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.