Beginning in 1993, both Congress and the administration agreed that federal employment levels should be cut as a means of reducing federal costs and controlling deficits. Through a series of executive orders and legislation, goals were established for reducing federal staffing levels. Two driving forces in the reductions were the Federal Workforce Restructuring Act of 1994 and the National Performance Review. The act, passed in March 1994, mandated governmentwide reductions of 272,900 FTE positions through fiscal year 1999. The National Performance Review, the administration’s major management reform initiative, recommended that any reductions be accomplished through agency efforts to streamline operations, reduce management control and headquarters positions, and improve government operations through reinvention and quality management techniques. In addition to reducing their workforces and streamlining their operations, agencies are required to measure their performance. The Government Performance and Results Act of 1993 requires agencies to (1) develop strategic plans covering a period of at least 5 years and submit the first of these plans to Congress and OMB by the end of fiscal year 1997, (2) develop and submit annual performance plans to OMB and Congress beginning for fiscal year 1999 containing the agencies’ annual performance goals and the measures they will use to gauge progress toward achieving the goals, and (3) submit annual reports on program performance for the previous fiscal year to Congress and the President beginning with fiscal year 2000. In addition, the Results Act established requirements for pilot projects so that participating agencies could gain experience in using key provisions of the Results Act and provide lessons for other agencies as well. Over 70 federal organizations, including GSA, HUD, and OPM, participated in the pilot projects for performance planning and reporting. Between fiscal years 1993 and 1996, when the federal civilian workforce was cut by about 12 percent, the workforces of certain agencies were reduced by larger percentages. These included cuts of 14 percent at HUD, 13 percent at DOI, 22 percent at GSA, 13 percent at NASA, and 42 percent at OPM. To determine which components within HUD, DOI, GSA, NASA, and OPM were downsized and to what extent, we examined agency FTE data for fiscal years 1993 through 1996. These data were organized by component. To address our remaining objectives, we selected one component from each agency, primarily on the basis of the percentage it downsized; however, we also considered such factors as public interest, the effects of downsizing on safety, and privatization of agency functions as selection criteria. We selected HUD’s Office of Housing and GSA’s PBS because, on a percentage basis, they accounted for the largest portion of their parent agencies’ staffing reductions. We selected DOI’s BOR because it was one of the most heavily downsized of DOI’s components, and within BOR, we focused on the Denver Reclamation Service Center because of its central role in BOR operations. Within NASA, the Human Space Flight Program experienced the greatest percentage of downsizing, and from the program’s centers, we focused on KSC because of its high profile as the space shuttle launch and recovery site and because of public concerns that had been expressed about shuttle safety. We selected OPM’s Investigations Service because many of its functions had been privatized. To determine what actions were taken to maintain performance in the selected components as a result of downsizing, the results of these actions on performance, the effects of downsizing on customer satisfaction, and lessons learned, we interviewed officials from the parent agencies, components, unions, and employee associations. We also interviewed a small number of randomly selected BOR and KSC employees who were not represented by unions to obtain their views on agency performance during downsizing. We reviewed streamlining, performance, and customer service plans; where available, we examined performance and customer satisfaction measurement data. We did not evaluate the performance or customer satisfaction measures used by the components or verify their performance measurement or customer satisfaction scores. Because of limited customer satisfaction data at the Office of Housing, BOR, and the Investigations Service, we interviewed a small number of randomly selected customers to determine their satisfaction with performance during downsizing. The lessons learned by components reflect the judgment of component officials. We did not independently assess how well these lessons were followed during components’ actual downsizing experiences. The results of our work are limited to the components reviewed and cannot be projected to the entire agency or governmentwide. Our work was performed at the headquarters of the parent agencies and components in Washington, D.C.; at the KSC in Florida; and at BOR’s Reclamation Service Center in Denver, CO. We also interviewed BOR employees, KSC employees, HUD customers, BOR customers, and OPM customers in various locations throughout the United States. We performed our work between October 1996 and November 1997 in accordance with generally accepted government auditing standards. We asked HUD, DOI, GSA, NASA, and OPM to provide comments on a draft of this report. The comments provided are discussed at the end of this letter. Nearly all organizational components in each agency were affected, some more than others. The downsizing of components at the five parent agencies we reviewed ranged from around 2 percent to 100 percent. In addition, the effect of each component’s downsizing on the parent agency’s total reductions varied. For example, HUD’s Office of Housing’s FTE reductions between fiscal years 1993 and 1996 were 52 percent of HUD’s total reductions, while BOR’s FTE reductions were 15 percent of DOI’s total reductions for the period. The extent of agency downsizing by selected organizational component is shown in table 1. Although officials told us it was difficult to isolate actions that agencies and their components took to maintain performance independently of downsizing from those taken because of downsizing, the actions they said were taken to maintain performance amid downsizing fell into three categories: refocusing their missions, reengineering their work processes, and taking steps to build and maintain employee skills. Detailed information on each component is provided in appendixes I through V. The National Performance Review, budget reductions, and workforce reductions generally have led federal agencies to rethink how they operate and work to reinvent themselves to become more efficient organizations. According to component officials, most of the five components, under the guidance of their parent agencies, refocused their missions primarily to increase their efficiency. For example, BOR changed its emphasis from water project construction to water resources management because of the increased demand on limited water resources and cutbacks in federal spending. NASA’s Human Space Flight program shifted its focus and scarce resources from operations—which it believed could be conducted more efficiently by private vendors—to its primary mission, research and development. OPM created US Investigations Services (USIS), Inc., to do the background investigations work OPM’s Investigations Service previously provided to other agencies. In addition to refocusing missions, components reengineered their work processes to improve effectiveness and/or efficiency. Changes to work processes included consolidating functions into fewer locations, aligning operations more closely with private sector business practices, modernizing data processing systems, placing increased decisionmaking authority in field offices, and increasing reliance on contractors. HUD’s Office of Housing, for example, consolidated single family housing activities from 17 field offices into 1 homeownership center, which officials said helped reduce processing times. The Office plans further consolidations by the year 2000. KSC changed from its traditional contractor oversight role to one of “insight.” Under oversight, KSC directly oversaw contractors on a continual basis, but under insight, KSC will directly oversee contractor processes on a periodic basis. Another component, OPM’s Investigations Service, privatized its investigations operations through the establishment of a private corporation owned by former Investigations Services employees under an Employee Stock Ownership Plan. An Investigations Service official said that USIS completed about 20 percent more investigations in fiscal year 1997 than the Investigations Service did in fiscal year 1996. Along with reengineering their work processes, components generally took steps to help ensure that they had the skilled workforces needed to maintain their performance in a downsized environment. These steps included retraining employees for additional responsibilities and consolidating expertise in fewer locations. For example, according to a PBS official, PBS lacked a workforce suited to its mission; however, it was training its staff to develop a workforce with the necessary skills. BOR officials said that although their workforce had retained the appropriate skills and experience, employees were being retrained and rotated among functions to develop future supervisors and managers. Nevertheless, some officials were concerned about the sufficiency of current or future workforces for some components. In March 1997, the HUD Inspector General (IG) reported that the Office of Housing did not have the staffing levels and skill mixes it needed. The IG also reported staffing shortages in some areas, barriers to effective staff redeployment, and mismatches between skills and needs. The report stated that staff reductions would be compounded as anticipated budget restrictions led to further reductions by the end of fiscal year 2000. The report also said staffing needs continued to be most critical in the multifamily insured portfolio monitoring area and, to a lesser degree, in the multifamily note servicing area. The IG said this prevented the component from placing adequate resources on multifamily loss mitigation functions and properly managing troubled multifamily assets. In October 1997, HUD began implementing its 2020 Management Reform Plan, which included a specific initiative to refocus HUD’s mission and retrain its workforce to perform a wider variety of interdisciplinary tasks. Office of Housing officials reported to us that one expected effect of the HUD 2020 Management Reforms will be that Housing will be able to focus a highly trained staff with adequate automated systems on the multifamily portfolio. Also, because of concern about the safety of the space shuttle as KSC downsized and a new contract for shuttle operations was implemented, NASA’s Aerospace Safety Advisory Panel reviewed issues associated with program safety and management.