To downsize the federal workforce with minimal use of reductions-in- force (RIF), Department of Defense (DOD) and non-DOD agencies were given the authority—under separate pieces of legislation—to pay eligible employees voluntary separation incentive payments (buyouts) of as much as $25,000 to leave federal service. In September 1994, we testified on the results of the fiscal year 1994 buyouts at non-DOD agencies. Since then, thousands of additional employees have taken buyouts, and new buyout legislation for non-DOD agencies has been introduced in Congress. What have the buyouts achieved? To answer this, we examined whether statutorily-mandated downsizing goals were being achieved; the management strategy used to implement the buyouts; the demographic results; how agencies viewed buyouts as a downsizing tool; and what agencies said about the operational effects of downsizing. The National Performance Review (NPR)—the administration’s initiative to “reinvent” government—called on agencies in its September 1993 report to implement a variety of management reforms that would allow for the elimination of 252,000 federal positions over the following 5 years. Included in this number were 100,000 positions the President had earlier ordered eliminated by the end of fiscal year 1995. To achieve these reductions while avoiding RIFs, NPR called for legislation to allow non-DOD agencies to offer buyouts to employees who voluntarily left federal service. DOD agencies had been making buyouts since January 1993 under earlier legislation. According to NPR, the original purpose of the DOD buyout authority was to ease the reductions in the size of DOD following the end of the Cold War. According to Office of Personnel Management (OPM) data, agencies paid over 112,500 buyouts to employees from January 1993 through September 30, 1995. About 80,000 (71 percent) of these buyouts were paid to DOD employees. Responding to NPR’s recommendation, on March 30, 1994, Congress enacted the Federal Workforce Restructuring Act of 1994 (P.L. 103-226) that permitted non-DOD executive branch agencies to offer buyouts. The buyouts could be paid to eligible employees in any designated component, occupation, and/or geographic location who agreed to resign, retire, or take early retirement by March 31, 1995, unless the date was extended by the head of the agency, but no later than March 31, 1997. The buyout payment was the lesser of $25,000 or an employee’s severance pay entitlement. To receive a buyout, an employee must have served under appointment without time limit, have had 12 months of continuous service, not be a reemployed annuitant, and not be eligible for disability retirement. Under the law, buyout recipients who are rehired by the federal government or perform services under a personal services contract with the government within 5 years of their separation date are generally required to repay the full amount of the buyout. In addition to providing non-DOD agencies with buyout authority, the Workforce Restructuring Act raised the federal downsizing target for all agencies, including DOD, from 252,000 to 272,900 full-time equivalent (FTE) positions by fiscal year 1999. Additionally, as shown in table 1.1, the act placed annual ceilings on civilian executive branch FTE levels for fiscal years 1994 through 1999. In March 1995, we testified that data from the President’s fiscal year 1996 budget showed that for fiscal years 1995 and 1996, the administration anticipated that the workforce would be below the FTE levels mandated by the act. To ensure that vacated positions were not refilled, the act required a governmentwide (excluding DOD and the Central Intelligence Agency) reduction in one FTE positions for each buyout given. OMB interpreted this to mean that for each buyout that occurs in a fiscal year, the following year’s FTE level should be reduced by at least one. In calling on Congress to pass buyout legislation, NPR wanted to give federal agencies the same downsizing tool commonly used by private companies. Our March 1995 review of downsizing strategies used by selected nonfederal organizations found that they often used buyouts to help cut employment levels. Indeed, of the 25 entities we contacted (17 private companies, 5 state governments, and 3 foreign governments) that had successfully downsized in recent years, at least 18 provided various incentives to encourage employees to voluntarily leave. Of these, 14 allowed buyouts based on the organization’s severance pay formula—usually 1 or 2 weeks’ pay for each year of service, with a maximum of a year’s salary. Employees electing early retirement, regular retirement, or resignation were eligible for the payments. Fifteen of the 25 nonfederal organizations we contacted said that it was essential to do adequate strategic and workforce planning before making decisions about appropriate workforce size and composition. They said strategic planning was needed to establish an organization’s mission. Workforce planning was used to ensure that employees with the skills and training needed to carry out the organizations’ mission were retained. Several nonfederal organizations noted that when they did not plan their downsizing or consider the skills they would need in the future, they cut needed employees, suffered skill imbalances, and were often forced to replace employees with essential skills. In December 1995, legislation was introduced in the House of Representatives that would give agencies temporary authority to pay retirement and separation incentives. The Federal Employee Separation Incentive and Reemployment Assistance Act (H.R. 2751) would allow agencies to pay eligible employees the lesser of their severance pay entitlement or $25,000, if they left federal service between enactment of the legislation and September 30, 1997. The maximum amount of the buyout would then decrease to $20,000 for takers between October 1, 1997, and September 30, 1998. A final round of buyouts would pay up to $15,000 for takers between October 1, 1998, and September 30, 1999. The bill also contains incentives for employees not yet eligible for retirement. In addition to this governmentwide bill, Congress is also considering agency-specific buyout legislation. To help monitor the implementation of the Workforce Restructuring Act, the Chairman, Subcommittee on Civil Service, House Committee on Government Reform and Oversight, asked us to examine several issues related to the buyout program. In response, we reviewed whether the downsizing goals of the Federal Workforce Restructuring Act whether agencies’ use of buyouts reflected the administration’s workforce restructuring goals as articulated by NPR; what the demographic results of the buyouts were; how agencies viewed buyouts as a downsizing tool; and what operational impacts were attributed by agencies to workforce downsizing. To determine whether agencies’ use of buyouts was consistent with NPR’s workforce restructuring goals, we interviewed representatives of NPR, OMB, OPM, and officials of agencies that were downsizing. We also reviewed OMB memoranda and other pertinent documents, and did a content analysis of a judgmental sample of 15 agencies’ streamlining plans. The President had directed executive departments and agencies to prepare streamlining plans that described how they intended to meet NPR’s restructuring goals. We compared the management strategies identified through our interviews and document reviews to governmentwide results of the buyouts as indicated by workforce data contained in OPM’s Central Personnel Data File (CPDF). The file includes information on federal workers in most agencies, the major exclusions being Members and employees of Congress, the Judicial Branch, and the Postal Service. The CPDF covered fiscal years 1992 (the prebuyout workforce) through March 31, 1995, (the date when the non-DOD buyouts ended). We did not assess the validity of the management strategies. To determine the demographic results of the buyouts, we analyzed CPDF data by race, gender, occupation, type of separation, and years of service. To identify operational impacts that were attributed by agencies to workforce downsizing, we mailed questionnaires to the seven departments and agencies that, at the time we began our study, were expected to make nearly 85 percent of all buyouts granted between January 1993 (the date of the first DOD buyouts) and the end of fiscal year 1995. The departments and agencies included Agriculture, Interior, Transportation, DOD, Health and Human Services (HHS), GSA, and NASA. For all but GSA and HHS, we sent questionnaires to the major subunits that granted the largest number of buyouts at those agencies. GSA and HHS each received a single questionnaire, and responses represented the agencies in their entirety. In all, questionnaires were sent to 24 agencies. Together, they accounted for about 31 percent of the executive branch civilian workforce in fiscal year 1995. All 24 agencies responded for a return rate of 100 percent (app. I lists the agencies included in our survey). Questionnaires were generally sent to personnel officials such as office directors. When warranted, we had follow-up discussions with agency officials. Agency responses to our questionnaire were also used to respond to the first two objectives, when applicable. The aggregate results from respondents are contained in appendix II. The scope of our work covered the DOD buyout window, which began in January 1993 (and is to remain open through fiscal year 1999), and the non-DOD buyout window, which opened Apri1 1994 and ended March 31, 1995. We did not verify the data in the CPDF nor the information provided by agencies in their questionnaire responses and interviews. NPR and OPM provided written comments on a draft of this report. These comments are presented and evaluated in chapter 4. NPR’s comments are reprinted in appendix III, and OPM’s comments are reprinted in appendix IV. Our detailed responses to their comments are presented in these appendixes as well. We did our audit work in Washington D.C., from April 1995 through April 1996 in accordance with generally accepted government auditing standards. Buyouts helped agencies downsize with comparatively few RIFs. Were it not for buyouts, the agencies we surveyed said that many more involuntary separations would have been necessary. Although NPR recommended that agencies direct their downsizing toward certain “management control” positions that the administration said contributed to government inefficiency, there has been little, if any, decrease in management control positions as a proportion of the total workforce. Federal employment levels have declined steadily since the administration’s downsizing efforts began in early 1993. According to OPM data, as of March 1996, non-Postal executive branch civilian employment was 1.96 million, a reduction of almost 230,500 employees (10.5 percent) since January 1993. Moreover, from fiscal year 1994 through March 1995 (a period when both Defense and non-Defense agencies had buyout authority), the executive branch civilian workforce downsized from 2,164,727 employees to 2,032,440 employees, a reduction of 6 percent. The nearly 64,000 buyouts that were made by Defense and non-Defense agencies during that period accounted for much of this downsizing and helped mitigate the need for RIFs. Of the 24 agencies responding to our questionnaire, 13 reported they RIFed 4,466 employees in fiscal year 1994, and 12 reported they RIFed 868 employees in fiscal year 1995, at the time of our study. (Nearly half of the fiscal year 1994 RIFs occurred at the Naval Sea Systems Command’s Philadelphia, Portsmouth, and Norfolk Naval Shipyards. Fiscal year 1995 RIFs were more evenly distributed across agencies). Governmentwide, CPDF data showed there were 7,450 RIFs during this same period. Thus, as shown in figure 2.1, RIFs were responsible for 6 percent of the 132,287 reductions in on-board personnel that took place in fiscal year 1994 and the first half of fiscal year 1995, while buyouts were responsible for about 63,789 reductions (48 percent). The remaining reductions resulted from separations without buyouts or were not coded by the CPDF. Note 1: “Other reductions” include separations without buyouts or those that were not coded by the CPDF. Note 2: During this period there was a reduction of 132, 287 on-board personnel. Ten of 24 agencies said that they expected RIFs during the second half of fiscal year 1995. For fiscal year 1996, nine agencies said they expected RIFs, six did not expect RIFs, and nine did not know. The U.S. Geological Survey, for example, RIFed 485 people early in fiscal year 1996. Had it not been for the buyout authority, it is likely that more agencies would have RIFed a larger number of employees to meet federal downsizing goals. Indeed, 23 of the 24 agencies responding to our questionnaire claimed that buyouts helped them avoid RIFs. As one respondent commented, “The buyout authority allowed us to implement our reorganization and streamlining of staff without the use of RIFs.” Likewise, an official from a Defense agency noted, “By using buyouts, we drastically decreased the number of involuntary separations originally planned. The use of buyouts has been a big payoff for our command.” A third said, “Buyouts substantially reduced the number of individuals who would have been involuntarily separated at three of our field activities which were targeted for closure. . . .” To streamline government, the administration, through NPR, directed agencies to aim their workforce reductions at specific “management control” positions that it said added little value to serving taxpayers. The administration also required agencies to prepare streamlining plans describing the steps they intended to take to pare down their workforces consistent with NPR’s objectives. OMB was to review these plans to determine whether or not agencies could proceed to offer buyouts. As defined by NPR, management control positions were those held by managers and supervisors (including members of the Senior Executive Service); headquarters staff; and employees in personnel, budget, acquisition, and accounting/auditing occupations. NPR recommended that agencies increase supervisors’ span of control over other employees from 1:7 to 1:15, as well as to cut the remaining NPR management control positions by 50 percent, all by fiscal year 1999. According to NPR, such positions had grown to twice their optimum number. By NPR’s calculations in September 1993, they amounted to about 660,000 positions, or about one-third of all federal employees. To ensure that agencies would accompany their downsizing with workforce restructuring consistent with NPR’s objectives, the President called on each federal agency to submit a streamlining plan to OMB. Through a series of detailed memorandums and bulletins, OMB provided the heads of executive agencies with information on how to prepare these plans. Agencies were to address, among other items, how and when streamlining actions would occur, how the supervisory span of control would be increased, and how their workforces would be reduced consistent with NPR’s objectives. If an agency was unable to meet one or more NPR goals, it was to justify its reasons for not doing so and explain what it was doing instead to streamline and improve program performance. OMB officials told us that the quality of these plans played an important role in whether or not OMB approved agencies’ buyout requests. Although agencies substantially reduced the number of management control positions, as a proportion of the total workforce many of these positions showed little, or no, reduction and, in some cases, have increased. Although large numbers of management control positions have been eliminated since the end of fiscal year 1992 (the year before buyouts began at non-Defense agencies), as a proportion of the total workforce, they were barely reduced. As shown in table 2.1, for example, while Defense and non-Defense agencies have made substantial reductions in the number of supervisors, reductions in most other positions have been carried out more slowly. Moreover, because the entire government was being downsized, in many instances the management control positions increased relative to the workforce as a whole. This was particularly true for Defense agencies. While the percentage of supervisors dipped from 12.7 percent of the Defense workforce to 11.9 percent, (1 supervisor for every 6.9 employees to 1 supervisor for every 7.4 employees), all but one of the other management control positions increased somewhat. Acquisition positions showed no change (see table 2.2). Non-Defense agencies did only slightly better. The percentage of supervisors in the non-Defense workforce went from 12.5 percent to 11.6 percent (1 supervisor for every 7 employees to 1 supervisor for every 7.6 employees). Personnel and headquarters staff also decreased as a proportion of the non-Defense workforce, while the remainder showed no improvement or slight increases (see table 2.2). Nineteen of the 24 agencies responding to our survey said they reduced the number of supervisors partly by converting existing supervisors to nonsupervisors or team leaders. Four agencies said this practice was not occurring, and one did not know. Although such conversions help flatten agencies and could result in less bureaucracy, individuals in these positions remain on the payroll. As shown in table 2.3, among the seven agencies that indicated the extent of this practice, such conversions often represented a large portion of the total reduction in supervisors. Conversions were responsible for 41 percent of the supervisory reductions at NASA’s Marshall Space Flight Center; 40 percent at Bureau of Land Management (BLM); 35 percent at Federal Aviation Administration (FAA); 29 percent at Naval Sea Systems Command; and 28 percent at HHS. Conversions accounted for 5 percent of the reduction in supervisors at both the Natural Resource Conservation Service and NASA’s Lewis Research Center. Data provided by the 24 agencies we surveyed suggested that at least two factors may be responsible for the lack of progress made in reducing management control structures: (1) agencies were inconsistent in their use of the buyout authority to reduce management control positions and (2) a number of agencies often set downsizing goals for the management control positions that were less ambitious than those called for by the administration. Although the administration gave agencies discretion to downsize in ways that best suited their needs, it appears that buyouts were used to meet the numerical goals of the Federal Workforce Restructuring Act with minimal regard for NPR’s objective to reduce management control positions. One reason for the lack of progress made in meeting NPR’s workforce restructuring goals lies in the fact that with the exception of supervisory positions, agencies were inconsistent in using the buyout authority as a tool to trim management control positions as recommended by NPR. Instead, agencies appeared to use buyouts mostly for achieving the numerical targets of the Workforce Restructuring Act. Had agencies more successfully directed their buyouts to NPR management control positions, the percentage of buyouts in these occupations would probably have been higher than their representation in the workforce. However, as shown in table 2.4, when both Defense and non-Defense agencies had buyout authority (fiscal year 1994 through the first half of fiscal year 1995), this was not the case for most positions. In fact, the percentage of buyouts taken in budget, accounting/auditing, and headquarters positions, was actually less than their representation in the workforce. For most other positions, the percentage of buyouts was roughly equal to their representation in the workforce. The one exception to this was supervisory positions, which represented 11.5 percent of the workforce during this period but received 20 percent of the buyouts. In some instances, agencies simply did not attempt to use buyouts to help meet NPR’s workforce restructuring goals. Although the Workforce Restructuring Act authorized the use of buyouts to assist agencies in meeting numerical downsizing targets, it did not require that buyouts be used to reduce the ranks of management control positions as intended by NPR. Moreover, OMB’s guidance on preparing streamlining plans did not specifically require agencies to show how they planned to use buyouts to meet NPR’s workforce restructuring goals. Finally, some agencies may not have restricted buyout eligibility to employees in specific positions because they may have feared morale would be adversely affected if buyouts were offered to one set of employees but not to others. When agencies used buyouts to reduce the ranks of management control positions, they were often directed at one or two management control positions, typically supervisors and upper-level employees. For example, 7 of the 15 agency streamlining plans we examined tied their buyouts to reducing supervisors and managers as well as upper-level employees; however, none of the plans tied buyouts to personnel, budget, acquisition, or accountant/auditor positions. Similarly, other agency documents we reviewed only gave preference to some of the groups NPR recommended for reduction. In such instances, supervisors, managers, and upper-level employees were generally given priority for receiving buyouts. For example, in its first round of buyouts, BLM gave priority to Senior Executive Service employees, followed by employees in grades 15 and 14, and personnel occupations. Similarly, in its voluntary separation incentive plan, the Department of Energy gave priority to supervisory and managerial positions and upper-level employees in both fiscal years 1994 and 1995. Finally, even those agencies that directed buyouts at specific positions did not always get the results they wanted. The Environmental Protection Agency (EPA), for example, planned to use up to 80 percent of its total buyouts for managers and supervisors. In actuality, about 20 percent of the buyouts went to such individuals, and EPA had to flatten the agency through other means, including converting supervisors to nonsupervisors and team leaders. Another likely reason for the minimal change in levels of management control positions is that agencies said they could not meet NPR’s workforce restructuring goals without adversely affecting their ability to carry out their missions. Like the government as a whole, the 24 agencies we surveyed made substantial personnel reductions, many of which were achieved through buyouts. However, our analysis of agency streamlining plans shows that agencies claimed they could not reduce management control positions to the levels recommended by NPR without adversely affecting their operations. As a result, these agencies often set their own restructuring goals at a less ambitious level than those called for by the administration. Although OMB allowed this, agencies were asked to specify what alternative steps they were taking to restructure their workforces. Table 2.5 shows the variance between NPR’s goals for reducing management control positions and the average of agencies’ reduction goals as reported in their survey responses. While agencies made considerable progress in meeting their own workforce restructuring goals, those goals were generally far lower than those recommended by NPR. DOD agencies may have had somewhat lower reduction goals for management control positions because when closing a military base, all positions are eliminated, regardless of whether they are management control positions. With regard to meeting their own goals, however, table 2.5 shows that, on average, agencies are well on their way. Indeed, several individual agencies have already met or exceeded their reduction goals. For example, the Geological Survey’s goal for reducing accountants and auditors was 47 percent, but the Survey expected a 58 percent reduction by the end of fiscal year 1995. The Forest Service’s goal for reducing acquisition specialists was 15 percent, but the Service expected a 22 percent reduction by the end of fiscal year 1995. Similarly, three agencies responding to our survey stated that buyouts helped them meet their reduction goals for supervisors and managers. For example, the Department of Health and Human Services (HHS) said that buyouts helped its Agency for Health Care Policy and Research reduce senior staff by six people, supervisory staff by five people, and control staff by one person. The agency streamlining plans we examined cited various reasons for not meeting NPR’s goals. For example, the Department of Housing and Urban Development said it will increase acquisition specialists by 23 percent because it needs them to address long-standing weaknesses cited in reports on compliance with the Financial Integrity Act. The Department of Education said it will reduce budget analysts by 25 percent, but that a deeper cut is infeasible given, for example, the continuing growth in the number of department programs as well as the complexity of its legislation, budgets, policies, and programs. Only one of the 15 agencies whose plans we reviewed had complied with the NPR recommendation to establish a goal that would increase the supervisor to subordinate ratio from 1:7 to 1:15 by fiscal year 1999. The others set goals ranging from 1:9 to 1:14. The Department of Justice, for example, said the U.S. Marshals Service will not make significant progress at improving its supervisory ratio. Because the Marshals Service must maintain offices with 10 or fewer employees in order to staff all federal court facilities, it is difficult to eliminate supervisors in district offices. The Department of Agriculture claimed that doubling the current span of control for supervisors to 1:15 would not allow it to carry out its mission. It said most of its work is at field project locations, where a supervisor monitors two to six people. Moreover, the optimum size of fire fighting crews for safety and coordination purposes is less than the 1:15 ratio. Although OMB gave agencies discretion to downsize according to their needs, if agencies could not meet NPR’s workforce restructuring goals, they were to provide information on what they were doing instead to streamline and improve program performance. Of the 15 agency streamlining plans we examined in our content analysis, 10 indicated they could not meet NPR’s objectives. While these 10 streamlining plans generally included discussions of how agencies intended to reorganize, reengineer, and take other steps to improve services, only one indicated what the agency was doing instead to meet NPR’s workforce restructuring goals. As we found in our earlier survey of nonfederal organizations, several federal agencies, in comments written on their questionnaire responses, indicated that they planned the use of their buyouts and thus had successful outcomes. The National Park Service, for example, said that it “used the buyout authority, with management controls, to target occupational series and organization levels as well as senior management positions to effect those reductions that were consistent with the administration’s goals. We were very successful accomplishing this without the need for [RIFs].” Similarly, the Naval Supply Systems Command reported that “Controlling eligibility by series and grade level provided an opportunity to encourage attrition in labor surplus skill while permitting the retention of critical skills.” “ average grade for buyouts was GS-13. Employees in these grades were primarily journeyman level auditors and investigators with a great deal of experience and knowledge in programs and OIG’s mission. It will take considerable time for remaining staff to acquire the previous level of expertise given continuing workload pressures.” “Some activities have actually had to turn away work because of insufficient numbers of personnel . . . while other activities carry more employees than there is work. Downsizing is only effective if it is based on a full analysis of workload, past, present, and future. Some activities actually could use more personnel; most could downsize to an even greater extent.” The buyouts enabled agencies to meet the downsizing goals of the Workforce Restructuring Act while mitigating the need for RIFs. Had it not been for the buyout authority, it is likely that agencies would have needed to RIF a larger number of employees to meet their downsizing objectives. Nevertheless, compared to the workforce as a whole, little, if any, progress was made in reducing the ranks of management control positions, as recommended by NPR in the belief that these positions added to federal bureaucracy. As a proportion of the workforce, the number of management control positions was rarely smaller and, in some cases, was slightly larger than they were before the buyouts began. The buyout authority gave agencies a powerful tool to manage their downsizing by directing personnel cuts where they were needed most. However, it appears that many agencies used buyouts to meet workforce reduction goals without restructuring their agencies’ workforces. As a result, some agencies are reporting skill gaps (see chapt. 3). As demonstrated in our earlier study of downsizing strategies at selected nonfederal organizations, better workforce planning—which would have analyzed what skills were needed and where—combined with using buyouts to help achieve the results of such planning, would likely have made agencies’ downsizing and restructuring efforts more effective. Buyouts allowed agencies to downsize without adversely affecting workforce diversity. Had RIFs been used instead, our prior work suggests that women and minorities might not have fared as well. Most buyouts went to retirement-eligible employees. Although we could not determine whether buyouts influenced individual employees to leave federal service earlier or later than they would have otherwise, separation data suggests that some employees stayed longer to receive a buyout. Agencies generally had favorable views of buyouts as a downsizing tool. They noted that buyouts allowed them to meet mandated workforce ceilings and align their workforce with changing mission requirements, among other positive outcomes. On the other hand, agencies reported that downsizing has had certain adverse operational effects. These included the loss of institutional memory and an increase in work backlogs. To compensate for fewer employees, agencies said they were relying more heavily on reinvention initiatives and automation as well as contracting out. Although such outsourcing could help agencies carry out their work, it was often done without first determining whether it was financially advantageous to the government. Further, without such a determination, it appears to be contrary to the purpose of the Workforce Restructuring Act and the administration’s downsizing goals. The buyouts enabled agencies to downsize while maintaining their workforce diversity. RIFs, an alternative method of downsizing, could have resulted in higher separation rates of such individuals. Although it was not an explicit goal of the buyout legislation, 10 of the 24 agencies responding to our survey indicated that buyouts helped them improve the diversity of their workforces. This is because, as shown in figure 3.1, buyout recipients governmentwide were most likely to be white males. Indeed, of the nearly 83,000 employees who accepted buyouts from fiscal year 1993 through the first half of fiscal year 1995, 52 percent were white males. The demographic profile of buyout recipients is one reason why the personnel reductions that have taken place over the past few years were carried out without disproportionately affecting the employment of women and minorities. To the contrary, as a percentage of the total workforce, women and minorities made slight gains from fiscal year 1992 (the year before buyouts were authorized for DOD agencies) through the first half of fiscal year 1995 (see table 3.1). Had RIFs been used to downsize the federal workforce, it is unlikely that women and minorities would have fared as well. As set forth in 5 U.S.C. 3502, an employee’s retention depends on (1) tenure (i.e., career, career conditional, or temporary); (2) veterans’ preference; (3) length of service; and (4) efficiency or performance rating. The RIF regulations implementing this provision require agencies to rank each employee where jobs are to be eliminated and record this ranking in a retention register. In our prior work at three defense installations, we found that women and minorities were separated at a rate disproportionate to their numbers, partly because they ranked lower than white males in one of the retention factors.Moreover, our analysis of the retention factors for all civilian workers employed by the military services at the end of fiscal year 1991 indicated that minority and women employees may continue to be vulnerable to future RIFs because they ranked lower than their male counterparts in all retention factors. The largest share of the buyouts were paid to employees who took regular or early retirements. Short of surveying these individuals, there is no way of knowing whether the buyout payment motivated them to leave earlier than they would have otherwise, thus generating payroll savings. However, recent separation trends suggest that among all buyout recipients, there were probably a number who stayed on the federal payroll longer in order to receive a buyout payment. As shown in table 3.2, of the 82,771 buyouts made governmentwide between fiscal year 1993 and the first half of fiscal year 1995, when we could identify the type of separation, 40 percent of the buyouts were paid to employees who took regular retirement. Nearly another third were paid to employees who took early retirement. Thus, even without buyouts, a number of these employees might have left anyway. “Due to the heavy, constant and lengthy publicity about potential legislation to authorize buyouts, many individuals eligible to retire earlier had delayed their retirement hoping to cash-in on the extra money, i.e., attrition during the 2 or 3 years prior to the incentive legislation was almost non-existent.” When asked their opinion of the buyout authority as a downsizing tool, most respondents to our questionnaire reported positive outcomes. As shown in table 3.3, nearly all of the agencies responding to our survey reported that buyouts enabled them to mitigate the need for RIFs (as already discussed in chapt. 2); meet mandated workforce ceilings; and align their workforce with changing mission requirements. Several respondents added comments to their questionnaires that elaborated on their views. They include the following: “The buyout authority has enabled the Centers for Disease Control (CDC) to reduce staffing and realign and improve its organization. . . . FTE reductions coupled with attrition have enabled CDC to reach its fiscal year 1995 targeted FTE level while allowing for selected external recruitment for critical scientific and technical vacancies.” “Buyouts helped the Naval Supply Systems Command meet budgeted end-strength targets for the headquarters and its subordinate field activities.” “Buyouts helped limit organizational turmoil/disruption during downsizing by reducing adverse impacts and involuntary separations.” Moreover, in our prior work, we found that buyouts generally saved the government more money than did RIFs. Our analysis showed that compared to a typical RIF, buyouts could generate over $60,000 more in net savings for each vacated position over a 5-year period, depending upon the assumptions made. RIFs can also adversely affect agency operations and employee morale. From fiscal year 1993 to fiscal year 1995, the 24 agencies responding to our survey reported that they lost nearly 85,000 FTEs, or about 12 percent of their allocation. As shown in figure 3.2, when respondents were asked whether they thought downsizing has helped, hindered, or had no effect on their agency’s ability to accomplish its mission, half said that downsizing somewhat or greatly hindered their agency’s mission. Ten agencies could not say, one reported no effect, and only one said that downsizing has helped the agency accomplish its mission. Other operational effects of downsizing reported by agencies are shown in table 3.4. Of these, the largest number of respondents said that downsizing resulted in the loss of corporate memory and expertise and created work backlogs because key personnel were separated. Comments supporting their views include: “. . . ince older, more experienced workers took advantage of [the buyout] there was an initial backlog plus loss of corporate memory. We are adjusting to that by increased training (mostly on-the-job). Morale has been somewhat lower due to the loss of experienced employees. Remaining personnel required to assume additional duties may not have experience.” “Several operating divisions were impacted by the loss of expertise in key management areas including program management, financial management, procurement and grants, personnel, and engineering services.” “Downsizing has had a material impact on the in meeting its critical mission requirements. Backlogs have been created and some “nice to do” actions are no longer being performed or are significantly delayed. There is an impact on the morale of the employees left behind who have been tasked with maintaining productivity and the level of services expected by the customers prior to downsizing.” Given the large-scale downsizing that has taken place over the past few years, agencies reported taking a number of steps to offset workforce reductions. These included various reengineering and automation initiatives as well as contracting out work formerly done by federal employees. To compensate for fewer employees, all of the agencies we surveyed said they were relying on reengineering/reinvention initiatives to streamline their operations, while 20 indicated they were increasing their use of automation. Examples of the steps being taken by agencies include the following: GSA said that it has enlisted the services of a contractor to develop a Federal Operations Review Model (FORM). FORM is the avenue through which all GSA business operations are to be evaluated to determine the most cost effective method of ownership, management, and operations. HHS reported it is deploying staff more efficiently by cross-training auditors and evaluators to assist in investigative work through joint audits, evaluations, and investigations. Its Office of Inspector General (OIG) is also doing joint investigations with other federal law enforcement agencies, including the Secret Service, Federal Bureau of Investigation, Internal Revenue Service, Postal Inspection Service, state governments, and other agencies’ Offices of Inspector General. OIG also said it was making greater use of teleconferencing, the Internet, and other forms of electronic mass communication. The Naval Sea Systems Command said it began reinventing its operations through a program called “Building High-Performance Organizations for the Twenty-first Century.” It focuses on team building, formal and informal employee training, leveraging technology, and promoting leadership throughout all levels of the organization. According to the Naval Sea Systems Command, this effort has resulted in a net cost avoidance of over $160 million and an increased return on investment by 60 percent in at least one program. Despite these initiatives, agencies may still encounter problems in trying to carry out all their work with fewer employees. One agency, for example, said that despite taking steps to compensate for staff losses, such as readjusting workloads to ensure that the highest priority work was accomplished with the available resources, it anticipated shortfalls in production and service levels. Further, the agency estimated that it would take 3 years to return to the current skill level for fire management, one of its key functions. Another agency reported that it was using a substantial amount of overtime to meet production schedules. Another way agencies are compensating for a smaller workforce is by outsourcing work to private contractors. Five of the 24 agencies responding to our survey said they were using contractors to perform work previously done by employees who had taken a buyout. Three of these agencies said they anticipated contracting out more work in the future. Of these five agencies, four reported that some of the contract employees were former federal workers who took buyouts and then returned to the agency under a contract. Three additional agencies indicated that buyout recipients returned as employees of private contractors, but the agencies did not say whether these employees had replaced civil servants who took buyouts. In total, seven agencies indicated that buyout recipients had returned to work as employees of contract firms. The reemployment of buyout recipients as employees of service contractors was not prohibited under the DOD and non-DOD buyout authorities. Further, we did not find any evidence that would suggest that this practice was pervasive, especially when considered in light of the total number of buyouts that have been made to date. The Workforce Restructuring Act and OMB guidance limited an agency’s ability to replace vacated civil service positions with contract employees. Section 5(g) of the act provided that the President shall take appropriate action to ensure that there is no increase in service contracts as a result of the act, unless a cost comparison indicated that such contracts were financially advantageous to the government. In a 1994 memorandum to the heads of departments and agencies, the Acting Director of OMB stated that the administration did not expect agencies to simply contract out the work of employees who left the government as a result of downsizing, and asked for “vigilance” in complying with the provisions of section 5(g). Nevertheless, section 5(g) is unclear and may not be effective in limiting the outsourcing of vacated positions. This is demonstrated in part by the different interpretations of section 5(g) by two agencies that reported that buyout recipients returned to their agencies as contractor employees. At NASA’s Lewis Research Center, 18 of the 199 buyout recipients in fiscal year 1994 returned to Lewis as employees of service contractors. All but 1 received the maximum allowable buyout of $25,000, and 5 of the 18 returned within a week of leaving the agency. NASA did not do a cost comparison because, according to a Lewis official, the former employees were hired under task orders of an existing contract. Because of this, NASA felt that section 5(g) of the Workforce Restructuring Act did not apply. Conversely, guidance issued by FAA required cost comparisons for task orders and other procurement actions. The Department of Transportation’s Inspector General cited this guidance in finding violations of the Workforce Restructuring Act at FAA. In its February 1996 report, the Inspector General found that of the 20 former FAA employees it audited who had returned as contract employees, cost comparisons were done in just three cases. Section 5(g) is also unclear in specifying what type of “appropriate action” agencies shall take to comply with the section. Thus, there is little to ensure accountability on the part of agencies. Aside from these legal issues, our analysis and prior work suggest that better planning, and particularly offering buyouts based on the results of such planning efforts, could have reduced or eliminated the need for contract personnel. For example, one agency told us that when two employees who provided computer services took buyouts, it left a gap in the agency’s technical support. The agency turned to an existing contractor to provide the services, and the contractor supplied the two former employees. Another agency paid a buyout to the only engineer in a particular region. To get the work done, the agency had to rehire that person as a contractor. Available data indicate that buyouts helped agencies downsize without disproportionately affecting the representation of women and minorities in the workforce. Despite the successes of buyouts, a number of agencies said they are being stretched too thin, in part because the agency workforce was reduced, while the workload was not. This is why strategic planning is so important—it establishes an organization’s future goals and work to be carried out. Without meaningful strategic planning, it is unlikely that agencies can continue to downsize and maintain the level of service and productivity that they currently provide taxpayers. Moreover, when strategic planning is combined with workforce planning, as described in chapter 2, skill imbalances—which may be contributing to some of the adverse effects that agencies are experiencing as a result of downsizing—are more easily avoided. Similarly, such comprehensive planning could have better determined the number of potential retirees at agencies, thus permitting better planning to retain or replace key skills. Further, although outsourcing may be economically feasible in certain circumstances, without cost comparisons, the savings to taxpayers are difficult to determine. The Workforce Restructuring Act is unclear in specifying when such cost comparisons are required. Without a cost comparison showing that contracting-out is financially advantageous to government, any savings realized from buyouts would be reduced by increased contracting costs and would appear to be inconsistent with the purpose of the Workforce Restructuring Act and the administration’s downsizing goals. To ensure the most cost-effective use of any future buyouts and to help mitigate the adverse effects that can result from poorly planned downsizing, we recommend that Congress, in reviewing HR 2751 or other legislation that would grant buyout authority to agencies, consider: Requiring agencies to do strategic and workforce planning as a prerequisite for receiving buyout authority and to implement downsizing consistent with the results of their planning efforts. To the extent possible, priority should be given to retaining those employees possessing the knowledge and skills necessary to accomplish the agency’s work. Ensuring that consideration of any buyout legislation is completed quickly and that buyouts, if approved, occur shortly thereafter. This will help reduce the number of employees who might delay their retirements and other types of separations in the expectation of receiving a buyout. Clarifying the kinds of procurement actions (e.g., new contracts, task orders, modifications, etc.) that would be subject to the cost comparison requirement. NPR and OPM provided written comments on a draft of this report. NPR’s comments, along with our responses, are reprinted in appendix III; OPM’s comments and our responses are reprinted in appendix IV. NPR said that the report brought to light several interesting issues, including the administration’s commitment to downsizing the federal workforce, the value of buyouts in reducing the impact of downsizing on employees, and the need for the administration to do a better job of decreasing management control positions as NPR recommended in its September 1993 report. However, NPR expressed concerns with aspects of our methodology and with our proposed matters for congressional consideration. OPM commented that our report was a timely analysis of federal downsizing, and that it was quite helpful for “planning future action relating to reducing the size of the federal workforce in an efficient and fiscally responsible manner.” OPM also expressed concerns about aspects of our methodology. With respect to our methodology, both NPR and OPM stated that we had used data from three different sources ’interchangeably,” and that we had not adequately distinguished the use of buyouts as a tool for downsizing and the broader concept and results of downsizing. We acknowledge that we obtained data from several different sources (e.g., the CPDF, agency streamlining plans, and a survey of agency officials). We did so to address each of the specific objectives of our review. For example, the CPDF data were relevant to our evaluation of the governmentwide use of buyouts and to our analysis of the workforce reductions in the management control positions targeted for reduction by the NPR. Information from agency streamlining plans and our survey were relevant to our evaluation of the extent of agency planning for their reductions and to the broader impacts of downsizing on agency operations. Thus, we do not believe that we used the data interchangeably. However, we have added clarification where appropriate to identify the source and purpose of the data we report. We also agree that it is important to distinguish between the use of buyouts as a tool for downsizing and the broader concept and results of downsizing, and have modified the report to make that distinction clearer. NPR observed that our conclusions and observations would be better understood if additional information were provided to show more details about DOD’s and non-DOD agencies’ use of buyouts, including the different time periods and constraints of the buyout authorities. We agree and have modified the report to clarify those differences. NPR also suggested that it would be helpful to provide additional context for our discussion about the use of contracting out and the reemployment of buyout recipients. In particular, NPR was concerned that it be made clearer that contracting out and reemployment of buyout recipients were occurring on a relatively small scale compared to the use of buyouts governmentwide. We agree and have added language to better provide that perspective. NPR also expressed concern that the matters for congressional consideration would “do more harm than good,” and could cause additional burdens or costs, because workforce planning is difficult and time consuming and would conflict with the recommendation to promptly implement buyout authority. Because strategic and workforce planning have been identified as key elements of successful downsizing in other organizations we have studied, we have long considered such planning to be a critical aspect of carrying out a downsizing effort. We agree that such planning can be a challenge to do successfully, since downsizing objectives are not always consistent with mission requirements or organizational needs, but we continue to believe that strategic and workforce planning should be part of the decisions regarding the use of buyouts. Finally, NPR commented that our recommendation that additional guidance be provided concerning the requirement for cost comparisons in the contracting out of activities carried out by employees who accepted buyouts would further complicate an already overly restrictive and burdensome law. On the basis of our observations that NASA and FAA had different interpretations of the cost comparison requirement, we believe that additional guidance would clarify the issue for agencies, with little if any additional burden or cost. NPR and OPM each made additional specific comments, which are addressed as appropriate in appendixes III and IV.

Summary: Pursuant to a congressional request, GAO reviewed several issues related to the federal employee buyout program, focusing on: (1) whether the Federal Workforce Restructuring Act's downsizing goals are being achieved; (2) whether agencies' use of buyouts reflects National Performance Review (NPR) downsizing goals; (3) the demographic results of the buyouts; and (4) how agencies view buyouts as a downsizing tool. GAO found that: (1) between January 1993 and March 1996, non-postal executive civilian employment decreased by 230,500 employees; (2) employee buyouts have minimized the use of reductions in force (RIF); (3) agencies have not met NPR restructuring goals, since the percentage of management positions has not significantly changed; (4) agencies often set lower downsizing goals for management positions, since they do not specifically target buyouts to these positions; (5) agencies that plan their buyouts have more successful outcomes; (6) buyouts have allowed agencies to increase the representation of minorities and women in the workforce, who likely would have been adversely affected by RIF; (7) 72 percent of buyouts have gone to employees taking regular or early retirement, and some employees may have delayed their separation so they could receive buyouts; (8) most agencies believe buyouts have been an effective downsizing tool, but downsizing has caused operational problems such as the loss of corporate memory and expertise, increased workloads and backlogs, skill imbalances, and more overtime; (9) some agencies believe that downsizing has hindered their ability to carry out their missions; (10) agencies have used reengineered work processes and automation to offset personnel reductions, but a few agencies are using contract employees, some of whom are buyout recipients; (11) outsourcing work may offset some downsizing benefits and be inconsistent with the act's purpose; and (12) agencies could have mitigated some of the adverse impacts of downsizing through better strategic and workforce planning.