EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

THE PRESIDENT’S

MANAGEMENT AGENDA

FISCAL YEAR 2002
Table of Contents


Page 

President’s Message....................................................................................................... 1


Introduction—Improving Government Performance .................................................. 3


Government-wide Initiatives 

1. Strategic Management of Human Capital .................................................. 11


2. Competitive Sourcing .................................................................................... 17


3. Improved Financial Performance................................................................. 19


4. Expanded Electronic Government ............................................................... 23


5. Budget and Performance Integration.......................................................... 27


Program Initiatives 33


6. Faith-Based and Community Initiative ...................................................... 35


7. Privatization of Military Housing................................................................ 39


8. Better Research and Development Investment Criteria ........................... 43


9.	 Elimination of Fraud and Error in Student Aid Programs and


Deficiencies in Financial Management .............................................. 47


10. Housing and Urban Development Management and Performance ........ 51


11. Broadened Health Insurance Coverage through State Initiatives .......... 55


12. A “Right-Sized” Overseas Presence ........................................................... 59


13. Reform of Food Aid Programs ................................................................... 65


14.	 Coordination of Veterans Affairs and Defense Programs and


Systems... .............................................................................................. 69


The President's Management Agenda i

GENERAL NOTES 

1. All years referred to are fiscal years unless otherwise noted. 

2. Web address: http://www.whitehouse.gov/omb/budget 

ii The President's Management Agenda 
President’s Message 

I am pleased to send to the Congress a bold strategy for improving the management 

and performance of the federal government. Government likes to begin things—to declare grand new programs and causes. But good beginnings are not the measure of success. What matters in the end is completion. Performance. Results. Not just making 

promises, but making good on promises. In my Administration, that will be the standard from the farthest regional office of government to the highest office in the land. 

This Report focuses on fourteen areas of improvement where we can begin to deliver on 

our promises. The recommendations we have targeted address the most apparent deficiencies where the opportunity to improve performance is the greatest. These solutions 

are practical measures, well within our reach to implement. 

These proposals will often require the cooperation of Congress. Congress’ agenda is a 

crowded one, and there is an understandable temptation to ignore management reforms 

in favor of new policies and programs. However, what matters most is performance and 

results. In the long term, there are few items more urgent than ensuring that the federal government is well run and results-oriented. 

This Administration is dedicated to ensuring that the resources entrusted to the federal 

government are well managed and wisely used. We owe that to the American people. 

GEORGE W. BUSH 

The President's Management Agenda 1 
Improving Government Performance 

To reform government, we must rethink government. 

The need for reform is urgent. The General Accounting Office (GAO) “high-risk” list 

identifies areas throughout the federal government that are most vulnerable to fraud, 

waste, and abuse. Ten years ago, the GAO found eight such areas. Today it lists 22. 

Perhaps as significant, government programs too often deliver inadequate service at 

excessive cost. 

New programs are frequently created with little review or assessment of the 

already-existing programs to address the same perceived problem. Over time, numerous 

programs with overlapping missions and competing agendas grow up alongside one 

another—wasting money and baffling citizens. 

Though reform is badly needed, the obstacles are daunting—as previous generations of 

would be reformers have repeatedly discovered. The work of reform is continually 

overwhelmed by the constant multiplication of hopeful new government programs, each 

of whose authors is certain that this particular idea will avoid the managerial problems 

to which all previous government programs have succumbed. Congress, the Executive 

Branch, and the media have all shown far greater interest in the launch of new 

initiatives than in following up to see if anything useful ever occurred. 

“Government likes to begin things—to declare grand new programs 

and causes and national objectives. But good beginnings are not the 

measure of success. What matters in the end is completion. Performance. Results. Not just making promises, but making good on promises. In my Administration, that will be the standard from the farthest regional office of government to the highest office of the land.” 

Governor George W. Bush 

“Congress and the new administration face an array of challenges and opportunities to 

enhance performance and assure the accountability of the federal government. Increased 

globalization, rapid technological advances, shifting demographics, changing security 

threats, and various quality of life considerations are prompting fundamental changes in 

the environment in which the government operates. We should seize the opportunity to 

address today’s challenges while preparing for tomorrow.” 

Comptroller General David M. Walker 

The President's Management Agenda 3 
So while the government needs to reform its operations—how it goes about its business 

and how it treats the people it serves, it also needs to rethink its purpose—how it 

defines what business is and what services it should provide. 

The President’s vision for government reform is guided by three principles. 

Government should be: 

— Citizen-centered, not bureaucracy-centered; 

— Results-oriented; 

— Market-based, actively promoting rather than stifling innovation through 

competition. 

The President has called for a government that is active but limited, that focuses on 

priorities and does them well. That same spirit should be brought to the work of reform. 

Rather than pursue an array of management initiatives, we have elected to identify the 

government’s most glaring problems—and solve them. The President’s Management 

Agenda is a starting point for management reform. 

•	 The Agenda contains five government-wide and nine agency-specific goals to 

improve federal management and deliver results that matter to the American 

people. 

•	 It reflects the Administration’s commitment to achieve immediate, concrete, and 

measurable results in the near term. 

•	 It focuses on remedies to problems generally agreed to be serious, and commits to 

implement them fully. 

•	 The goals in this Agenda are being undertaken in advance of, not instead of other 

needed management improvements. 

•	 Additional goals will be undertaken, as tangible improvements are made in this 

initial set of initiatives. 

A COHERENT AND COORDINATED PLAN 

The five government-wide goals are mutually reinforcing. For example, 

•	 Workforce planning and restructuring undertaken as part of Strategic Management 

of Human Capital will be defined in terms of each agency’s mission, goals, and 

objectives—a key element of Budget and Performance Integration. 

•	 Agency restructuring is expected to incorporate organizational and staffing changes 

resulting from Competitive Sourcing and Expanded E-government. 

•	 Likewise, efforts toward Budget and Performance Integration will reflect improved 

program performance and savings achieved from Competitive Sourcing and will 

benefit from financial and cost accounting and information systems which are part 

of efforts in Improved Financial Management. 

4 The President's Management Agenda 
IMPLEMENTING THE PLAN 

The President has not only set an initial agenda, but is already implementing this plan. 

• In July, the President directed Cabinet Secretaries and agency heads to designate a 

“chief operating officer” to have responsibility for day-to-day operations of 

departments and agencies. 

• At the same time, the President 

re-established the President’s 

Management Council (PMC) consisting of the chief operating officers. The PMC provides an integrating mechanism for policy 

implementation within agencies 

and across government. Importantly, the PMC is a way for the departments and agencies to support the 

President’s government-wide priorities and to build a community of management 

leadership that learns, solves problems, and innovates together. 

• First results have already been achieved in several reform categories. See 

Competitive Sourcing, Privatization of Military Housing, and Elimination of Fraud 

and Error in Student Aid Programs and Deficiencies in Financial Management for 

examples. 

FREEDOM TO MANAGE 

Federal managers are greatly limited in how they can use available financial and 

human resources to manage programs; they lack much of the discretion given to their 

private sector counterparts to do what it takes to get the job done. Red tape still 

hinders the efficient operation of government organizations; excessive control and 

approval mechanisms afflict bureaucratic processes. Micro-management from various 

sources—Congressional, departmental, and bureau—imposes unnecessary operational 

rigidity. 

The Administration will sponsor a three-part Freedom to Manage initiative to clear 

statutory impediments to efficient management: 

• Statutory cleanup. As part of the 2003 budget process, OMB has asked departments 

and agencies to identify statutory impediments to good management. Agencies are 

reviewing government-wide statutory provisions which, if repealed, would remove 

barriers to efficient management. 

• Fast-track authority. We will propose legislation to establish a procedure under 

which heads of departments and agencies could identify structural barriers imposed 

by law, and Congress would quickly and decisively consider and act to remove those 

obstacles. 

Typically the department’s No. 2 official, its 

“chief operating officer,” has agency-wide 

authority and reports directly to the agency 

head. This assignment places “management” 

with Presidential appointed officials, primarily at the deputy secretary level, where policy and management meet. 

The President's Management Agenda 5 
• Managerial flexibility and authority. OMB will package affirmative legislation 

comprising proposals to free managers in areas such as personnel, budgeting, and 

property disposal. 

As the barriers to more efficient management are removed, we will expect higher 

performance. With Freedom to Manage will come clear expectations of improved 

performance and accountability. 

A SHARED RESPONSIBILITY 

All too often Congress is a part of the government’s managerial problems. Many 

members find it more rewarding to announce a new program rather than to fix (or 

terminate) an existing one that is failing. The Congressional practice of “earmarking” 

special projects in appropriations bills has exploded—growing more than six-fold in the 

last four years. Excessive earmarks lead to wasteful spending and hogtie executive 

decision-making, making it more difficult for agencies to fund higher priorities and 

accomplish larger goals as needed funds are diverted. 

The President has made solving these problems a top priority. Congress can help in a 

number of important ways, among them: 

• actively supporting government management reforms; 

• using its oversight powers to insist that agencies fix their problems; 

• providing the investments and the tools necessary; 

• helping agencies remove barriers to change; and 

• not placing limitations on reform efforts. 

• For years NASA was expressly prohibited by statute from relocating aircraft based 

east of the Mississippi River to the Dryden Flight Research Center in California for 

the purpose of the consolidation of such aircraft. 

• The 2001 Defense Appropriations Act requires the U.S. military installations in 

Kaiserslauten, Germany to use U.S. coal as their energy source for heat. The same 

provision allows U.S. bases at Landstuhl and Ramstein to acquire their heat energy 

from any source, but they must consider U.S. coal as an energy source in making 

their selection. The provision restricts use of the most economical energy source and 

imposes higher costs on the Defense Department as a result. 

• The Department of Agriculture is prohibited by statute from closing or relocating a 

state Rural Development Office. 

6 The President's Management Agenda 
THE EXPECTED LONG-TERM RESULTS 

The impetus for government reform comes, in part, as a reaction to chronic poor 

performance and continuing disclosure of intolerable waste. Agencies will take a 

disciplined and focused approach to address these long-standing and substantial 

challenges and begin the steps necessary to become high performing organizations in 

which: 

•	 hierarchical, “command and control” bureaucracies will become flatter and more 

responsive; 

• emphasis on process will be replaced by a focus on results; 

•	 organizations burdened with overlapping functions, inefficiencies, and turf battles 

will function more harmoniously; and 

•	 agencies will strengthen and make the most of the knowledge, skills, and abilities 

of their people; in order to meet the needs and expectations of their ultimate 

clients—the American people. 

A MANAGEABLE GOVERNMENT 

The most difficult, but most important, job of a good leader is to ask tough questions 

about the institution: Is this program needed? Is it a wise use of the organization’s 

finite resources? Could those resources be used better elsewhere? These are questions 

that the structure and incentives of government do not encourage. We need to: 

•	 Shift the burden of proof. Today, those who propose to shift priorities or adjust 

funding levels are expected to demonstrate that a program or activity should be 

changed. It is time, instead, that program proponents bear the burden of proof to 

demonstrate that the programs they advocate actually accomplish their goals, and 

do so better than alternative ways of spending the same money. 

•	 Focus on the “base” not the “increment.” Policy and budget debates focus on the 

marginal increase (or cut) in a program—failing to look at whether the program as 

a whole (the base) is working or achieving anything worthwhile. We need to 

reverse the presumption that this year’s funding level is the starting point for 

considering next year’s funding level. 

•	 Focus on results. A mere desire to address a problem is not a sufficient justification 

for spending the public’s money. Performance-based budgeting would mean that 

money would be allocated not just on the basis of perceived needs, but also on the 

basis of what is actually being accomplished. 

•	 Impose consequences. Underperforming agencies are sometimes given incentives to 

improve, but rarely face consequences for persistent failure. This all-carrot-no-stick 

approach is unlikely to elicit improvement from troubled organizations. Instead, 

we should identify mismanaged, wasteful or duplicative government programs, with 

an eye to cutting their funding, redesigning them, or eliminating them altogether. 

The President's Management Agenda 7 
•	 Demand evidence. Many agencies and programs lack rigorous data or evaluations 

to show that they work. Such evidence should be a prerequisite to continued 

funding. 

Over the past three decades, reform initiatives have come and gone. Some genuine 

improvements have been made. But the record on the whole has been a disappointing 

one. That must change—and this report is a primer on how that change can be 

achieved. 

8 The President's Management Agenda 
GOVERNMENT-WIDE INITIATIVES

1. Strategic Management of Human 

Capital 

THE PROBLEM 

• The federal government has reduced its workforce by 324,580 full-time equivalent 

employees since 1993, with most of these reductions coming from the Department of 

Defense. At 1.8 million employees, the federal civilian payroll has been reduced to 

its lowest level since 1950. The bad news is that this downsizing was accomplished 

through across-the-board staff reductions and hiring freezes, rather 

than targeted reductions aligned 

with agency missions. A consequence is that the average age of 

the federal workforce has risen to 

46 years, compared to 42 in 1990. 

And even as the workforce 

shrinks, the number of layers of 

hierarchy continues to increase, 

especially near the top. The paradoxical result: a workforce with steadily increasing numbers of supervisors and 

steadily declining accountability—a workforce that feels more and more overworked 

at the same time as its skills move 

further and further out of balance with 

the needs of the public it serves. 

• The managerial revolution that has 

transformed the culture of almost 

every other large institution in American life seems to have bypassed the 

federal workforce. Federal personnel 

‘’We must have a Government that thinks differently, so we need to recruit talented and imaginative people to public service. We can do 

this by reforming the civil service with a few simple measures. We’ll 

establish a meaningful system to measure performance. Create 

awards for employees who surpass expectations. Tie pay increases to 

results. With a system of rewards and accountability, we can promote 

a culture of achievement throughout the Federal Government.’’ 

Governor George W. Bush 

Much of the downsizing was set in motion 

without sufficient planning for its effects on 

agencies’ performance capacity. Across government, federal employers reduced or froze 

their hiring efforts for extended periods of 

time. This helped reduce their number of 

employees, but it also reduced the influx of 

people with new knowledge, new energy, and 

new ideas-the reservoir of future agency leaders and managers (GAO Report 01-263, 2000). 

According to OPM, using the initiation of the improvement period as 

“notification” of poor performance, 

and assuming an average improvement period of three to four months 

plus a 30-day advance notice period, 

the time from notification to dismissal is about five to six months. 

The President's Management Agenda 11 
policies and compensation tend to take the same “one-size-fits-all” approach they 

took in 1945. Excellence goes unrewarded; mediocre performance carries few 

consequences; and it takes months to remove even the poorest performers. Federal 

pay systems do not reflect current labor market realities: under current law, the 

entire General Schedule that covers almost every kind of white-collar occupation 

must be adjusted by a single percentage in each of the 32 localities in the 

contiguous 48 states. 

• In most agencies, human resources planning is weak. Workforce deficiencies will be 

exacerbated by the upcoming retirement wave of the baby-boom generation. 

Approximately 71 percent of the government’s current permanent employees will be 

eligible for either 

regular or early retirement by 2010, and 

then 40 percent of 

those employees are 

expected to retire. 

Without proper planning, the skill mix of 

the federal workforce 

will not reflect tomorrow’s changing missions. 

• A survey of nearly 

2,000 new employees 

by the Merit Systems 

Protection Board 

(MSPB) revealed that 

they encountered numerous problems during their job search. For example, 47 percent were not aware that federal job 

vacancies are posted on the Internet; 14 percent did not think that job 

announcements provided enough information to decide if they were interested in 

the position; and 25 percent did not think that hiring decisions were made within a 

reasonable period of time (MSPB, 2000). 

• In February 2001, GAO added human capital management to the government-wide 

“high-risk list” of federal activities. Inspectors General at nine major federal 

agencies have listed workforce problems among the top 10 most serious 

management challenges that their agencies face. 

• These realities contribute to the growing consensus that action is required. The 

federal government has a unique opportunity to redefine the way it manages 

human capital. 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

0 

10 

20 

30 

40 

50 

60 

Percent of workforce 

2000 Civilian Non-Postal Federal Workforce Expected to Retire 

Non-Supervisor 

Supervisor 

12 The President's Management Agenda 
THE INITIATIVE 

• The first priority of the President’s management reform initiative is to make 

government citizen-centered. The number of layers in government must be 

compressed to reduce the distance between citizens and decision-makers, and 

agencies should redistribute their alloted staff from higher-level positions to 

front-line service-delivery. Each agency has been asked to prepare a five-year 

restructuring plan as part of its 2003 budget request, based upon a workforce 

analysis, to accomplish this important goal. 

• Agencies will reshape their organizations to meet a standard of excellence in 

attaining the outcomes important to the nation. Each agency will identify how it 

will reduce the number of managers, reduce the number of organizational layers, 

reduce the time it takes to make decisions, change the span of control, and increase 

the number of employees who provide services to citizens. 

• The Administration will adopt information technology systems to capture some of 

the knowledge and skills of retiring employees. Knowledge management systems 

are just one part of an effective strategy that will help generate, capture, and 

disseminate knowledge and information that is relevant to the organization’s 

mission. 

• While the Administration will be seeking some targeted civil service reforms, 

agencies must make better use of the flexibilities currently in place to acquire and 

develop talent and leadership. Such authorities are largely underutilized across the 

federal sector because many agencies are unaware of the existence of such 

flexibilities. The Administration will assess agencies’ use of existing authorities as 

well as the outcomes achieved under demonstration projects. This assessment will 

help us determine what statutory changes are needed to enhance management 

flexibility, permit more performance-oriented compensation, correct skills imbalances, and provide other tools to recruit, retain, and reward a high-quality 

workforce. 

The Energy Department’s staff lack project and contract management skills required to 

oversee large projects, such as the cleanup of radioactive and hazardous waste sites. 

Downsizing at NASA over the last decade through attrition and buyouts has resulted in 

an imbalance in NASA’s skill mix. Through a series of workforce reviews, NASA has identified these imbalances and developed a plan to meet future needs. NASA received extended buyout authority last year to specifically address skill mix imbalances by allowing 

targeted buyouts in skill areas that exceeded needs, then hiring an equal number in skill 

areas that needed strengthening for the future. 

In a November 1999 report, the Overseas Presence Advisory Panel concluded that the 

State Department needed to reform its human resource practices because it did not have 

the flexibility, tools, or strategic organization required to support its mission. 

The President's Management Agenda 13 
THE EXPECTED NEAR-TERM RESULTS 

• Human capital strategies will 

be linked to organizational 

mission, vision, core values, 

goals, and objectives. 

• Agencies will use strategic 

workforce planning and flexible tools to recruit, retrain, 

and reward employees and 

develop a high-performing 

workforce. 

• Agencies will determine their 

“core competencies” and decide whether to build internal capacity, or contract for 

services from the private sector. This will maximize agencies’ flexibility in getting 

the job done effectively and efficiently. 

• The statutory framework will be in place to make it easier to attract and retain the 

right people, in the right places, at the right time. 

THE EXPECTED LONG-TERM RESULTS 

• Citizens will recognize improved service and performance and citizen satisfaction 

will increase. 

• Agencies will build, sustain, and effectively deploy the skilled, knowledgeable, 

diverse, and high-performing workforce needed to meet the current and emerging 

needs of government and its citizens. 

• The workforce will adapt quickly in size, composition, and competencies to 

accommodate changes in mission, technology, and labor markets. 

• Government employee satisfaction will increase. 

The Bureau of the Census has used technology to significantly reduce hiring time. 

The agency has an electronic hiring system that provides managers with desk-top, 

web-based access to an electronic applicant tracking feature that allows managers to 

see images of applicant resumes and transcripts within twenty-four hours of receipt. 

The system has helped the Census Bureau reduce the time required to fill computer 

specialists, statisticians, and mathematical statistician positions from six months to 

as little as three days. Since September 1998, the agency has filled 1,000 vacancies 

using this process (GAO Report 01–357T, 2001). 

The State Department implemented a recruitment strategy for certain information technology workers using existing pay flexibilities. It 

pays retention allowances ranging from 5 to 

15 percent of an employee’s base salary to certain information technology workers who obtain job-related degrees and certificates. After 

one year of operation, this program has helped 

to significantly reduce turnover and increase 

the skills base of State’s information technology workforce (GAO Report 01–565T). 

14 The President's Management Agenda 
•	 High performance will become a way of life that defines the culture of the federal 

service. 

— The system will attract and retain talented people who will demand and 

deliver sustained excellence and high levels of performance. 

— The civil service will use clear and carefully aligned performance incentives for 

individual employees, for teams, and for its leadership. In turn, these 

incentives will be tied clearly to reaching their agency’s mission objectives. 

— Agencies will meet and exceed established productivity and performance goals. 

— Accountability for results will be clear and meaningful, with positive rewards 

for success and real consequences for failure. 

The President's Management Agenda 15 
2. Competitive Sourcing 

THE PROBLEM 

• Nearly half of all federal employees perform tasks that are readily available in the 

commercial marketplace—tasks like data collection, administrative support, and 

payroll services. Historically, the government has realized cost savings in a range of 

20 to 50 percent when federal and private sector service providers compete to 

perform these functions. Unfortunately, competition between public and private 

sources remains an unfulfilled management promise. By rarely subjecting 

commercial tasks performed by the government to competition, agencies have 

insulated themselves from the pressures that produce quality service at reasonable 

cost. 

• Because agencies do not maintain adequate records on work performed in-house, 

they have often taken three to four years to define the jobs being considered for 

competition. 

• To compare the cost of in-house performance to private sector performance, detailed 

estimates of the full cost of government performance to the taxpayer have to be 

calculated. The development of these estimates has devolved into a contentious 

and rigid exercise in precision. 

THE INITIATIVES 

To achieve efficient and effective competition between public and private sources, the 

Administration has committed itself to simplifying and improving the procedures for 

evaluating public and private sources, to better publicizing the activities subject to 

competition, and to ensuring senior level agency attention to the promotion of 

competition. 

• In accordance with the Federal Activities Inventory Reform (FAIR) Act, agencies 

are assessing the susceptibility to competition of the activities their workforces are 

performing. After review by OMB, the agencies will provide their inventories to 

Congress and make them available to the public. Interested parties may challenge 

the omission or inclusion of any particular activity. 

“Government should be market-based—we should not be afraid of competition, innovation, and choice. I will open government to the discipline of competition.” 

Governor George W. Bush 

The President's Management Agenda 17 
• Agencies are developing specific performance plans to meet the 2002 goal of 

completing public-private or direct conversion competition on not less than five 

percent of the full-time equivalent employees listed on the FAIR Act inventories. 

The performance target will increase by 10 percent in 2003. 

• The Administration will adopt procedures to improve and expand competition. As a 

first step, OMB has proposed that reimbursable (fee-for-service) work involving 

performance by a federal agency be recompeted every three to five years, similar to 

standard contract review, renewal, or solicitation procedures. 

• The Administration will seek to implement findings of the Commercial Activities 

Panel, a commission created by Congress to examine the policies and procedures 

governing public-private competition. 

• Finally, the Administration is pursuing administrative and legislative actions to 

incorporate the full costs of agency work into the daily budget and acquisition 

process. This will eliminate the complex, after-the-fact calculation of public-sector 

costs. 

THE EXPECTED RESULTS 

Increased competition consistently generates significant savings and noticeable 

performance improvements. 

• Recent competitions under OMB Circular A–76� have resulted in savings of more 

than 20 percent for work that stays in-house and more than 30 percent for work 

outsourced to the private sector. 

• From 1995 through 2000, the Department of Defense completed over 550 A-76 

initiatives, which resulted in an average 34 percent reduction in cost. DoD expects 

to achieve $11.7 billion in savings as a result of A-76 competition between 1997 and 

2005. 

• Numerous studies conducted by the GAO, the Center for Naval Analyses, and 

others confirm the magnitude of these savings. 

• Competition promotes innovation, efficiency, and greater effectiveness. For many 

activities, citizens do not care whether the private or public sector provides the 

service or administers the program. The process of competition provides an 

imperative for the public sector to focus on continuous improvement and removing 

roadblocks to greater efficiency. 

• By focusing on desired results and outcomes, the objective becomes identifying the 

most efficient means to accomplish the task. 

18 The President's Management Agenda 

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3. Improved Financial Performance 

THE PROBLEM 

• Federal agencies recently identified $20.7 billion in erroneous benefit and 

assistance payments associated with just 13 programs. That amount represents 

more than the total annual expenditures of seven states. 

• Examples of erroneous payments: 

— The Medicare Fee-for-Service Program had estimated erroneous payments of 

$11.9 billion (6.8 percent) in 2000. Erroneous payments included payments for 

medically unnecessary services, unsupported claims/services, and miscoded 

claims. 

— The Department of Agriculture estimates $976 million in food stamp overissuances, and $360 million in underissuances, for a total of $1.34 billion in 

erroneous payments, representing a total error rate of approximately 8.9 

percent in 2000. 

— Regional Veterans Benefits Administration offices made erroneous initial VA 

benefit decisions 32 percent of the time in 1999. 

— In 2000, the IRS reported that $7.8 billion in unrecovered Earned Income Tax 

Credit claims were erroneously paid to taxpayers for tax year 1997. 

“Without accountability, how can we ever expect results? Under my 

Administration, we will bring this cycle of failure to an abrupt end. 

As President, I will hold all affected agencies accountable for passing 

their audits not later than 2002. I will say to those I put in place, get 

your audits right.” 

Governor George W. Bush 

“It takes the Federal Government 5 months to close our books...This is not the stuff 

of excellence.” 

Paul H. O’Neill, Secretary of the Treasury 

The President's Management Agenda 19 
• A clean financial audit is a basic prescription for any well-managed organization, 

yet the federal government has failed all four audits since 1997. Moreover, most 

federal agencies that obtain clean audits only do so after making extraordinary, 

labor-intensive assaults on financial records. 

• Without accurate and timely financial information, it is not possible to accomplish 

the President’s agenda to secure the best performance and highest measure of 

accountability for the American people. 

THE INITIATIVE 

• The Administration will first establish a baseline of the extent of erroneous 

payments. Agencies will include in 2003 budget submissions information on 

erroneous payment rates, including actual and target rates, where available, for 

benefit and assistance programs over $2 billion. Using this information, OMB will 

work with agencies to establish goals to reduce erroneous payments for each 

program. 

• To ensure that federal financial systems produce accurate and timely information to 

support operating, budget, and policy decisions, OMB will work with agencies to: 

— Improve timeliness by: 

• re-engineering reporting processes and expanding use of web-based 

technologies; 

• instituting quarterly financial statements; 

• accelerating end-of-year reporting; and 

• measuring systems compliance with agencies’ ability to meet OMB and 

Treasury requirements accurately and timely. 

— Enhance usefulness by: 

• requiring comparative financial reporting; 

• reporting specific financial performance measurements; and 

• integrating financial and performance information. 

— Ensure reliability by obtaining and sustaining clean audit opinions for: 

• components of agencies; 

• agencies; and 

• the government as a whole. 

“...accurate and timely information to manage your financial program activities on a 

day-to-day basis are part of a core value set that world-class organizations have 

adopted.” 

Paul H. O’Neill, Secretary of the Treasury 

20 The President's Management Agenda 
— We will make changes to the budget process that will allow us to better 

measure the real cost and performance of programs. 

THE EXPECTED RESULTS 

•	 More accurate benefit and assistance payments to current recipients will enable 

programs to serve additional eligible recipients without increasing their budgets 

and will reduce program costs. For example: 

— Reducing erroneous payments in federal housing programs will result in being 

able to provide housing subsidies to currently eligible people who are not being 

served due to limited funding. 

— Reducing erroneous payments in entitlement programs, such as Food Stamps 

or Social Security, will decrease the cost of these programs to the American 

taxpayer. As an indication, with heightened scrutiny, the estimated erroneous 

payment rate for the Medicare program was reduced from 14 percent in 1996 

to 6.8 percent in 2000. 

— Preliminary data from test matches between the Departments of Education 

and the Treasury suggest that the Pell Grant program is making over-awards 

of up to $400 million each year because students or their parents do not report 

their income accurately on their student aid applications. If those erroneous 

overpayments were eliminated, the savings could be used to increase the 

maximum Pell Grant award by up to $100, providing more grant assistance to 

low-income students to help them afford college. 

• Improved accountability to the American people through audited financial reports. 

— Financial systems that routinely produce information that is: 

• timely, to measure and effect performance immediately; 

• useful, to make more informed operational and investing decisions; and 

•	 reliable, to ensure consistent and comparable trend analysis over time and to 

facilitate better performance measurement and decision making. 

The President's Management Agenda 21 
4. Expanded Electronic Government 

The federal government can secure greater services at lower cost through electronic 

government (E-government), and can meet high public demand for E-government 

services. This administration’s goal is to champion citizen-centered electronic 

government that will result in a major improvement in the federal government’s value 

to the citizen. 

THE PROBLEM 

The federal government is the world’s largest single consumer of information technology 

(IT). IT has contributed 40 percent of the increase in private-sector productivity growth, 

but the $45 billion the U.S. government will spend on IT in 2002 has not produced 

measurable gains in public-sector worker productivity. At least four major causes for 

this failure can be discerned. 

• Agencies typically evaluate their IT systems according to how well they serve the 

agency’s needs—not the citizens’ needs. Systems will often be evaluated by the 

percentage of time they are working rather than the performance gain they deliver 

to the programs they support. In general, agencies do not evaluate their IT 

systems by standards relevant to the work the agency is supposed to do. 

• Just as private-sector companies in the 1980s tended to use computers merely as 

souped-up typewriters and calculators, so government agencies in the 1990s have 

used IT to automate pre-existing processes rather than create new and more 

efficient solutions. 

• IT offers opportunities to break down obsolete bureaucratic divisions. Unfortunately, agencies often perceive this opportunity as a threat and instead make 

wasteful and redundant investments in order to preserve chains of command that 

lost their purpose years ago. Financial systems are often automated separately 

from procurement systems, which are in turn carefully segregated from human 

resources systems, significantly increasing costs and minimizing potential savings. 

Likewise, with rare exceptions—the Department of Defense’s Finance and 

Accounting System being one—agencies shun opportunities to work together to 

consolidate functions like payroll. 

“I will expand the use of the Internet to empower citizens, allowing 

them to request customized information from Washington when they 

need it, not just when Washington wants to give it to them. True reform involves not just giving people information, but giving citizens 

the freedom to act upon it.” 

Governor George W. Bush 

The President's Management Agenda 23 
Many agencies do not take care to ensure that their IT systems can communicate with 

one another. The Department of Veterans Affairs (VA), for example, built a new online 

form for veterans in one office and then discovered they had to print out the 

information and mail it to another office of VA because the two systems were not 

interoperable. VA is now devoted to interoperability—but not all agencies are as 

zealous. 

THE INITIATIVES 

The Administration will advance E-government strategy by supporting projects that 

offer performance gains across agency boundaries, such as e-procurement, e-grants, 

e-regulation, and e-signatures. It will manage E-government projects more effectively by 

using the budget process to insist on more effective planning of IT investments by 

government agencies. A task force of agency personnel in coordination with OMB and 

the President’s Management Council will identify E-government projects that can 

deliver significant productivity and performance gains across government. The task 

force will also identify the systematic barriers that have blocked the deployment of 

E-government advances. The task force will work to: 

• Create easy-to-find single points of access to government services for individuals. 

•	 Reduce the reporting burden on businesses—businesses should not have to file the 

same information over and over because government fails to reuse the data 

appropriately or fails to take advantage of commercial electronic transaction 

protocols. 

•	 Share information more quickly and conveniently between the federal and state, 

local, and tribal governments. We must also do a better job of collaborating with 

foreign governments and institutions. 

•	 Automate internal processes to reduce costs internally, within the federal 

government, by disseminating best practices across agencies. 

To support the task force’s work, OMB will scrutinize federal IT investments to ensure 

that they maximize interoperability and minimize redundancy. The President’s Budget 

proposes a $20 million E-government fund for 2002 ($100 million over the three years 

2002 through 2004) to pay for collaborative E-government activities across agency lines. 

The Administration will also improve the federal government’s use of the Web. 

•	 It will expand and improve the FirstGov (www.FirstGov.gov) web site to offer 

citizens a convenient entry to government services. OMB will engage the agencies 

and state and local governments in this venture, to help citizens find information 

and obtain services organized according to their needs, and not according to the 

divisions created by the government’s organizational chart. 

•	 Agencies will undertake a Federal Public Key Infrastructure (PKI) to promote 

digital signatures for transactions within the federal government, between 

government and businesses and between government and citizens. The digital 

24 The President's Management Agenda 
signature initiative should be coordinated with state and local governments as well 

as the private sector. 

•	 By the end of 2002, all agencies will use a single e-procurement portal, 

www.FedBizOpps.gov, to provide access to notices of solicitations over $25,000. A 

fully operational government-wide entry point on the Internet represents a first 

step in capitalizing on electronic business processes and making e-procurement the 

government-wide standard. The next step: agencies will make use of the single 

portal to consolidate procurement on the way to the broader E-government goal of 

supply chain management. 

•	 Agencies will allow applicants for federal grants to apply for and ultimately manage 

grant funds online through a common web site, simplifying grant management and 

eliminating redundancies in the same way as the single procurement portal will 

simplify purchasing. 

•	 Major regulatory agencies will use the Web to inform citizens of the cases before 

them, allow access to the development of rules, and make more transparent the 

decisions they make, as the Department of Transportation already does through its 

Docket Management System. 

THE EXPECTED RESULTS 

The E-government initiative will make it simpler for citizens to receive high-quality 

service from the federal government, while reducing the cost of delivering those 

services. The PKI effort will ensure that electronic transactions with and within 

government are private and secure. The e-procurement and grant-management portals 

will make transactions with the government—or obtaining financial assistance from the 

government—easier, cheaper, quicker and more comprehensible. The work on supply 

chain management will enable agencies to eliminate redundant processes and save 

resources. And putting the federal regulatory process on-line will offer citizens easier 

access to some of the most important policy decisions: better informing the citizenry and 

holding government more effectively to account. In short, by improving informationtechnology management, simplifying business processes, and unifying information flows 

across lines of business agencies will: 

•	 provide high quality customer service regardless of whether the citizen contacts the 

agency by phone, in person, or on the Web; 

• reduce the expense and difficulty of doing business with the government; 

• cut government operating costs; 

• provide citizens with readier access to government services; 

•	 increase access for persons with disabilities to agency web sites and E-government 

applications; and 

• make government more transparent and accountable. 

The President's Management Agenda 25 
5. Budget and Performance Integration 

THE PROBLEM 

• Improvements in the management of human capital, competitive sourcing, 

improved financial performance, and expanding electronic government will matter 

little if they are not linked to better results. 

• Everyone agrees that scarce federal resources should be allocated to programs and 

managers that deliver results. Yet in practice, this is seldom done because agencies 

rarely offer convincing accounts of the results their allocations will purchase. There 

is little reward, in budgets or in compensation, 

for running programs efficiently. And once 

money is allocated to a 

program, there is no requirement to revisit the 

question of whether the 

results obtained are solving problems the American people care about. 

• In 1993, Congress enacted the Government Performance and Results Act (GPRA) to 

get the federal government to focus federal programs on performance. After eight 

years of experience, progress toward the use of performance information for 

program management has been discouraging. According to a General Accounting 

Office (GAO) survey of federal managers, agencies may, in fact, be losing ground in 

their efforts to building organizational cultures that support a focus on results. 

• Agency performance measures tend to be ill defined and not properly integrated 

into agency budget submissions and the management and operation of agencies. 

Performance measures are insufficiently used to monitor and reward staff, or to 

hold program managers accountable. 

In May 2001, the General Accounting Office reported 

that the majority of federal managers are largely 

ignoring performance information when allocating resources. In only six federal agencies did 51 percent or 

more of the managers indicate they used this information to a great or very great extent in resource allocation. Of the 28 agencies covered in the survey, fewer 

than 40 percent of the managers in 11 agencies said 

they used the information in this manner, and in one 

agency, only 24 percent of the managers did so. 

“Government should be results-oriented - guided not by process but 

guided by performance. There comes a time when every program must 

be judged either a success or a failure. Where we find success, we 

should repeat it, share it, and make it the standard. And where we 

find failure, we must call it by its name. Government action that fails 

in its purpose must be reformed or ended.” 

Governor George W. Bush 

The President's Management Agenda 27 
Managers responsible for producing public services often do not have control over the 

resources they use or flexibility to use them efficiently; authority is not aligned with 

accountability. In the GAO survey cited above, in 22 agencies more than half the 

managers reported they were held accountable for the results of their programs. 

But only in one agency did more than half the managers report that they had the 

decision making authority to help the agency accomplish its goals to the same 

extent. 

• Managers do not have timely and complete information with which to monitor and 

improve their results. Information is 

collected and filed away for use 

“somewhere else.” 

• The structure of the federal budget 

makes it impossible to identify the 

full cost associated with individual 

programs. Because the budget does 

not identify full cost, competition for 

services has been forced to substitute a separate process governed by complex, 

artificial rules for cost measurement—and this, in turn, has acted as a barrier to 

competition and a source of constant confusion. 

• The American people should be able to see how government programs are 

performing and compare performance and cost across programs. The lack of a 

consistent information and reporting framework for performance, budgeting, and 

accounting obscures this necessary transparency. 

• The single goal for Department of Defense (DoD) procurement is the percentage of 

procurement funds requested and appropriated by Congress compared to DoD identified 

needs. This is a measure of inputs and lobbying success, but talks nothing about results 

achieved. 

• The U.S. Fire Administration exists to reduce the loss of life from fire-related incidents. 

One of the performance indicators used is the quantity of information to constituents 

and to those who can have a positive impact of targeted populations. This is a 

description of activity and an input measure. 

• The Health Resources and Services Administration provides grants to increase the 

number of primary care providers, encourage better distribution of health professionals, 

and increase the number of minorities in the health professions. Program performance 

has been measured not by the number or distribution of health care professionals, but 

rather by the number of grants made to academic institutions, hospitals or students. 

About the time GPRA was signed into 

law, President Clinton requested information on the impact of a proposed increase 

in funding for a children’s program. 

Neither the agency nor OMB was able to 

calculate this impact. 

In the mid-1990’s, the government could not 

determine the environmental changes that 

had resulted from the spending of billions of 

dollars in federal monies over two decades. 

28 The President's Management Agenda 
THE INITIATIVE 

• To provide a greater focus on performance, the Administration plans to formally 

integrate performance review with budget decisions. This integration is designed to 

begin to produce performance-based budgets starting with the 2003 Budget 

submission. 

• Initially, OMB will work with agencies to select objectives for a few important 

programs, assess what programs do to achieve these objectives, how much that 

costs, and how effectiveness could be improved. 

• Over time, agencies will be expected to identify high quality outcome measures, 

accurately monitor the performance of programs, and begin integrating this 

presentation with associated cost. Using this information, high performing 

programs will be reinforced and non-performing activities reformed or terminated. 

• The Administration is also transmitting legislative changes that will make 

budgeting and management in the Executive Branch more performance-oriented 

and improve accountability. The Administration will propose a bill to fully fund 

employee retirement benefits, taking a step toward simplifying the rules for 

opening government support services to more competition by substituting a 

budgetary cost measure for the current complex cost comparison. A second bill will 

align other costs with results, and provide a framework for a more transparent 

budget presentation. 

• Ultimately, the Administration will attempt to integrate more completely 

information about costs and programs performance in a single oversight process. 

This would include budgeting for the full cost of resources where they are used, 

making budget program and activity lines more parallel with outputs, and, where 

useful, improving alignment of budget accounts. 

• Public Housing Drug Elimination Program: This program has shown little or no impact 

on drug activity, is less effective than other approaches in reducing drug traffic, and 

goes beyond the Department of Housing and Urban Development’s (HUD’s) core mission 

by adding a law enforcement role. 

• Amtrak is a private company that receives substantial government funding to provide 

national passenger rail service throughout the country. Amtrak’s precarious financial 

state is well-known; the corporation holds over $3 billion in debt, has never made a 

profit in its 30 year history, and has extensive long-term capital needs. Many analysts 

and oversight agencies predict that it will not meet the statutory deadline of December 

2002 to be operationally self-sufficient. 

• The Department of Labor’s (DOL’s) current process for certifying foreign workers as 

eligible for permanent employment in the United States is duplicative, labor-intensive, 

and unnecessarily complex. It can take up to six years for DOL to complete the 

certification process that allows the immigrant to petition for a work-based visa. 

The President's Management Agenda 29 
THE EXPECTED NEAR-TERM RESULTS 

•	 Starting in 2003, the President’s Budget will shift budgetary resources among 

programs devoted to similar goals to emphasize those that are more effective. 

•	 In the 2003 Budget, the Administration will set performance targets for selected 

programs along with funding levels. 

•	 In the 2003 Budget, agencies and programs will budget for the full costs of 

retirement and health care programs that are currently budgeted centrally. 

•	 The 2003 Budget will present to the American people the objectives the 

Administration seeks to achieve in the coming year and provide better information 

on the linkage between objectives and the matching cost. 

THE EXPECTED LONG-TERM RESULTS 

•	 Better performance, based on an assessment of the expected outcomes relative to 

what is actually being achieved, including results expected from the President’s 

electronic government initiative. 

•	 Better control over resources used and accountability for results by program 

managers. This is consistent with the President’s strategic management of the 

human capital initiative, which increases staff and responsibility at the “front line” 

of service delivery and links rewards to performance. 

•	 Better service as a result of more competition based on full costing of resources 

used by working capital funds and other support service providers, and a simpler 

competitive process consistent with the President’s competitive sourcing initiative. 

•	 Standard, integrated budgeting, performance, and accounting information systems 

at the program level that would provide timely feedback for management and could 

be uploaded and consolidated at the agency and government levels. This would 

facilitate the goals of the President’s initiative to improve financial performance. 

•	 Eventual integration of existing segregated and burdensome paperwork requirements for measuring the government’s performance and competitive practices with 

budget reporting. 

30 The President's Management Agenda 
PROGRAM INITIATIVES

Program Initiatives 

In addition to the five government-wide management initiatives, this Report presents 

nine agency-specific reforms. While there is a long list of critical management and 

performance problems facing agencies of the federal government, we have chosen these 

to begin the effort, based on several criteria: 

• severity of the problem and the importance of the problem to those served; 

• direct and demonstrable benefit to citizens; 

•	 opportunity to make a dramatic and material difference in program performance; 

and 

• probability of achieving improvements in the near term. 

As stated in the introduction, this is the beginning of a comprehensive effort, and these 

reforms will provide significant improvements. As we begin to see the results, we will 

focus our attention on additional reform opportunities. 

The President's Management Agenda 33 
6. Faith-Based and Community 

Initiative 

THE PROBLEM 

• Despite a multitude of programs and renewed commitments from federal and state 

governments to battle social distress, too many of our neighbors still suffer poverty 

and despair amidst our abundance. 

• Traditional social programs are often too 

bureaucratic, inflexible, and impersonal 

to meet the acute and complex needs of 

the poor. 

• The federal government too often ignores 

or impedes the efforts of faith-based and 

community groups to address social 

problems by imposing an unnecessarily 

and improperly restrictive view of their 

appropriate role. In some programs, year 

after year the same providers get the 

bulk of the funds, even though there is 

little or no evidence of results. 

• Despite heartening exceptions, officials seem generally to doubt the full legitimacy 

of explicitly faith-based groups as partners, whether or not statutes or regulations 

include restrictive language. In some cases, organizations that officials deem “too 

religious” are not even permitted to apply for funding. The Department of Housing 

and Urban Development, for example, has categorized some faith-based 

organizations as “primarily religious” thereby excluding them from receiving 

Community Block Grant Development Funds, even when the services provided by 

such organizations meet program requirements for providing social services. In 

other cases, restrictions are placed on religious expression that go beyond what the 

Constitution requires. Although religious organizations have a Title VII exemption 

• About 1.5 million children have a 

father or mother in prison. 

• Over half a million children are in 

foster care, more than one fifth of 

whom are awaiting adoption. 

• In 1997, more than one million 

babies were born to unwed mothers, many of whom are barely past 

their teen years. 

“The paramount goal is compassionate results, and private and charitable groups, including religious ones, should have the fullest opportunity permitted by law to compete on a level playing field, so long as 

they achieve valid public purposes, like curbing crime, conquering addiction, strengthening families and overcoming poverty.” 

President George W. Bush 

The President's Management Agenda 35 
that allows them to take religion into account in their employment policies, the 

Department of Justice requires all providers to agree not to discriminate on a 

religious basis in hiring—even when the pertinent statutes make no such 

requirement. 

•	 Community-based organizations and all newcomers to federal funding have great 

difficulty understanding the federal grants system and how federal funds are often 

distributed through state and local agencies. The Department of Justice’s Weed 

and Seed Grant Program application kit for new applicants is 74 pages and it 

references some 1,300 pages of federal statutes. 

•	 Agencies often create requirements that go well beyond what the law defines. Even 

though statutes often require providers only to incorporate as a nonprofit group, 

agencies often require them to gain 501(c)(3) status, which can be expensive and 

time-consuming. Some programs require applicants to demonstrate past receipt of 

government funds or to gain the cooperation or approval of public entities that are 

likely to see them as competitors. For example, the Department of Labor’s Susan 

Harwood Training Grant Program requires applicants to prove past receipt of 

government funding or a firm commitment from an organization that has managed 

government funds in the past. The Department of Health and Human Services 

(HHS) requires applicants for the National Caregivers Support Program to gain the 

support of the local area Agency on Aging, which is competing for the same pot of 

funds. 

•	 Charitable Choice legislation, first enacted into law as part of the 1996 federal 

welfare reform law, provides explicitly that community-serving faith-based 

organizations may seek direct or indirect federal support for the provision of certain 

social services on the same basis as any other non-governmental providers without 

having to strip themselves of every vestige of faith. Nearly five years after 

enactment, however, Charitable Choice has not been well or fully implemented, as 

evidenced by the fact that in most States no new faith-based organizations have 

become service providers with access to federal funds. In addition, HHS has not 

given any guidance or encouragement to State and local authorities to comply with 

Charitable Choice as adopted in 1998 to cover the Community Services Block 

Grant. As little as seven percent of urban faith-based organization leaders know 

about Charitable Choice. 

THE INITIATIVE 

The Faith-Based and Community Initiative will identify and remove the inexcusable 

barriers that thwart the work of faith-based and community organizations. 

Legislatively, it builds upon existing Charitable Choice legislation, which safeguards 

both the religious character of providers and the religious liberty of beneficiaries. It 

does so while simultaneously affirming that no public grants or contracts shall be 

expended for “sectarian worship, instruction or proselytization.” 

36 The President's Management Agenda 
The President initiated action on the Faith-Based and Community Initiative by issuing 

two executive orders on January 29, 2001 creating the White House Office of 

Faith-Based and Community Initiative and parallel offices at five key Departments: 

Health and Human Services, Justice, Housing and Urban Development, Labor, and 

Education. 

The Initiative has three goals: 

• Identify and work to eliminate improper federal barriers to effective 

faith-based and community-serving 

programs through legislative, regulatory, and programmatic reform. 

• Stimulate an outpouring of private 

giving to nonprofits, faith-based programs, and community groups by 

expanding tax deductions and 

through other initiatives. 

• Pioneer a new model of cooperation through federal initiatives that expand the 

involvement of faith-based and community groups in after-school and literary 

services, help the children of prisoners, and support other children in need. 

The White House Office for Faith-Based and Community Initiatives has the lead in 

promoting a policy of respect for, and cooperation with, religious and grassroots 

organizations. It will establish policies, priorities and objectives for the federal 

government’s comprehensive efforts to enlist, equip, enable, empower, and expand the 

work of faith-based and community organizations. The White House office will work to 

increase the capacity of faith-based and community groups to effectively deliver 

federally-funded social services through executive action, legislation, federal, and 

private funding and regulatory relief. 

THE EXPECTED RESULTS 

• Greater participation by faith-based and community groups in delivering social 

services because of regulatory and statutory reform, streamlined contracting 

procedures, and improved coordination and outreach activities to disseminate 

information more effectively at the grassroots level to faith-based and community 

organizations. 

• Improved participant outcomes by 

placing a greater emphasis on accountability and by making federal 

assistance better tailored to local 

needs through the use of faith-based 

and community groups. Devolution of 

services should not stop at state and 

Opinion surveys consistently show that 

wide and diverse majorities of Americans favor government collaborating with qualified 

faith-based organizations that supply social 

services, although there is significant disagreement about the specific terms and conditions of such collaboration, and that most 

citizens rate local community-serving congregations as the country’s top problem-solving non-profit organizations. 

Rallying the Armies of Compassion, 

The White House, January 2001 

“The delivery of social services must be results oriented and should value the bedrock 

principles of pluralism, nondescrimination, 

evenhandedness, and neutrality.” 

President George W. Bush 

The President's Management Agenda 37 
local governments, but should move to support neighborhood-based caregivers, 

where appropriate. 

THE NEAR–TERM RESULTS 

Centers for Faith-Based and Community Initiatives established in key Cabinet agencies 

have conducted a comprehensive review that will result in the removal of unnecessary 

and counterproductive regulatory or administrative barriers to full participation by 

faith-based and secular grassroots organizations. This will ensure that: 

• Community-serving faith-based leaders, who decide in good faith to attempt to 

collaborate with government for the purposes of administering social service 

delivery programs, will be treated fairly. 

• The religious character of these institutions will not be treated as a stigma. The 

institutions will not be made to remove all religious symbols before so much as 

getting a fair chance to demonstrate how they might qualify to administer 

programs in partnership with government and achieve measurable civic results. 

• Existing Charitable Choice laws are fully implemented. Survey data show that 

once faith-based organizations learn about Charitable Choice, 60 percent express an 

interest in entering into public-private partnerships to deliver social services.�

• Community-based organizations, which are deeply rooted and often have strong ties 

with people in need, will be utilized more extensively to provide federally-funded 

services, as their administrative and service capacity is expanded and unneeded 

federal requirements are relaxed. 

• The ongoing process of streamlining the federal grants process will take into 

account the specific concerns and needs of grassroots groups and faith-based 

organizations. 

38 The President's Management Agenda 

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7. Privatization of Military Housing 

Department of Defense 

THE PROBLEM 

About 20 percent of the nation’s military families live in inadequate housing. 

• Inadequate Military Family Housing. Last year the military services identified 

about 177,000 of the Department of Defense’s (DoD’s) 290,000 military family 

housing units as inadequate. DoD estimates that fixing this problem with 

traditional military construction funding would cost about $16 billion and take over 

20 years. 

• Excess Military Family Housing Units. Last year, the military services identified 

that they maintain 9,000 out of 290,000 housing units that they do not need, and 

indications are that there are even more excess units in DoD’s inventory. Building 

and maintaining unneeded housing units diverts funding from higher priority 

defense needs. 

THE INITIATIVE 

The Administration’s military housing initiative has four components: 

• increased reliance on public-private partnerships; 

• increased funding for housing construction and public-private partnerships; 

• increased funding for housing allowances to eliminate out-of-pocket expenses by 

service members; and 

• increased reliance on private-sector housing as the primary source of housing. 

1. The Public-Private Partnership Opportunity. Public-private partnerships provide 

private-sector capital and expertise to build and manage housing for America’s military 

families. DoD is using temporary authority to enter into arrangements with private 

developers to renovate and construct more modern housing for military families. These 

“Two-thirds of military family housing units are now substandard, 

and they must be renovated.” 

Governor George W. Bush 

The President's Management Agenda 39 
arrangements can be formal public-private partnerships with direct government 

investment or more informal partnerships with government loans or loan guarantees. 

Experience to date shows that with such public-private partnerships, it is possible to 

construct and renovate many more “privatized” housing units, quickly, at substantially 

reduced costs to the government than through normal military construction. To assess 

customer satisfaction with these projects, DoD plans to do an annual tenant survey. 

• At Fort Carson, CO, the Army has obtained 210 of the 840 new housing units and 

177 of the 1,823 renovated units from the private sector. The renovation and 

construction is projected to be completed by the end of 2004. Based on limited 

customer response, the Army indicates personnel are pleased with the new and 

renovated housing. The cost to the Army to privatize the housing is $10 million to 

guarantee a loan. Using traditional military construction funding, it would take 12 

years or more and cost $229 million (23 times the cost of privatization) to upgrade 

these same housing units. 

• At the Naval Station Everett, WA, the Navy entered into a 30-year limited 

partnership with a private developer to construct 288 housing units off base, of 

which 40 are expected to be completed by October 2001. Construction is expected 

to be completed by July 2002. The Navy invested $12 million in the partnership 

and provided $6.7 million in differential lease payments to make the housing more 

affordable. Using traditional military construction funding, the project would have 

cost $53 million (three times the cost of privatization) to upgrade these same 

housing units. 

• At Camp Pendleton, CA, the Marine Corps is providing land and a direct loan to a 

private developer to renovate 512 existing units and construct 200 new units. The 

project is expected to be completed by January 2002. The cost to the Marine Corps 

is $19 million. Using traditional military construction funding it would take six 

years or more and cost $87 million (4 1/2 times the cost of privatization) to upgrade 

these same housing units. 

• On March 15, 2001, the Air Force awarded a contract at its base in Elmendorf, AK 

for the construction of 420 new housing units, renovation of 200 existing units, and 

conveyance of another 208 units. The Air Force is providing $23 million to 

guarantee a private-sector loan and provide a government direct loan to help 

finance the development. Using traditional military construction funding, it would 

take $128 million (5 1/2 times the cost of privatization) to upgrade these same 

housing units. 

2. Increased Funding for Housing Construction and Partnerships. The President 

included an extra $400 million in the 2002 budget to improve the quality of housing 

available to military personnel and their families. 

At Fort Hood, TX, the Army is preparing to sign a contract for the construction of 973 

housing units and the renovation of 4,939 existing units. This will be DoD’s largest 

housing public-private partnership project to date. 

40 The President's Management Agenda 
• $195 million, almost half of the $400 million, will be used for public-private 

partnerships to privatize about 14,675 housing units. 

• $107 million will be used to construct Bachelor Enlisted Quarters for 1,396 sailors 

and marines. 

• $98 million will go toward construction or renovation of 900 family housing units, 

(predominantly) overseas. 

3. The Housing Allowance Opportunity. The Administration is committed to reducing 

to zero by 2005, the average out-of-pocket expense of military families living in private 

housing in local communities. This will enable more military families to leave 

inadequate government housing and rent quality private-sector housing in the local 

communities around DoD’s installations. 

4. Reliance on Private-Sector Housing. As private housing becomes more affordable to 

military families, DoD needs to fully implement its longstanding policy to rely first on 

private-sector housing in local communities for housing military families. DoD’s process 

for determining on-base housing requirements needs to be updated, standardized, and 

implemented. Savings realized from not building or renovating unneeded housing units 

can be used for more pressing defense priorities. 

20 

15 

11 

8 

4 

0 

2000 2001 2002 2003 2004 2005 

0 

5 

10 

15 

20 

25 

Percent 

Plan to Eliminate Out-of-Pocket Housing Expenses 

The President's Management Agenda 41 
THE EXPECTED NEAR–TERM RESULTS 

• DoD is executing the 2001 enacted appropriations that provided funding to support 

eliminating 11,000 inadequate housing units through new construction, renovation, 

and public-private partnerships (“privatization”), more than double the total units 

privatized between 1996 and 2000. 

• The 2002 amended DoD 

budget funds construction 

and renovation of 6,363 

housing units and privatization of 28,174 units, of 

which about 18,600 are 

currently inadequate. So 

in all, with the 2002 

budget, about 25,000 inadequate units will be 

upgraded. 

• DoD should issue an updated housing requirements process to ensure 

that DoD relies on privatesector housing first for its 

housing needs. 

• DoD reports current lifecycle costs for private-public partnerships are five to ten 

percent less than the traditional construction projects. 

THE EXPECTED LONG-TERM RESULTS 

• If DoD continues using public-private partnerships to privatize housing at the rate 

in the 2002 budget, DoD should be able to eliminate all inadequate military family 

housing units by 2008, two years before its original goal of 2010. Increased use of 

public-private partnerships could accelerate progress even more. 

• Secretary Rumsfeld has observed that housing is not a core military competency 

and “can be performed more efficiently in the private sector.” To move in that 

direction, the percentage of military families living in private housing should be 

increased, thereby reducing the government-owned housing requirement. 

2000 2001 2002 2003 2004 2005 2006 2007 2008 

0 

20 

40 

60 

80 

100 

120 

140 

160 

180 

200 

Thousands of units 

Inadequate Housing Units 

177 

166 

141 

116 

91 

66 

41 

16 

0 

42 The President's Management Agenda 
8.	 Better R&D Investment Criteria 

Department of Energy 

Science and technology are critically important to keeping our nation’s economy 

competitive and for addressing challenges we face in health care, defense, energy 

production and use, and the environment. As a result, every federal research and 

development (R&D) dollar must be invested as effectively as possible. 

THE PROBLEM 

•	 The federal government will spend approximately $90 billion in 2001 on R&D, an 

investment representing 14 percent of all discretionary spending. The ultimate 

goals of this research need to be clear. For instance, the objective of NASA’s space 

science program is to “chart our destiny in the solar system,” and the goal of the 

U.S. Geological Survey is to “provide science for a changing world.” Vague goals 

lead to perpetual programs achieving poor results. 

•	 The federal government needs to measure whether its R&D investments are 

effective. We can rarely show what our R&D investments have produced, and we 

do not link information about performance to our decisions about funding. Without 

this information, decisions about programs tend to be made on the basis of 

anecdotes, last year’s funding level, and the political clout of local interest groups. 

•	 Many R&D projects have ended up stepping beyond the legitimate purposes of 

government to compete with—or unnecessarily subsidize—commercial ventures. 

Last year, the Department of Energy (DOE) funded a midsize turbine development 

project at a rate of more than $30 million a year—even though the market had 

advanced to the point where all manufacturers had backlogs of orders. Unwisely 

invested federal dollars merely replace private research dollars, without increasing 

the nation’s total commitment to research. In the worst case, misguided research 

funding merely inflates the cost of doing research by bidding up the price of human 

and capital resources. Federal R&D should not compete with or supplant private 

investments. 

•	 Finally, many R&D projects directly benefit corporations that could fund their own 

R&D projects without federal assistance. For instance, DOE continues to fund 

gas-to-liquid conversion research even though the process has been commercialized 

to the point that one multinational oil company is considering investing up to $6 

billion for new plants based upon this technology. 

The President's Management Agenda 43 
THE INITIATIVE 

• The Administration is developing objective investment criteria for federal R&D 

projects. These criteria will also be used to assess the performance of research 

programs. A well directed R&D portfolio should demonstrate progress towards the 

portfolio’s strategic goals, without necessarily expecting success from each and 

every project. 

• DOE, which will spend more than $7.7 billion (more than 40 percent) of its 2001 

budget on a broad range of research activities, will pilot this initiative. DOE 

supports diverse R&D activities (see figure at right). 

• DOE and OMB are developing performance criteria 

for applied research and 

development programs. 

OMB and DOE will use 

these criteria to guide 

funding for the 2003 

Budget for the Department’s Solar and Renewable Energy, Nuclear Energy, Clean Coal, Fossil 

Energy, and Energy Conservation programs. 

• DOE and OMB are coordinating this effort with 

other White House offices 

and are soliciting input 

from other R&D agencies, 

experts in research management, and groups with 

an interest in the federal 

R&D portfolio to improve investment criteria and their implementation. 

• After our initial effort in applying uniform investment criteria to the applied energy 

technology programs, OMB will assist in the transfer of investment criteria to the 

rest of DOE, and other Departments and applicable agencies with applied R&D 

programs in time to assist in the formulation of the President’s 2004 Budget. OMB 

and the Office of Science and Technology Policy will also work with NASA, the 

National Science Foundation, the Department of Defense, the National Institutes of 

Health, and DOE to develop separate criteria, to be issued in Spring 2002, for 

evaluating basic research during formulation of the 2004 Budget. 

Science 

38% 

Clean-up and 

Waste Management 

3% 

Applied Energy 

Programs 

Defense Programs 

43% 

DOE R&D in 2001: $7.7 Billion 

44 The President's Management Agenda 
The Expected Near-term Results 

• The 2003 Budget will increase the expected efficiency of applied research and 

development programs in DOE by no less than 10 percent. �

• The 2003 Budget will reduce programs that directly benefit individual firms, 

(instead of entire sectors) by no less than 50 percent. 

• New applied research and development proposed in the 2003 Budget will be 

expected to perform in the top 25 percent of the program’s existing R&D, with the 

goal of improving the quality of the research portfolio.�

• Application of the criteria will provide a benchmark for future performance 

assessments that will inform funding beyond 2003. 

THE EXPECTED LONG–TERM RESULTS 

• The Administration expects that these investment criteria will better focus the 

government’s research programs on performance. The effectiveness of the U.S. 

government’s R&D investment will be measurably improved over a period ending 

three years from initial benchmarking. Applied research programs will be better 

focused on achieving well-defined practical outcomes. Basic research programs will 

better target improving the quality and relevance of their research. These 

investment criteria will promote our nation’s leadership in important science and 

technology areas. 

The President's Management Agenda 45 

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9. Elimination of Fraud and 

Error in Student Aid Programs and 

Deficiencies in Financial Management 

Department of Education 

THE PROBLEM 

• Federal student aid programs help nearly nine million students afford college each 

year. Better management of these programs is necessary to maximize the 

advantages provided to these recipients and protect taxpayer dollars from being 

wasted. 

• Through the Department of 

Education (ED), the federal government supports approximately $60 billion in student 

financial aid annually, in loans, 

loan guarantees, grants, and 

work-study opportunities. ED 

manages the delivery of student 

aid benefits to students in 

approximately 5,300 postsecondary schools, and oversees the 

direct and guaranteed loan systems affecting 37 million individuals, 4,100 lenders, and 36 

guarantee agencies. 

The amount of college aid available through ED’s student assistance programs has 

tripled in the last decade. 

“[Student] assistance has allowed [Texans] to expand their minds and 

improve their job prospects. [Student aid] enhances individual lives 

and ensures a brighter future for our state.” 

Governor George W. Bush 

20 

38 

62 

1991 1996 2001 

0 

10 

20 

30 

40 

50 

60 

70 

In billions of dollars 

Dollars at Risk Increasing 

Aid Available to Students through Education's Student Aid Programs 

The President's Management Agenda 47 
• Financial statement audits during the past five years have exposed numerous 

management problems at ED, including an unreliable financial management 

system and inadequate technology security. Since its first audit in 1995, ED has 

received only one unqualified, or “clean,” opinion on its financial statements. 

• Because of these deficiencies, the General Accounting Office (GAO) has, since 1990, 

classified the student financial assistance programs at ED among the federal 

programs at highest risk of fraud, waste, error, and mismanagement. In its most 

recent report, GAO noted that the Department lacks the financial and management 

information needed to manage these programs effectively and the internal controls 

needed to maintain the integrity of their operations. 

GAO also has cited ED’s inability to verify students’ income effectively as a weakness in 

the student aid programs that leaves them vulnerable to fraud and error. Students are 

awarded Pell Grants and loans based on the financial resources they report on their aid 

applications. ED currently verifies 

the income information on applications by asking 30 percent of 

applicants to provide copies of their 

tax returns to their schools’ financial aid offices. This process is 

vulnerable to fraud and error because students can easily change 

their returns or claim they did not 

file. The process is also burdensome 

to students and schools and raises privacy issues by giving school officials access to 

complete tax returns belonging to students and their parents. 

— A test match between ED and Treasury compared the income students 

reported on their aid applications to IRS income data. Preliminary results of 

that test estimate that the Pell Grant program made overawards of up to $400 

million in 2000–2001 (and underawards of over $100 million) because students 

or their parents misreported their income on their student aid applications. 

The Administration does not expect that 100 percent of the benefits of an 

income verification program could be achieved when the program is first 

implemented, but past experience indicates that immediate benefits could be 

substantial and additional benefits would accrue over time. 

GAO 2001 “high risk” series update: A...Continued weaknesses in information systems controls 

increase the risk of disruption in services and 

make the Department’s loan data vulnerable to 

unauthorized access, inadvertent or deliberate 

misuse, fraudulent use, improper disclosure, or 

destruction, all of which could occur without 

detection. 

Basic Accounting Deficiencies 

A recent independent audit review revealed that basic accounting functions often have 

been ignored at ED. For example, the review discovered 31,000 unreconciled 

items—or differences—between ED’s financial records and the cash transactions recorded by the Treasury. ED has allowed these items to pile up over the years. 

48 The President's Management Agenda 
THE INITIATIVE 

•	 The Secretary of Education has launched a major effort to address these financial 

and management issues. The goals are to resolve issues preventing ED from 

achieving an unqualified audit opinion on its financial statements and to have 

student financial assistance programs removed from GAO’s high-risk list by 

successfully addressing management deficiencies. When these goals are accomplished, ED will have a reliable financial management system that minimizes 

vulnerability to fraud, waste, and abuse, and produces accurate and timely data for 

oversight and decision-making purposes. 

•	 In order to accomplish these goals, the Administration has established a 

Management Improvement Team (MIT) within ED. The MIT, comprised of nearly 

a dozen senior-level managers, is responsible for identifying, tracking, cataloguing, 

and resolving all audit issues and management items. Through the beginning of 

June 2001, the MIT had successfully resolved or closed more than three-fourths of 

the major audit issues. Concurrently, ED is implementing a new financial 

management system. Through these efforts, the Administration expects to 

significantly improve ED’s financial management capacity. 

•	 The Administration is analyzing options for improving income verification of 

student financial assistance programs while providing for security and protecting 

taxpayer privacy. ED and Treasury recently conducted statistical test matches to 

estimate the savings that might result from ED’s use of tax data to prevent 

overpayments to student aid applicants. The Administration will review the results 

and weigh the possible benefits against the risks of a match before deciding 

whether to proceed with implementation of an income verification system with IRS. 

THE EXPECTED RESULTS 

•	 Erroneous payments to students will be reduced, ensuring that aid is targeted to 

the neediest students and increasing public confidence in the programs’ integrity. 

•	 The student aid programs will be removed from GAO’s “high risk” list by 2002, 

reflecting financial management and program improvements that significantly 

reduce their vulnerability to waste, fraud, abuse, and mismanagement. 

•	 ED will receive an unqualified opinion on its financial statements, indicating a 

robust and reliable financial management system that will enable ED to produce 

accurate financial and management information. This data can be used to improve 

daily oversight of operations, better measure program performance, and inform 

policy decisions. 

The President's Management Agenda 49 
10. Management and Performance 

Department of Housing and Urban Development 

THE PROBLEM 

• The Department of Housing and Urban Development’s (HUD’s) chronic 

management weaknesses harm the people and communities it was created to serve. 

Subsidized families are sometimes trapped in substandard, poorly maintained 

housing; home buyers are exposed to fraudulent practices; and some families 

receive excessive subsidies 

that could have been used to 

aid others in need. 

• Many overlapping, complicated, and poorly designed 

programs burden HUD. The 

Agency must work through 

thousands of intermediaries, 

with limited recourse when 

the intermediaries perform 

poorly, and it has a legacy of 

troubled real estate that 

strains administrative resources. Weak information 

systems and controls, staff misallocation, and the retirement of many experienced 

employees complicate HUD’s problems. 

THE INITIATIVES AND EXPECTED RESULTS 

• Improve the performance of housing intermediaries. HUD is no longer willing to 

subsidize substandard housing. HUD will strengthen oversight of housing 

intermediaries using a new database and management rating system to hold them 

responsible for results. Using existing statutory authority, HUD will promptly 

replace the management of public housing authorities and sanction private owners 

of subsidized projects when these intermediaries are in substantial default of their 

contractual obligations, to maintain clean, safe housing units. 

The Expected Results—The percentage of units meeting HUD’s physical standards for 

public housing will rise to 74 percent in 2002 and 84 percent by 2005. For private 

housing that is subsidized by HUD, the percent of units meeting physical standards will 

increase to 89 percent in 2002 and 92 percent by 2005. HUD’s goal for the near future 

GAO still considers much of what the Department 

does to be high risk. The 2001 update of the GAO 

high-risk list included two of the Department’s major 

program areas - Single Family Mortgage Insurance 

and Rental Housing Assistance. The programs account for about two-thirds of all the funds for which 

the Department is responsible. GAO also reports that 

the Department continues to suffer from departmentwide weaknesses in staffing as well as information 

and financial management. 

Government at the Brink, Committee on Governmental 

Affairs, United States Senate (June 2001) 

The President's Management Agenda 51 
is to expand housing choices for those who reside in housing that fails to meet physical 

standards. HUD will work with Congress on ways to ensure that families are not 

required to live in substandard housing as a condition for retaining their subsidy. 

• Reduce overpaid rent subsidies. HUD will ensure fairness to all rent-subsidized 

households by reducing more than $1 billion in overpaid rent subsidy annually. 

Regulatory changes and new administrative controls will correct long-standing 

problems, including errors in calculating rents and inaccurate reporting of income. 

Based on computer matching with 1998 federal income tax data, HUD estimates 

that tenants who under-reported their income received $617 million in unwarranted 

rent subsidies. In addition, over 

60 percent of subsidized rent 

calculations contain some type of 

error. 

The Expected Results—Working 

with its stakeholders, HUD will reduce 

the high incidence of tenants’ underreporting of income through a combination of expert systems, simplification where necessary, and 

accountability. By 2005, HUD will cut 

the processing error rate by at least 

half, from 60 percent to 30 percent. 

As a result of this and better income 

verification, the overpayment of rent 

subsidies will be cut by at least half. 

Fail 

30% 

Pass 

70% 

Public Housing 

Fail 

15% 

Pass 

85% 

Subsidized Private Housing 

Public and Subsidized Private Housing 

That Meets Physical Standards 

2000 2000 

8.0 

1.0 

0.6 

Total Rent 

Contribution 

Net Loss From 

Processing Errors 

Potential Loss From 

Under-Reporting 

0 

1 

2 

3 

4 

5 

6 

7 

8 

In billions of dollars 

Tenant Rent Contribution: 

Existing and Potential Annual Loss 

52 The President's Management Agenda 
• Improve Federal Housing Administration (FHA) risk management. HUD’s FHA will 

improve its procedures and systems to better control risks at all stages of the 

mortgage insurance process, from oversight of underwriting, to monitoring loan 

servicing, to reforming the way it manages defaulted loans. 

FHA borrowers have been exposed to fraud, with some lenders and appraisers 

scheming to acquire FHA insurance on properties with falsely inflated prices. 

These schemes harm both FHA and the borrowers it serves. HUD’s Inspector 

General reports indictments and convictions in FHA fraud schemes in Los Angeles, 

Baltimore, Chicago, Brooklyn, and Long Island. These fraudulent activities are 

occurring at the same time that FHA delinquencies are rising, even as 

delinquencies of conventional loans gradually decline. 

The Expected Results—Improving the early stages of the mortgage insurance process, 

HUD will prevent fraud by holding lenders accountable for the performance of brokers 

and appraisers by 2002. By 2004, HUD will eliminate most, if not all, falsely inflated 

appraisals. It will take strong action against those found culpable of fraud. Improving 

the last stage of the mortgage insurance process, HUD will increase amounts recovered 

from disposition of its foreclosed properties. By 2003, HUD will move out of the 

property management business by implementing its statutory authority to accelerate 

the mortgage insurance claim process, helping FHA manage its business more like the 

private sector. 

• Strengthen program controls. To address long-standing management control 

weaknesses—including those in the above-discussed FHA single-family and 

low-income rental assistance programs—HUD must improve its human capital and 

information technology resource management. With the help of its new workforce 

evaluation tools and a rethinking of work processes and assignments, staff and 

workload will be realigned to bolster critical oversight and analysis functions. 

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 

0.0 

0.5 

1.0 

1.5 

2.0 

90 Days Delinquency 

Source: Mortgage Bankers Association 

FHA vs. Conventional Mortgage Loans 

FHA Mortgage Loans 

Conventional Mortgage Loans 

Percentage of mortgage loans 

The President's Management Agenda 53 
Information systems and controls will be strengthened through investments in 

integrated financial systems and new performance reporting systems. 

The Expected Results—HUD will eliminate the specific control weaknesses and 

inefficiencies that have caused GAO to place its major programs on the high risk list, 

with the goal of removing all HUD programs from that list by 2005 and improving the 

lives of the people and communities HUD was created to serve. 

• Reduce meaningless compliance burdens. The current consolidated planning process 

contributes little of value. States and communities spend millions of their block 

grant dollars to produce Consolidated Plans (many of more than 200 pages) that 

are hardly looked at by HUD and not useful to communities. Dollars invested in 

meaningless paperwork could be used instead to measure the progress communities 

are making in revitalizing low-income areas. 

The Expected Results—By 2003, HUD will work with local stakeholders to streamline 

the Consolidated Plan, making it more results-oriented and useful to communities in 

assessing their own progress toward addressing the problems of low-income areas. 

Develop Reliable Financial System 

Reallocate Staff to Meet Workload Needs 

Improve Loan Origination Process 

Better Monitor Lenders and Others 

Reduce Excess Subsidy Payments 

Ensure Rental Housing is in Good Condition 

Improve Controls to Detect Problems 

0 10 

Overcoming Chronic Problems 

Years of Weakness Reported by GAO or Inspector General 

FINANCIAL AND HUMAN 

CAPITAL MANAGEMENT 

SINGLE FAMILY 

INSURANCE RISK 

RENTAL 

HOUSING PROGRAMS 

Year 

54 The President's Management Agenda 

2 4 6 8 
11. Broadened Health Insurance 

Coverage Through State Initiatives 

Department of Health and Human Services 

On August 4, 2001, President Bush announced the Health Insurance Flexibility and Accountability Demonstration Initiative. This initiative is designed to improve health insurance coverage for low-income Americans through comprehensive state-based approaches under Medicaid 

and the State Children’s Health Insurance Program. 

THE PROBLEM 

• The federal government will spend an estimated $143 billion in 2002 on the 

Medicaid program. Recent annual growth in the Medicaid program is the highest it 

has been since the mid-1990s. Between 1999 and 2002, Medicaid expenditures are 

projected to grow almost 10 percent per year in comparison to the less than six 

percent average annual growth between 1994 and 1999. Overall national health 

expenditures are projected to follow a similar pattern. 

1980 1984 1988 1992 1996 

0 

25 

50 

75 

100 

125 

150 

175 

200 

Medicaid Program Expenditures and Enrollment, 1980 - 1999 

Expenditures include both federal and state outlays 

Enrollment in Person-Years 

(Millions) 

Expenditures in 1999 Constant Dollars 

(Billions) 

1999 

The President's Management Agenda 55 
•	 In recent years, the number of people receiving health insurance under the 

Medicaid program has remained constant and the rate of insurance coverage among 

low-income Americans has not improved. Medicaid program enrollee growth is 

projected to increase only 1.2 percent per year between 2002 and 2006. Census 

Bureau estimates indicate that although the number of low-income individuals has 

decreased since the mid-1990s, those who remain low-income were no more likely to 

have insurance in 1999 than they were in 1995. 

•	 The Administration believes that the complex framework of federal Medicaid 

requirements restricts states from tailoring their Medicaid programs to effectively 

provide low-income individuals with affordable health insurance options. 

•	 The Administration believes that Medicaid and the State Children’s Health 

Insurance Program (SCHIP) should support, rather than undermine, the private 

health insurance market, where two-thirds of nonelderly Americans purchase 

health insurance coverage. The Medicaid program currently does not provide states 

with the flexibility or incentive to develop programs that are supportive of the 

private health insurance market, such as premium assistance programs. As a 

result, few states have successfully implemented such programs. 

•	 The Administration believes that Medicaid funding is not always being used to 

provide health insurance to low-income individuals. Recent studies by the 

Department of Health and Human Services (HHS) Inspector General have 

identified provider payment policies that have allowed billions of dollars in federal 

Medicaid funding to be used for purposes other than purchasing health insurance. 

•	 In the past, little federal guidance existed for states on how to develop 

comprehensive demonstrations seeking to improve health insurance coverage. 

Additionally, substantial federal effort is expended reviewing demonstration 

proposals that do not seek to improve health insurance coverage. Through 

guidance to states, the Administration will clarify the goals and the application 

process for federal Medicaid demonstrations. 

THE INITIATIVE 

•	 On August 4, 2001, the Administration announced the Health Insurance Flexibility 

and Accountability (HIFA) Demonstration Initiative. This innovative approach is 

designed to give states more flexibility to provide health insurance to low-income 

individuals. The Administration is seeking to strike a balance between increasing 

state flexibility and ensuring the prudent management of federal Medicaid and 

SCHIP funds. 

• The HIFA initiative: 

— Encourages states to develop comprehensive health insurance approaches that 

utilize available Medicaid and SCHIP funding to increase insurance coverage 

for low-income individuals. 

— Simplifies the application process by providing clear guidance on the information states should include in their demonstration proposals. 

56 The President's Management Agenda 
— Gives states greater flexibility in designing benefit packages and cost sharing 

in exchange for increasing health insurance coverage, particularly in support of 

private health insurance. 

— Establishes a firm requirement of budget neutrality requirements and provides 

a simplified option for states wishing to minimize the federal/state negotiations. 

— Increases accountability in the state and federal partnership by ensuring that 

Medicaid and SCHIP funds are effectively being used to increase health 

insurance coverage. At the outset of each HIFA demonstration, the state will 

set a goal for reducing the number of low-income uninsured and will be asked 

to systematically track the impact of their HIFA demonstration on the 

uninsured. 

— Gives priority review to state proposals that meet the general guidelines of the 

HIFA demonstration project. 

•	 The Administration also is looking at ways to improve the availability of reliable 

and timely national data on insurance coverage. 

THE EXPECTED RESULTS 

•	 Increase the number of individuals with access to affordable health insurance 

without increasing Medicaid costs. We are already making progress on the number 

of Americans with access to health insurance. In the first six months of the Bush 

Administration, HHS estimates that an additional 800,000 people have obtained 

health insurance through the approval of state requests for Medicaid and SCHIP 

waivers and state plan amendments. 

•	 Increase the number of comprehensive state-based Medicaid and SCHIP initiatives 

addressing the problem of the uninsured. 

•	 Increase the number of Medicaid and SCHIP approaches that support coverage in 

the private health insurance market. 

•	 Improve the federal review process of state demonstration requests by streamlining 

the paperwork required and reducing the time period required for federal review. 

The President's Management Agenda 57 
12. A “Right-Sized” Overseas Presence

Departments of State, Defense, Justice, Commerce,

Agriculture, the Treasury, Agency for International

Development, and Other Agencies operating overseas

THE PROBLEM

• The U.S. overseas presence is costly, increasingly complex, and of growing security

concern. U.S. national security interests are best served by deploying the right

number of people at the right posts with the right expertise.

“Functions that can be performed by personnel based in the United

States or at regional offices overseas should not be performed at post.

In your review, should you find staffing to be either excessive or inadequate to the performance of priority Mission goals and objectives, I

urge you to initiate staffing changes in accordance with established

procedures.”

President Bush’s Guidance to all United States Ambassadors overseas.

May 9, 2001

1-50

51-100

101-200

201-300

Over 300

Overseas Full-Time American Staffing by Country

The President's Management Agenda 59
• Currently, the principal mechanism to assess the rational deployment of U.S. 

government personnel overseas is the ambassador’s authority to manage staffing at 

each particular post. We need to have a more systematic decision making process 

to create proper incentives and procedures to manage U.S. government staff 

operating overseas. 

• No one U.S. government agency can determine with any certainty the total number 

of U.S. government Executive Branch personnel under the authority of each 

ambassador and other chiefs of mission. Estimates run as high as 60,000 with 

people representing over 30 agencies. There is no mechanism to assess the overall 

rationale and effectiveness of where and how U.S. employees are deployed. 

• Moreover, as there is no common accounting system that captures all costs, 

agencies do not know the true costs of sending staff to overseas posts. Agencies are 

not bearing the full costs of sending their staffs abroad. 

• While Chiefs of Mission have legal authority to manage assignments of other 

agencies to their embassies, in practice, this authority has not been used to 

significantly alter patterns of deployment of U.S. government staff overseas. 

• Following the embassy bombings in Nairobi and Dar es Salaam in 1998, the 

Overseas Presence Advisory Panel (OPAP) was formed to assess America’s overseas 

presence and to develop recommendations to make it better managed and more 

effective. The OPAP report concluded that the distribution of U.S. government 

personnel overseas is shaped more by historical legacy or bureaucratic inertia than 

by actual long-term foreign policy goals. It criticized staffing at overseas posts for 

too often failing to match an embassy’s requirements, called the interagency 

coordination on overseas staffing poor and inadequate, and found that decisions 

regarding the size and location of U.S. embassies, are “made on an apparently ad 

hoc basis without adequate formal planning.” As a result of these findings, the 

State 

39% 

Justice 

7% 

Small Agencies 

1% 

Treasury 3% 

Transportation 

1% 

DoD 

41% 

Commerce 

1% USAID 

4% 

Agriculture 

2% 

Peace Corps Staff 

1% 

Source: Department of State, June 2001 

Authorized Full-Time Permanent American Position 

Overseas Under Chief of Mission Authority, April 2001 

60 The President's Management Agenda 
report recommended an interagency review process to determine the size, shape, 

and goals of U.S. presence overseas. This present effort intends to follow through 

on the OPAP recommendations and ensure that U.S. presence overseas is properly 

coordinated and managed. 

• As the bombings in Africa have shown, every embassy in the world is a potential 

target from terrorist groups. To ensure that all U.S. government personnel work in 

secure posts abroad, the Department of State has embarked on an expansive 

construction program for embassies and consulates. The construction program is 

expected to require a commitment of approximately $15 billion over the next 10 

years. This costly program demands that staffing decisions underlying facility 

construction be based on a thorough understanding of U.S. government needs in 

each country and a matching of staff with requisite skills and abilities to achieve 

mission goals. Faulty staff planning means that the U.S. government may be 

building embassies larger or smaller than needed. 

• The average full-year cost to the U.S. government of an American official at a post 

overseas ranges from post to post but can cost upwards of several hundred 

thousand dollars a year, not including salary. The cost of new overseas positions 

can range up to $600,000 for certain agencies in certain areas, including all support 

costs. Security and cost considerations demand that the overseas staffing process 

be improved. The State Department estimates that the full-year cost is $339,100 

on average to establish a new State Department position overseas. 

Salaries & Benefits 

27% 

Administrative Support Housing & Furnishings 23%

19% 

Allowances 

8% 

Misc. 

8% 

Security 

8% 

Travel 

8% 

Total: $339,100 

Average Full-Year Cost to Establish a Department of State 

American Position Overseas 

Family of Four 

The President's Management Agenda 61 
THE INITIATIVE 

• The Administration will analyze and review overall U.S. government presence and 

develop a credible and comprehensive overseas staffing allocation process. This 

process will provide the Administration with a means to link overseas assignment 

with overall U.S. government policy, funding, and agency construction planning. 

THE EXPECTED RESULTS 

• Reconfigure U.S. government overseas staff allocation to the minimum necessary to 

meet U.S. foreign policy goals. 

• Have a government-wide, comprehensive accounting of total overseas personnel 

costs and accurate mission, budget, and staffing information. 

• Use staffing patterns to determine embassy construction needs. 

THE NEAR-TERM RESULTS 

• Develop accurate staffing projections for new construction projects with planning 

levels out to 2010. 

• Integrate “right-sizing” into the workforce plans of the State Department and other 

agencies as part of the 2003 budget process. 

Approximate Average Full-Year Cost (New Position Family of Four) 

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62 The President's Management Agenda 
• Improve the process for establishing new U.S. government positions overseas. 

•	 Develop cost saving tools or models in such areas as: management, hiring practices, 

decreasing post size, regional centers, revising the Mission Performance Planning 

process, increasing overseas administrative efficiency, or relocating certain 

functions to the United States. 

• Improve cost accounting mechanisms for overseas presence. 

•	 Establish new, and improved, mechanisms to better coordinate all U.S. government 

agency policies relating to overseas presence. 

The President's Management Agenda 63 
13. Reform of Food Aid Programs 

Agency for International Development, Department of State, 

Department of Agriculture 

The President strongly supports aid that feeds hungry people overseas and helps U.S. 

farm income. However, we must also avoid adverse commercial or trade impacts. 

Food aid saves many lives, and recently averted a famine in the Horn of Africa. But its 

humanitarian purpose is being eroded by other uses having little to do with food. To 

better meet the President’s objectives, and strengthen U.S. food aid, the Administration 

is committed to reforming food aid programs to ensure that overseas food donation 

programs target food aid to the genuinely hungry and avoid waste and adverse impacts. 

THE PROBLEM 

• Six different programs run 

by two government agencies 

provide international food 

aid. They sometimes duplicate each other. For instance, Indonesia received 

food aid under four of these 

programs in a single year. 

The Department of Agriculture (USDA) and the 

Agency for International 

Development both have created similar bureaucracies 

to administer food aid. 

• Food aid programs are afflicted by waste and questionable spending. For instance, proposed food aid 

expenditures have included projects such as building a noodle factory and providing 

trucks that were promptly confiscated by the recipient country’s government. 

There are other cases of U.S. commodities being discarded because the recipient 

country rejected U.S. food standards and implementing partners did not handle the 

commodities properly. In addition, food donations to Angola and Central American 

countries were discarded because of damage that occurred during shipping. It is 

quite common for donated food to be sold for cash in disaster areas while more 

efficient cash relief was also available. 

1996 1997 1998 1999 2000 2001 

0.0 

0.5 

1.0 

1.5 

2.0 

2.5 

3.0 

Billions of dollars 

U.S. Government Food Aid 

Humanitarian Initiative 

416(b) Program 

CCC/Food for Progress 

P.L. 480 Title III 

P.L. 480 Title II 

P.L. 480 Title I 

The President's Management Agenda 65 
• Some of this aid is inefficient. For instance, the General Accounting Office (GAO) 

noted that, of the nearly $250 million the United States spent to send wheat to 

Russia in 1999, the intended recipients, Russian pensioners, only realized $64 

million in benefits because of high administrative and transportation costs. 

• Some of the aid may be 

counterproductive, a 

condition agencies 

strive to avoid. For 

instance, sending food 

to a country that does 

not need it for serious 

humanitarian purposes 

may undermine local 

farmers and efforts to 

privatize the agricultural sector in transition countries. Likewise, large food aid 

shipments through 

state-owned distribution enterprises in a 

number of former Soviet republics in the early 1990s may have inhibited efforts in 

those countries to privatize these enterprises. 

• Aid may not always help U.S. farmers. First, farm income is much less affected by 

food aid than in the past. For instance, the previous Administration used 416(b) 

and the Commodity Credit Corporation Charter Act authorities to donate food when 

U.S. market prices were very low-precisely the time when USDA already was 

paying farms the difference between the market price and a higher price floor. In 

addition, food aid has become less important as an export mechanism as 

commercial exports have grown. Finally, evidence suggests food aid may displace 

commercial sales or substitute for USDA programs intended to boost farm income. 

• The sale of U.S. donations in overseas markets to generate cash, a practice known 

as monetization, can impede U.S. commercial exports, lower market prices, induce 

black market activity, and thwart market development for U.S farm products. 

Theft is also an issue. For example, employees of an organization delivering food 

aid were prosecuted for stealing commodities in Haiti. Though praised for its 

flexibility, monetization is economically inefficient because the sale price generally 

does not cover the cost of providing the commodities, especially when the additional 

shipping cost of the U.S. cargo preference requirement are added. 

• Some food aid programs are charged by members of the World Trade Organization 

as conflicting with U.S. goals of liberalized trade to the extent that aid displaces 

commercial sales. U.S. food aid has tended to rise in volume when prices are low, 

1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 

0 

10 

20 

30 

Percent 

U.S. Food Aid as a Percent of Total 

U.S. Agricultural Exports 

66 The President's Management Agenda 
and drop when prices are high—precisely the time when food-deficit countries are 

least able to buy food. However, the United States has committed in the Food Aid 

Convention to supply a minimum of 2.5 million tons annually, regardless of U.S. 

prices or supplies, and the United States has resisted other nations’ support for 

lower aid levels when prices are high. The Ad Hoc Humanitarian Food Aid 

Initiative, authorized to operate since 1998 when prices were low, unfortunately 

enabled some trade partners to misleadingly criticize U.S. food aid policy goals. 

THE INITIATIVE 

• The Administration is developing proposals that will be consistent with the 

following principles: 

— direct feeding of the genuinely hungry populations will be the primary goal; 

— foreign policy and economic development programs will be subject to analysis of 

benefits, costs, and performance to determine their priorities; 

— bureaucratic duplication and inefficiency in Washington, D.C. and overseas will 

be minimized; and 

— program authorities and guidelines will be followed more consistently than in 

the past. 

• The Administration will complete the Ad Hoc Humanitarian Food Aid Initiative 

and review funding for other aid programs—such as cash grants and direct feeding 

programs—that reduce waste and inefficiency in meeting domestic and foreign aid 

goals. Funding for such programs could be increased. 

1972 1976 1980 1984 1988 1992 1996 2000 

0 

2 

4 

6 

8 

10 

Millions of metric tons 

0 

1 

2 

3 

4 

5 

6 

Dollars per ton 

Food Aid in Times of Need 

U.S. Food Aid Average 

Wheat Prices 

NOTE: U.S. government food aid does not always flow when food-deficit poor countries are most vulnerable. As shown above, U.S. food aid actually 

decreases when commodity prices (using wheat prices as a proxy) rise and countries are less able to purchase food. This is due to two factors: 

1) ongoing programs can provide fewer commodities with the same amount of money, and 2) food aid provided through surplus disposal is limited 

to periods of surpluses. 

The President's Management Agenda 67 
•	 Resources for other programs that promote foreign purchase of domestic 

agricultural products may be restructured and/or increased. 

•	 The President’s 2003 Budget request will incorporate proposals reflecting the 

principles outlined above and the results of an interagency review of all U.S. food 

aid activities, authorities, and programs. 

THE EXPECTED RESULTS 

•	 More reliable levels of food aid, allowing recipient countries, cooperating sponsors, 

and U.S. administrators to plan for their needs. The proportion of the total food 

aid program that relies on unpredictable surplus commodity availability will not 

exceed 10 percent. 

•	 More food security for hungry people, through better-focused programs, clear and 

consistent policy objectives, and more efficient use of budget resources. 

•	 Improved safeguards to avoid any potential displacement of United States or third 

country commercial sales, leading to more effective impact of food aid on U.S. farm 

income. 

•	 Greater efficiency and transparency in the management and implementation of 

U.S. food aid programs. 3 

68 The President's Management Agenda 
14.	 Coordination of VA and DoD 

Programs and Systems 

Department of Defense 

Department of Veterans Affairs 

THE PROBLEM 

The Department of Veterans Affairs (VA) and the Department of Defense (DoD) operate 

comprehensive medical care systems for a combined cost of $40 billion a year. While 

the missions differ, there is overlap. It is estimated that 600,000 military retirees 

eligible for DoD TRICARE are also enrolled in VA Medical Care. In addition, many 

DoD and VA facilities are located close to each other. 

— DoD’s health care system, originally designed to treat primarily younger 

active-duty personnel plus some under-65 retirees, has evolved to cover more 

beneficiaries over 65. DoD’s patient demographics are thus becoming increasingly similar to those of VA, which has been treating the over 65 population for 

many years. These emerging similarities present opportunities for cooperation 

between the two health systems, including buying and selling services, shared 

staffing, advanced technology, education and training, consolidated procurement, TRICARE, pharmaceuticals and medical/surgical supplies, and joint 

facility agreements. So far, few of these opportunities have been put to use. 

THE INITIATIVE 

•	 Enhance coordination and delivery of veterans benefits and services by implementing 

recommendations of the Task Force to Improve Health Care Delivery to Veterans. 

This task force, announced by the President on Memorial Day this year, is 

co-chaired by former Congressman Gerald Solomon and Gail Wilensky, former 

Administrator of the Center for Medicare and Medicaid Services, previously known 

as the Health Care Financing Administration. 

•	 Enact authority with the goal of having military retirees, who are also eligible for 

VA medical care, select a health care program through annual open enrollment 

seasons. This legislative proposal was included in the 2002 President’s Budget. 

— Quality involves not only the standard of care provided by a health care 

program, but also the coordination of all health care services when multiple 

doctors or pharmacies serve one patient. Military retirees may obtain health 

care from both agencies at any time. 

The President's Management Agenda 69 
•	 Improve VA’s health care enrollment data system. VA developed a temporary 

system three years ago in response to their new enrollment requirement. 

Currently, the Department is implementing a redesigned health care enrollment 

database and has initiated a process to develop a One-VA Registration and 

Eligibility System. However, these new efforts are in the early stages. DoD has 

offered in the past to provide the Defense Enrollment/Eligibility Reporting System 

(DEERS) software solution to VA or to incorporate VA beneficiaries and data 

requirements into DEERS. VA should consider the feasibility of using DEERS as 

an enrollment system for health care and the other benefits available to veterans. 

— Improving VA’s Registration and Eligibility system and the Veterans Health 

Administration’s Enrollment system are the first steps toward having one 

integrated system for all beneficiaries. For over 20 years the DoD has operated 

a centralized automated system to enroll and track individuals having 

entitlements to DoD benefits and services. DEERS, is a large database that 

accurately records the benefits eligibility information for over 20 million 

beneficiaries in multiple government agencies and could be expanded to include 

VA. DEERS is uniquely positioned to bridge the gap between the two 

Departments, and already supports a modest level of data sharing. Starting in 

November of 2000, DoD implemented a real-time exchange of information on 

veterans from DEERS. This information exchange sets the stage for even 

closer cooperation. 

— The transition from active-duty to veteran status involves the veteran enrolling 

at a VA regional office for benefits and his local VA medical center for health 

care. An active-duty member on one day is in a system that tracks all his data, 

and on the next he is separated and must report and document his information 

to VA in order to obtain VA benefits and services, despite the fact that most of 

it is electronically stored in the DoD system. In addition to the current lack of 

full DoD/VA interface, duplicative information must be collected and entered 

into separate enrollment systems at VA each time a veteran applies for 

different benefits such as home loan guarantees, disability compensation, 

education, vocational rehabilitation, and health care. Transition should be 

seamless from the veteran’s perspective and could be made seamless through 

data sharing between VA and DoD, as well as within VA. 

•	 Improve coordination of health care and eliminate potentially duplicative budgeting 

by sharing data between VA and DoD. These agencies have been working together 

for some time to share data on areas of concern and are pursuing a variety of joint 

activities under a reinvigorated VA/DoD Executive Council. However, there are 

still many unresolved issues that require further data sharing. 

The Expected Results 

•	 A seamless transition from active duty to veteran status, allowing both the veteran 

and VA to save time and money. 

• Continuity of care for each patient by a single agency’s health care system. 

70 The President's Management Agenda 
•	 Greater accuracy in forecasting the patient population and budget for both the DoD 

and VA health programs. 

•	 Increased sharing of services that will lead to reduced cost and increased quality of 

care. 

The President's Management Agenda 71 
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