actions based on the President’s priorities and on the
leadership of OMB. Today that leadership seems to have manage-
ment as a priority.

The manpower resources allocated to the management function
are probably inadequate. I say this because in addition to specific
management resources, historically OMB has dedicated budget ex-
aminers’ time, in whole or in part, to management projects. The
smaller staffing for OMB overall, the less staff there is available
for management projects.


35

United States General Accounting Office

G ‘AO Testimony

Before the Subcommittee on Government Management,
Information and Technology
House Committee on Government Reform and Oversight

Eeeds OMB 2000

10:00am, EST
February 7. 1996,

Changes Resulting From
the Reorganization of the
Office of Management
and Budget

Statement of L. Nye Stevens. Director,
Federal Management and Workforce Issues, and
Paul L. Posner. Director, Budget Issues

General Accounting Office

GAOT-GGDAIMD-96-68


75

three budgets, to have to respond to every Member of the House
and the Senate that phones up and is worried about something,
that the emphasis will be on getting somebody that knows the
budget inside out and backward.

Dr. Rivlin has a rich experience on Capitol Hill. She is an econo-
mist. She has headed CBO. She knows all the corners and closets
of the budget, and ordinarily, that is exactly the type of person you
are going to pick.

Mr. Panetta, who was the President’s first nominee there, he
chaired the Budget Committee, he knew as much about the budget
as any single Member of Congress in either party. So you are pick-
ing somebody there that comes in with budget understanding,
budget experience.

Do they come in with any interest in management?

Mr. Harper. The first Director of the Office of Management and
Budget, if I am not mistaken, was George Shultz, whose strength
was not budget but rather general policy. And specifically coming
from the post of being Secretary of Labor, he came to the director-
ship with a great deal of personal confidence of the President that
he Knew about management, because President Nixon was extraor-
dinarily concerned about the poor quality of the Government’s abil-
ity to deliver services in the field to American citizens. And al-
though there is evidence on the record that the President, when he
initially came into office, had relatively little understanding about
what the Office of Management and Budget was about, he looked
to that institutional staff to help him deal with the management
issue.

Mr. INK. He actually looked to that staff when it was the Bureau
of the Budget, and then that staff carried over for a time in the
Office of Management and Budget.

By the way, you mentioned Mr. Panetta. When he was on the
Hill as a Member of Congress, as you may recall, he strongly rec-
ommended setting up an Office of Management separate from the

Mr. Horn. I do remember that, and if we get the bill through,
l intend to remind him of it, just in case he has forgotten.

Let me just ask some general questions here to get it on the
record. In your experience, has any reform initiative succeeded in
putting the “M”, the management part, back into OMB?

Mr. INK. Do I think any?

Mr. Horn. Any reform initiative. They come and go. I heard
about PPBS. I thought back fondly to that era, as Dr. Harper de-
scribed it, but these fads come and go and yet nothing happens.

How about the “M” part? We have apparently tried to make it
happen in a couple of different ways. Has it?

Mr. Ink. I do not think that we have been successful, and I was
part of trying to make it successful, in putting the “M” back into

There have been individual initiatives which have been useful. I
think in the Reagan administration—I mentioned some areas of fi-
nancial management which moved forward, although I was very
concerned because it tended to move separate from program man-
agement. So there tend to be, from time to time, individual initia-
tives which I think are useful.


36

Mr. Chairman and Members of the Subcommittee’

We are pleased to be here today to discuss the changes at the Office of Management and
Budget (OMB) resulting from its April 1994 reorganization-commonly known as OMB.
2000. The primary goal of OMB 2000 was to integrate OMB's budget analysis,
management review, and policy development roles under a new organizational structure.
In doing so, OMB intended to improve its decisionmaking process and its oversight of
executive branch operations. A critical question facing OMB 1s whether its new approach
toward integrating management and budgeting, as well as its implementation of statutory

management responsibilities, can be sustained over the long term

At the request of the Chairmen and Ranking Members of this Committee and the Senate
Committee on Governmental Affairs, we conducted a descriptive review of this initiative
We did not, however, evaluate OMB's capacity to carry out its central management
responsibilities. Our report, Office of Management and Budget Changes Resulting From
the OMB 2000 Reorganization (GAO/GGD/AIMD-96-50), was issued on December 29, 1995.

‘Throughout the history of OMB and its predecessor organization, the Bureau of the
Budget, management and budget issues have competed for attention and resources. In
general, budget issues have tended to squeeze out management issues. During the past 50
years, a number of presidential advisory groups have recommended changes designed to

strengthen central management leadership in the Executive Office of the President.


51

This is important progress, but I do not find the GAO Teport use-
ful concerning the M portion of the OMB responsibilities. The scope
of the GAO report is so limited. The first paragraph states, “We did
not evaluate OMB’s overall capacity to carry out its central man-
agement responsibilities.”

In other words, the report does not pretend to address the type
of issues which form the basis for reorganizing the old Bureau of
the Budget into the Office of Management and Budget. OMB came
into existence not to strengthen the already effective budget exam-
ining process, but to increase the attention given to a broad range
of management issues which were having great difficulty compet-
ing for attention in the budget-oriented Bureau of the Budget.

OMB is fortunate in having strong leadership today, which ap-
peared before this committee, but I do not believe it has the struc-
ture to support the management challenges of today even when it
has good leadership. My written testimony indicates why I con-
tinue to be concerned about this OMB 2000 reorganization, which
merges management, most of management, with the budget staff,
an approach which I would stress has been tried and failed twice

efore.

The first and most obvious problem is that the intensity of the
budget pressures makes it unrealistic to expect OMB to find the
time and energy to provide sustained leadership for major manage-
ment initiatives.

Two, pay dirt for better management in agencies often involves
crosscutting issues. Productivity enhancement, financial manage-
ment, intergovernmental actions such as devolution to State and
local governments, contracting out, these are all difficult to address
through a structure that is focused on the budget process.

Three, OMB no longer has much capacity to provide meaningful
advice or leadership to departments and agencies or to Congress on
reorganization issues, yet we are in a period when downsizing and
other major structural changes are becoming more and more impor-
tant.

Four, unlike the private sector, domination of the Federal budget
process leads too easily to costly cuts in long-term investments
such as training, equipment maintenance and facilities upgrading.
Gomputer modernization has been one of the serious casualties of
this.

Five, we found some years ago that it was only when financial
management was temporarily separated from OMB that an effec-
tive program of cash management throughout Government could be
limited or could be initiated. Now, after rejoining OMB, then OMB
was able to sustain and under the Reagan administration build on
it, but it could not get started until it was pulled out of OMB. The
same was true in ascertaining what portion of our assistance pro-
grams was eaten by excessive overhead, which could be done only
when it was separated from the budget.

Six, consolidation of budget and management can on occasion
weaken or block actions to prevent abuse. A costly consequence of
merging management and budget occurred in the President middle
1970's, when the resulting management-oriented budget review
prevented GSA from reforming its procurement operations. The
furniture scandal that ensued was only one of the negative results.


24

agencies pursued it, jointly pursued it, prior to the reorganization
and the situation today?

Has there been any sort of objective study where you have had
a few of your brighter hotshots that are around saying, hey, take
a look at this, and go out and sort of get a feeling for what did go
on and what is going on now?

Ms. RIVLIN. That is what we tried to do in OMB 2000, was to
assess what was actually happening out there and how to improve
it. And we think we have improved it. The only outside study that
T know of is the GAO.

Mr. Horn. Right. But I am thinking of internal studies. As its
former executive, I would like to think my own staff would go out
and could give me the bad news, as well as the good news.

Ms. RIVLIN. But this is what we do every day, all the time.

Mr. KOSKINEN. There are a set of initiatives going on, and your
report talks about them. We have streamlining plans and restruc-
turing going on in the agencies. Over 200,000 employees have
been—the size of the Government was reduced by over 200,000.

Mr. Horn. I understand all of that.

Mr. KOSKINEN. But those are all management changes that have
been initiated by the executive branch. Your report says, and I
agree with it, it says its first finding is the management of the Fed-
eral Government needs improvement, which we would agree with,
but I am interested in your question about a survey.

You make a finding and an assertion that the executive offices
has abrogated its responsibility to oversee and improve the man-
agement structure, and you say the capacity available to the Presi-
dent in OMB to reform and improve has declined and barely exists.

I do not know where the findings are behind that, because I
think the evidence is, in fact, quite the contrary; that this adminis-
tration not only has not abrogated its interest, but with the Presi-
dent and the Vice President and the NPR now running for 4 years,
there is a significantly greater and more heightened interest in
management in this administration than in the past. So I do not
know where the facts are that support that.

Mr. Horn. I understand there are a lot of studies floating
around. What I want to know is, did you get anybody assigned to
look at where you were in a culture and how it dealt with this, not
on specific studies, but has there been a change?

I realize it might be too early for that. It is very difficult when
you turn a culture around. But what is your sense of that, or did
you have anybody look at it prior to the organization, looking at it
now, months after? This could be years later that you might have
to do it to get any meaningful results. I am just curious if that was
done.

Ms. RIVLIN. No, that has not been done in any formal sense. We
do spend a lot of time on particular issues, like procurement, for
instance, where there has clearly been a sea change, in part be-
cause the Congress weighed in on this and in part because we did.

Steve Kelman is a very vigorous person and has made enormous
changes in procurement, and we can document that very easily.
But we have not done a——

Mr. Horn. And as you know, we are supportive of that.


5

agency operations, and a strong relationship to the budget process is important in
achieving this potential. I would caution, however, that if GPRA is implemented
exclusively through the budget, it will likely contribute to a rigid and mechanistic
process, weighted down with a growing overburden of procedures and reporting
rigorously monitored by overlapping oversight bodies. Further, to the extent it is an
integral part of the budget process, there is a danger that agencies will use it only for the
purpose of supporting their estimates rather than the broader goal of improving program
management. Finally, the field of management covers a wide range of management
issues that GPRA does not pretend to address.

On the negative side, the GAO report does not provide a basis on which one can
assess where OMB is with respect to its management leadership role.

‘A major reason for this is that the scope of the GAO report is very limited, a fact
made clear by the first paragraph of the report which stated that "We did not evaluate
OMB's overall capacity to carry out its central management responsibilities." In other
words, the report does not pretend to address the type of issues which formed most of the
basis for reorganizing the old Bureau of the Budget (BOB) as the Office of Management
and Budget. OMB came into existence, not to strengthen the already effective budget
examining process, but to increase the priorities given to a broad range of management
issues which were having difficulty competing for attention in the budget-oriented BOB.

Because of this narrow scope of the GAO report, the type of people interviewed
by GAO was correspondingly limited. It is not apparent, for example, that there were
interviews of management people with knowledge and experience in past successful
management activities in BOB and OMB and who might have informed perspectives on
the potential impact one might expect today with alternative organizational approaches.

Further, the review was "...descriptive rather than evaluative in nature...,” a major
limiting factor.

Finally, the conclusions were based only on changes from 1994 to 1995. Although
a useful comparison, 1994 does not provide a useful baseline for assessment of the "M"
role of OMB, because 1994 is one of a series of many years in which the management
capacity of OMB has been widely regarded as very inadequate.

Unfortunately, observers from the press and elsewhere have failed to note these
major limitations and have drawn conclusions far more broad than the coverage
warranted. For example, some have drawn conclusions about the wisdom of the

proposed Office of Federal Management, an issue which would require a greatly
expanded review if it were to be addressed. This misconception is created in part by


63

OMB staff has been cut in the past because Congresses, and to
some extent, administrations have made OMB staffing levels a po-
litical issue. I hope the President and the Congress will have the
courage to provide adequate staffing for OMB because I think it is
in the interest of both branches of Government.

The statutory duties: Since there is some variability in the work-
load required ‘for OMB to fulfill its statutorily required duties in a
timely manner, OMB can reallocate its resources to focus them on
those projects OMB assigns its highest priority.

As long as there is some flexibility to put the resources where
they are needed in financial management, OFPP or OIRA projects,
the staffing levels are probably adequate. However, I think OFPP
could be strengthened by being specifically given the final authority
on all procurement regulations in all agencies, including the De-
fense Department. This does not mean that OFPP has to do all the
regulations, but rather it would have the authority to have the
final sign-off for major changes in procurement policy.

Policy leadership for information technology I think should be a
special concern, and it is vital.

The Government’s ability to recruit and retain the caliber of peo-
ple we need in the information technology area is a problem be-
cause, in the private sector, having just been in the business of re-
cruiting people in this area, a person with appropriate skills is paid
more than most Cabinet officers, than all the Cabinet officers.

Finally, there is a need for these offices—is there a need for
these offices to be statutorily mandated? Perhaps there is, but if we
are to focus on outputs and outcomes as a management improve-
ment measure, why not start here? Give the President the author-
ity, the responsibility to produce the desired outcome by letting
him organize the Executive Office of the President as he sees ap-
propriate to achieve those outcomes.

What I might add here is, this committee and the other commit-
tees of the Congress might take further steps to define those out-
comes. Tell the President, this is good management; if you achieve
this, we will give you an A, and if you get halfway there, you are
not going to get an A. But let him know what you are expecting
in terms of results.

General oversight, OMB has a strong oversight role with respect
to the executive branch, but I would agree with the comments ear-
lier today; I believe it is unbalanced. It is too focused on the budg-
etary and not enough on the management side, and that may be
a function of the resources available to OMB at this point.

I think it should be serving the President, that is, OMB, as a
chief financial and administrative officer, as would an executive
vice president with that title serve his CEO in a corporation. You
bring it all together. To do this would require the kinds of changes
that this committee has recommended in its report, specifically the
residual policy and oversight functions of the OPM and GSA should.
be transferred to OMB, and with these transfers of responsibility
should come the appropriate transfer of resources.

OMB’s leadership, realistically, OMB’s ability to provide direc-
tion and leadership depends on its relationship to the President.
Regardless of institutional structures, if OMB is not seen as acting
on the President’s behalf, it is going to be ignored.




43

Mr. Horn. Just ignore the Tight. We have got the time to really
get into some of these things. So if you want to make some more
general statements, you may certainly proceed.

Mr. STEVENS. We are ready to respond to the areas that you are
interested in, Mr. Chairman.

Mr. Horn. Let me read a few parts from the next panel. Mr. Ink,
former president of the Institute of Public Administration and ex-
member of the fine staff of both the Bureau of the Budget and the
Office of Management and Budget, makes these comments. I would
just like to get your reaction, since he will come after you.

He suggests that this particular committee we are on discuss
with the Comptroller General the possibility of GAO undertaking
a review of the letter M function of OMB, namely management, as
a companion to the recent review which he feels focused primarily
on the budget process. This review should include a look at some
of the ways in which BOB and OMB have provided positive man-
agement leadership in the past. Admittedly this leadership has not
been in great abundance and when it has occurred, each time it
was snuffed out by transferring most of the management positions
into budget-dominated units. And he would obviously argue that is
what has happened in this OMB 2000.

Nevertheless, there have been periods in which nonbudget units
of BOB, operating with some degree of autonomy, provided the
President with strong management leadership which far exceeds
what we have seen in recent years. The institutional memory of
these events probably no longer resides in either OMB or GAO.

What do you think of that suggestion, looking at the manage-
ment side and not coming in through the prism of the budget side?
Would you feel that on this report that we have that you primarily
came in on the budget side?

Mr. STEVENS. We took it on its own terms, which was an integra-
tion of management and budget, and really I think one of the
premises was that the distinction between the two was rather a
false one. With regard to a study, a more thorough study of OMB
and its effectiveness in management, that is really what we did in
1989, we had a general management review of OMB.

One of the products of that was indeed a recommendation that
there needed to be a much closer relationship between what was
then the various management activities and the resource allocation
or budget process. It was not the recommendation to do exactly
what they did, to integrate them, but it certainly was to build some
way of a much closer relationship.

And, second, I would say that this is essentially what we have
said that OMB itself needs to do. They really need to examine their
effectiveness. They need a strategic plan, as the Government Per-
formance and Results Act requires them to have, and they need to
continually ask themselves that question, “What are the indicators
of success, and how well are we meeting them?” We would agree
with that. Whether we should do it independently, I think probably
it would be premature for us to substitute for OMB’s own attention
to its performance.

Mr. Horn. Based on your study, does one factor come to mind
as to what you think there ought to at least be that factor as an
indicator of success? If so, what is it?


41

officials and staff to enhance the treatment of certain management issues in the budget.
Even though this was a particularly difficult budget cycle, there was a noticeable increase
in the attention given to management issues that transcended immediate budgetary
concerns. However, it remains to be seen whether OMB 2000's initial positive results can
be sustained over the longer term. Congress expects OMB to play a key role in
addressing federal management issues. In view of this expectation and the historic
tension between the two concepts of integrating and segregating management and budget
responsibilities, we believe it is important that OMB understand how the reorganization
has affected its capacity to provide sustained management leadership. A review focused
on this issue could also inform the ongoing debate regarding how best to protect
management from being overwhelmed by budgetary pressures-specifically, whether a

separate office of management is needed

We believe that OMB's planned GPRA-based review of its management strategies and
approaches is the appropriate context in which to consider these issues. Therefore, in
our report we recommend that OMB consider the lessons learned from OMB 2000 by
focusing its analysis on the specific concerns raised by OMB staff during our review.

For example, OMB could assess whether its on-the-job training and decentralized staffing
approach are appropriate to develop the skills and abilities RMOs need to carry out their
management oversight responsibilities. OMB could also assess how well its RMOs and
statutory offices are working together to address management issues. In particular, OMB

could determine whether any of the approaches it used to structure relations between the


after the reorganization when the theory behind the changes is still
fresh in everyone's thought suggests that the phenomena may be
skewed by the fact that it is being studied (the Hawthorne effect).
Thus, [ would suggest that the GAO study can offer us little basis for
resolving the critical issue of institutionalizing the management
function.

The report alludes to the fact that the debate over the
management function has stretched over at least the last two
decades. 1 would argue that the creation of the Office of
Management and Budget in July, 1970, was the zenith of the pro-
institutionalizers and OMB 2000 announced in March, 1994, is the
nadir of the pro-institutionalizers. Whether management will get
better or worse remains to be seen.

There is a bit of irony we must deal with. The debate we are
involved in pits management against budget. Is budget a surrogate
for financial performance that we would find in the private sector?
If it is, here is the irony: In the public sector we talk of financials
driving out management and in the private sector we talk of good
financials being good management!

The famous book In Search of Excellence: Lessons from
America's Best-Run Companies defines excellence in terms of six
financial indicators. The only reference to non-financial indicators
of success is that the companies have a good reputation. (In_Search

¥ Ri ies, Thomas
J. Peters and Robert H. Waterman, Jr. Harper & Rowe, New York,
1982., p. 22)

Before returning to our discussion of management in the public
sector let me make one last private sector point. Debates over
institutionalizing management improvement functions in the private
sector are unheard of. Based on my experience debates over
whether or not to institutionalize a central management
improvement function is unique to government.

If we posit that good management in government is defined as
the efficient use of resources in pursuit of specific policy objectives.
then we can not deal with improving management until we can
measure government program outputs related to policy objectives.

For example, the government has many programs which
regulate industry in the name of safety. Few of these programs are
yet defined in terms of performance standards--ie., accident rates,
casualty rates, or fatalities. Until performance standards are
established it will be very difficult to measure the quality of the
management of these programs.


11

‘Moreover, the consequences of OMB 2000 extend beyond the budget cycle. We are
committed to new processes that enable OMB to provide analyses that cut across traditional
organizational boundaries, Under the leadership of John Koskinen, OMB working groups have
addressed a number of issues that have arisen in the last few years — guidelines for creating
government corporations, acquisition of information technology, the development of OMB’s
1995 Spring Review of agency performance measures, and the implementation of the
Government Performance and Results Act. These working groups include staff from all parts
of OMB, often with most of the group representing the RMOs. Even in areas as technical as
financial management, OMB 2000 has led OFFM and the RMOs to work together with the
agencies on such matters as designing the steps needed to meet the audit requirements of the

Government Management Reform Act.

We have enhanced OMB's impact by having the RMOs deal with agency management
concems in their day-to-day dealings with agency staff, collaborate with the OMB's statutory
offices, and focus on common problems in internal working groups. ‘The old idea of
“management” and “budget” sides of OMB is rapidly evolving into the notion of a common
corps of professionals working cooperatively to bring their varied talents to bear on the
problem of delivering public services in the most effective way.

Another key innovation of OMB 2000 was the creation of an OMB Management
Committee concerned with OMB’s internal structure and functioning. That Committee, which

has 13 members (including the Deputy Director for Management and 10 career staff from all


53

Testimony of Dwight Ink
Before the

House Subcommittee on
‘Government Management, Information and Technology

Mr. Chairman, I appreciate the opportunity to comment on the impact of OMB
2000 on the management practices of the Federal Government. This a subject which I
believe has greater significance in this period of change than most people realize

But first 1 should like to congratulate this subcommittee, and your strong
leadership, on the outstanding report the full committee issued in December resulting
from the hearings on the National Performance Review and related matters. I believe the
recommendations, if implemented, would move us toward a leaner, more effective
government far better than most of the approaches being pressed forward by either the
executive or legislative branches today. Most knowledgeable people with whom I have
talked, agree. As your recommendations are translated into legislative proposals, I hope
they will gain the support needed for passage.

Now I will turn to the OMB issues to be addressed in this hearing. My comments
represent my personal views and do not necessarily represent any organization with which
Jam affiliated. They result from experience in which I had responsibility for both budget
and management functions in several agencies, as well as having been Assistant Director
for Management in both BOB and OMB. In fact, my staff drafted the reorganization plan
which gave birth to OMB and I served as presidential spokesperson in defending the
proposal before Congress.

GENERAL ACCOUNTING OFFICE REPORT

I believe the GAO report on OMB 2000 provides some encouraging information
regarding the budget portion of the OMB responsibilities. But I do not find the report
very useful concerning the "M" portion of the OMB responsibilities, the area which has
been under severe criticism for a number of years. In fact, because of the very narrow
focus of the report, I fear it is quite misleading with respect to the impact of OMB 2000
on management within the Federal Government.

On the positive side, the report indicates progress in integrating performance goals
and indicators in the review of agency budget submissions. My information supports this
conclusion, and 1 believe considerable credit is due Director Alice Rivlin, Deputy for
Management John Koskinen, and the OMB staff for this important emphasis. The
Government Performance and Results Act has the potential of noticeable improvement in


59

7

Field Operations. OMB also has lost much of its capacity to address a
number of important issues involving field operations where over 80% of
the Federal employees reside and where the majority of interactions with
the public take place. These days we talk a Jot about measuring outcomes
of government actions, and our field operations have much to do with the
results. We have also lost much of our ability to coordinate operations of
closely related program delivery activities involving different agencies, a
customer service dimension that needs attention.

Control ys Leadership. The current merging of most of the OMB
management resources with the budget staff places undue reliance on the
use of budget controls as the driving force to implement management
improvements and reforms. There are a few situations in which budget
leverage can be useful, but 1 believe our experience over the years
demonstrates rather clearly that it is generally counter-productive for long
Tange results.

Leadership that is respected by the departments and agencies is more
effective than controls in facilitating enduring gains. In fact, in my role as
Assistant Director of BOB and OMB for Management, I found that in most
instances the more I could distance myself and my staff from the budget
process, the greater our acceptance by the agencies and the more we could
accomplish. To my surprise, we found that we could often elicit more
useful information and advice from budget examiners when the separation
enabled us to discuss agency operations with greater freedom from the
constraints of the budget process.

Some of the most effective leadership has been developed through BOB and
OMB providing technical assistance in attacking management problems. By
exerting influence through cooperation, rather than through budget
Pressures, agencies accept guidance in troubled areas more readily, and
through a greater sense of ownership in the resulting solutions, the
improvements have a much greater likelihood of lasting.

Access to Government. There was a time when state and local officials,
and business and non-profit associations looked to the management staff in
BOB and OMB when they were having problems with overall government
management policies and practices. This level of access provided a positive
channel for government-wide issues. I would suggest that this type of
access is more difficult in a budget focused organization.


13

Mr. Horn. A quorum having been established at the end of page
1 of my remarks, I now yield to Mr. Davis, the gentleman from Vir-
ginia, to open the questioning.

Mr. Davis. Thank you.

Dr. Rivlin, I want to ask a question. As you know, I represent
a district that has numerous constituents who perform contract
work for the Federal Government, either as independent personal
service contract employees, who work side-by-side with civil serv-
ants, or as corporate employees of firms that provide services to
Federal agencies.

They have complained that they have received stop-work orders
without any advance notice or, in some cases, what they consider
to be a reasonable explanation. There is a real concern that some
agencies are either overreacting to the stress of operating under a
continuing resolution, or are misinterpreting the law with the re-
sult that contracts are being needlessly interrupted.

Has OMB issued any guidance, or are you aware of any legal
opinion or guidance that would provide agencies with consistent
policies and procedures with respect to contract decisions that are
made while an agency operates under a continuing resolution?

Let me note that there is a lot of fiscal year 1995 money that was
available that was stopped when continuing resolutions did not
move forward, particularly in EPA.

Ms. Riviin. This has been a very difficult period to manage
through, as I know you appreciate, and we have been working with
the agencies to manage under what is now the ninth continuing
resolution; and each one has posed somewhat different problems.

But I will turn to John Koskinen for a more specific answer.

Mr. KOSKINEN. The agencies have the responsibility, obviously, to
manage their programs. Under the CRs, we have not given them
any guidance that instructs them to do anything out of the ordi-
nary with regard to contractors.

Most of the issues arose during the two Government shutdowns.
They arose for the first time because we have never shut the Gov-
ernment down more than 2 days in the past. We had two shut-
downs, one for almost a week and then one for 21 days. It was in
those periods that contract employees, much as Federal Govern-
ment employees, in many cases were, in effect, furloughed.

The contracts many agencies have have provisions in them that,
if there is no funding available, those contracts have to stop. The
Antideficiency Act makes it a criminal violation of the law to incur
obligations during a shutdown unless there are emergency services
being provided or unless there is funding available.

Mr. Davis. Let me ask. How would that affect fiscal year 1995
money that is sitting there?

Mr. KosKINEN, Fiscal year 1995 money, initially, the question
is—the money can go out. The question is whether you can have
unfunded Federal employees that are either to make the payments
or to supervise those contractors. The judgment and the guidance
we gave to agencies was, to the extent that a program continued
and Congress had authorized the program to continue with
obligational authority into 1996. Then you could keep unfunded
Federal employees in place to make the payments and supervise
the contracts. But if the contract and the program did not have


CONTENTS

Hearing held on February 7, 1996 .
Statement of:

Ink, Dwight, president emeritus, Institute of Public Administration; and
Edwin . Harper, former Deputy Director, Office of Management and
Budget, and president and CEO, Association of American Railroads ......

Rivlin, Alice M., Director, Office of Management and Budget, accom-
panied by John Koskinen, OMB Deputy Director for Management ...

Stevens, L. Nye, Director, Federal Management and Work Force Issues;
and Paul L. Posner, Director of Budget Issues, Accounting and Infor-
mation Management Division, General Accounting Office ..... -

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

Harper, Edwin L. former Deputy Director, Office of Management and
Budget, and president and CEO, Association of American Railroads,
prepared statement of .. vs

Horn, Hon. Stephen, a Representative in Congress from the State of
California, information concerning reports to Congress .. soe

Ink, Dwight, president emeritus, Institute of Public Administration, pre-
pared statement of ... .

Koskinen, John, OMB Deputy Director for Management, information con-
cerning financial management systems in operation ... -

Rivlin, Alice M., Director, Office of Management and Budget, prepared
statement of se

Stevens, L. Nye, Director, Federal Management and Work Force Issues;
and Paul L. Posner, Director of Budget Issues, Accounting and Infor-
mation Management Division, General Accounting Office, prepared
statement of ...

an)

33

65
18
53
22

35


34

constitutes the budget process between the agencies and OMB.
However, neither the OMB staff that we interviewed nor we our-
selves could determine to what extent this emphasis was a result
of the clear personal interest and attention of the current top lead-
ership of OMB, including Dr. Rivlin and Dr. Koskinen, and to what
extent it will become an institutionalized part of this process.

OMB officials at all levels are well aware of the historical ten-
dencies, as you are yourself, Mr. Chairman, for management initia-
tives and capabilities to become swallowed up by the exigencies of
the short-term budget decisions and implementation of the Presi-
dent’s policy agenda.

I think Mr. Posner will add a few comments, and we will respond
to any questions you have.

Mr. PosNnER. Thank you. I would just like to stress that our re-
view covered one budget cycle. And the key question, as Nye said,
is, are the initiatives that we have seen here sustainable over the
long-term? Will it be a management focus that will be sustained for
all the pressures that apply to OMB as an institution?

Particularly in an approach like OMB 2000, it really critically re-
lies on the commitment and expertise of RMOs coordinating with
each other and with the statutory offices and with the agencies. In
a decentralized environment there are three factors we think are
important to watch.

One is the Director and the Deputy Director for Management,
and ultimately the President’s guidance and concern for addressing
management issues across the RMOs. The first year it was clearly
there and transmitted to all the component parts of the institution.
Questions about whether that will be sustained are obviously
there.

The second factor is frankly the continuing congressional over-
sight, and is important in sustaining a management focus. Con-
gressional initiatives have provided already a set of tools through
the GPRA, CFO and the information technology area that may
prompt greater integration on their own, if properly implemented
between management and budgeting, and rely on integration for
their successful implementation.

The third factor has to do with the capacity and expertise inter-

nally of the RMO staff to address these issues. And we noted some
concerns in our review and report expressed by some of these staff
about their own capacity and expertise or about their access to ex-
pertise in addressing some of the issues that were handed off to
them.
We think these issues warrant continued OMB assessment and
attention, and accordingly we did make a recommendation in the
report that OMB consider these issues, its capacity to sustain a
management focus in an integrated environment on its own, as
part of its strategic planning process under the GPRA plan.

The issues we think they should address include training for
staff, and the models that they have for the RMOs to gain access
to statutory expertise through the various offices is important. It
is important to note that OMB agreed to do such an assessment,
and we are awaiting that study.

{The prepared statement of Mr. Stevens and Mr. Posner follows:]


76

But with respect to the broader capability of serving as an arm
of the President, to see that the executive branch is managed effec-
tively, I do not see that having occurred under OMB.

Mr. HARPER. If I could, I think one of the problems we have
throughout the discussion is, what is management? How do you
measure that? If you cannot measure it, can you really identify it
and say there it is, it is better or worse, it is bigger or it is smaller?

Thus, in my tenure as Deputy Director, I said, all right, how can
we make a difference? How can we bring a result to the efforts
here? So we picked up on some things that OMB staff had been
working on—debt collection, for example, the travel projects and
some others.

I mean, computer matching does not send this down the spine of
the average American unless he is a delinquent dad who has not—
whose pay is being garnished because he is not paying what he
owes. To a certain extent, that is real management, and that hap-
pened and those were the things that OMB took some leadership
on; that political appointees in the Reagan administration, career-
ists, the Inspectors General all worked together to make those
things happen. That is real management and I think that is real
improvement.

r. HoRN. Some of the experts, such as yourself, have suggested
that a better approach to enhancing the management capacity in
the Federal Government is to set up this office of management,
which you have recommended, Dr. Ink, reporting to the President
outside of the budget process.

How would you counter the argument that an office of Federal
management would be simply isolated and ineffective, since the ac-
tions over there are on the budget side; and what would need to
be in place for such an organization to be successful in achieving
desired objectives, as Dr. Harper sort of described?

Mr. INK. Hearing Dr. Rivlin address this issue, I wrote down the
kinds of points that I think are important.

First of all, some access to the President is essential, but man-
agement initiatives do not require the constant kind of access that
the budget process does, for example. And I have found in a num-
ber of management assignments I have had, from Presidents, that
you are often more effective if you are not in the position of trying
to see the President all the time. But you do have to from time to
time.

It is very important that such an office of management be a part
of the Executive Office of the President. It needs to be armed with
functions, of course, that will keep it in the mainstream of activi-
ties. Key to this, for example, is the drafting of Executive orders,
which was something that the Office of Executive Management
used to do when it was in the Bureau of the Budget, but had a fair
amount of autonomy.

The responsibility for circulars that are issued in the areas of
management, whether it is dealing with decentralization or pro-
curement or financial management or what have you, that would
be in this office.

The White House personnel office should consult with the Direc-
tor of the management office on management appointments in
agencies, as was done at one time.


22

Table 2. STATUS OF AGENCY FINANCIAL MANAGEMENT SYSTEMS IN

OPERATION—Continued
iz Part of Agency
i Singie
Designated as Integrated | Meet Agency SGL Fully | Meet Agency
a Depantment- Financial | Classification | Implemented at | Standards for
Agency Wide Standard | Management | Standards for Transaction Computini
Application System | Financial Data! Level? | Environment

USDA | 29% 38% 3% 15% 7%
Commerce... | 33% | 3% 100% 67% 50%
[efe}e) | 17% | 17% 36% 25% 42%
Education | 90% 35% 100% 50% 75%
OOE | 71% | 100% 100% 0% 100%
HHS: i 4% 100% 99% 97% 95%
HUD. | 16% 11% 10% 43% 72%
bOI | 6% 34% 51% 57% 87%
Dos | 40% 40% 40% 55% 100%
Dot 26% 16% 100% 23% 95%
State. | 16% | 0% 95% 5% 46%
OOT 9% 43% 8% 100% 81%
Treasury 27% 58% 44% 77% 36%
VA. 80% 46% 94% 17% | 96%
AD 33% 3% 12% 0% 0%
EPA 70% | 50% 60% 100% 80%
FEMA 55% | 65% 0% 0% 0%
GA | 6496 20% 86% 0% 97%
NASA 38% 38% 100% 0% 100%
NRC | 100% 67% 100% 100% 100%
NSF 100% 88% 100% 71% 100%
orm 88% 75% | 100% 50% 100%
SBA 94% 0% | 98% 9% 96%
SSA 100% 100% 100% 100% 100%
TOTAL 34% | 34% 51% 40% 66%

The following agencies have not defined financial data standards for the indicated
percentage of their applications: USDA {91%}. State (5%). DOT (92%). Treasury (5296), AID (70%)
FEMA, 11009), GSA [11%]. and SBA (2%).

? Percentages are based on the number of applications in all operational financial and mixed
systems for which agencies consider the SGL to be applicable. OMB Circular A-127 requires
application of the SGL at the transaction level throughout an agency's financial management
system, meaning both financial and mixed system applications. Despite this policy. agencies
believe that the SGL does not apply to more than one-third of their financial management system
applications. Core financial systems contrat and support the key financial management functions
of an agency, including the general ledger. Therefore, they are most likely to De affected by the
SGL_ Only 37% of agency core financial systems fully comply with the SGL at the transaction level

2 The following agencies have not defined agency standards for computing environment for
the indicated percentage of their applications: USDA (9296}, DOT (296). HUD (19). and Treasury
(2%)


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

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Illinois
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, J., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, JR., South Carolina
WILLIAM H. ZELIFF, Jr, New Hampshire © LOUISE McINTOSH SLAUGHTER, New
JOHN M. McHUGH, New York York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, California
PETER BLUTE, Massachusetts COLLIN C. PETERSON, Minnesota
THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida
DAVID M. McINTOSH, Indiana CAROLYN B. MALONEY, New York
JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin
RANDY TATE, Washington GENE TAYLOR, Mississippi
DICK CHRYSLER, Michigan BARBARA-ROSE COLLINS, Michigan
GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of
MARK E. SOUDER, Indiana Columbia
WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia
JOE SCARBOROUGH, Florida GENE GREEN, Texas
JOHN B. SHADEGG, Arizona CARRIE P. MEEK, Florida
MICHAEL PATRICK FLANAGAN, Illinois = CHAKA FATTAH, Pennsylvania
CHARLES F. BASS, New Hampshire BILL BREWSTER, Oklahoma
STEVEN C. LATOURETTE, Ohio TIM HOLDEN, Pennsylvania
MARSHALL “MARK” SANFORD, South —

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

James L. CLARKE, Staff Director
Kevin Sabo, General Counsel
Jupitu McCoy, Chief Clerk
Bup 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 JOHN M. SPRATT, JR., South Carolina
JON D. FOX, Pennsylvania PAUL E. KANJORSKI, Pennsylvania
RANDY TATE, Washington. COLLIN C. PETERSON, Minnesota
JOE SCARBOROUGH, Florida TIM HOLDEN, Pennsylvania

CHARLES F. BASS, New Hampshire

Ex OFFICIO

WILLIAM F. CLINGER, JR. Pennsylvania © CARDISS COLLINS, Illinois
J. RUSSELL GEORGE, Staff Director and Counsel
ANNA MILLER, Professional Staff Member
ANDREW G. RICHARDSON, Clerk
Davip MCMILLEN, Minority Professional Staff Member
‘Marr PINKuS, Minority Professional Staff Member

ab


46

type of service that say Presidents Roosevelt, Truman and Eisen-
hower had from the old Bureau of the Budget.

I don’t know if you have any feeling on that historically at GAO.

Mr. STEVENS. We do, because the No. 2 official in OMB was our
former Comptroller General, Mr. Elmer Staats. He exemplified the
career dominance of that agency and the continuity. Because just
as Mr. Ink was there for over a number of institutions, so was
Elmer Staats, so we are quite familiar with that. There is a much
greater turnover in the institution now when the Presidency
changes than there used to be.

But one point I would make with regard to the readiness of the
OMB with a new President to have a large management agenda is
that this was pre-OMB 2000. The management side that existed
then, with its 90-some people in various statutory offices, I think
was not prepared with that kind of a program.

But OMB itself had not, did not have a management capability
internally that was then capable of doing so. It is not a question
of destroying something that was ultimately highly valuable, but
dealing with what they found, which was much less capable than
I think Mr. Ink found.

Mr. Horn. Under this new reorganization, who in OMB is ulti-
mately accountable for the work getting done in management? Is
it the Deputy Director for Management? How is it organized? It is
now done with those sort of programmatic budget review decisions,
is what they have been for 30 years. They haven’t changed the ti-
tles much. Who is accountable?

Mr. Posner. I think it is the Deputy Director for Management
ultimately that has the accountability. I think it is, this is a proc-
ess where all offices play a role now. The statutory offices still re-
tain a role for policy development and coordination, and the RMOs
now have the responsibility for dealing with the agencies on a lot
of those issues. I would say it is a joint responsibility, with the ulti-
mate accountability up to the DDM.

Mr. Horn. The line certainly goes to that little box that includes
the Deputy Director, the Deputy Director for Management, and the
Director. And I guess through either charm or delegation of the Di-
rector, any one of the three can get into that fight and try to have
some control over what goes on in those areas in terms of the man-
agement aspect. Maybe collegiality has hit OMB. I don’t know.
That is the problem. Nobody is accountable.

Mr. STEVENS. Our perception of the current leadership is that it
does work quite collegially and quite well; in the financial manage-
ment area, where we are close, br example, to them, quite success-
fully.

Me. Posner. I do believe the one issue that bears watching here,
as I said earlier, is that this is a decentralized approach, and the
RMOs are more on their own and in some ways in a devolution
scheme to take ownership of this. One of the strengths of that is,
if they do it, it can be very effective, but you have the potential for
uneven implementation of these initiatives which bears watching.

Mr. Horn. Have agency-specific oversight responsibilities of the
three statutory offices been affected by OMB 2000, or have they
just gone on the way they have been going on since we set them
up by law?


30

bate. But basically they are a very small change. They do not
change the basic picture, that we all know that this fund needs fix-
ing.

Mr. Davis. Except that it is bleaker than the bleak reports we
had earlier.

Ms. RIVLIN. Slightly bleaker than the reports we had earlier, but
not enough to materially change the discussion.

Mr. Davis. Were you aware of the preliminary reports in Decem-
ber? Did they get that up to you ahead of time?

Ms. RIVLIN. I was not.

Mr. Davis. You were not in the loop.

Ms. RIVLIN. I do not get all preliminary information.

Mr. Davis. That is fine. I just wanted to understand. Thank you
very much.

Mr. Horn. I must say, I am shocked that you weren't in the loop.
I would hope if the trustees did discuss it, that the first person
they would say something to would be the Director of OMB. Hey,
we have got a fiscal problem here.

Ms. RIVLIN. This is not a new fiscal problem. This is a slightly
different preliminary estimate of the same fiscal problem that we
all knew we had. This was not very big news.

Mr. Horn. If I may use an example in foreign affairs, it is new
in this sense. As I recall, the Department of Defense had a projec-
tion that maybe Saddam Hussein would have the nuclear weapon
in 5 years. Once they sent U.N. inspectors over there, they realized
he would have had it in 1 year. So it does make a difference be-
tween the years.

Since people were pooh-poohing us around here that said we
have to do something about this, some just do not ever want to do
anything that will risk them a little vote, that will anger somebody.
They would rather wait until the crisis is on top of them and then
heroically be sort of like Don Quixote or the Lone Ranger coming
to the rescue. This shows that everybody was right that said, let
us get to fixing it now and not create a crisis in 2002.

Ms. RIVLIN. That is the President’s position, that we need to fix
it, and we have a proposal to do that. We need to work out the dif-
ferences between the proposals, but both the Republican proposal
and the President’s proposal would extend the life of the trust fund
at least another 10 years.

Mr. Horn. Which one had the taxes in it? Is that the President’s
proposal? I am not familiar with his proposal.

Ms. Riviin. The President’s proposal is to reduce Medicare
spending over 7 years by $124 billion. Not all of that is the Part
A trust fund, but about $90 billion of it is. The proposals on the
trust fund are very similar. They involve slowing the rate of growth
of hospital costs.

Now, there is very little difference between the two parties on
that issue. There are differences on some other things, like the
Part B premium, but the Part B premium is not at issue here. It
does not go into the Part A trust fund. So I think we have very
large common ground on what to do about the Part A trust fund.
And as the President has said, let us get on with it. Let us pass
it.


39

a statement that the agency faced challenges in such areas as contract management and
financial systems. In contrast, the fiscal year 1996 documents contained a detailed
assessment of financial management issues at the agency, including a review of the

agency's 5-year plan and how it related to reengineering and streamlining efforts

RMO staff said that budget examiners had looked at agency management issues before
OMB 2000. However, they said that more attention was given to particular management
issues by the RMOs after the reorganization, specifically the fiscal year 1996 budget
initiatives on agencies streamlining plans and use of performance information. OMB's
emphasis on these issues was also apparent in the budget documents. For example,
whereas the fiscal year 1995 documents discussed streamlining primarily in terms of the
number of positions to be eliminated, the fiscal year 1996 documents included discussions
about how proposed staff reductions could affect the agencies’ performance. Several
OMB staff also said that OMB and agencies were more likely to take action on
management issues when they were associated with the budget. ‘They said linking
management and budget issues provided examiners with more leverage for change in the

agencies.

Although OMB staff generally had a positive view of OMB 2000, some RMO staff
expressed concerns about its initial implementation. For example, because they had to
balance competing responsibilities, several program examiners said that less emphasis

had been placed on certain management issues-those that lacked a clear budgetary


25

Mr. KOSKINEN. I would note that GAO, and you will hear from
them, did a review and did a study and they said,

Our review of budget documents and interviews indicated there was greater at-
tention to agency management issues in the fiscal year 1996 process than in the
fiscal 1995 process. A greater variety of management issues were presented in more
depth in the fiscal year budget documents than in previous years’ documents. These
results reflected the clear commitment of OMB’s top officials to ensure the treat-
ment of management issues in the budget cycle.

So there has been that review, done with a whole series of inter-
views by a third party, that says there has been the beginning of
a significant culture change. They appropriately say, we have to
continue to monitor it, it will not self-execute; and we are commit-
ted to doing that.

Mr. Horn. Sure.

Let me ask you, how many full-time equivalent positions did you
have that were devoted to management prior to the reorganization,
approximately? I realize you do not have the exact number, but are
we talking 10, 20, 30, 40, 50, 60, full-time positions devoted to
management in OMB?

Mr. KOSKINEN. Well, if you took the statutory offices as being,
“management offices,” those would have had in the range of about
120 people. The General Government Division had a significant
number, a number of people, but a number of those were, in effect,
budget examiners for GSA and OPM; so that I do not know what
those numbers are, but the bulk of that division was involved in
program examination.

The OMB 2000 initiative moved between 30 and 40 of those peo-
ple, approximately, but again I do not know the numbers directly,
but about 40 people, into the RMOs to assume management re-
sponsibilities.

Mr. Horn. Do you remember what it was historically at the
height, let us say, of the management function, even though it was
not separate? Let us say under the Truman administration, the Ei-
senhower administration, on into the Kennedy-Johnson administra-
tion?

Mr. KOSKINEN. Interestingly enough, in those days you had fewer
people, because you did not have the statutory offices. The OIRA,
OFFM and OFPP have all been created in the last several years
by the Congress. And, in fact, if you go back and look at the his-
toric self-studies, which we have done, in the 70 years of OMB this
issue has continued to wax and wane.

The 1959 self-study concluded by saying the RMOs should be in-
volved more in management, and management at that time was
housed in the budget examiners. So it has waxed and waned over
time. But I would suggest that, as a result of the Congress’ creation
of the statutory offices, there are more personnel now labeled, even
after OMB 2000, in statutory offices devoted to management ques-

‘ions.

Mr. Horn. And I think Congress did that for a reason. They
wanted to see certain areas that really were tackled on a consistent

ass.

I think what I am talking about are the flexible staff that have
an institutional memory, a corporate memory, which can be used
by the President and/or his top staff and his Cabinet to solve a lot



program implementation — in as integrated a manner as possible, not through two separate sets
of organizational and operational procedures. As Leon Panetta and I wrote in our memo, “to
be successful in improving Executive branch operations, OMB's oversight role must better

integrate our budget analysis, management review and policy development roles.”

To implement this new vision, OMB established Resource Management Offices
(RMOs), which combined staff from the previous budget divisions with selected staff from the
management offices. The RMOs work with agencies on all facets of policy development and
implementation. They are responsible and held accountable for budget formulation, analysis
and execution; program effectiveness and efficiency; annual, mid- and long-range policy and
program analysis; implementation of government-wide policy as formulated by OIRA, OFPP
and OFFM; and program evaluation. ‘They not only review the policy and budgetary

implications of program issues, but they also:

* examine, and make recommendations on, the effectiveness with which proposed and
new policies can be or are being implemented;

* ensure that policy proposals to Congress are accompanied by adequate explanation of,
and resources for, implementation; and

* ensure effective implementation of govemment-wide management initiatives.

OMB's statutory management offices continue to provide leadership and policy

direction for the areas within their purview -- procurement, financial management, and


61

9

not announcements of studies to be made. Eight months after taking office, the president
devoted much of a cabinet meeting to reviewing actions that departments had already
taken in such management reforms as streamlining program and administrative processes
(some of which were dramatic), and restructuring of field operations. Two years into that
administration, a series of important reorganizations had been successfully negotiated with
Congress, including establishment of the Postal Service, EPA, and OMB. By then, the
president had also submitted to Congress legislation proposing the most comprehensive
plan for reorganizing the domestic departments and agencies ever put forth by any
president.

Equipped with a management staff capability comparable to the 1969 OEM, under
the able leadership of someone like Mr.Koskinen, I believe that an energetic president
such as Mr. Clinton could have moved far more rapidly to address many of the most
critical restructuring issues posed by the downsizing of government. The last year of any
administration is the wrong time to initiate the more basic restructuring needed for a
leaner government.

OFFICE OF FEDERAL MANAGEMENT

Better than restoring the OEM within OMB, however, I support most strongly the
Committee's recommendation that an Office of Federal Management be established within
the Executive Office of the President to provide the leadership we have not been able to
sustain in the budget dominated OMB, a concept first urged a dozen years ago by a panel
of the National Academy of Public Administration.

IN CONCLUSION

Because of its narrow scope, the GAO review did not address the issues discussed
above, yet they are vital to determining our future course of action. ‘These issues are
among those that might be addressed in a more comprehensive review by GAO, or some
other respected organization, of how our Federal Government can be best equipped to
provide leadership for government improvement and reform. The hearings of this
committee have addressed other topics that should be included. Such an effort should be
of help in moving forward with the establishment of an Office of Federal Management
that could provide a structural framework for the development of this increased capacity.

With so many proposals for restructuring likely to surface over the next two or
three years, the need for action is urgent.


77

Drafting of legislation that is concerned with management, of
course, should be done by that office, but in addition to that, that
office should review other legislation for the practicality of imple-
mentation in all fields, in all areas.

Technical assistance is important. And it is important so, in sep-
arating it, it is no longer regarded as a back door for budget cut-
ting, which is one of the things that has limited the effectiveness
in the past of the Bureau of the Budget.

Monitoring of agency performance, including the field, is an im-
portant tool of such an office; and it would have, if it were sepa-
rated from the fragmented budget process, the capacity which it
does not have today, of looking at the total aggregate impact of reg-
ulations and processes on local governments, on families and on
businesses.

Participation in the daily White House staff meetings, I found
very, very important; and that would be, of course, an important
part of the role of the director of the management office.

Periodic stock-taking with Cabinet members and agency heads I
found very useful in terms of raising the image of management as
something important in the role of a Cabinet member.

The chairing of interagency groups, the President’s Management
Council and so forth, of course, would be a part of it. The office also
needs to be involved in the design of new programs.

I recall—Ed, you may remember this—when President Nixon
was developing his proposals for welfare reform, the BOB manage-
ment staff played a very important role. Matter of fact, the first
draft of that, the management staff said will not fly, it will not
work. They sent it back to the drawing board.

I think it would have been very useful to have that kind of man-
agement capability when President Clinton was moving forward
with health reform proposals.

I certainly agree with Mr. Harper that there should be very few
political appointees in that office. There are too many in the Office
of Management and Budget today.

So these are some of the reasons and some of the tools that I
think are important and which I feel confident would enable it to
function very well, in many respects much better than being
merged with the budget process, which has very serious con-
straints.

Mr. Horn. Dr. Harper, do you want to comment?

Mr. Harper. I guess—let me make this comment. When you look
at successful corporate experiences, one of the things you find is
that corporations tend not to ossify themselves into a strict organi-
zation that is set and does not change with time.

I think one of the things that we have seen as we go back, I
think when you look at the history of what has happened with
Management improvement projects over the years, they have
waxed and waned. I think the PPBS exercise, in some ways, was
a precursor of the Government Performance and Results bill. And
that is all to the good. But one of the problems is, President Nixon
came in, the Director of the Bureau of the Budget did not know
what PPBS was, he was not particularly interested in it or con-
cerned with it. He was a finance man, a Panker, and the President
was not interested, and he kind of thought all that was irrelevant.


47

Mr. STEVENS. I think it was the very explicit purpose of OMB
2000 to break away the agency-specific responsibilities and con-
centrate those in the RMOs, and to have what is left of the man-
agement side to dea! only with general crosscutting policy issues.
And in fact I think they feel under some fairly firm instructions not
to do agency-specific work that relates specifically to the agencies.

Mr. Horn. In other words, you are saying the crosscutting areas
such as financial management, procurement and policy, informa-
tion, regulatory affairs, those sort of remain? Or would those people
sit in on budget reviews in these five Resource Management Of-
fices? How does that work in practice?

Mr. STEVENS. It would be less likely that they sit in on budget
reviews from the statutory offices because the same capability for
procurement or financial management, information resource man-
agement, is meant to be in the RMO itself, and the agency-specific
knowledge is in the RMO itself. So since the budget reviews are on
individual agencies, it would be much more likely that it would be
drawn from the Resource Management Offices rather than the —

Mr. Horn. That is interesting, and it worries me in the sense
that I would hope the people in the statutory offices have, No. 1,
in-depth knowledge of the policies at stake; No. 2, an interdiscipli-
nary cross-government crew of comparison so they wouldn’t be bull-
dozed by somebody coming in and saying, “I’m sorry, we really
can’t implement that procurement law since we have passed it in
the last year.” It is a little confusing, and I wonder just what is
that linkage? Do you think it is an appropriate area to take a look
at some day?

Mr. Posner. I think it is. I think the Deputy Director for Man-
agement does sit in on these, as I understand it, from time to time,
others in the statutory offices do also, from looking at our interview
notes.

Mr. Horn. If I were to quote the budget examiner, I would sure
want them around the table because they would bring to the table
a tremendous amount of experience and knowledge, hopefully.

The statutory offices have been stripped of their statutory over-
sight responsibility, according to the testimony. What is your opin-
ion of the impact on that?

Mr. Stevens. Again, I think it is the agency-specific oversight re-
sponsibility is what OMB has affected. And OMB’s view, of course,
is that the ultimate effect of OMB 2000 is to have many more peo-
ple within the OMB staff working on management issues. I think
if you are asking us for an evaluation of that, it is not the work
we have done yet. I think when we were there it was premature
to make an evaluation, and we agree one needs to be done. It has
not yet been done. I think we can’t pronounce it a success or failure
yet.

Mr. Horn. We really need to go through a cycle or so, I take it.
And then Dr. Ink’s suggestion of going in there and looking at it
from the management prism I think makes some sense. I don’t
know quite when that would be, since they are usually managing
three budgets at once in that organization. But when do you think
it would be an appropriate time to go back and take a look and see
how it is doing in the human sense as well as the sort of lines of
organization sense?


49

eral description of it in response to our report. Dr. Rivlin men-
tioned it briefly in her statement. We didn’t find that very detailed.
We are looking forward to it. We haven't seen it yet.

Mr. Horn. How do you see OMB’s role in addressing Federal
management issues? What do you think? We have got obviously the
action occurs in the departments. We all know that. Do you feel
there is an interest there in developing a management capability?
I don’t know how many years you have observed BOB and OMB,
but there is an argument said that that capability, despite the abil-
ity and excellent capacity of the Directors and Deputy Directors in
the area, that capability in terms of institutional memory and expe-
rience is not really around.

Mr. STEVENS. We did do a really in-depth general management
review of OMB in 1989. I think that is a fair characterization of
what we found there. The management part of OMB was not very
effective for a number of reasons, and it was not heavily disputed
that it wasn’t very effective. Our recommendation was that it need-
ed to be a much closer link with the resource allocation, the budget
process within OMB, that one of the great problems was that they
were so separated.

And while we didn’t periodically check that, I think OMB’s own
survey that led to OMB 2000 I think confirmed that, at least the
report that Dr. Rivlin made of that did. So as Dr. Ink can describe
with greater historical overview than we have, this has been a peri-
odic problem. The management side has had its ups and downs. I
think the period before OMB 2000 was not an up period, and it re-
mains to be seen whether the period immediately after OMB 2000
is an up period or further decline.

Mr. Posner. Ideally, I think you would like to see both things
happen. You would like to see greater integration and buy-in and
ownership by the RMOs on these issues. You would also like to see
them retain the capacity to address these longer-term issues at the
same time, and in some sense they have that in the statutory of-
fices. We can argue how effective that is. They really do not have
it in the general management area at this point. But in some sense
you would like to see both.

Mr. Horn. As you know, this subcommittee has recommended
there be a separate office of management in the Executive Office
of the President. Do you have any feelings on that, either individ-
ually or as a GAO feeling? Does GAO not have feelings? Just the
members?

Mr. PosNER. Well, I won't take the feelings question, but I think
it is fair to say that is ultimately a policy call

Mr. Horn. You are right.

Mr. Posner [continuing]. That Congress has to make.

Mr. Horn. If you are not going to give the right answer, that is
a good answer.

Mr. Posner. We do think though that whatever you do, there are
certain issues that are going to be perennials even if you have an
office of management. The linkage with the budget side is going to
remain an issue to make whatever we do in management effective.
And the intention and interest of the President, the things that
have somewhat hampered OMB’s current effectiveness, may also


12

levels), has provided leadership and guidance in, for example, assessing staff training needs
and making the employee appraisal system more effective. The Committee's work on
questions of organizational effectiveness and work practices can play a major role in

institutionalizing the integration of management and budget activities in OMB.

GAO recommends that we periodically assess the effectiveness of OMB 2000 and our
capacity to provide leadership in government-wide management issues. We agree. As noted
in our written response to the GAO report, we are working on an OMB strategic plan which
“will address the integration of management and budget responsibilities, including the adequacy
of employee training and different approaches to integration and coordination among OMB's
various units.* Organizations must adapt to changing needs, priorities, and experiences, and

we are looking for better ways to implement OMB 2000.

It is only through the type of cooperative, integrated approach that OMB exemplifies
that we can help Federal agencies grapple with the complex issues raised by an era of limited
financial resources, downsizing, restructuring, and other management challenges — and create
a government that “works better and costs less.“ We look forward to working with this

Subcommittee as we continue to search for better ways to serve all of our citizens.

Mr. Chairman, Members of the Subcommittee, that concludes my prepared statement.

I would be pleased to answer any questions that you may have.