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Chapter 4




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.