THE WHITE HOUSE

Office of the Vice President

For Immediate Release September 7, 1993

Chapter 4

Cutting Back to Basics

I feel like that person in the old movie who writes

in lipstick on bathroom mirrors, "Stop me before I kill again."

However, in my case, the legend should be, "Stop me before I steal

some more."

Letter from Bruce Bair of Schoenchen, Kansas, to Vice

President Al Gore, May 24, 1993

Bruce Bair admitted to "stealing" from the federal

government--at a rate of about $11 an hour. His job was checking

the weather in Russell, Kansas, every hour, and reporting to the

Federal Aviation Administration. The FAA used his information to

warn planes in the area about bad weather. But Russell isn't a busy

flight station any more. Bair saw just two landings in more than a

year during his night shift. Days were only slightly busier. Before

the advent of automated weather gathering devices, human weather

watchers at Russell and at other small stations throughout the

Midwest were vital for aircraft safety. Today, they could be

replaced with machines. "From my experience with the machine,"

wrote Bair, "it is very adequate to protect the air space over

Russell." In fact, Russell has had a machine for some time, but the

FAA had not yet eliminated the human staff.

Bair concluded his letter to Vice President Gore with these

words: "I feel there is very little doubt among professionals that

we are basically useless here." A few months later, he quit. Now he

says, "I'm no longer stealing from the government."1

Bruce Bair's story tells us much about our federal government:

its entrenchment in old ways, its reluctance to question

procedures, and its resistance to change. Its inflexibility has

preserved scores of obsolete programs. This is not news to most of

us--obsolescence is part of our stereotype of government.

Why is it so difficult to close unneeded programs? Because

those who benefit from them fight to keep them alive. While the

savings from killing a program may be large, they are spread over

many taxpayers. In contrast, the benefits of keeping the program

are concentrated in a few hands. So special interests often prevail

over the general interest.

That's why we can't eliminate unnecessary programs simply by

making lists. Politicians, task forces, commissions, and newspaper

articles have been ridiculing wasteful programs for as long as we

have enjoyed democratic government. But most programs survive

attack. After a decade of tight budget talk, for example, federal

budget expert Allen Schick says he can identify just three major

nondefense programs eliminated since 1980: general revenue sharing,

urban development action grants, and the fast breeder reactor

program.2

To shut down programs, therefore, we must change the

underlying culture of government. As we described in the preceding

chapters, we will do this by introducing market dynamics, sharing

savings from cuts with agencies, exposing unnecessary programs to

the spotlight of annual performance measures, and giving customers

the power to reject what they do not need. As government begins

operating under these new rules, we are confident that agencies

will request the consolidation and elimination of programs.

Billions of dollars will be returned to taxpayers or passed on to

customers.

We will begin this process today:

First, we will eliminate programs we do not need--the

obsolete, the duplicative, and those that serve special, not

national interests.

Second, we will collect more--through imposing or increasing

user fees where pricing makes economic sense, and by collecting

what the government is owed in delinquent debt or fraudulent

overpayment of benefits.

Third, we will reengineer government activities, making full

use of computer systems and telecommunications to revolutionize how

we deliver services.

The actions and recommendations described in this Chapter are

the first dividend on what we can earn from streamlining

government. They won't be the last--or even the largest. The

strategy of the National Performance Review differs from that of

previous budget cutting efforts. Our recommendations have been

discussed thoroughly with agency heads to determine which cuts are

warranted, feasible, and can be done quickly. We are ready to act

with the full force of the cabinet.

Step 1: Eliminate What We Don't Need

After World War II, a British commission on modernizing

government discovered that the civil service was paying a full-time

worker to light bonfires along the Dover cliffs if a Spanish Armada

was sighted. The last Spanish Armada had been defeated some years

before--in 1588, to be precise.

This story may be apocryphal. But not all such stories are. In

Brooklyn, New York, there is a Federal Tea Room where a federal

employee sips imported tea to test its quality.3 For one hundred

years, taxpayers paid for the position. It was not until press

coverage angered enough members of Congress that things were

changed: now, tea importers pay to have their tea tested--although

the taster remains a government employee.

These stories capture an essential truth about governments;

they rarely abandon anything. Like the FAA that employed Bruce Bair

to check the weather, federal agencies do many things not because

they make sense, but because they have always been done that way.

They become like the furniture: They are simply there.

Other programs are not so much obsolete as duplicative. When

confronted with new problems, we instinctively create new programs.

But we seldom eliminate the old programs that have failed us in the

first place. Still other programs were never needed in the first

place. They were created to benefit influential industries or

interest groups. The National Performance Review has targeted

several programs in each of these categories for immediate

elimination.

Although we make specific recommendations in the pages that

follow, we believe the government must tackle the problem

systematically. The single best method would be to give the

President greater power to eliminate pork that creeps into federal

budgets.

Action: Give the President greater power to cut items from spending

bills.4

Today, the President's powers to cut spending are

limited--more limited than most of the nation's fifty governors. He

can either sign or veto appropriations bills; he can't veto

individual items--a power most governors have. For the President to

cut wasteful spending, he needs the power of what is called, in

Washington, "expedited rescission." Under current law, the

President can submit proposed rescissions to Congress, which then

has 45 legislative days to act. If Congress does not act, proposals

are rejected. The President should have greater authority to reject

individual items.

Broader rescission powers were envisioned in HR 1578, which

the House passed in late April 1993. This bill would force Congress

to vote on the President's proposals to cancel funding, rather than

let it kill those requests by ignoring them, as under current

procedures. If enacted, the new procedure would, as President

Clinton wrote in a letter to House Speaker Thomas S. Foley,

"provide an effective means for curbing unnecessary or

inappropriate expenditures without blocking enactment of critical

appropriations bills."

Eliminate the Obsolete

Not all employees of useless programs act with Bruce Bair's

forthrightness. But that doesn't mean their offices or programs are

any more useful. The vast nationwide network of 30,000 federal

government offices, for example, reflects an era when America was

a rural country and the word "telecommunications" was not yet in

the dictionary. While circumstances have changed, the government

hasn't. As a result, workloads are unevenly distributed--some field

offices are underworked, others are overworked, some are located

too far from their customers to serve them well, and few are

connected to customers through modern communications systems.

Action: Within 18 months, the President's Management Council will

review and submit to Congress a report on closing and consolidating

federal civilian facilities.5

All agencies will develop strategies to cut back or

consolidate their field office systems in ways that are compatible

with our principle of better services to customers. The President's

Management Council will submit the report to Congress within 18

months showing which offices may be closed, which can be

consolidated and which can be slimmed. We urge Congress to act

quickly on this package.

This is a precious opportunity to make fundamental change in

government. I look forward to working together on areas of mutual

agreement.

U.S. Rep. William F. Clinger (R. Penn.)

We are confident that the savings will be large because

several agencies are already committed to far-reaching reforms in

their field office systems. Their efforts will be models for those

that haven't moved as quickly as they prepare their plans for the

President's Management Council.

Action: The Department of Agriculture will close or consolidate

1,200 field offices.6

The Department of Agriculture (USDA) operates the most

elaborate and extensive set of field offices--more than 12,000

across the country. Under Secretary Mike Espy's leadership, the

department is planning dramatic reforms. USDA runs 250 programs in

such vital but diverse areas as farm productivity, nutrition, food

safety, and conservation. Its focus has shifted dramatically since

the 1930s, when its present structure evolved: 60 percent of its

budget now deals with nutrition; less than 30 percent with

agriculture.

As the basis for reorganization, USDA will concentrate its

activities on six key functions: commodity programs, rural

development, nutrition, conservation, food quality, and research.

This focus will allow it to consolidate from 42 to 30 agencies and

from 14 to six support staffs, cutting administrative costs by more

than $200 million over five years.

As part of this process, USDA will consolidate or close about

1,200 field offices within the Agricultural Stabilization and

Conservation Service, the Soil Conservation Service, the Farmers

Home Administration, the Cooperative Extension System, and the

Federal Crop Insurance Corporation. Some of these offices now serve

suburban counties, others have few rural customers left. In 1991,

the General Accounting Office reported that in Gregg County, Texas,

the Agricultural Stabilization and Conservation Service office

served only 15 farmers; in Douglass County, Georgia, two USDA

programs served a total of 17 farmers.7

Field office closings will be determined by a six-part scoring

system developed to evaluate each office. Once in place, this

restructuring will save more than $1.6 billion over five years and

eliminate the equivalent of 7,500 full time employees. Customers

will be better served because operations will be combined in

multi-purpose USDA field service offices.

Action: The Department of Housing and Urban Development will

streamline its regional office system.8

The Department of Housing and Urban Development (HUD) has also

developed a strategy to close offices without cutting customer

services. Roughly 10,000 of HUD's 13,500 employees work in field

offices, but their workloads vary: the New York regional office

monitors 238,000 federal public housing units, the Seattle office

only 30,000 units. Management restructuring, described in the

previous chapter, will streamline HUD's field operations.9 Under a

five-year plan, HUD will eliminate all regional offices, pare down

its 80-field office system, and cut its field staff by 1,500

people.

Action: The Department of Energy will consolidate and redirect the

mission of its laboratories, production, and testing facilities to

meet post-Cold War national priorities.10

For the first time in 50 years, the United States is not

engaged in producing or testing nuclear weapons. Significant

reductions in funding for these programs are already

underway--$1.25 billion in fiscal year 1994 alone. Yet, the

Department of Energy's weapons laboratories and production plants

represent an irreplaceable investment in world-class research and

development, intellectual, and computing capabilities, carefully

cultivated over five decades. As the department redirects its

facilities, the challenge is to eliminate unnecessary activities,

while shifting appropriate resources to meet non-defense

objectives.

Under Secretary of Energy Hazel O'Leary's leadership, DOE will

review its labs, weapons production facilities, and testing sites

in the context of its mission--and will recommend the phased

consolidation or closure of obsolete or redundant facilities. The

secretary will also identify facilities that other government

agencies may find useful, encourage laboratory managers to bid on

contracts with other agencies, and increase cooperation with the

private sector.

Action: The U.S. Army Corps of Engineers will reduce the number of

regional offices.11

The U.S. Army Corps of Engineers, too, has a plan: it will cut

its divisional offices from 11 to 6. It cannot, however, close

district offices because Congress prevented such actions by law--an

example of costly congressional micro-managing. The Corps has

carried out the nation's largest civil works projects. But its role

is changing: Fewer large projects, more complex environmental

projects.

Action: The Small Business Administration will reduce the number of

field offices and consolidate services.12

The Small Business Administration is developing criteria for

consolidating field offices based on the customer load. It has

already demonstrated in pilot programs how to cut local office

staff by providing routine loan servicing for several local SBA

offices and by adopting automated procedures for processing

applications for the agency's many different loan programs.

Action: The U.S. Agency for International Development will reduce

the number of its overseas missions.13

With the dramatic changes in U.S. foreign policy, agencies

with overseas operations are rethinking their responsibilities. J.

Brian Atwood, administrator for the U.S. Agency for International

Development (AID), believes the number of countries in which his

agency operates missions can be cut from 105 to perhaps 50. Cuts

will be made in the number of missions in developed countries so

that the agency's efforts can focus on those nations that can't

absorb or manage assistance or on truly underdeveloped countries.

Action: The United States Information Agency will cut the number of

libraries and reference centers it pays for overseas.14

Savings are also possible in overseas facilities maintained by

the United States Information Agency. USIA maintains libraries and

other facilities in many developed countries, as well as in

emerging countries. While facilities in the latter are often

crowded, those in developed countries attract few customers: In

Canada, for example, a USIA library attracted only 568 walk-in

visitors in a year. Eliminating some of these facilities or turning

them over to their host countries could save an estimated $51.5

million through 1999.15

We'll challenge the basic assumptions of every program, asking

does it work, does it provide quality service, does it encourage

innovation and reward hard work. If the answer is no, or it there's

a better way to do it or if there's something that the federal

government is doing, it should simply stop doing, we'll try to make

the changes needed."

President Bill Clinton

Announcement of initiative to streamline government March 3, 1993

Action: The Department of State will reduce by 11 the number of

Marine Guard detachments it employs.16

By consolidating the storage of top secret documents in

overseas missions, the Department of State can reduce the need for

Marine Guard detachments. The Bureau of Diplomatic Security has

identified 11 posts where the Marine Security Guard program could

be eliminated simply by moving documents to other places.

Action: Pass legislation to allow the sale of the Alaska Power

Administration.17

The federal government once played a crucial role in

financing, developing and operating the Alaska Power Administration

(APA). No longer. APA was created to encourage economic development

in Alaska by making low-cost hydro-power available to industry and

to residential customers. The project has succeeded and can now be

turned over to local ownership.

The federal government retains four other Power Marketing

Administrations (PMAs) which own hydropower facilities and sell the

power they generate to public, private, and cooperative utilities

at cost. These PMAs serve customers spread throughout many states,

so the facilities cannot easily be sold to a local entity. APA, on

the other hand, is unique: Its facilities and customers are located

in a single state. Various public agencies have already urged the

federal government to sell the APA facilities. APA signed purchase

agreements to do so before 1993.

The sale is supported by state and local officials, Alaska's

congressional delegation, the Energy Department, the Office of

Management and Budget and the House Appropriations Committee. But

Congress has yet to pass the necessary authorizing legislation. We

urge it to do so. The sale would bring $52.5 million into the U.S.

Treasury and save millions more in yearly operating costs.

Action: Terminate federal grant funding for Federal Aviation

Administration higher education programs.18

Success has rendered two FAA federal subsidies obsolete. They

have met the objectives for which they were established and can now

be terminated. For example, in 1982, the Federal Aviation

Administration (FAA) launched a program to improve the development

and teaching of aviation curricula at universities and other

post-secondary schools. The goal was to produce graduates better

prepared for jobs in the industry.

So far, the FAA has spent about $4 million on consultants to

upgrade schools' programs and another $100 million was

appropriated--most at Congress' insistence not at FAA's request--to

be given out in grants so that the schools could buy better

facilities and equipment. Many schools now offer high quality

aviation training programs without support from the FAA. Since $45

million of the appropriation remains unspent, stopping the program

now can save this money.

Another program we no longer need is the Collegiate Training

Initiative for Air Traffic Controllers. It was set up to determine

whether other institutions could offer the same quality training

for controllers as the FAA Academy does. If they could, it would

save the government the $20,000 it costs to train each new

controller at the academy. The answer is clearly yes. Five schools

participating in the program are producing well-qualified

controllers, although only two are receiving government subsidies.

It is now time to phase out these remaining subsidies.

Action: Close the Uniformed Services University of the Health

Sciences.19

The Department of Defense once faced shortages of medical

personnel, particularly of physicians. So, in 1972, Congress

created the Uniformed Services University of the Health Sciences

(USUHS). Today, USUHS provides less than 10 percent of the

services' physicians at a cost much higher than other programs:

USUHS physicians cost the federal government $562,000 each, while

subsidies under the Health Professionals Scholarship Program cost

only $111,000 per physician. Closing the facility and relying on

the scholarship program and volunteers would save DOD $300 million

over five years.

Action: Suspend the acquisition of new federal office space.20

Over the next 5 years, the federal government is slated to spend

more than $800 million a year acquiring new federal office space

and courthouses. Under current conditions, however, those

acquisitions don't make sense.

The federal workforce is being reduced, the Resolution Trust

Corporation is disposing of real estate once held by failed savings

and loans at 10 to 50 cents on the dollar, commercial office

vacancy rates are running in the 10 to 25 percent range, and U.S.

military bases are being closed. All of these factors suggest that

the government has many potential sources for office space without

buying any more buildings.

The GSA administrator will place an immediate hold on GSA's

acquisition--through construction, purchase, or lease--of net new

office space. The administrator will begin aggressive negotiations

for existing and new leases to further reduce costs. And GSA will

reevaluate and reduce the costs of new courthouse construction.

These actions should save at least $2 billion over the next 5

years.

Eliminate Duplication

Government programs accumulate like coral reefs--the slow and

unplanned accretion of tens of thousands of ideas, legislative

actions, and administrative initiatives. But, as a participant at

the Vice President's HUD meeting told us, "There isn't always a

rational basis for the way we are set up in this organization. Over

the years, branches have developed; they have been taken over by

divisions; and we don't look at the organization as a whole." Now

we must clear our way through these reefs.

The National Performance Review has looked at government as a

whole. We have identified many areas of duplication. What follow

are recommendations for the first round of cuts and consolidations.

Action: Eliminate the President's Intelligence Oversight Board.21

No branch of government--including the Executive Office of the

President--is free of duplication. We will begin the streamlining

process in the EOP, where there are two groups intended to oversee

intelligence--tripping over each other and allowing some issues to

fall through jurisdictional cracks. The President, by directive,

should terminate the President's Intelligence Oversight Board and

assign its functions to a standing committee of the President's

Foreign Intelligence Advisory Board.

Action: Consolidate training programs for unemployed people.22

Government's response to changing circumstance often creates

duplication. As the economy has evolved, for example, we have

created at least four major programs to help laid-off workers: the

Economic Dislocation and Worker Adjustment Assistance Act (EDWAA),

which spends $517 million annually for those who lose their jobs

through plant closings or major layoffs; the Trade Adjustment

Assistance program (TAA), which distributes $170 million through

State Employment Security Agencies for those who lose jobs due to

increased imports; the Defense Conversion Adjustment program, which

dispenses $150 million for those unemployed because of defense

cuts; and a program that allocates $50 million for those unemployed

due to the enforcement of new clean air standards. Even more

programs are in the pipeline.

But multiple programs aimed at common goals don't work well.

Administrative overhead is doubled and services suffer. Because

each training program is intended to help people rendered jobless

for different reasons, people seeking work must wait for help until

the government determines which program they are eligible for. The

process is slow. The General Accounting Office estimates that less

than one-tenth of TAA-eligible workers receive any benefits within

15 weeks of losing their jobs, for example.23

The unemployed care less about why they lost their jobs than

about enrolling in training programs or finding other jobs. Labor

Secretary Robert Reich is proposing legislative changes to

consolidate programs for workers who lose their jobs, regardless of

the cause. His bill would also allow more funds to be used before

workers lose their jobs. In Chapter 1, we recommend the

consolidation of 20 education, employment, and training programs.

We urge Congress to support both initiatives.

Action: Consolidate the Veterans' Employment and Training Service

and the Food Stamp Training Program into the Employment and

Training Administration.24

Several training programs offer similar services through the same

offices--sometimes even using the same employees--but requiring

separate management and reporting systems. We can cut bureaucracy

and paperwork while improving services to the customer by merging

these programs.

Consider the case of the Veterans' Employment and Training

Service (VETS) in the Department of Labor (DOL). Another operation

in DOL, the Employment and Training Administration (ETA), funds

local Employment Services, which, in turn, house staff dedicated to

providing veterans with advice on training programs. But these

staff are legally prohibited from serving non-veterans. So, if a

local office is crowded with non-veterans, these specialists cannot

help out--even if they have no veterans to serve. Moving VETS into

the ETA will generate much greater efficiency in the use of staff,

leading to shorter lines and better service.

We also recommend moving the Food Stamp Training Program into

the ETA. Most training under the program is already performed under

contract by ETA staff, by the Employment Service, or by local

education institutions. Overall, ETA can offer poor people a much

more comprehensive range of job-search and training services than

can the Food Stamp Training Program.

Action: Reduce the number of Department of Education programs from

230 to 189.25

The nation's concern with education has led to an explosion of

programs at all levels of government. The Education Department now

funds 230 programs, many of which overlap. Since many are grants to

state and local governments, we face duplication in

triplicate--multiple administrative systems at all levels of

government.

Of these 230 programs, 160 will award money through 245

different national competitions this year. The cumbersome

administrative systems divert money from activities more central to

the department's mission. These programs should be reduced in

number and their procedures streamlined.

The department has begun reforming and streamlining programs,

particularly those under the Elementary and Secondary Education

Act. This will make it easier for schools to get the money without

jumping through so many bureaucratic hoops. We propose to eliminate

and consolidate more programs that have served their original

purpose or would be more appropriately funded through non-federal

sources. The savings, as much as $515 million over 6 years, can be

better used for other departmental priorities. For example:

The department administers two programs--the National

Academy of Space, Science, and Technology program and the National

Science Scholars program--that give scholarships to post-secondary

math, science, and engineering students. These two should be

combined.

State Student Incentives Grants were created to encourage

states to develop needs-based student aid programs. Since all

states now have their own programs, the federal program is no

longer needed.

The Research Libraries' program funds research libraries to

build their collections. University endowments could and should

support these efforts, without federal subsidy.

Action: Eliminate the Food Safety and Inspection Service as a

separate agency by consolidating all food safety responsibilities

under the Food and Drug Administration.26

Sometimes duplication among federal programs can make us

ill--even kill us. Take the way we inspect food for contamination.

Several agencies are involved, each operating under separate

legislation, with different standards, and with staff trained in

different procedures. In 1992, the Food and Drug Administration

(FDA)--part of the Department of Health and Human Services--devoted

about 255 staff years to inspecting 53,000 food stores, while the

Food Safety and Inspection Service (FSIS)--part of the Department

of Agriculture--devoted 9,000 staff years to inspecting 6,100 food

processing plants.

But this duplication doesn't mean that we cover all sources of

contamination thoroughly. Meat and poultry products must be

inspected daily, while shellfish, which have the same risk of

causing food borne illness, are not required by law to be federally

inspected. Too many items fall through the bureaucratic cracks. Not

only that, enforcement powers vary among the different agencies. If

the FDA finds unsanitary plant conditions or contaminated products,

compliance is usually voluntary because the agency lacks FSIS's

powers to close plants or seize or detain suspect or known

contaminated products. And if one agency refers a problem to

another, follow up is at best slow and at worst ignored.27

With no fewer than 21 agencies engaged in research on food

safety, often duplicating each other's efforts, we aren't

progressing fast enough in understanding and overcoming

life-threatening illness. As recent and fatal outbreaks of

food-borne illness attest, multiple agencies aren't adequately

protecting Americans.

Under our recommended streamlining, the FDA would handle all

food safety regulations and inspection, spanning the work of the

many different agencies now involved. The new FDA would have the

power to require all food processing plants to identify the danger

points in their processes on which safety inspections would focus.

Where and how inspections are carried out, not the number or

frequency of inspections, determines the efficiency of the system.

The FDA would also develop rigorous, scientifically based

systems for conducting inspections. Today, we rely, primarily, on

inspection by touch, sight, and smell. Modern technology allows

more reliable methods. We should employ the full power of modern

technology to detect the presence of microbes, giving Americans the

best possible protection. Wherever possible, reporting should be

automated so that high-risk foods and high-risk food processors can

be found quickly. Enforcement powers should be uniform for all

types of foods, with incentives built in to reward businesses with

strong safety records.

Action: Consolidate non-military international broadcasting.28

The U.S. government funds several overseas broadcasting

services--including those operated by the United States Information

Agency's Bureau of Broadcasting, which accounts for one-third of

the agency's $1.2 billion budget, and services such as Radio Free

Europe and Radio Liberty, which have budgets totalling $220 million

a year. All non-military international broadcasting services should

be consolidated under the USIA. Part of this was propsed in the

President's budget request for fiscal year 1994.

Action: Create a single civilian polar satellite system.29

Collecting temperature, moisture, and other weather and

environmental information from polar satellites is a vital task,

both for weather forecasting and for global climate studies. But we

have two different systems, one run by the Department of Defense

and the other by the National Oceanic and Atmospheric

Administration. On top of this, the National Aeronautics and Space

Administration is planning a third. Over the next ten years these

three systems will cost taxpayers about $6 billion. Congress should

enact legislation requiring these agencies to consolidate their

efforts into a single system, saving as much as $1.3 billion over

the same period.

Action: Transfer the functions of the Railroad Retirement Benefits

Board to other agencies.30

The government can operate with fewer pension management

systems. In 1934, Congress set up the Railroad Retirement Board to

protect railroad workers in the face of financial problems, to

allow workers to transfer among railroads, and to encourage early

retirement to create jobs for the millions of younger workers. In

those days, the huge national public pension system, Social

Security, was not yet in place; neither were the state-federal

unemployment insurance systems nor Medicare.

Today, it makes no sense for a separate agency to administer

benefits for a single industry. Social Security Administration can

administer social security benefits for railroad workers as it

administers them for everyone else; unemployment insurance systems

can serve unemployed railroad workers as well as it serves other

unemployed people; and the Health Care Financing Administration can

incorporate railroad workers' health care benefits into the

Medicare system.31

Action: Transfer law enforcement functions of the Drug Enforcement

Administration and the Bureau of Alcohol, Tobacco, and Firearms to

the Federal Bureau of Investigation.32

More than 140 federal agencies are responsible for enforcing

4,100 federal criminal laws. Most federal crimes involve violations

of several laws and fall under the jurisdiction of several

agencies; a drug case may involve violations of financial,

firearms, immigration and customs laws, as well as drug statutes.

Unfortunately, too many cooks spoil the broth. Agencies squabble

over turf, fail to cooperate, or delay matters while attempting to

agree on common policies.

The first step in consolidating law enforcement efforts will

be major structural changes to integrate drug enforcement efforts

of the DEA and FBI. This will create savings in administrative and

support functions such as laboratories, legal services, training

facilities, and administration. Most important, the federal

government will get a much more powerful weapon in its fight

against crime.

When this has been successfully accomplished, we will move

toward combining the enforcement functions of the Bureau of

Alcohol, Tobacco and Firearms (BATF) into the FBI and merge BATF's

regulatory and revenue functions into the IRS. BATF was originally

created as a revenue collection agency but, as the war on drugs

escalated, it was drafted into the law enforcement business. We

believe that war would be waged most successfully under the

auspices of a single federal agency.

Eliminate Special Interest Privileges

Some programs were never needed. They exist only because

powerful special interest groups succeeded in pushing them through

Congress. Claiming to pursue national objectives, Congress, at

times, funds programs that guarantee profits to specific industries

by restricting imports, raising prices, or paying direct and

unnecessary subsidies.

Special interest groups come in all shapes and sizes and their

privileges are as diverse. Producers of crops, residents of certain

areas, and holders of some occupations have all succeeded in

persuading Congress that their needs are special and their claim on

special treatment is deserving.

Action: Eliminate federal support payments for wool and mohair.33

During World War II and the Korean conflict, the U.S. was

forced to import about half the wool needed for military uniforms.

To cut dependence on foreign suppliers, Congress in 1954 passed the

National Wool Act, providing direct payments to American wool

producers. The more wool a producer sold, the greater the

government subsidy. In 1960, the Pentagon removed wool from its

list of strategic materials. But the Wool Act remained in effect--a

tribute to adept lobbying.

Between 1994 and 1999, wool subsidies will cost an estimated

$923 million. About half the payments will go to ranchers who raise

Angora goats for mohair--a product that is 80 percent exported. So

American taxpayers will subsidize the price of mohair sweaters

overseas! In some years, subsidies provide more income than sales.

The 1990 mohair checks, for example, totalled $3.87 for every

dollar's worth of mohair sold.

Today, about half the beneficiaries receive only $44 a year

each. But the top one percent of sheep raisers capture a quarter of

the money--nearly $100,000 each. The national interest does not

require this program. It provides an unnecessary subsidy for the

wealthy.

Action: Eliminate federal price supports for honey.34

World War II also brought us federal subsidies for honey

production. During the war, honey was declared essential because

the military used bees' wax to wrap ammunition, and citizens

replaced rationed sugar with honey. When honey prices dropped after

the war, the federal government began subsidizing honey production.

The program was intended to be temporary--to last until there

were enough honeybees available for pollination. But more than 40

years later, every bee keeper in the U.S. is eligible for federal

loans. In 1992, the federal government paid 7 cents a pound more to

borrow money than it charged bee keepers. Taxpayers paid the

difference. If it were to scrap the program, Congress would save

taxpayers $15 million over the next six years.

Action: Rescind all unobligated contract authority and

appropriations for existing highway demonstration projects.35

The practice of directing federal highway funds toward

spending on specific demonstration projects--and away from regular

state-level allocations--is increasing. This is not, for several

reasons, a good trend.

In 1991, the General Accounting Office (GAO) examined the

contributions of demonstration projects--which range from paving a

gravel road to building a multi-lane highway--to the nation's

overall highway needs. Looking specifically at the $1.3 billion

authorized to fund 152 projects under the 1987 Surface

Transportation and Uniform Relocation and Assistance Act, GAO found

that "most of the projects...did not respond to states' and

regions' most critical federal-aid needs." Indeed, in more than

half the cases, the projects weren't even included in regional and

state plan--typically because officials believed the projects would

provide only limited benefits. GAO also discovered that 10

projects--worth $31 million in demonstration funds--were for local

roads not even entitled to receive federal highway funding. In

other words, many highway demonstration projects are little more

than federal pork.

Perhaps even worse, there's no guarantee that all these

highway demonstration projects, once started, will ever be

finished. GAO noted that project completion costs will greatly

exceed authorized federal and state contributions, and that state

officials are uncertain where they will find more funding. Further,

only 36 percent of the project funds GAO reviewed had even been

obligated by the beginning of fiscal year 1991, even though they

were authorized in 1987. Some projects with no activity since 1987

may never use their funds. Finally, no federal provisions allow

for canceling or redirecting funds, nor can states redirect

demonstration funds to other transportation projects.36

We urge Congress to rescind all unobligated authority and

appropriations for highway demonstration projects. Some of the

savings would go to the taxpayers. We recommend that all highway

projects be forced to compete for any remaining savings through the

normal allocation and planning processes set up in more recent

legislation.

Action: Cut Essential Air Service subsidies.37

Sometimes, to push through controversial changes, Congress

grants affected groups special privileges. This was the case when

airlines were deregulated in 1978. Because people living in small

towns feared the loss of air service, Congress created the

Essential Air Service program. The program guaranteed continue

services for a decade--with federal subsidies if necessary. The

purpose was to allow these communities to learn to live in a

deregulated environment. But the program didn't end in 1988 as

scheduled. Quite the opposite. Congress extended it for another ten

years and its budget has grown- -from $30.6 million in 1988 to

$38.6 million in 1993.

The program is unneeded: 25 subsidized communities are less

than 75 miles from hub airports. It is also costly: nine locations,

receiving $3 million in subsidies in 1992, carried five or fewer

passengers a day--one community, only 60 miles from a hub airport,

received subsidies averaging $433 per passenger.

Opposition to the program is rising. The Transportation

Department's Inspector General has concluded that the program's

costs outweigh its benefits. And after many years of resistance, a

Congressional subcommittee agreed this year that the program lacks

merit-based criteria. It's time to prune these subsidies. We

recommend eliminating subsidies to locations in the 48 contiguous

states within 70 miles of a hub airport; limiting subsidies to no

more than $200 a passenger, and giving the Transportation

Department authority to establish more restrictive criteria over

time. This would save $13 million a year.

Step 2: Collecting More

Given the size of the federal deficit, government must find

better, more efficient, and more effective ways to pay for its

activities. In Chapter 2, we showed how government could become

more businesslike. In this section, we propose three ways to

increase federal revenues: introducing or increasing market-based

user fees, collecting what is due the government in delinquent

loans and in accidental or fraudulent overpayment of benefits, and

refinancing debt at lower interest rates.

Some people take advantage of government's largesse. They

default on loans, or they double claim for health insurance

benefits. Government has made it far too easy for people to get

away with such actions. As a result, honest people are subsidizing

their less scrupulous neighbors. Their actions raise the costs of

federal programs, divert money from where it was intended, and

discredit our system of governance. Here are the first steps we

will take to end these practices.

Raising User Fees

Congress and federal agencies have shied away from charging

for federal services. But government surely produces many goods and

services for which consumers could, and should, pay." User fees can

serve exactly the same function as prices do--providing federal

managers with invaluable information about their customers. If

customers like the services they are paying for--if they find the

experience of visiting a particular national park enjoyable, for

example--revenues will increase. If the agency can keep some of its

additional revenues, it will be able to pay the increased operating

costs associated with its rising number of customers. It will, as

a result, learn to care about satisfying those customers.

Paying for the services you receive also is an issue of

fairness. Why should taxpayers subsidize concessionaires or

visitors to National Parks, or pay the cost of determining whether

a business should dump sludge into the nation's waterways? Many

services government provides because they are in the national

interest or because we do not expect people to pay for them. But

the customers of some government activities could and should pay.

Many agencies, including the Food and Drug Administration, The

Patent and Trademark Office, the National Technical Information

Service, and the Securities and Exchange Commission already charge

their customers fees. In some cases, these fees cover the full cost

of operations. Taxpayers are not called upon to pay for the

services that others receive. But, most agencies aren't allowed to

keep the fees--the revenues are sent to the Treasury. Under these

circumstances, agencies have no incentive to increase fees if

market conditions merit it.

Where fees are allowed, Congress often limits them--removing

any discretion from local managers. The National Park Service, for

example, cannot charge more than $5 per car or $3 a visitor at many

parks. At busy Yellowstone, Grand Teton, and the Grand Canyon, fees

are limited to $10 a vehicle and $5 a visitor. Ending subsidies to

concessionaires and moderately increasing fees would let the

National Park Service invest more in its crumbling infrastructure,

and spend more to protect America's priceless natural heritage.

Two-thirds of all the National Park Services facilities charge

no admission fee at all. Yet the Park Service suffers from a

multi-billion dollar backlog in infrastructure repair and

rehabilitation projects for the National Park System. One-third of

NPS primary paved roads are in poor or failing condition; a tenth

of employee housing is obsolete or deteriorated; and 4,700 planned

natural and cultural resource projects are on the waiting list for

funding. Meanwhile, demands on the parks are rising sharply as the

number of visitors--both American and foreign--grows each year.38

Action: Allow all agencies greater freedom in setting fees for

services and in how the revenues from these fees may be used.39

Even with a modest increase in fees, a family of four will pay

less to spend a week in Yellowstone National Park than they would

to see a first-run movie. The National Park Service should be

allowed to keep 50 percent of revenues from fees to pay for vital

services and projects.

The natural fear is that federal facilities are monopolies

and, unless their pricing policies were regulated, they would

become price-gauging profiteers. The concern is appropriate, but

the policies it has led to are not. We would not recommend that

national parks or documents repositories, for example, become

federal profit centers--but they could, certainly, cover a larger

part of their costs. They cannot charge exorbitant prices--after

all, parks are in competition with each other, and with many

privately owned recreation areas. The market will control the

revenues they can realistically collect.

Pricing policy is an important management tool, and we

recommend that Congress place it in the hands of many more federal

managers. The National Performance Review recommends increasing the

use of user fees for many activities. For example:

The FDA must ensure that 1.5 million food products imported each

year meet the same safety and labeling standards as domestic

products. It also certifies the safety of exported foods.

Taxpayers, not manufacturers, pay for these inspections. User fees

could save taxpayers as much as $1.4 billion over 5 years.40 The

agency should also have the power to collect fees for conducting

inspections and reviews, processing petitions and applications,

analyzing samples and issuing device reports for food, drugs,

devices, and radiological products.

The Department of Veterans Affairs runs a program to guarantee

home loans for veterans. It lets them borrow at lower costs and

make smaller down payments than would be possible without

assistance, because the guarantee protects lenders in the event of

foreclosure by reducing their potential loss. The department

collects fees for this service, yet they are set very low. A modest

increase in fees costing an extra $6 per month, for example, would

still provide homebuyers with better-than-market terms. Yet it

would generate an additional $811.4 million over 6 years.41

Under the Clean Water Act, the Army Corps of Engineers issues

permits for discharges of dredged or filled materials into rivers,

lakes and streams. The Corps has processed 15,000 applications at

a total cost of $86 million. Yet it has charged only token fees for

its services, collecting only $400,000 annually. This amounts to a

$12 million annual subsidy for commercial customers, according to

Defense Department estimates. Higher fees would help not only

taxpayers but Corps customers, because additional revenues could

pay for faster processing of applications.42

The Small Business Administration should have the power to

establish user fees for the services they provide through the

nationwide Small Business Development Center (SBDC) program. SBDC

customers like the services they get, so the revenues from fees

will enable the centers to expand successful programs.

Action: Increase revenues by refinancing debt or raising federal

hydropower rates to cover full operating costs.43

The Power Marketing Administrations (PMAs), such as Alaska

Power, were mandated in 1944 to sell their power at low rates to

help promote development in sparsely populated areas. Rates are

still low today; in fact, the PMAs sell power to their public,

private and cooperative utility customers at below market rates.

Thus, the low electricity rates enjoyed by customers in some areas

are subsidized by American taxpayers in others. Taxpayers subsidize

PMA utility customers through low-interest loans. The interest

rates most PMAs pay the government are artifically low. As the

interest on the Treasury's long-term debt climbed in the 1960s,

1970s, and 1980s, the differential between those rates and rates on

PMA loans created federal subsidies for these projects.

The Energy Department will take immediate steps to increase

revenues from hydropower operations. The department will set a new

rate policy for specified PMAs to seek recovery of full operating

costs. As an alternative, the Energy Department may attempt to

restructure the financing of the Bonneville Power Administration's

debt, allowing Bonneville to issue bonds at market rates and repay

its low-interest Treasury loans. The department will attempt to

achieve such a refinancing with minimal effects on the near-term

rates paid by its customers by seeking favorable bond interest

rates and lengthening terms of repayment.

Collecting Debt

At the end of last year the federal government was owed $241

billion by former students, small businesses, farmers, companies

developing alternative energy sources-- even foreign companies and

governments. This makes the federal government the nation's largest

lender. Of this total, a shocking $47 billion--20 percent of the

total--was delinquent.44

To some extent, the federal government's unpaid debts reflect

the fact that some of its loan programs operate more like grant

programs. They are designed to meet national policy goals such as

increasing the number of physicians in rural areas and supporting

democratic governments overseas. But in other cases agencies have

done a poor job in collecting what they are owed. After all,

agencies are rarely held accountable for unpaid loans. All too

frequently, neither are delinquent borrowers.

If agencies were to put a higher priority on pursuing

delinquent debt and if Congress were to grant them greater

flexibility in their debt collection operations, the federal

government could collect more of what it is owed. The Office of

Management and Budget will work with each agency to develop debt

collecting strategies that employ the following expanded powers.

Action: Give agencies the flexibility to use some of the money they

collect from delinquent debts to pay for further debt collection

efforts, and to keep a portion of the increased collections.45

Small investments in debt collecting can yield high returns.

In 1989, the GAO discovered that the Veterans Administration had

not recovered $223 million in health payments from third parties,

such as insurers. Congress then changed the rules, allowing the VA

to keep a portion of recovered third-party payments for

administrative costs. With this incentive, the VA increased its

recovery effort. The result: a four-fold increase in collections

since 1989.

The VA, now called the Department of Veterans Affairs, wants

to go even further by expanding its cost recovery efforts into its

loan programs and establishing cost-sharing, performance

incentives. Local hospitals, for example, might be allowed to keep

some of the revenues they generate to buy new medical equipment.

Overall, VA believes it could pull in another $500 million through

1999.

Opportunities like this occur throughout the federal

government. The Education Department, for example, wants to use the

additional repayments it would collect to pay for further

collections of Higher Education Act debts. Budget offices tend to

oppose the idea of sharing new earnings with the agency in

question, because they want 100 percent of the earnings to meet

deficit reduction targets. But unless the agencies have incentives

to generate the earnings, they rarely produce them in the first

place.

The solution is twofold. First, Congress should allow agencies

to use some of the money they now collect from delinquent debts to

pay for further debt collection efforts. Second, it should increase

the incentives agencies have to pursue debt collections, by letting

them use a small portion of their increased collections to invest

in improving their overall operations.

Action: Eliminate restrictions that prevent federal agencies from

using private collection agencies to collect debt.46

In addition to sharing in their earnings, agencies would

benefit from being able to use private debt collectors, as the

Department of Education has done. While we know how cost-effective

private collection agencies are, many agencies--including the

Farmers Home Administration, Social Security, the IRS, and the

Customs Service--are statutorily prohibited from using private

agencies for the job, even on a contingency-fee basis. Congress

should lift those restrictions.

Action: Authorize the Department of Justice to retain up to one

percent of amounts collected through civil debt collections to

cover costs.47

When borrowers default on their federal loans, the first step

is for the lending agency to try to collect--or, if permissible, to

use a private debt collection agency. If these measures fail,

agencies refer claims to the Department of Justice. While the

Department handles the larger claims itself, it refers those under

$500,000--which constitute 90 percent of all claims--to local U.S.

attorneys' offices. In overworked U.S. Attorney's offices, debt

collection is often a low priority.

To encourage the Department of Justice to collect debts,

Congress should allow the department to retain 1 percent of

everything it collects through litigating civil debt cases under

$500,000. These retained funds should be used for paying staff

working on debt collection, for paying case-related costs, and for

paying for training and other investments to improve local debt

collection programs.

Action: The Royalty Management Program will increase the royalty

payments it collects by developing new computer programs to analyze

and cross-verify data.48

The federal government collects royalty payments from mining

companies recovering minerals from federal land. The Interior

Department's Minerals Management Service (MMS), the agency charged

with the job, collects $4.7 billion annually. But its auditing

system is limited and focuses heavily on the companies paying the

largest royalties--so smaller companies don't always pay their

share. The Department of the Interior will increase its

collections--by as much as $28 million over five years--by

developing better accounting and auditing systems. To make sure MMS

can collect its dues, the Interior Department will ask Congress for

permission to assess penalties on substantial underpayments and to

impose fees on a broader range of administrative costs.

Action: HUD should offer incentive contracts to private companies

to help federally subsidized home owners refinance their mortgages

at lower rates.49

HUD has succeeded in extending the dream of home ownership to

many people. But the program does not take advantage of lower

interest rates because the assisted owners do not have enough

incentive to go through the work and bother of refinancing.

We recommend that HUD offer incentive contracts to private

companies to let them share a percentage of the savings to the

government of refinancing the mortgages. They could work with the

home owners to arrange refinancing, doing the necessary leg work

and make cost effective payments to home owners to induce them to

refinance. Projected savings from this program could exceed $210

million over five years. Yet program beneficiaries would continue

to receive exactly the same benefits.

Eliminating Fraud

While many think government steals from people, the reverse is

also true: People steal from government. And, unlike private

companies, some government agencies aren't very good at finding and

prosecuting thieves. Moreover, the bureaucracy does too little to

deter dishonest people.

Action: Make it a felony to knowingly lie on an application for

benefits under the federal Employees' Compensation Act and amend

Federal law so individuals convicted of fraud are ineligible for

continued benefits.50

The federal government manages many programs that provide

benefits to people injured or taken sick. Not all the recipients

are legitimate. When agencies discover fraud, however, they are

often hamstrung in their ability to terminate benefits--so they

keep paying fraudulent claims. For example, under the Federal

Employees' Compensation Act (FECA), the Office of Workers'

Compensation Programs cannot terminate benefits even after finding

that someone made false statements about a disability or an

illness.

In one case, a former federal employee collected almost

$200,000 in benefits under the FECA disability program while

working. When a witness told the government about the fraud, the

employee hired someone to kill him. The employee was convicted of

falsifying his application for FECA benefits, but the government

could not cut off his compensation on the basis of his original

false statements alone.51

Action: Improve processes for removing people who are no longer

disabled from disability insurance rolls.52

The Social Security Administration serves more than 10 million

people through two disability programs, Disability Insurance and

Supplemental Security Income. But the General Accounting Office has

estimated that 30,000 of these recipients are no longer eligible.

Overpayments from the trust funds to ineligible people are

projected to reach $1.4 billion by 1997.53 The Social Security

Administration faces a dual problem: overpayment to unlawful

claimants and lengthy delays in providing benefits to legitimate

claimants. Using present management practices, the agency lacks the

staff to review its rapidly escalating caseload. The backlog of

700,000 pending claims is taking priority over reviewing

continuing cases.

The agency is working to create a single disability claims

processing system, but it needs greater budget flexibility to

invest in hardware and software and to redeploy staff to meet

growing demands.54

Action:Create a clearinghouse for the reporting and disclosure of

death data.55

Obviously, no federal agency should continue paying benefits after

recipients have died. But stopping payments is not easy because

sharing death information among different levels of government is

restricted and not always reliable. The Social Security

Administration regularly obtains death information from states

under agreements with each of them (except Virginia). But most

agreements restrict SSA's disclosure of death data, so the

information the SSA collects cannot always be shared with those

running other federally- and state-administered benefits programs.

The result is millions of dollars in overpayments. For Americans

living overseas, the problem is even worse. SSA gives benefit

checks to overseas embassies to deliver. The State Department

claims that SSA must check that the recipients are still alive; SSA

says that it's the State Department's job.

We need not serve customers who are no longer alive. Congress

should amend the Social Security Act to allow SSA to share death

information with other programs.56

Step 3: Investing in Greater Productivity

One of the greatest obstacles to innovation in government is

the absence of investment capital. The appropriations for most

federal agencies last only one year: anything left over at the end

of the year disappears. So it's difficult for organizations to

scrape together enough money to make even small investments in

training, technology, new work processes, or program innovations.

We have recommended that agencies be allowed to keep half of any

savings they can generate. In addition, we propose a source of

innovation funds from which they can borrow. When managers and

their employees are allowed to borrow for long-term investments,

they have a real incentive to implement creative new ideas.

The IRS and Interior Department already have innovation

funds.57 Treasury and Justice operate working capital funds that

finance specific innovations, such as modernizing information

technology and computer systems. And the Commerce Department has a

Pioneer Fund that gives employees cash grants (rather than loans)

of up to $50,000 to finance quality and productivity improvements.

The money can be used for supplies, equipment, or expert services.

Some funds have financed projects related to advanced technology,

such as the development of public information on CD-ROMs.

State and local governments use this approach quite often.

Many cities have long had some form of innovation fund. In Florida,

Governor Lawton Chiles cut departmental budgets by five percent

across the board, then gave half back to agencies that developed

plans to invest in higher productivity and effectiveness.

The Productivity Bank: Paying Big Interest in Philadelphia

Mayor Ed Rendell says it's not hard to change incentives so that

public employees save money.

"We tell a department, 'You go out there and do good work,' "

Rendell told the National Performance Review's Reinventing

Government Summit in his city. "'You produce more revenue. You cut

waste. And we'll let you keep some of the savings of the increased

revenue.'"

Traditionally, the mayor said, "every nickel that they would

have saved would have gone right back to the general fund-- They

would have gotten a pat on the back, but nothing else." Now, city

employees save because their departments can keep some of the

savings for projects to help them perform better.

When the Department of License and Inspection beefed up

collection and enforcement efforts and generated $2.8 million more

than expected in 1992, Rendell said, the city let the department

keep $1 million of the savings to hire more inspectors and, in

turn, exceed the $2.8 million in 1993.

The city also opened a Productivity Bank, from which

departments can borrow for investment-type projects--that is,

capital equipment--to produce either savings or enough revenues to

repay the loan in five years. To ensure that departments don't

apply frivolously, the city subtracts loan payments from annual

departmental budgets. Successes already abound. The Public Property

Department repaid a $350,000 loan to buy energy efficient lamps in

one year--after saving $700,000 in energy costs.

At the federal level, one important use for such funds would

be technology investments. These are often considered too expensive

for agencies' operating budgets, even though they save money in the

future. The Agency for International Development, for instance,

needs a centralized information management system to coordinate its

central office with its international field offices. Because its

information systems lack essential data and are not coordinated,

they provide inconsistent, inaccurate, and incomplete reporting

that managers frequently do not trust. Agencies such as AID should

have authority to create innovation funds for capital investment

loans to reduce future operating costs.

Action: Allow all agencies and departments to create innovation

funds.58

Congress should authorize a two tier system of innovation

funds: small loan funds within agencies; larger funds at the

departmental level. These would be capitalized through retained

savings from operational appropriations. For the new system to work

well, Congress should allow all new and existing innovation funds

to invest in joint projects with other agency funds, with state or

local governments, or with industry.

If managed according to market principles, innovation funds

would produce measurable improvements in agency efficiency and

significant taxpayers savings. Strict repayment schedules, with

interest, would discourage careless borrowing.

Action: The government should ensure that there is no budget bias

against long-term investments.59

Part of straightening out the govern--ment's books will

involve adopting some financial distinctions that business uses.

Federal bookkeeping rules discourage government investments in

productive fixed assets, like computer systems. Right now, we count

a $5 million investment to purchase a Local Area Network computer

system in exactly the same way as we count $5 million spent on

staff salaries. American businesses do it differently. Business

depreciates fixed assets over time: If the $5 million computer

system has a useful life of five years, then its $5 million

acquisition costs will be spread out over five years. Poor choices

of capital investment and the acquisition methods are currently

costing the taxpayer millions of dollars each year.

Listen to Eleanor Travers, the director of Pathology and

Laboratory Medicine for the Veterans--Hospital Administration. She

told the National Performance Review meeting at the Department of

Veterans Affairs in August 1993:

"Procurement of equipment is held up because capital

dollars to purchase equipment are frozen. And you asked what

dumb rules there were we could change. Allow our hospital

directors and our top managers to use operating dollars when

they find it's necessary to do leasing rather than purchasing

. . . Please help us loosen up the capital fund so that we

don't have to go to Congress and wait two and a half years for

this line item to change."

The budget should recognize the special nature and long-term

benefits of investments in fixed assets through a separate capital

budget, operating budget, and cash budget. The separate capital

budget will explicitly show expenditures on fixed assets, and will

help to steer our scarce resources toward the most economical means

of acquisition of the most needed assets. The cash budget reflects

the effect of both the capital and the operating budget on the

economy. Therefore, the discipline of the cash outlay caps in the

Budget Enforcement Act must be maintained.

Step 4: --Reengineering Programs to Cut Costs

In the past turbulent decade, many companies have been forced

to recognize that they weren't organized in the right way to do

what they were doing. Their organization structure reflected

history, not current needs. Reform wasn't easy--too many people had

vested interests in preserving their particular part of the

organization. As a result, most attempts at reorganization were

reduced to shifting things among different boxes on organizational

charts. Businesses found that the only way to break the mold was to

reengineer--to forget how they were organized, decide what they

needed to do, and design the best structure to do it. An obvious

insight? Perhaps. But the best ideas are always the ones that seem

obvious--after their discovery.

We are determined to move from an industrial age government to

information age government, from a government pre-occupied with

sustaining itself to a government clearly focused on serving the

people.

Vice President Al Gore

May 24, 1993

We will reengineer the work of government agencies in two

ways. First, we will expand the use of new technologies. With

computers and telecommunications, we need not do things as we have

in the past. We can design a customer-driven electronic government

that operates in ways that, 10 years ago, the most visionary

planner could not have imagined.

Second, we will speed up the adoption of new ways to improve

federal operations. Most of this work will be done by the federal

agencies themselves. An outside performance review could never

learn enough about internal agency work processes to redesign them

intelligently. But we can begin to redesign several broad

government-wide processes: The way we design programs, develop

regulations, and resolve disputes.

Electronic Government

The history of the closing decade of this century is being

written on computer. You wouldn't know it if you worked for many

federal agencies, however. While private businesses have spent the

past two decades either getting rich by developing new computer

technologies or frantically trying to keep up with them, government

is still doing things our parents--perhaps even our

grandparents--would recognize.

Offshoots of the unexpected and fertile marriage between

computers and telephones have changed just about everything we

do--how we work, where we work, the design of the workplace, and

the skills we need to continue working.

Organizations don't need as many people collecting information

because computers can do much of it automatically. They don't need

as many people processing that information because clever software

programs can give managers what they need at the press of a button.

Factories don't need to stockpile large inventories because

smart machines on the assembly lines order components from equally

smart machines working for suppliers. Yet government agencies stand

guard over warehouses of unused office furniture. Retailers ship

the right size of clothing to customers as soon as they receive a

telephone order and a credit card number. Yet we can't pay our

taxes that way.

Computer companies give technical advice for our computers and

software over the telephone 24 hours a day by fax, modem, or voice.

Yet, the Social Security Administration can't do the same.

Failure to adapt to the information age threatens many aspects

of government. Take the State Department, a globe-spanning

organization dependent on fast and accurate communications. Its

equipment is so old-fashioned that the Office of Management and

Budget says "worldwide systems could suffer from significant

downtime and even failure."60 According to OMB, its systems are so

obsolete and incompatible that employees often have to re-enter

data several times. These problems jeopardize our ability to meet

our foreign policy objectives.

Or think about the way our government sends out checks. For 15

years, electronic funds transfers have been widely used. They cost

only 6 cents per transfer, compared with 36 cents per check. Yet

each year, Treasury's Financial Management Service still disburses

some 100 million more checks than electronic funds transfers.

We still pay about one federal employee in six by check and

reimburse about half of travel expenses by check. Only one-half of

Social Security payments--which account for 60 percent of all

federal payments--are made electronically, making SSA the world's

largest issuer of checks. Only 48 percent of the Veterans Affairs

Department's payments are made electronically. Fewer than one in

five Supplemental Security Income payments and one in ten tax

refunds are transferred electronically.61 We have only begun to

think about combining electronic funds transfers for welfare, food

stamps, subsidies for training programs, and many other government

activities.

Private financial transactions have become a lot easier in the

past decade: bank cash machines are open 24 hours a day, credit

cards let us avoid carrying cash, and we can buy goods over the

telephone. This saves many of us a lot of time and money. It could

save the Government a lot of time and money, too. Consider the

paper chase involved in running the welfare system. The Food Stamp

Program, alone, involves billions of bits of paper that absorb

thousands of administrative staff years. More than 3 billion food

stamps will be printed this year and distributed to more than 10

million households. Each month, 210,000 authorized food retailers

receive these coupons in exchange for food. These retailers carry

stacks of coupons to 10,000 participating financial institutions,

which then exchange them with Federal Reserve Banks for currency.

The Federal Reserve Banks count the coupons--although they already

have been counted more than a dozen times--and destroy them. The

administrative cost of this system--shared equally by federal and

state governments--is almost $400 million a year.

We will support Agriculture's commitment to the goal of

issuing food stamps electronically by 1996. Electronic benefits

transfer could eliminate the paper chase, improve services to

customers, and reduce fraud. At the same time, it could be used to

authorize Medicaid payments, distribute welfare payments, infant

nutrition support, state general assistance, and housing

assistance. It could eliminate billions of checks, coupons, and all

the other paperwork, record keeping and eligibility forms that

clutter the welfare system.

Why has business moved faster than government into the

electronic marketplace? In the first place, government is a

monopoly. Public organizations don't go out of business if they

don't have the latest and smartest machines or the best approach to

managing resources. In the second, employees who do want to

modernize management have their hands tied with red tape--detailed

budgets and cumbersome procurement procedures-- that deter

investment. Finally, there is a natural inclination, familiar to

private and public managers alike, to do things as they've always

been done.

What can we do to help our federal bureaucracy catch up?

Action: Support the rapid development of a nationwide system to

deliver government benefits electronically.62

OMB has already begun the process. The electronic benefits

transfer steering committee, which OMB oversees, will develop an

implementation plan for electronic benefits transfer by March 1994.

The system is workable with today's technology. For cash

programs such as federal retirement, social security, unemployment

insurance, or AFDC, benefits would be electronically deposited

directly into recipient bank accounts electronically. If people

didn't have bank accounts, these could be created once the

individual enrolled in a program. For "non-cash" programs such as

food stamps, participants would have accounts through which they

could make purchases at approved food stores--analogous to credit

cards with credit limits. Stores would debit accounts as eligible

items were purchased. The entire system could operate on or be

compatible with the existing commercial infrastructure through

which private funds are transferred electronically.

Agencies have begun experiments with electronic benefits

transfers. Welfare checks, food stamps, and state-collected child

support, for example, are distributed electronically in Maryland.

There are test sites in Iowa, Minnesota, New Mexico, Ohio,

Pennsylvania, Texas, and Wyoming. We know that a joint

federal-state effort to transfer welfare benefits electronically

works--and works well. The system is strongly supported by

recipients, the state welfare agencies, food retailers, banks, and

participating commercial networks. We also know that direct federal

delivery of funds by electronics is cost-effective. We can't yet

project with certainty what the savings might be, but preliminary

estimates suggest $1 billion over five years once electronic

benefits transfer of food stamps is fully implemented.

In the future, the concept of electronic government can go

beyond transferring money and other benefits by issuing plastic,

"smart" benefit cards. With a computer chip in the card,

participants could receive public assistance benefits, enroll in

training programs, receive veterans services, or pay for day care.

The card would contain information about participants' financial

positions and would separately track their benefit accounts--thus

minimizing fraud. Electronic government will be fairer, more

secure, more responsive to the customer, and more efficient than

our present paper based systems.

Barriers still stand in the way. Agencies will have to work

together to develop a comprehensive nationwide strategy for

implementation; it will do no good for each agency to develop its

own process. We will need to strengthen the partnership between

state and federal governments in developing and operating the

system. We will have to eliminate some regulations that would

prevent this radical change in how government operates. And the

National Institute of Standards and Technology will have to issue

final standards and protocols for electronic signatures to

facilitate electronic funds transfers and the electronic approval

of budget and financial documents.

Action: Federal agencies will expand their use of electronic

government.63

Opportunities abound for cutting operating costs by using

telecommunications technologies. The National Performance Review

has identified several projects that would improve government's

productivity and reduce the burden of reporting on individuals and

businesses.

The IRS is introducing an efficient computer system,

automating tax returns, and creating a wholly new work environment

for its 115,000 full-time personnel. The agency currently operates

a computer system put together in the 1960s--not the tool our

principal revenue collector should be using. To make the new system

work, the agency will need to figure out how to train its staff to

operate in a reengineered agency. We will support the agency's

investments in new hardware and training, as discussed in

Chapter 3.

The IRS will also manage the creation of an integrated

electronic system for financial filing, reporting, and tax payment

by 1996. The system will serve federal, state, and local taxpayers.

It will allow the electronic filing of tax returns by individuals

and companies, the electronic reporting of wages and withholding

information, and other data required by all levels of government.

In addition, the inter-agency Wage Reporting Simplification Project

(WRSP) will be in place quickly--allowing businesses to file

information once to serve many different purposes. The savings from

fully implementing this program over the life of the system have

been projected at $1.7 billion for government agencies and $13.5

billion for private employers. Individuals will be able to file

federal and state income taxes simultaneously through an Electronic

Data Interchange, with their privacy protected and fraud prevented

through digital signature standards. Electronic filing alone will

save the IRS and state agencies from having to mail out the

equivalent of 75 boxcars of forms.

Working together, the Labor Department and IRS will develop an

automated system all employers can use to file electronically the

pension plan forms employers required by the Employee Retirement

Income Security Act.64 At present, it costs the Internal Revenue

Service more than $10 million a year to enter all these forms into

its data base.

The Labor Department will develop computer programs to

determine quickly the appropriate wages on federal service

contracts.65 Currently, all federal agencies contracting for

services--from cleaning services to building management--must apply

to the department for a determination of appropriate wages. The

process is supposed to ensure that federal contracts don't

undermine local prevailing wages. The process takes an average of

57 days and, with a growing number of service contracts, more and

more are subject to delays.

We will continue investing in the Social Security

Administration's massive project to create a single nationwide

disability processing system.66 This will require considerable

investments in new telecommunications and computer systems as well

as in staff retraining. It will also mean that the SSA will have to

work cooperatively with state-run disability determination offices,

set performance standards, and take over those that don't meet

standards. Many of the system's worst processing bottlenecks are in

the state offices that approve individual claims.

Money for Numbers

The National Technical Information Service runs a large and

complex information collection and marketing operation. It is the

nation's largest clearinghouse for scientific and technical

information. Yet it covers the costs of its operations without

receiving a penny in federal appropriations. Its customers pay --

and their numbers are growing every year.

NTIS's archives contain about 2 million documents (from

research reports to patents), more than 2,000 data files on tape,

diskette, or CD-ROM, and 3,000 software programs. This resource is

growing at the rate of about 70,000 items each year. NTIS's press

releases, on-line services, and CD-ROMs serve 70,000 customers,

three-quarters of whom are from business and industry.

In 1991, NTIS collected $30.7 million in revenues -- 77

percent from its clearinghouse activities, the rest from other

government agencies that reimburse NTIS for patent licensing

services, and from billing other agencies for producing and

distributing documents. NTIS is required by law to be

self-sufficient.

Some of these investments will require Congressional

appropriations. But some can be financed through the innovation

funds, described above, and some will become possible to pay for as

soon as rigid budget regulations are relaxed.

Action: Federal agencies will develop and market data bases to

business.67

Federal agencies must treat the data they compile and process

as potentially valuable resources. Congress alerted the bureaucracy

to the value of information in 1991 by passing the American

Technology Preeminence Act. The act required federal agencies to

transfer to the National Technical Information Service copies of

federally funded research. At NTIS, the information is organized

and made available to research scientists in academia and in

industry. NTIS has developed an aggressive marketing strategy and

pricing policy that have greatly increased its revenues.

The Census Bureau has pioneered the use of computer technology

such as CD-ROM technology to make federal data available. By 1992,

the Bureau sold census data to 380,000 customers on tape or disc

directly, and served another 1.1 million customers indirectly.

Unfortunately, some federal agencies lag behind private data

retailers in the services they offer their customers. People buying

Census data must order it through paper order forms or by telephone

during business hours--only 9 hours a day, 5 days a week. If

private software companies offer 24-hour a day technical support,

so should the Census Bureau.

Other agencies will begin to exploit the potential of the

information they collect. The Commerce Department, for example,

will develop a manufacturing technology data bank that brings

together information residing in the National Institute of

Standards and Technology, the Defense Department, federal research

laboratories, and other organizations. Commerce will also use its

climate data as the basis for developing a National Environmental

Data Index. Good data will be vital in solving the problems

associated with global climate changes. The U.S. must be a leader

in developing these information resources.

Action: In partnership with state and local governments and private

companies, we will create a National Spatial Data Infrastructure.68

Dozens of agencies collect spatial data--for example,

geophysical, environmental, land use, and transportation data. They

spend $1 to 3 billion a year on these efforts. The administration

will develop a National Spatial Data Infrastructure, (NSDI) to

integrate all of these data sources into a single digital resource

accessible to anyone with a personal computer. This resource will

help land developers and conservationists, transportation planners

and those concerned with mineral resources, and farmers and city

water departments.

Because of the value of the data, it will be possible to

attract private sector funding for its collection, processing, and

distribution. The Federal Geographic Data Committee, which operates

under the auspices of OMB, plans to raise enough non-federal

funding to pay for at least 50 percent of the project's cost. It

will set the standards for data collection and processing by all

agencies to ensure that NSDI can be developed as economically as

possible.

Action: The Internal Revenue Service will develop a system that

lets people pay taxes by credit card.69

The Customs Service lets people pay duties on imported goods

by credit card. Americans should have the same convenient way to

pay taxes. It will save time and cut the IRS's collection costs.70

There is one hitch: Those who pay by credit card could avoid paying

back taxes simply by filing for personal bankruptcy. This escape

mechanism can't be employed today because back taxes are, under

bankruptcy law, a "non-dischargeable" debt--that is, they are a

debt that remains even after someone becomes insolvent. Therefore,

the use of credit cards for tax payments should be delayed until

Congress has amended the bankruptcy statute to prevent taxes paid

by credit card from becoming a dischargeable debt. Our goal is to

increase customer convenience, not to open up another loophole

through which people can dodge paying delinquent taxes.

Reengineering to Use Cost-Cutting Tools

Our reinvented government will be able to cut further costs by

using new ways to carry out traditional duties. To begin with we

will have to get a lot smarter about how we design government

programs. The President's Management Council will play a lead role

in helping government learn from its past failures and successes to

design better programs. In addition new approaches to

regulation--such as negotiated rule making-- can reduce conflict

and produce better results. Finally, alternative techniques for

resolving disputes can avoid many of the costs of traditional

litigation.

Action: The President's Management Council will help agencies

design and redesign better programs.70

As taxpayers and customers we have been, time and time again,

victims of the thoughtless expansion of government. When new

programs were introduced or old ones retargeted, little thought was

given to what economists blandly label "second order effects"--the

unintended and unwanted consequences of actions. These unintended

consequences are the collateral damage responsible for so much of

the waste documented in this report. When we placed limits on crop

deficiency payments, we didn't realize how easy it would be to

establish eligible shell-corporations. When we added new

procurement standards, we didn't anticipate the difficulties caused

by centralized decision making. When we tried to target training

programs on dislocated workers, we didn't anticipate the

bureaucratic hassles involved in establishing eligibility.

But the fact that we did not anticipate consequences does not

mean that we could not have done so. Many different programs have

been tried--by federal agencies, by state and local agencies, and

by governments overseas. We have built up what lawyers would call

"case law": lots of useful precedents about what works and what

doesn't. The trouble is that, unlike case law, these precedents

aren't easy to find. Congressional staff or agency employees

designing new programs have no systematic way to find out what has

been tried before and how well it has worked. The result? Endless

reinvention of third rate or failed programs.

In 1981, for example, the chairman of the House Banking

Committee asked the Congressional Budget Office if it knew of any

studies evaluating government loans as an effective policy tool.

CBO did not. Yet the federal government had lent hundreds of

billions of dollars--and it continues to do so today. The price we

pay for this ignorance is a mountain of delinquent debt and a raft

of discredited government initiatives. Too many policies and

programs are built on equally feeble foundations.

In 1988, Congress recognized this dilemma and provided for the

establishment of a National Commission on Executive Organization,

patterned after the first Hoover Commission. Its charter would have

included a requirement to "establish criteria for use by the

President and Congress in evaluating proposals for government

corporations and government-sponsored enterprises and subsequently

overseeing their performance."71 The new commission could have been

activated by directive. It was not.

To begin our attack on ignorance, the President should direct

the President's Management Council to make program design a formal

discipline throughout the federal government. The PMC will

commission the preparation and publication of a program design

handbook and establish pilot efforts within agencies to strengthen

their ability to design programs. These pilot programs will help

senior management design new programs, evaluate current programs,

and create models for many different types of programs (research

contracts, loan programs, tax preferences, and insurance programs

to name just a few.)

Since many programs originate in Congress, the Legislative

branch should also work to improve staff capacity. We urge the

Offices of the Legislative Counsel, the Congressional Research

Service, and the General Accounting Office to fill this role. As

both the legislative and executive branches elevate the discipline

of program design, we will get better programs and less contentious

relations between the two branches of government.

But we need more than good programs. We need better rules and

more efficient rulemaking. Federal agencies administer tens of

thousands of laws, rules, and regulations--and the number is

growing quickly. For better or worse, government's rulemaking, even

more than its appropriations, shapes our lives.

Costs, for the most part, are offset by benefits. Our system

of laws and rules is the foundation for our economic success. It

defines and protects personal and property rights and provides the

framework for the orderly conduct of social and business affairs.

But some aspects of rulemaking don't work well. As rules

extend into increasingly complex areas of our environment,

workplace safety, health, and social rights, their

consequences--both deliberate and unintended--also grow. As this

happens, we introduce more and more safeguards into the rulemaking

process. The result is not always what we want. Hearings, reviews,

revisions, more reviews, more hearings, and even more reviews are

cumbersome, costly, and time consuming. For example, because the

Department of Health and Human Services has been slow to issue

regulations on such vital areas as the allocation of funds for the

elderly and for children, states have had to introduce their own

regulations without the benefit of federal guidance. Some of these

state regulations have later been overturned after federal

regulations were eventually issued, leaving states financially

liable.

New rules and regulations can also generate costly

litigation--a bonanza for lawyers. Agencies writing the rules to

implement environmental laws, according to one expert, often find

"too frequently that their proceedings become a battleground for

interest groups and other affected parties--in effect little more

than the first round of the expected litigation."72

There are better ways to make rules. A small group of federal

agencies has pioneered a process called negotiated rulemaking. In

1990, Congress recognized and encouraged the process with passage

of the Negotiated Rulemaking Act. We believe negotiated

rulemaking--colloquially referred to as "reg neg"--is a process

every rulemaking agency should use more frequently.73

Action: Agencies will make greater use of negotiated rule making.74

The "reg neg" process brings together representatives of the

agencies and affected groups before draft regulations are issued

and before all sides have formally declared war. The group meets

with a mediator or "facilitator." The negotiators reach consensus

on the regulation by evaluating their own priorities and making

trade-offs. The negotiating process allows informal give and take

that can never happen in court or in a public hearing. If agreement

is reached, the agency can publish the proposed rule, accompanied

by a discussion of the issues raised during negotiations. Even if

both sides are too far apart to reach consensus, agency staff learn

a lot during the process that helps them improve the regulations.

When the parties do reach consensus, regulations are issued faster

and costly litigation is avoided.

When EPA applied reg neg techniques to the issue of emission

standards for wood burning stoves, it was able to put standards

into effect two years faster, and with much better factual input,

than it could have without negotiations. Manufacturers of stoves,

in turn, were able to begin retooling to meet standards without

another two years of uncertainty.

Action: Agencies will expand their use of alternative dispute

resolution techniques.75

Federal agencies also need better and cheaper ways to resolve

disputes. Enforcing thousands of difficult and sometimes

controversial rules--however carefully they are designed--leads to

disagreements. State and local governments, businesses, and

citizens challenge Washington's right to regulate certain issues,

or they challenge the the enforcement of specific regulations.

Solving these disputes can be expensive. It involves

high-priced lawyers, it clogs the courts, and it delays action.

Each year, 24,000 litigation matters reach the 530 full-time

attorneys and 220 support staffers employed by the Labor Department

alone. It often takes years to resolve these disputes, postponing

the implementation of important programs and preventing a lot of

people from doing what they are paid to do.

In some cases, litigation is important: it interprets the law,

sets important precedents, and serves as a deterrent to future

wrongdoing. But in many cases, no one really wins-- and the

taxpayer loses. It is often cheaper to resolve conflicts through

new techniques known collectively as Alternative Dispute Resolution

(ADR).

Alternative Dispute Resolution (ADR) includes mediation (a

neutral third party helps the disputants negotiate), early neutral

evaluation (a neutral, often expert, person evaluates the merits of

both sides), factfinding (a neutral expert resolves disputes that

arise over matters of fact, not interpretation), settlement judges

(a mediator settles disputes coming before tribunals), mini-trials

(a structured settlement process), and arbitration (an arbitrator

issues a decision on the dispute).

Overcrowded courts are already encouraging private litigants

to use ADR. Private contracts often specify the use of ADR to

resolve disagreements among signatories. In 1990, Congress passed

the Alternative Dispute Resolution Act, authorizing every federal

agency to develop its own ADR policy. Some have, but some have

dragged their feet.

Those that have used ADR have saved time and money and avoided

generating ill will. The Labor Department started a pilot program

last year for OSHA and Wage and Hour cases and found it much

quicker and cheaper. The Federal Deposit Insurance Corporation

saved more than $400,000 with a single, small pilot program. The

Farmers' Home Administration has used ADR on foreclosure cases--not

only saving money but actually avoiding foreclosure on several

families. This type of innovation should spread faster and further

across the federal government.

Conclusion

If we follow these steps, we will move much closer to a

government that costs less and works better for all of us. It will

be leaner, more effective, fairer, and more up-to-date. It will be

a government worth what we pay for it.

We do not deny that many groups will oppose the actions we

propose to take. We all want to see cuts made, but we want them

elsewhere. Eliminating or cutting programs hurts. But it hurts

less, at least in the long run, than the practice of government as

usual. Writing about Britain's monarchy in the eighteenth century,

Samuel Pepys once observed that it was difficult for the king to

spend a million pounds and get his money's worth. Fawning

courtiers, belligerent Lords and hundreds of other claimants each

demanded their share. The same is true today. The money spigot in

Washington is much easier to turn on than to turn off--and too

little of the funds that gush from it irrigate where water is

scarce. That is why we have not simply offered a list of cuts in

this report. Instead, we have offered a new process--a process of

incentives that will imbue government with a new accountability to

customers and a new respect for the public's money.