Government Executive - Authors - Eric Yoder

Overload

Eric Yoder — Sat, 01 Sep 2001 00:00:00 -0400

The Social Security Administration faces the largest workload in its history with too few employees and too little in its trust fund. uring the next 10 years, the Social Security Administration's retirement processing workload is projected to increase by one-fifth as the oldest of the 77 million baby boomers enter their 60s. At the same time, the disability insurance workload is projected to rise by one-half as the rest of the boomers hit ages at which they are more likely to file disability claims. By 2020, the retirement workload will increase by one-half and the disability workload by three-fourths over current levels. Meanwhile, claims under the Supplemental Security Income (SSI) program for the poor, disabled and elderly are expected to grow by one-fifth by 2020.

Worse, the workload will surge just as the agency is facing a retirement wave of its own. The average Social Security employee is about 47 years old and has about 20 years of service. By 2010, 28,000 of its current 65,000 workers will be eligible to retire. Take away another 10,000 expected to leave in the next nine years for other reasons, and the agency may have to replace more than half its workforce just as it is gearing up for the increase in workload and incorporating new technologies to process applications, deliver payments and follow up on beneficiaries.

Although the two retirement surges remain several years in the future, questions already are being asked on Capitol Hill, among outside experts and even within SSA about the agency's ability to cope with these twin demands. And there's even more trouble on the horizon: Within 15 years, SSA will be paying out more in retirement benefits than the payroll taxes it takes in. In about 40 years, the old age and survivors insurance trust fund will be depleted. By 2075, the agency will be taking in only enough to cover two-thirds of the benefits now promised, and that proportion will continue to decline. The gap between payroll taxes collected and benefits paid underlies numerous Social Security reform initiatives, including the presidential commission that is to make its proposals later this year. In the meantime, observers are warning that SSA customer service is declining and that improvements in technology might not deliver the efficiencies the agency is counting on to help it over the twin retirement peaks looming ahead.

The Social Security Advisory Board, a bipartisan oversight body that advises Congress and the White House on issues involving the agency, "is trying to sound some alarm bells," says chairman Stanford G. Ross, a former Social Security commissioner. "We think there's a very serious problem currently of service delivery. The lines are too long in many offices, the 800 number is not what it ought to be, there's too long a wait for hearings. There's a whole host of problems that need addressing now.

"If you then project out the coming workloads and the ever-increasing complexity of the program and the lag time between getting appropriations for resources to meet these challenges, I think this is a major problem," he says. "There's a service delivery gap that's as serious as the financing gap."

Boomer Boom

The aging of the baby boom generation-the 500-pound gorilla of American demographic trends-has been on SSA's radar screen for decades. But only recently has the government paid much attention to that trend's effects on its own workforce. The General Accounting Office, personnel experts and legislators have joined in a chorus calling on agencies to plan now to replace the one-third of all federal employees who will be eligible to retire over the next five years.

SSA was ahead of most agencies in realizing the potential impact of upcoming retirements on its workforce, completing a study three years ago that analyzed not just retirement eligibility but also likely retirement dates by occupation and agency component. SSA projects, for example, that by 2010 it will lose to retirement two-thirds of its supervisors and one-half of its claims representatives and computer specialists. Retirements are expected to peak at nearly 3,000 a year between 2007 and 2009. "Our [workforce] problem is probably fairly typical," says Sue Roecker, director of SSA's office of strategic management. "We also . . . can fairly confidently project a steady increase in our workload over the next decade, since our work is based on demographics. A lot of other agencies don't necessarily have the ability to do that."

In early 2000, the agency laid out its goals for recruitment, retention, training and its transition to a workforce of the future. Later in the year it published its "2010 Vision," a strategic plan that set goals for dealing with future workloads while meeting service delivery standards. The documents paint a picture of a future SSA populated with employees who are more skilled, who have a broader range of expertise and authority than today's staff, and who are working in a streamlined, highly automated environment. But neither document projects how large that workforce will be. SSA grew substantially during the 1970s to handle a burgeoning workload of SSI disability claims and other new responsibilities, then shrank by some 20,000 positions during the overall government downsizing over the last two decades. The agency's fiscal 2002 budget proposal projects the workforce holding virtually steady next year, with a gain of just 147 positions.

"We can't say what our actual staffing level will be in 2010 because that depends on the budget process," says Paul D. Barnes, deputy commissioner for human resources. "Our focus is on how many people are we going to lose, what kinds of procedures do we need to have in place to deal with those losses and how do we transition the people who are with us now to the people who will be with us then." The National Council of Social Security Management Associations, an organization of some 3,000 managers at field offices and teleservice centers, recommends reversing cutbacks in supervisory positions-some 1,000 front-line managerial positions were lost in a de-layering effort over the last five years-and increasing the field office staff by 5,000 positions to about 34,000. About 75 percent of the council members who responded to a survey last year said waiting times in their offices are unacceptable. About the same percentage said their offices did not provide acceptable telephone service and that waiting times had increased over the last five years. Of those holding that view, more than four-fifths cited a lack of staff. Nearly 80 percent said the quality of the work had declined in that time, with three-fourths of those citing the reduction in supervisors as a reason.

Says Steve Korn, president of the association, "The managers are now looking internally at how do I manage this particular unit I'm supervising, versus how do I better coordinate services in the community-working with the welfare director, working with the welfare office, that kind of thing. Those types of things, which were part of the mix, but are not as measurable, really have slipped." The American Federation of Government Employees, which represents about 50,000 SSA employees, also is urging the agency to add workers. "When you have a growth agency like us, if you don't provide for similar growth on the administrative side, you're not going to do that work-or you're going to do it in a way that's not going to be pleasing to the public," says Witold Skwierczynksi, president of AFGE's National Council of SSA Field Operations Locals, which represents employees who deal with the public in field offices and teleservice centers. "I'm not too optimistic that the agency can get sufficient resources to redesign in a way that provides the kind of service that the American public deserves. The agency's having a hard time keeping its head above water right now. If you expand the number of options the public has with regard to how they interact with the agency, you have to provide bodies to do that," he says. "You can talk as much as you want about having a 24-hour-a-day operation seven days a week and having an 800 number with operators to answer your questions and take your claims, but unless you provide the resources for that, it's not going to happen."

Technology Skeptics

According to "2010 Vision," SSA would need 95,000 to 100,000 work years to handle its projected 2010 workload using current methods. "We recognize that an infusion of this level of resources is neither likely nor the best means to achieve our vision," it says. Thus the agency plans to make more and better use of technology. It has crafted a plan for restructuring business practices to build on its recently installed computer network and to make more use of wireless devices, new Internet applications, and new speech and video technologies. Social Security expects the investment in technology to produce savings in staffing but has no firm projections. Much of the agency's work-especially that related to disability claims-is labor-intensive, and technology improvements can only help so much. Already, SSA has a reputation for efficient delivery of services; in 2000, administrative expenses as a percentage of total expenditures were just 0.6 percent for retirement benefits and 2.9 percent for the disability insurance program. In addition, political and program considerations may limit the agency's ability to save personnel costs.

For example, one common benefit of automation is freedom to consolidate small, scattered offices. But cutting back on SSA's far-flung network of some 1,300 field offices, 36 teleservice centers-which take claims and provide information on Social Security benefits-and 130 offices where hearings and appeals take place does not appear to be a viable option. The agency expects the field offices to become less involved in taking applications, but instead of shrinking in number, they will be devoted more to complex cases and follow-up work. "We're not a private company where we can offer our services to whoever wants to come in and deal with us in the way we want to offer services. We have to offer services that can be used by everyone," says Roecker. "The population we serve is not just one homogenous group," she adds. "We have folks who are homeless, illiterate, non-English speaking, the elderly. Their choice for dealing with us needs to include an opportunity to walk into a local office and deal with people face to face." In addition, for security reasons, the agency prefers to handle certain transactions in person. The agency is streamlining many of its work processes. Its revision of the workflow at hearings offices to reduce turnaround times is a good example. It also hopes to move toward a "single point of contact" approach, in which one employee could handle all of an applicant's needs. SSA has been experimenting with that approach through a pilot program that combines the multiple functions involved in processing and adjudicating disability claims.

However, one-stop shopping will require retraining employees schooled as specialists to give them broader expertise, as well as putting the right technology in their hands. Skeptics doubt the agency's ability to deliver, especially on the technology end. "What I have found is that we tend to be more optimistic about how quickly and how great the effect of technology will be in terms of productivity improvement," says Korn, district manager of the SSA office in Vallejo, Calif. "Because it's so difficult to get money out of Congress, we tend to promise things to get the money that aren't necessarily proven, and the time frames tend to slip. While technology will be part of it, it may not be the panacea that it's presented as. We need to be realistic about what the resource needs are, in addition to any productivity gains that automation does give us," he says.

"They tend to over-promise," agrees a staff member of the House Ways and Means Committee, whose Social Security Subcommittee held hearings last year on the agency's dual retirement challenges. "We're asking them to really scrub things and to be very clear with us about what they're going to need over the next five years-particularly when it comes to the human capital they're going to need, and the technology, which they clearly are in need of desperately. We want to be sure that they are accurate in terms of assessing their needs, accurate in terms of cost-benefit analysis and being able to achieve what they say they're going to achieve."

GAO has criticized the agency in several reports for its handling of initiatives to improve processing of disability claims. For example, SSA spent seven years and more than $71 million designing and developing a new software application to better automate the disability claims process. But it had to discontinue the initiative and fall back to a less ambitious approach because of continuing performance problems and delays in developing the software, GAO reported in January ("Major Management Challenges and Program Risks: Social Security Administration," GAO-01-262).

"Historically, I think you can show that a lot of the projected savings from technology that were used to justify reductions in the workforce have not taken place," says Social Security Advisory Board Chairman Ross, a partner in the Washington law firm Arnold and Porter. "This was a game in which the agency took the cuts but the cavalry never came to the rescue with the technology. There's a deep skepticism within the agency on this issue," he adds. "I think in the long term there will be technological improvements. How much they'll help is conjectural, though, because the most difficult workloads like SSI and disability are labor-intensive even if you have good technology. I think there's a justified skepticism about technology being the savior."

Says Roecker, "Technology can't stand alone. It's an enabler but it's not the only factor that has to be addressed. We've tried a number of things-streamlining, process redesign, use of technology. That puts us in a good position to understand how you have to balance your approach as you look forward to the next decade."

Filling the Void

The challenge of integrating new technology is accompanied by the challenge of integrating a significant number of new employees into the agency. Step No. 1, of course, is finding enough people willing to take the jobs. So far, that hasn't been a major problem despite the government's overall recruiting troubles. In fiscal 2000, SSA lost about 3,400 employees but hired about 3,500, notes Barnes. "Thirty-five hundred people for 10 years is 35,000 [about the projected loss over that time]. So we think we are well-positioned to do the recruiting that we need to do. Being able to hire that many people last year is the best proof that we're headed in the right direction," he says.

Because of the desk-bound nature of much of its work, SSA offers opportunities for family- friendly work arrangements such as alternate work schedules and telecommuting, and can readily accommodate people with disabilities. SSA in particular has a great need for bilingual employees, particularly those who speak Spanish. Over the last three years, 25 percent of the agency's hires have been Hispanic, and the agency's population is 10 percent Hispanic, 3.4 percent above the governmentwide average. SSA employees speak more than 90 languages. "What's critical to this agency is that we reflect the community we serve," says John Rynne, district manager of the Rutland, Vt., office, who is part of a special recruiting working group in the agency's Boston region. "It's not just going to a college and setting up a booth and saying, 'Hey, is anybody interested?' Is there a newspaper where we can place a job announcement looking to bring in, say, Chinese-speaking individuals who are qualified candidates? How do we bring in individuals with disabilities? Rather than just do a blanket announcement, get on the phone and call up the association for business and industry and ask are they aware of any candidates." "We have a good brand recognition," he adds. "Social Security is favorably thought upon. We can hire people."

The agency also is enticing prospective hires with such tools as recruitment and retention allowances and relocation bonuses. In addition, SSA has been delegated for one year the authority to rehire up to 500 Social Security retirees without having to reduce their annuities, an authority it would like to have permanently. About 75 retirees have returned under this inducement so far.

Another major initiative is succession planning-making sure the agency has people ready to assume positions of responsibility as executives leave, says Barnes. "We really feel very good about what we're doing about growing the next generation of leaders," he says. The agency has beefed up its leadership development programs, which include a Senior Executive Service candidate development program for grade 15 employees, an advance leadership development program for the grade 13 and 14 levels, and a leadership development program at the 9, 11 and 12 levels. About 1,200 employees have participated over the last three years. The programs feature rotational assignments at SSA, in other agencies and in the private sector and specific training.

The agency has revamped many of its traditional training programs by, for example, emphasizing on-site sessions, including desktop video instruction, to replace its past use of training centers. In addition to savings on travel costs, the agency is finding that employees who couldn't spend long periods away from home-most typically women-now can get training that is valuable for career advancement. The agency would like to begin hiring replacement employees before the incumbents retire, in order to pass on institutional knowledge. Such transitions are crucial because "the people who have been working for the agency for the last 20 or 30 years are going to be the people leaving," says Tony Pezza, vice president of the National Council of Social Security Management Associations. "We really need to get people in place before that happens. This is a complex program. We need the lead-time to get people in place, to get them on duty, fully trained and get them to the journeyman level before the retirement wave really impacts us. You just can't wait for them to leave and replace them the next day with a fresh face. No matter how much those fresh faces smile, they don't have the background and the technical knowledge to handle this program," adds Pezza, who also is district manager for SSA's Hackensack, N.J., office.

Barnes says that while the agency has done some advance hiring, budget constraints limit how much it can do. "We're hopeful that we can work with OPM and the Congress to provide a little flexibility to do more of that, particularly in instances where you have offices in isolated areas where you really do need some time for transition," he says.

The Clock's Ticking

SSA still has time to accomplish the workforce transition and other changes, observers say, but that time is growing shorter. With the agency lacking a new commissioner through the first half of 2001 and with so much of the Bush administration's attention likely to focus on the financing, not the operation, of Social Security, they wonder whether the agency will put those plans into effect. "There is some time, albeit brief, for them to make some of these decisions. They clearly have been looking at alternative ways of doing business to meet their customer needs and try to streamline the process," says the House Ways and Means Committee staffer. "It boils down to whether they'll be able to do what they say they're going to do."

Meanwhile, there are signs of trouble, such as the waiting time in field offices, where waits of up to four hours "are not uncommon," according to the Social Security Advisory Board. Even with the agency's vaunted toll-free number (800-772-1213), 17 million of the 76 million calls last year either resulted in a busy signal or were abandoned before callers were served. Just one and one-half years ago, in December 1999, the service scored an 82 in a customer satisfaction index-15 percent higher than the government as a whole. Recent reports from the Social Security Advisory Board, GAO and SSA's inspector general show that slow processing times and payment errors continue to plague the SSI and disability insurance programs, a portent of more severe problems when the workload surges.

Says Ross, "The agency, I think, is whistling a little in the dark. They're saying, 'Well, if we get this, that and the other thing, we'll do the job. We always have. We'll be OK.' I don't think you'll wind up with the resources you're going to need unless you make your case clear. The beginning of getting the resources is being candid with the Congress and OMB and the President and the public about how deep and serious your problems are.

"Clearly, the number of workers is inadequate for the workload, and, short term, there's no substitute for the number of workers. Longer term, maybe technology and different methods of doing business can substitute for bodies, but I don't think that's true in the short term," he says. "The public is going to be ill-served if these shortfalls in service delivery are not corrected, like, yesterday. It's not being well-served right now in some ways."

Eric Yoder, a veteran Washington journalist, is a regular contributor to Government Executive. ]]>

Net Gains

Eric Yoder — Sat, 01 Sep 2001 00:00:00 -0400

The site's monthly eNews newsletter, covering a variety of Social Security-related issues, has garnered about 160,000 subscribers since its March 2000 debut and is the 10th most highly subscribed of all list serves, according to rankings by L-Soft.com, which tracks such services. About 10,000 new subscribers sign up each month.

Other online services added over the last several years include the option of getting personal earnings reports and benefit statements by mail. A service through which citizens could get their reports online ended just one month after it began in 1997, because of concerns that the agency hadn't done enough to protect privacy. People also can place online requests for replacement Medicare cards, benefit verification letters and other documents. The site has become a third main point of contact between the agency and the public, along with the field offices and the customer service phone line.

"The focus of the Web site really has changed over time. We've moved more from being an information delivery vehicle-although we still are one-to an interactive service delivery vehicle," says Jim Borland, SSA's director of electronic communications, who oversees Web development for the agency's Internet and intranet sites.

The most notable addition, launched in November 2000, allows users to file applications for Social Security retirement benefits online. The agency is taking about 17,500 applications online a month-about 5 percent of all applications-and expects that figure to grow as the Internet penetration in the overall population increases, users grow more comfortable with making transactions online and as the more Internet-savvy population ages.

SSA hopes eventually to be able to take applications for all its benefit programs over the Internet as well as to handle most post-entitlement transactions there, such as changes of address and changes in names. "We're happy with the participation rates we're getting on the Internet now, but we recognize that this is an investment for the future. The true benefits that we're going to get from the Internet application are going to be seen when it scales up, when we get to 10, 15 or even to 20 percent," says Borland.

How fast the online side of SSA's business will grow and how much of a benefit that growth will yield in staff savings is unknown, however. Applying for a Social Security benefit is a major lifetime event that many people might prefer to handle in person, no matter how comfortable they are in the online environment, Borland says. Even online applications need follow-up; applicants must print out the forms and take or mail them to SSA along with documents such as birth or marriage certificates.

Further, Social Security benefits can be complicated and applicants often are better served by having an experienced agency employee guide them through the process, says Witold Skwierczynksi, president of the National Council of SSA Field Operations Locals of the American Federation of Government Employees. "There are certain things that [agency employees] do, even with the simplest retirement claim, that often have an effect on the benefit rate. Ninety-nine percent of the time those errors are corrected to the benefit of the wage earner," he says.

"If you don't go through that process, you're going to create a guaranteed situation where a lot of people get the wrong benefit amount. I don't know how you get around that without a trained interviewer being able to not only review the application and fill in the gaps, but ask certain questions that might not be obvious to the individual filing the claim. Certainly you can save work years by having the claimants themselves do their own work, but you're looking at problems down the road," he says.

Says Borland, "Is the online application a completely automated process? No. We don't claim that it is." Problems such as differences in earning records have to be resolved at some point regardless of whether the claimant applies in person or over the Internet, he notes. "Even if a customer chooses to come into an office to apply for benefits or chooses to call the 800 number, what we're finding is that more and more customers are going to the Internet first, to get some of their general questions answered," he adds. "That helps them feel more comfortable with the process, but it helps us too, because the customers are coming in better prepared," he says.

"What we can say at this point is that the Internet is handling a certain workload. That time can be spent on other work we have to do, especially in the field offices," he says. "Although we're very happy to have customers on the Web site now that are using our benefit application, we're also building it for people who are going to retire in the future. We're going to be looking at a wave of retirees. We have to figure out a way to deal with that. The Internet is one way of dealing with that."

]]>

Raising pay

Eric Yoder — Sun, 01 Apr 2001 00:00:00 -0500

That vision was at the heart of the 1990 Federal Employees Pay Comparability Act (FEPCA), which featured basic raises tied to private sector raises and locality pay designed to close pay gaps to 5 percent or less by 2002.

It hasn't worked out that way, of course. Year after year, the raises indicated by the law have not been funded. The official pay gap remains huge, and many agencies are finding it increasingly difficult to attract and keep employees.

Several trends have emerged in light of the 1990 law's failures. One is the use of numerous special pay authorities designed to address recruiting and retention problems on a targeted basis. Another involves removing parts of agencies, or even whole agencies, from the jurisdiction of Title 5 of the U.S. Code, the federal employment law that governs pay.

The result is a fractured-some say Balkanized-pay system that has left employees dissatisfied with their pay, managers frustrated by their inability to run their operations and agencies concerned about competition for employees not only from the private sector, but also from each other. And once again, there is talk of a need for pay reform.

Making the personnel system more reflective of the overall labor market and salaries more reflective of employee performance have been at the heart of several federal pay reform efforts that prominently featured pay banding. That's the practice in which several pay grades are combined and management has more leeway in setting employee salaries than under the fixed grade-and-step system. During the mid-1980s, the Reagan administration proposed a pay banding-based compensation system intended to give agencies greater flexibility in classifying employees and tying pay more closely to performance. In 1996 and again in 1998, Rep. John Mica, R-Fla., then chairman of the House Government Reform Civil Service Subcommittee, proposed expanding the authority of agencies to conduct demonstration projects. These pay programs commonly include pay banding, make it easier to deny within-grade increases to poor performers and provide greater job security to employees with high performance ratings, among other changes.

All of those efforts failed, largely due to concerns by unions and other employee groups about the potential for favoritism in the evaluations that would be used to set salaries.

The latest reform effort is brewing in the Senate Governmental Affairs Committee's Government Management Subcommittee, which late last year issued a report recommending more use of pay banding, as well as improvements in hiring, training and disciplinary actions. The subcommittee hopes to draft legislation this year, after consulting with employee groups, the Bush administration, pay experts and others. "We're saying, it is time to look at a governmentwide overhaul of pay banding that gives these special flexibilities to everyone so that you don't have agency after agency coming up to their authorizing committees saying we need new authority," says a Senate Governmental Affairs Committee staffer who asked not to be identified. "If we're looking at overhauling the civil service, let's do the whole thing and not take a piecemeal approach.

"What you might have at the end is a fragmented system. But at the very least, if you come to a fragmented system as a matter of specific policy as opposed to it just developing over time, that would be preferable," the Senate staffer says.

On the House side, Garry Ewing, staff director of the House Civil Service Subcommittee, says the panel recognizes concerns that federal pay is too formula-driven and not responsive enough to market conditions. "There are going to be situations where it's going to be very tough for the government to compete with the private sector, no matter what," Ewing says. "But there are questions about whether we have sufficient sensitivity to market differences.

"There may be areas where government is not competitive but there may be areas, both in occupations and regions, where government salaries are at or above market rates. One thing we need to realize is that today's hot area may be tomorrow's run-of-the-mill-thing. That's how markets operate," he says.

Reform a Tough Sell

The General Accounting Office heartened advocates of pay reform by releasing a report in January calling human capital management among the programs at high risk of allowing fraud, waste and abuse. GAO called for reforms in the way employees are hired, trained and rewarded. But even with the problems arising from the increasingly fractured pay system, pay reform might not be an easier sell now than it was five or 15 years ago. Employee unions remain concerned about tying pay increases more directly to performance appraisal systems.

"While some agencies have been working toward having a performance appraisal system that is more reflective of what employees do, so that they know from the beginning what they're being measured against and what they're striving for, there is still so much work that needs to be done," says Colleen Kelley, president of the National Treasury Employees Union. At most agencies, she adds, employees don't believe the appraisal system reflects their actual performance.

Kelley and Bobby Harnage, president of the American Federation of Government Employees, say that more employee and union involvement in crafting evaluation standards would lead to acceptance of those reforms. But Harnage adds, "I don't know how you get favoritism out of the mix, because whatever procedure you come up with, it's still a human being filling out that form. It will have a tendency to favor some people and punish some others. It doesn't have anything to do with job performance."

The Elusive Pay Gap

The years since the last general pay reform have been filled with debate over whether the officially reported pay gap between the government and private sector-now 21.7 percent by the Office of Personnel Management's figures, about 30 percent by union estimates-is accurate. The Clinton administration announced early on that it thought the method used to produce the figure was flawed and that economic conditions mandated paying smaller raises. Congress didn't object to those assessments, although employee organizations did.

"We've been engaged in this debate over the gap, in my opinion, to prevent closing it. I've been saying, 'I say the gap's 27, you say it's 12. You win, pay up.' I haven't gotten paid yet," says Harnage. "The Band-Aid approach eventually is going to fail. We've got to get real about pay. "If we were raising the pay the way it should be, most of those special pay scales would go out of existence because they no longer would be needed," Harnage says. "I think the best way to deal with it is to go in and make a one-time fix. From that point on it should pretty much take care of itself with some minor tweaking."

Kelley says, "For 10 years it's been in place and it's never been implemented as intended. We need to determine what a credible system would look like and if it's not FEPCA, we need to work together to determine what it is. The good part about it is it's already in the law and it would not take the work needed to design a whole new system.

"If there's work that needs to be done on revamping the appraisal system so that there is a more direct pay for performance system, we can do that. But I think we need to be in a better starting place to have that conversation. Implementation of FEPCA would really help that."

OPM officials say that the 1990 pay reform law has made at least some progress toward closing the gap. But the problems with federal pay go deeper, they say, than what average pay gap numbers reflect.

"We're probably still underpaying by 30 or 40 percent in some occupations with hot skills. But there are other occupations where a federal employee does pretty well compared with a private sector employee," says an OPM official who asked not to be identified. "If you just funded FEPCA, you'd still be underpaying some people and you'd be overpaying some people. "If FEPCA had been funded, maybe there'd be a lessening of the volume about the need for comparability, and whether or not there's a pay gap and all that. But you'd still be facing the issue that the pay system doesn't do the job that a lot of managers need," the official says. "It's still not enough performance-oriented. You'd still have the feature that everybody gets the same increase every January when the markets might be different. I think you'd still have a call for fundamental change."

cracks in the monolith

The federal pay system experiences constant change that belies its reputation as an inflexible monolith. Revisions in 2000 alone included authorizing special salary rates for certain IT employees; extending premium pay authorities to the Secret Service; making comparability allowances for certain physicians permanent and creditable toward retirement; revamping pay-setting for administrative appeals judges; improving overtime pay for accident investigators and wildland firefighters; and turning the Patent and Trademark Office and part of the Federal Aviation Administration into performance-based organizations with greater pay flexibilities.

The General Schedule, widely considered the standard governmentwide pay system, now covers fewer than 1.2 million of the more than 1.8 million executive branch employees. Even the GS population was broken into localities-32, with five more possibly on the way next year-each with different salary rates under the 1990 pay law.

The Wage Grade system for blue-collar employees and associated plans, covering more than 200,000 people, pays salaries that vary among 131 localities. The remainder of the workforce is split into scores of smaller pay categories, some occupation-specific, some agency-specific, some rank-specific. The Senior Executives Association counts 22 pay systems just in the levels above the General Schedule.

In addition, the list of special pay authorities is long. The largest is "special rate" pay in high-demand General Schedule occupations, covering 147,000 employees across 431 different pay schedules. At the beginning of the year, 30,000 employees were added to the special pay pool under a new authority for special rates of up to 30 percent above basic salary for certain IT employees.

Other pay flexibilities include various occupation-based allowances, quality step increases, performance and incentive awards, and recruitment and relocation bonuses and retention allowances-called the "three Rs." Agencies increasingly have turned to such special pay authorities to make up for shortcomings in standard pay rates, often with positive results. For example, quit rates among high-demand engineering occupations getting special rates range from about 1.5 percent to 4 percent, compared with an average of 2.4 percent for all GS occupations, according to OPM data. Agencies presume quit rates would be much higher without special rate pay. And the three Rs are "very helpful. They enable us to address staffing needs as they emerge," says Diane Disney, deputy assistant secretary of Defense for civilian personnel policy. For example, the Y2K-related demand for experts in certain computer technologies was the main reason that the number of retention allowances jumped from 2,361 in 1998 to 3,925 in 1999. The number dropped to 3,295 in 2000, after that concern had passed.

"The real strength of the three Rs is the flexibility, that you can pinpoint problems down to the organizational level," says Disney. "That means you can respond much more quickly to an organization that has the sniffles than to an entire organization that has pneumonia. Through tools such as the three Rs and promotion opportunities and performance evaluations [managers] can sometimes find that they have a more satisfied workforce than they would have had otherwise."

One view is that the growth of such authorities, targeted as they are to areas of greatest concern, amounts to de facto pay reform. However, OPM officials say the incremental approach brings several problems. They cite, as an example, the special authorities given to many financial agencies to attract bank examiners to handle the savings and loan crisis.

"Now everybody gets the benefit of those kinds of increases, including the personnel folks, the facilities folks," says another official. "That crisis has been over for a while and they're still at the higher level. It's like a permanent solution to a temporary problem." Further, legislation is pending to extend those same authorities to the Securities and Exchange Commission.

Similarly, the recent special-rate pay announcement for IT employees brought protests from those in grades GS-13 and above, who were left out because the goal was to improve recruiting and retention among early-career workers. Employees in other technical occupations not getting special rates also objected.

OPM officials also frown on law enforcement agencies' frequent requests for specialized pay provisions from Congress. Once one agency gets such a provision, even though it was based on a unique need, others often ask for-and get-the same, officials say.

Says one OPM official, "Internal equity is a big, big force in the government. You'll always be faced with people saying, 'How come they're getting something we're not? Make it even.' It doesn't matter to them that there might be a different kind of market condition or a different kind of attrition. They say it's unfair, it's illegal, it's disparate treatment. There's constant pressure to ratchet up beyond what the last person got. All you do is wind up driving up the cost."

Breaking Away

The "me too" effect also is at work in pressures to give agencies their own pay authorities by removing them entirely or partly from Title 5. Some agencies-the U.S. Postal Service being the largest-have been exempt for decades. The Veterans Affairs Department's medical care arm, many financial agencies, national security agencies, several arms of Congress and numerous small independent agencies also are fully or partially exempt. The two most notable recent Title 5 exemptions affected the Federal Aviation Administration and the Internal Revenue Service, which in 1996 and 1998, respectively, received pay banding authority and numerous other flexibilities. While they are just now starting to carry out those authorities, they are seen as a precedent for exempting still more agencies. For example, the National Academy of Public Administration last year recommended a new human resources system for the Navy, saying the service is hampered by the central classification, pay and disciplinary systems.

"Title 5 and specifically the parts of it dealing with compensation don't allow the Navy-and we could say the same thing of the other services-to become as linked as they need to be to the world in which they must recruit and keep people," says Frank Cipolla, the academy's director of the Center for Human Resources Management and leader of the study. "If they're going to be in competition with the aircraft industry for talent they ought to be able to be in real competition. But they can't do that," he says. "The leaders of the mission communities are not in a position to lead as a result. They're at the mercy of the central system. They ought to be able to adapt as the markets change and as their own needs change."

The Defense Department has been a leader in the move away from the centralized pay and classification system, starting back in the early 1980s when a Navy demonstration project called China Lake put the term "pay banding" in the federal vocabulary. The China Lake program, named after the Naval Air Warfare Center in California that was the primary test site, was made permanent in 1994. It has been followed by a departmentwide demonstration project in acquisition functions, plus alternative personnel tests at eight Defense research laboratories. One major advantage of pay banding authority is more discretion in setting salaries. "In order to get that person, you might have to spend a couple of hundred dollars more but you don't lose them over a small amount of money," says Janice Lynch, project manager for the planned personnel demonstration project at the Office of Naval Research. Lynch is also the former chair of the Defense Laboratory Quality Improvement Program's personnel subpanel, which oversees the research labs' demonstration projects.

"It doesn't mean you get everybody because there are some people we're probably not going to be able to touch. But you don't lose people because of some arbitrary number," she says.

Such changes don't necessarily require huge infusions of cash to address pay problems, since other benefits of alternative personnel systems-such as quality of work life initiatives and enhanced training-also can improve recruiting and retention. Lynch says the lab demonstration sites put less than 3 percent more into their pay pools, but that was enough to make a difference.

"It's amazing what a few flexibilities and a few delegations and a little bit of money can do to give managers and employees a sense that 'I've got opportunities here,' " she says. Still, there's a perception that alternative pay sites get blank checks that give them advantages over agencies operating under standard rules.

"Dirty looks, no. Envious looks, yes," Lynch says, describing the reaction from officials of agencies without such authorities. "I think a lot of organizations simply think that if they had broad-banding they wouldn't lose people any more and all their problems would be solved. Not true. It's the whole culture. If you've got a miserable organization it doesn't matter what you pay your people. They aren't going to stay long." The Senate staffer says agencies with special pay authorities can be viewed as "agencies of the 'haves.' They've got this great pay authority, they can hire executives, they can pay their people a lot. Maybe that says to other agencies they're not as important. Maybe that says that to other General Schedule employees or members of the SES. "By the end of the day, you're going to have a rump civil service-a few hundred thousand who are under the General Schedule system and everyone else out in these specialized pay systems."

talent wars

Part of the concern about the federal compensation system getting too fractured is financial-a view that agencies shouldn't get into bidding wars with each other. Another concern is that agencies with friends in Congress will get special treatment and others with similar problems will be left to suffer it out.

"In the true market situation, every agency would fight for what it can with its appropriating committees, and we would have 100 different pay systems and everybody's competing for that same labor force," says an OPM official. "If you're an agency that happens to be favored by your oversight committee and you have better funding and a nicer building and covered parking or something, then you're in a better marketing position and you're going to steal people away from the agency across the street. That's what would happen.

"That's the way the private sector works. But that hasn't been the culture of the government, and there's been resistance to allowing that to happen," the OPM official says.

Interagency competition is a growing concern. For example, OPM in January proposed regulations to allow agencies for the first time to use retention allowances, under certain circumstances, to keep employees who might leave to join other agencies offering them better deals.

Statistics on such agency-hopping are scarce, but evidence shows it is happening. A manager at the General Services Administration recounts that he lost one of his best workers to the FAA "because they were able to offer him a $13,000 per year raise for similar work due to pay banding. I think [having] different pay systems puts some agencies like ours at a disadvantage in retaining top-notch employees if another agency like FAA wants them," he says.

The Defense Department also chalked up losses of civilian air traffic controllers to the FAA. Defense still is assembling data, but according to OPM, while Defense's controller attrition has been stable since FAA got its special authorities, higher percentages of those who do leave are going to the FAA. FAA officials declined to be interviewed, saying that it's too soon to assess the effects of the agency's personnel flexibilities.

Some believe such competition among agencies can be healthy, just as competition with the private sector in contracting-out studies sometimes is viewed as a way to shake up functions and make them more efficient.

"If used appropriately, competition between agencies I think actually raises the bar for everybody. It draws everybody up to a higher level of performance," says Ron Sanders, the IRS' chief human resources officer. "If we're doing things well, if we have a very challenging work environment and we're using these authorities to attract people both inside and outside government, others are going to look at those same authorities. But even getting them doesn't mean they're going to use them well. They're going to have to get better at what they do in order to match us.

"I wouldn't, however, argue for unrestrained competition," adds Sanders, who notes that the IRS hasn't yet seen employees being drawn there from other agencies. "As long as there's a common framework within which the competition occurs, I think that would be generally constructive." NAPA's Cipolla, a former director of civilian personnel management at Defense, says that whether the potential for competition in a fractured system is a positive or a negative "depends on where you think you ought to go."

"I'm not one that gets excited about the Balkanization issue. So what if you have competition? So what if you might have to go to the table with the unions to work some of this stuff out?" he asks. "I don't worry about fracturing. I think it's time to do something in the direction of making [pay] systems more responsive."

A new attempt at pay reform would require another foray into the statistical and philosophical thicket of pay comparability with the private sector. Political leaders would have to sort out the value of pay in the total package of compensation and other benefits, as well as other factors that contribute to an individual's decision to join, stay with or leave an organization. Federal personnel experts say it's increasingly clear that issues such as training and career development, work/life balance, benefits such as leave, retirement and insurance and organizational climate can be just as important as pay rates, if not more so.

"I'm not certain that there has been a definitive comparison of federal sector employment and private sector employment," says Disney. "If there were one, it would find differences by occupation, some more pronounced than others, and it would find differences by region. Life would be simple if we could say that all of Category X are paid X percent less than all of those in Category Y, but the comparisons aren't that easy." OPM has been working for several years on such issues with a view toward drafting legislation. Whether and when a proposal might emerge-and in what form-remains for the Bush administration to decide. But OPM officials say that tying pay more closely to the labor market underlies many of the potential solutions.

"Just about any alternative to what we do right now would require more delegation of authority, more discretion, more market sensitivity," says an OPM official. "We know that when you give agencies the flexibilities, they want to have pay banding, they want to be more performance-oriented. If that's the lesson, why don't we do that for the whole government? Why don't we give agencies flexibility to design these kinds of systems?"

OPM officials say that the federal pay structure has as its underlying premise a stable workforce in which employees start at low grades and spend long, continuous careers advancing upward. That premise is outdated in an age when many lower-graded jobs have been privatized or eliminated, technology has raised the level of the work for almost everyone else, and career mobility is greater.

"The General Schedule with 10 steps and everybody gets one increase in January just doesn't fit today's model," the OPM official says. "If we're going to be more like the private sector, there probably ought to be more market sensitivity across occupations. You're looking then at maybe breaking up the General Schedule into two different groupings of occupations that might move separately."

In such a scenario, governmentwide policies might remain for nondiscrimination, veterans preference policies, merit system protections and basic benefits, but pay practices would differ for technical occupations versus administrative occupations, for example. "But then you'll come across the equity issue," the OPM official adds. "There will be some winners, some losers, some people that the market dictates will get big increases for the next few years while others are stable or get small increases. The question is: Can we live with that?"

Eric Yoder, a veteran Washington journalist, is a regular contributor to Government Executive. ]]>

When money talks, fewer walk

Eric Yoder — Sun, 01 Apr 2001 00:00:00 -0500

"I couldn't afford a college graduate. They were offering $30,000, $40,000 out there. We were offering them $21,000, $22,000," Popovich says. "They would laugh at us."

The agency sponsored two job fairs, advertising on rock radio stations and in giveaway job-hunter magazines, among other media. The ads prominently featured on-the-spot hiring-subject to security checks-and recruitment bonuses of up to 25 percent of salary. The effort netted some 2,400 walk-in applicants and more than 300 job offers, plus a list of prospects for future hiring.

For employees already on board, the agency began offering retention allowances of between 5 percent and 15 percent of salary, depending on the employee's educational credentials and technical certifications. "Fifteen percent is a pretty hefty raise. That's two promotions, or, in grade, it's five steps. That's not bad money. Plus the benefits, plus the tenure," Popovich says.

One result has been an increase in technical capabilities. Nearly 600 employees now qualify for allowances based on certain technical certifications, five times the number when the retention allowance program started in October 1999.

More employees are staying at the agency, and the recently approved IT special pay rates will help further. The vacancy rate is now down to about 10 percent, and the department is trying to push it lower through continued use of the bonuses and allowances.

"The good ones are staying with us now, the ones with the skills," says Popovich. "We don't have to go out and buy the skills. Now we're not desperate.

"It works. You just have to hit the right buttons, and you have to have the right tools," she says. "But you can't stop. You have to keep going."

]]>

The art of pay banding

Eric Yoder — Sun, 01 Apr 2001 00:00:00 -0500

On hiring or promotion, employee pay may be set at levels in the pay band deemed to be appropriate to the person's qualifications, education, training and experience. Supervisors may conduct annual reviews to decide how total compensation should be adjusted, which can be an increase in base pay or a one-time cash bonus. Employees typically progress up through the pay band if their performance ratings are good, rather than progressing up through a grade by steps based on time in the grade.

Pay banding also features pay for performance. Employees who exceed expectations might get incentive pay increases exceeding governmentwide average raises, while those who fully meet expectations may get only the average raise and those who do not meet expectations may get only part or none of that raise. In other designs, those getting satisfactory ratings are eligible for performance pay increases, bonuses and annual adjustments to basic pay and those with unsatisfactory ratings are not eligible.

Rating systems under pay banding typically are designed to measure an employee's effectiveness in relation to organizational goals. Training and other career development opportunities are emphasized.

]]>

The IRS hopes to hit pay dirt

Eric Yoder — Sun, 01 Apr 2001 00:00:00 -0500

The IRS legislation had several components: more flexibility in recruiting, retention and relocation payments, pay banding authority, authority to conduct demonstration projects outside the basic law governing such test programs and authority to exceed the standard federal salary cap for up to 40 key executives.

One lesson from the IRS experience is that reform takes time. The IRS spent its first year and a half with the new authority establishing organizational performance measures and then linking them to individual performance measures. Only in late 2000 did the agency apply pay banding, and even then only in certain senior management positions.

"The essence of pay banding is pay for performance. That means you've got to have some way of credibly measuring that performance. An effective performance management system is a condition precedent to pay banding," says Ron Sanders, IRS' chief human resources officer, who likens redesigning performance management and pay systems at the same time to building an airplane while it's in flight.

To gain acceptance of the changes, the agency worked closely with management groups and involved managers in developing the system for senior management positions. Another goal was to break the mind-set that everyone should get raises in lockstep.

"One of our efforts here is to make them comfortable with pay banding, to show them that it can work, so that we can eventually begin proposing some version of it for our front-line employees," he says, adding that the support of top management has been vital.

The concept next will be applied to front-line managers, then to certain pockets such as law enforcement and senior information technology people. It could be some time until the approach is applied to rank-and-file employees. That process would be subject to negotiations with the National Treasury Employees Union.

Further, the agency is finding that certain jobs are more amenable to pay banding than others. Thus, some positions might remain under the traditional pay structure.

"We have found that these additional authorities have been extremely helpful. It's been said our pay banding is a potential model for other agencies but I think it goes beyond that. I think this whole structure of personnel authorities and flexibilities is a model," says Sanders. "We're a microcosm."

]]>

Insurance Gap

Eric Yoder — Wed, 01 Nov 2000 00:00:00 -0500

The federal life insurance program may be the largest such program in the country, but it's falling behind more generous and flexible private sector plans.

he Federal Employees Group Life Insurance (FEGLI) program always has been government's No. 2 insurance program, behind the Federal Employees Health Benefits Program (FEHBP), in terms of the attention it draws. In the view of FEGLI experts in and outside government, the program lately has fallen to No. 3 in popularity, behind a benefit that won't exist for at least another two years-long-term care. While Congress has passed a measure that would allow federal employees to purchase long-term care insurance at a discounted rate and President Clinton has signed it, the program won't take effect until 2002.

Even as No. 2, FEGLI never really tried to draw attention to itself. In contrast with FEHBP's annual participant open seasons, FEGLI has had only three since 1985. And in contrast with FEHBP's annual competition among carriers, FEGLI hasn't had competition since Dwight D. Eisenhower was President. Experts say employees tend to sign up for FEGLI when first hired and then largely forget about it. "I don't think anybody joins the federal workforce to gain access to the FEGLI program," says a senior Office of Personnel Management official. "I don't know that life insurance is high on people's radar screens in terms of it being an important benefit. I think it's an important piece of the compensation package but I don't know that a lot of employees focus on life insurance per se." Nor has Congress focused much on FEGLI. Apart from House hearings last year, virtually no attention has been given to the program since a 1998 law increased certain optional benefits. Instead, legislators have concentrated on creating long-term care coverage that would begin in October 2002 at the earliest. That issue has commanded much of OPM's time as well. The net result is a notable lack of attention for a program considered to be the largest, most stable employer-sponsored life insurance program in the country, covering federal and postal employees, retirees and their family members. Yet below the surface, questions are stirring regarding whether FEGLI has been so unchanging that it has fallen behind prevailing benefit practices elsewhere and whether the program wouldn't benefit from a dose of the eager competition taking place in the insurance market.

How FEGLI Stacks Up

FEGLI offers term insurance coverage consisting of a basic plan and three forms of optional insurance. The basic plan, for which the executive branch pays a third of each enrollee's premiums (the U.S. Postal Service pays the entire amount for its employees), provides coverage of an employee's basic pay rounded to the next $1,000 plus $2,000. Its cost to enrollees is 15.5 cents biweekly per $1,000 of coverage. Basic coverage is automatic unless waived.

Enrollees can choose from three optional forms of life insurance: Option A offers an additional $10,000 of coverage, Option B provides up to five multiples of basic pay rounded to the next $1,000, and Option C provides up to $25,000 of coverage for a spouse and up to $12,500 per child. The cost of optional coverage increases with age. For example, an enrollee under age 35 pays 3 cents biweekly for each $1,000 of Option B coverage while a 45-year-old pays 10 cents and a 55-year-old pays 31 cents. A 1998 Congressional Budget Office comparison of federal benefits with those of 800 large companies found that FEGLI made a "relatively poor showing," especially for younger employees. About 90 percent of the private firms offer at least some insurance entirely at the employer's expense, and many plans have higher benefits than the government's, CBO found. "In addition, many firms in the private sector offer lower premiums to younger employees," CBO said. "Some offer benefits free to the youngest employees. In contrast, the [basic] federal program charges the same premium to all employees. Thus, at younger ages, the federal fees in many cases exceed the value of insurance, even considering the additional benefits provided to younger workers."

That shortcoming is highlighted at a time when anyone with Internet access can go to any of a half-dozen Web sites featuring comparative insurance quotes and get prices from scores of companies that can beat FEGLI's prices. Their features vary considerably, however-for example, the insurance might be only for a limited term, after which the enrollee would have to renew the policy or take out a new one, probably at a higher price. Experts say that determining whether FEGLI's features and premiums are the best deal, or even a good deal, for an individual depends on personal circumstances-age, health, family situation, debt, other assets and numerous other factors. But one indicator of its general position in the insurance market is the presence of companies selling insurance into the federal and postal employee population as a complement to, or substitute for, what FEGLI provides.

"A lot of people can get a better deal in the private market if they want to go through the application process. They'll find plans that have rates that are significantly less than FEGLI. They can save significant amounts of money," says John Montague, executive director of Worldwide Assurance for Employees of Public Agencies (WAEPA), one of those companies. "There's more flexibility in the private market to changing needs, and how insurance needs to change over your lifetime. FEGLI's pretty much static based on what you earn," he adds. "At certain points in your life you need more coverage, and the fact that FEGLI is just based on your salary, that limits your choices. You may come into the federal government in your 20s. You may be single and not need a lot of coverage. And then 10 years later you may have a family and a mortgage. You may have obligations where you need more insurance that you may not be able to get through FEGLI."

Unlike the annual open enrollment opportunities in the federal health plan, FEGLI open seasons are tied to occasional benefit or premium-level changes. In addition to open seasons, enrollees may add coverage by submitting proof of insurability-similar to the procedure for buying insurance privately, except that FEGLI imposes a one-year wait-or after certain life events, such as marriage or the birth of a child. But many events that might cause a need for additional insurance, such as taking on a mortgage or enrolling a child in college, do not qualify under FEGLI. As an OPM official notes, direct comparisons between FEGLI and other insurance are difficult because of its unique structure. For example, its basic coverage has a fixed premium regardless of the enrollee's age, though premiums do fluctuate with salary, and it has continued value after retirement. "You can't compare it to straight term insurance because term insurance doesn't have any residual value; you can't compare it to whole life, because whole life has a much higher residual value," he says. "It's a very mixed breed of animal that we have here."

While participation in FEGLI's basic coverage has held steady over the years at about 90 percent, participation in its options has been declining, largely because of cost considerations, the OPM official says. (Data on potential new enrollments in optional coverage during the 1999 open season aren't available yet.)

"Our premiums are based entirely on the experience in our program. Our insured population doesn't have favorable demographic characteristics," he says. "Many of the people who have characteristics that are favorable from a life insurance standpoint have opted out of our optional program and have elected to buy insurance privately. Because they're not in our pool anymore, our pool is a little less attractive, and that's reflected in our mortality. That in turn is reflected in our premium rates. As our rates go up, the rates outside look even better and more people leave our pool, and it's sort of a spiral that continues."

FEGLI's Advantages

Even insurance industry officials in the business of competing with FEGLI say it does have strong points. For example, the program provides automatic and continuing coverage that could be difficult to get in the private market, particularly for those with medical conditions. And in terms of premium cost, FEGLI is competitive with other group-based plans, particularly given the demographics of the group FEGLI covers: federal and postal employees, retirees and their family members. Military service members, retirees and their families are covered by a different life insurance program. The federal civilian population's relatively high average age works against it, but several forces are working in its favor. A high percentage of enrollees have health insurance, and because it is a predominantly white-collar group, relatively few members are in hazardous jobs. The large size of the group also provides stability in rates of claims submissions and thus premiums.

When employees compare costs of a group plan with what they might buy individually, "you're really doing a disservice to the group plan," says John Cahalin, executive vice president of Wright & Co., which targets the federal and postal market. "An employee that would be covered by a group-a union, a company-would have a composite group rate much like the basic plan under FEGLI. That normally would reflect the experience of that group."

Another accepted strong point of FEGLI is its continued coverage into retirement-with some of it free for enrollees who accept a reduction in benefits-a rarity among offerings by private-sector employers. However, just as its rates might not be competitive for people beginning their careers, its structure can be a detriment for those at the end of their careers, insurance industry officials say. With no cash accumulation and only limited opportunities to increase coverage, FEGLI falls short of life insurance available elsewhere as a retirement- and estate-planning tool, they say.

For example, many federal employees are carrying heavy debt even as they approach retirement, says Wright & Co. Vice President Carmen Patete. "If we can get a 45-year-old to anticipate the debt service and how long it's going to be, then we can look at what their insurance needs are going to be. Depending on what the FEGLI costs are and what other insurance programs are out there, and depending on the sensibilities of the individuals themselves, you can fashion a plan that will have the insurance amount and duration appropriate."

Working through such considerations requires an individual to have a reliable, professional source of information. Companies that market to the federal population frequently sponsor seminars and offer individual counseling on those issues. Although those companies clearly have a financial motive, such sessions do provide information that employees might not get through their agencies.

"The biggest problems with personnel offices are No. 1, there's fewer of them than there used to be; No. 2, there's tremendous turnover; and three, they know nothing about insurance other than FEGLI. That's all they know and that's what they sign people up for," says G. Jerry Shaw, general counsel of the Senior Executives Association. "The thing that's not been provided to federal employees is the knowledge that they need to be paying attention to their insurance as they go along. Most agencies try to give employees a retirement-planning seminar within the last five years they're in government, but that's too late. That's fine for retirement, but from an estate-planning standpoint and an insurance standpoint, that's too late."

The OPM official notes that the Thrift Savings Plan is available to help fill the cash-building role and that employees have private-sector alternatives available as well. "I don't know that we've ever thought of ourselves as a financial adviser with respect to the workforce or as an important piece of helping employees deal with estate planning," he says.

Behind the Times? While FEGLI offers only term insurance, the insurance market has experienced rapid growth in cash-accumulating offerings such as universal and variable universal life. The former combines term insurance and an investment feature in which the premium amount in excess of the actual cost for insurance is invested in an interest-bearing individual account at a guaranteed rate of return. The latter is a variant in which a broader range of investment vehicles is available. Earnings on the investments in such accounts are tax-deferred. FEGLI, as strictly term insurance, offers no favorable tax treatment.

Moreover, the FEGLI maximum on spousal insurance is just $25,000, far below what is available in the private market. Until 1999, the FEGLI spousal maximum was just $5,000. Similarly, FEGLI didn't introduce a "living benefit" feature, in which a terminally ill enrollee can draw out benefits before death, until 1995. "They really haven't changed," says Montague of WAEPA. "They really haven't done anything to enhance the program. The program is relatively static from a benefits and price standpoint. There are significantly more choices in the market."

A related issue is whether FEGLI is a valuable offering for recruiting and retaining employees in today's economy. Many of the government's competitors in the labor pool already have insurance offerings such as cash-accumulating policies. "Basically what we're seeing is that due to the tight labor market, [private-sector companies are] looking for ways to attract and retain employees," says Pat Leary, associate scientist at LIMRA International, a market research firm for the financial services industry. "What we find is that most large employers have their established benefit packages in place. They already have the life, dental, disability and medical insurance," Leary says. "When they look to add new voluntary benefits, they're looking to supplement the universal life and, variable universal life insurance, and other benefits they currently offer with many nontraditional benefits-things like long-term care, auto and homeowners insurance, prepaid legal plans, financial planning services, things along these lines. They're trying to differentiate themselves from the competition."

However, in the FEGLI program adding a benefit or changing the structure of an existing benefit literally takes an act of Congress. The most recent FEGLI reform passed in 1998, when limits on coverage of spouses and children were raised and enrollees became eligible to elect carrying FEGLI Option B and C coverage unreduced past age 65 at their own expense. An open season in 1999 allowed enrollees to make those changes.

That measure also ordered OPM to report on levels of interest in new options such as voluntary accidental death and dismemberment coverage and cash-accumulating features such as universal life and variable universal life. That report, issued in May 1999, said that a survey of about 1,500 enrollees found "very high satisfaction" with the customer service, overall features and benefits available under FEGLI. However, about half expressed an interest in voluntary accidental death and dismemberment coverage, 42 percent in group universal life and 23 percent in group variable universal life.

Slightly more than half the enrollees surveyed said they had insurance other than FEGLI, and of those, most said they carried other insurance because they wanted more coverage. A third said they wanted insurance with cash-accumulating value, and 15 percent said their other insurance was less expensive than FEGLI. OPM also surveyed more than 800 non-enrolled employees and found that most of them also had other life insurance and that nearly half of them took out that insurance because it cost less than FEGLI.

In the report, OPM said it planned to consider offering additional insurance products. The primary backer of the law requiring the report, then-House Civil Service Subcommittee Chairman John Mica, R-Fla., envisioned the study as laying the groundwork for getting such benefits enacted in the current Congress. As the 106th Congress winds down, however, there has been little movement toward FEGLI reform other than an August 1999 hearing at which Mica, still a member of the civil service panel although no longer chairman, criticized OPM for failing to produce firm recommendations. A year later, the administration has yet to make a proposal, and FEGLI reform has remained a back-burner item. "The priority has been to try to get long-term care through. Given the short legislative calendar, it just didn't really seem it would be feasible to try to move something as big as that and long-term care," says Garry Ewing, staff director of the House civil service subcommittee.

Early in the drafting of the long-term care plan, consideration was given to handling both issues at once by making long-term care a feature of FEGLI. That idea was dropped, however, as civil service leaders struggled to craft a long-term care design that would be acceptable all around. Congress may take up the issue of additional FEGLI options next year. As for a plan from the administration, Ewing says, "We waited for some time for the administration to forward its proposal, which they never have. We've never been told formally that we won't get one." Officials say the main barrier is concern in the Treasury Department about the tax implications of offering federal employees tax-favored, cash-accumulating policies. They say the idea appears to be dead, at least for this year.

No Competition Another issue that may draw renewed attention is the lack of competition in FEGLI. Although the federal health insurance program undergoes price negotiations each year involving hundreds of plans, FEGLI has only one carrier, Metropolitan Life Insurance Co., which has had the account since the program started in 1954.

OPM notes that the program is technically a commercial life insurance product, but it effectively has become a self-insured program. The premiums are designed to cover the cost of the program, based on a well-established claims record. OPM and MetLife annually negotiate the company's profit, which in 1999 was $510,000. MetLife's operating costs were $7.25 million on a program that paid out $1.65 billion that year, says OPM. "If you recompeted the contract, the policy terms are going to be the same. The cost of claims is going to be the same. The mortality experience is not going to be any different, so the premiums aren't going to change," the OPM official says. "Could somebody administer it for substantially less than Met does? If you're talking total administrative costs that are only equal to 44 hundredths of 1 percent, where's your margin? You're not going to affect the premiums by making an award to a new contractor, and chances are you're not going to be able to do much in the way of negotiating a lower profit."

MetLife declined to make an official available for an interview. However, a spokeswoman says the company's position is that it is only the primary insurer and administrator of the program and plays no active role in its design or premiums. "MetLife does not have any responsibility or role in determining the program benefits or the rates," she says. The spokeswoman says the company stands by its testimony in 1997 House hearings at which a MetLife official said, "administration by a single carrier continues to be the most efficient and economical approach to administering the program." The lack of competition in FEGLI has been a theme of past House hearings, however, and it also has drawn the attention of the insurance industry. "Just to spur some industry competition for the business-see who could do the best job-that always proves to the benefit of the sponsor," says Michael Bartholomew, senior counsel of the American Council of Life Insurers. "National associations like AARP put out for bid who's going to be the carrier for the benefits they offer their members. It's to the benefit of the members to get the best and most modern and flexible plan that meets their needs.

"With respect to the federal employees, I think Congress' perception is that for the basic plan, we can live with having one carrier," Bartholomew adds. "When you get to plans where the federal government isn't anything but basically a vehicle under which you can sell additional life insurance that the employee purchases out of his or her own funds, then you ought to give them a choice." Creating more choice in FEGLI would not necessarily be an easy task, since that would require redesigning the way employee premiums are collected and distributed, he says. "I think the legislators see great merit in the products and the ability to do it. I just think [that] because it's a bureaucracy, it gets bogged down in the details of how it gets processed through the system."

]]>

Information Overload

Eric Yoder — Tue, 01 Aug 2000 00:00:00 -0400

letters@govexec.com

he first piece of paper Ron Lawson faces each morning is the revenue report from the previous day. Other issues demanding his attention these days include allocating funds for investment in promising new lines of business, watching the effect of staff costs on his bottom line and assessing how the explosion of free information on the Internet is affecting sales of his products.

Lawson is not the CEO of a publishing company, though. He is the director of a federal agency-the National Technical Information Service. NTIS has a unique perspective on the push for agencies to act more like businesses and to be more entrepreneurial and customer service oriented. NTIS says it has been doing just that for years, as the self-funding clearinghouse for the government's research and other technical information.

Yet NTIS is caught between mandates to make money-but not too much-and to keep up with the times while being restricted in how it can invest and reshape itself. Most of all, it is caught in the middle of a tug of war among its parent Commerce Department, the federal information community and other agencies over its future.

In July 1999, Commerce proposed shedding NTIS and sending its archives to the Library of Congress-arguing that the two agencies perform essentially the same kind of work. A year later NTIS hasn't budged, and indications are that the agency's collection won't be going to the Library-or anywhere else-anytime soon.

Perceptions of Obsolescence

The NTIS collection of more than 3 million titles includes business and management studies, international marketing reports, materials and chemical science data, and technology innovation and training tools, among others. It collects titles from government agencies, international organizations and the private sector, selling them in print, CD-ROM, diskette, microfiche, online and other formats.

One major hurdle the agency faces is the view that selling information is an outdated concept in the era of the Internet, when virtually anyone can get much of the same information for almost no cost.

"The growth of the Internet has rendered outmoded the business model NTIS uses to carry out its core mission," Commerce Deputy Secretary Robert Mallet said at a Senate hearing last fall. "For years, NTIS and the department have struggled with how to ensure public access to government information at a reasonable cost, while keeping NTIS self-sufficient. Looking to the future, the department believes that the economics of the Internet will dramatically affect NTIS' ability to remain solvent. It already has."

The Commerce Department declined to make an official available for comment for this story.

But the choice is not as simple as free vs. for-charge information. Agencies that post information on their Web sites incur a cost, and many potential users of that information either don't have the ability to get it electronically or can't find it outside an indexed system like the one NTIS offers. And even those who could find it and get it online might not want to tie up their own equipment by printing it, ending up with stacks of paper rather than a bound report.

"This Web thing that everybody's talking about that's putting NTIS out of business really isn't putting NTIS out of business," Lawson says. "It's the same type of reports and documents that we're getting anyway. What it has done in many cases is hurt our current sales. That's why our costs are higher or are exceeding our revenues, because we had to change over [to electronic media] to reflect that."

The growth of self-publishing by agencies on the Web also has brought similar growth in the problem of fugitive documents-those publicly available for a time but wiped out when sites are updated, with the public having little or no means to find them afterward. That means agencies don't bear the costs of keeping those documents available indefinitely. NTIS does. Two-thirds of the documents requested from the agency are at least three years old.

"We are mandated to keep all of our products in perpetuity. We've got to maintain that collection and we've got to maintain it in a way that enables us to deliver it to our customers in any one of these various mediums," says NTIS Deputy Director Alan Neuschatz.

"If we were the NTIS Corporation instead of the NTIS federal agency, we could decide, 'We're no longer going to deliver it that way. We're no longer going to keep these particular reports. We're no longer going to do a whole variety of things, on a business basis.' But as a federal agency with a special mandate from Congress, we don't have that luxury."

Government as Business

As a non-appropriated agency, NTIS is expected to break even and is allowed to carry forward profits into future years. Its profits have to be sufficient to keep the agency afloat, just like a company. If it went through its retained earnings-profits that have built up over the years-it would go into a deficiency status.

NTIS, meanwhile, is mandated to operate only on a cost-recovery basis, meaning it cannot make too much of a profit. That restricts the agency's ability to move into the new technologies that the suppliers of the reports it publishes are using.

"Our ability to invest is limited by the fact that we don't have access to capital, and our pricing policies have got to be constructed in ways that we are recovering not much more than our actual costs," says Neuschatz. "If we were the NTIS Corporation, we could run down the street here to the bank and ask for a loan to help us invest in the technologies and the products and services that we felt were ultimately going to increase our revenue. But we can't do that. Where does the seed capital come from to reinvest in what any sensible business would reinvest in? That's one of our real problems."

NTIS also is required to take in all scientific and technical reports under its charter. It can't refuse to accept a title that appears unlikely to turn a profit, as a private publisher would. And the electronic information explosion has made the intake, indexing and cataloging processes more complicated due to the lack of standards in formatting.

"We don't tell people how to give it to us. In the old days, it came on paper. Today it is whatever it is. It's a lot of work to do that. We believe from our mission that we should be doing it. But it's costing us money," Lawson says. "The mistake people make is in thinking everything is automated. It is automated for the user, but behind it is where the problem is."

Further, none of the information NTIS distributes is copyrighted. It receives no royalties from anyone who reproduces one of its reports. "In many cases we up-front all the costs of collecting the documents, indexing and abstracting, cataloging. And then many companies buy that from us, and they escape all those costs, and then they have lower prices," Lawson says. "Basically we are doing this public service for them and for the country. But it makes it very difficult for us to break even."

NTIS was not breaking even when Lawson became director in January 1999; the agency was more than $600,000 in the red and in danger of being deficient for the fiscal year. A report by the Commerce inspector general several months later said that agencies "are increasingly bypassing NTIS as a distribution channel" and that "even with significant efforts to improve its profitability, NTIS can no longer generate sufficient revenue to remain self- supporting."

The Commerce Department made its recommendation to move NTIS several months later, including a pointed observation that a report Commerce had just released, "The Emerging Digital Economy II," cost $27 through NTIS but was available for free on Commerce's Web site.

After downsizing, a Commerce-imposed hiring freeze, space consolidations and other cost-saving steps, however, the NTIS finished fiscal 1999 with more than $650,000 in profits. Still, the administration repeated its transfer proposal in its fiscal 2001 budget plan and continues to push the idea.

For fiscal 2000, NTIS is expecting about a $1 million profit on a $34 million operating budget. "We feel very confident we'll be able to do that well," says Lawson. "But again, it's not sufficient. It looks good-you broke even. Sometimes it's difficult for government managers to understand that breaking even is only the name of the game if you're being appropriated in some other manner. We're not."

Waiting Game on the Hill

So far lawmakers have done little about the agency except to deny the administration's request for seed money to begin the transfer of NTIS to the Library of Congress. House and Senate hearings late last year revealed little interest, except from the Commerce Department, in moving the agency.

The Library of Congress submitted a statement to Congress that showed little enthusiasm for taking over NTIS, saying that while some NTIS functions "dovetail" with its own activities, functions such as high-volume document distribution, brokering agency databases and publication of information products of executive agencies "are beyond the Library's current mandate." The Government Printing Office, meanwhile, volunteered to take over NTIS if Congress decided to move it from Commerce, saying the agency's functions would fit better there.

Spokespeople for the Library and the GPO say their agencies' positions haven't changed since then.

Earlier this year, Rep. Tom Davis, R-Va.-who represents the Springfield, Va., home of the agency-and several other members defeated a White House request for transfer funds as part of a special supplemental spending bill for fiscal 2000. Davis and other members of the Virginia delegation criticized the Commerce plan at the hearings as hastily drawn and done without consulting stakeholders, including Congress and NTIS customers.

"It's not an absolute that this place doesn't need to evolve; he's just saying it's a little drastic to move it all to the Library of Congress at this point," says David Marin, spokesman for Davis. "There are issues to be resolved-the fugitive document issue, how the government intends to capture the information to make sure information is available not only immediately but also three or 10 years from now. We think the function of NTIS is important and needs to be reexamined but not to the extent that the administration wants."

The Senate Commerce, Science and Transportation Committee shares the concerns about the process Commerce used in making the transfer proposal and about ensuring that scientific and technical information remains readily available, says a committee staff member. "That's been the role of NTIS. If the government is making an $80 billion investment in R&D and the results are not being captured and archived, that's a concern," he says. "Someone's got to do it, that's what it comes down to. If they're not there to do it, someone else has got to."

At last fall's hearing, the Commerce Department's Mallet said: "We certainly did consult with the management at NTIS [before making the proposal]. It would be a fair criticism to say that the department was not deeply involved with the union on this. We did have conversations, but this is a criticism that I am willing to take, that we didn't have full-blown consultations. I don't think the positions would be different today had we done so."

He also said the work of NTIS is "an essential government function. [But] it can be performed elsewhere." Of the recent improvement in NTIS finances, he said: "I don't think it would be dispositive. Looking back on the history of the last few years, there has been a deficit in the clearinghouse function every year. It was touch and go there much of the time."

Davis is working to give the agency relief from the hiring freeze, possibly by adding language to an appropriations bill, while awaiting a General Accounting Office audit of NTIS finances. And the Senate committee is considering asking the National Commission on Libraries and Information Science, the primary body overseeing federal library and information policy, to do a full examination of NTIS.

In a preliminary report issued in March, the commission recommended leaving NTIS in place, at least for now. The report also said NTIS should get a direct appropriation to cover its public service functions, should set sales prices sufficient only to cover costs and should introduce new products or services only after "careful consideration of the capabilities of the private sector."

However, a wide range of options was raised during the commission's work and "there are seven or eight alternatives still on the table," says Forest Woody Horton, the consultant who co-directed the study of NTIS.

One point of agreement, though, was that no other technical-intensive agency-such as NASA or the Energy Department-wants NTIS' job.

"We're saying give [NTIS officials] the money to ensure organizing and applying bibliographic control of the information that's got to be disseminated, then make sure they do update and modernize their business model," Horton says. "They've got to start making arrangements under the context of the impending e-government model and make sure the information that is coming to them from the [agencies] is increasingly coming to them in electronic form and they make it available electronically."

Restructuring Staff, Services

NTIS says it has been restructuring itself exactly along those lines, however. It has cut more than 100 positions over two years to bring its staff down to 215. Much of the reduction was handled through a negotiated agreement with the National Federation of Federal Employees, in which positions at the same grade level at other Commerce agencies were found for surplus employees.

"It's tough. We downsized, and of course our payroll is a lot less, but the employees are doing two and three jobs. The jobs still are here. It's really been a hardship for all of us," says Louisa W. Day, an agency acquisitions specialist who is president of NFFE Local 1627, representing nearly 200 NTIS employees.

"If you look at the bargaining unit, we've been very instrumental in terms of helping NTIS restructure itself and making it fiscally sound and also in terms of making sure it's focusing on the mission," says Bill Clark, an executive committee member of the NFFE local who works at the NTIS office of business development.

Management officials agree that the two sides have worked well together in the downsizing but say the result still isn't perfect. The hiring freeze has left NTIS unable to fill vacated positions-much less new ones-that reflect the skills it needs to keep up with technology.

"There's a whole host of things that require a different technological skill. We have too many people left over from the older way of doing business," says Neuschatz. "If we were a business and could tailor our workforce to our current needs, I'd think you'd see the clearinghouse being a lot more profitable."

Meanwhile, the agency has been shifting to electronic gathering and dissemination of information, including information management and multimedia services available to agencies on a reimbursable basis. That shift is reflected in an increase in electronic transactions with an accompanying decrease in sales of traditional paper and microfiche products. And the number of times its FedWorld system-which provides online integration services, including imaging, virtual warehousing and production services-was accessed and the number of files downloaded from it each increased by about a factor of six between 1997 and 1999.

"One of the challenges is that as new media come out and grow, they don't really replace old media," says Neuschatz. "You never stop doing what you were doing before. So we need to maintain a very, very diverse staff with all the technical skills. We'll be doing everything forever. That's one of our real virtues but one of our millstones as well."

New Sources of Revenue

While the agency has been restructuring its offerings and cutting internal costs, it also has been finding additional revenues by offering services such as Web site hosting and other electronic information services to agencies such as Agriculture, Labor, Veterans Affairs, Health and Human Services, Federal Aviation Administration, Customs Service, IRS and the Supreme Court.

Similarly, for several years it's been the NTIS that produces and sells the popular IRS tax form CD-ROMs. That contract, from which NTIS nets about a half-million dollars annually, represents a large part of what makes the agency profitable. Last year, the IRS put the job up for bid, resulting in a competition between NTIS and the Government Printing Office. While the bids were fairly comparable, NTIS won the right to continue the job largely on the basis of its track record on customer service.

"We're customer-oriented," says Lawson. "We have to be because we receive no other funds. If I mail a letter, it's 33 cents out of pocket. Nothing goes through the Department of Commerce mail room where it's free. There's nothing free here. We need to service customers. If we don't, the sales report will reflect it."

NTIS also hosts the Defense Acquisition University's virtual campus, handling several courses, with the prospects for more in the future, not only with the Defense Department but also with other agencies' distance learning programs. "We see that as a great growth area because that gives us the expertise to approach other federal agencies and say if you want to have this, we're able to do it," says Lawson.

Other ideas include the capability of selling just parts of reports instead of entire documents and further forays into audiovisual services, satellite broadcasting and other new technologies.

But NTIS has come under criticism for taking such initiatives, including some ventures that did not work well in the past, such as bringing into its collection industry standards and military specifications that were readily available elsewhere. The March NCLIS report, while generally favorable to NTIS, concluded that pressure to be self-funding "has led NTIS to expand services to agencies and develop products that are beyond its mission."

"The biggest share of their revenue right now is from the program with the IRS to bring out their tax forms," says Horton, the study's co-director. "That doesn't have a thing to do with the collection and dissemination of federally financed R&D information. You're really stretching things if you're having to depend upon that kind of a revenue source to keep yourself afloat. Something's radically wrong.

"The other argument is that it doesn't seem kosher for one government agency to be paying another government agency to be doing something it could be doing for itself. That's an arguable point. But that's been used by Commerce as part of their justification for dumping the agency."

While the arguments continue back and forth, NTIS remains in limbo, hearing exhortations to all agencies to be more customer-oriented, entrepreneurial and businesslike, and seeing opportunities for which it is well positioned, but being limited in its ability to move ahead.

"The platform we have for electronic information dissemination lends itself to many opportunities," Lawson says. "We believe that they're only going to grow, and exponentially. We need to be ready to go one way or the other. If they keep us open, we can't say in four years we'll be ready to do something."

"But we can't do too much of anything that would require investment," he adds. "It would be crazy to make the investment if they're going to close us down. We have to see what the Hill says first."

Eric Yoder is a veteran Washington journalist and a regular contributor to Government Executive.

]]>

The CyberForce

Eric Yoder — Tue, 01 Feb 2000 00:00:00 -0500

ive years ago, John Reed Stark of the Securities and Exchange Commission's enforcement division sent out an internal e-mail inviting employees to join a new Internet surveillance group called the CyberForce.

"It's a completely goofy name but at the time I liked it. It's catchy," says Stark, now the chief of the SEC's Office of Internet Enforcement. One of the first steps was assigning volunteers to surf the Web for several hours a week just to look for possible securities law violations. The idea was that even if the employees didn't turn up much, at least they would become more skilled at using the Internet.

From that beginning, the CyberForce has grown to about 250 specially trained employees for whom Internet enforcement is now a regular part of the job. They have been instrumental in several large SEC sweeps of online securities law violations that have produced some 100 enforcement actions.

For the SEC and other agencies regulating consumer fraud and similar illegal activities, the growth of the Internet has brought a burgeoning caseload. The Federal Trade Commission filed its first Internet-related case in September 1994 and recently marked its 100th. The latest case involved allegations of "page-jacking" legitimate Web pages and substituting pornographic sites from which viewers could not exit.

It was also about five years ago that the Food and Drug Administration filed its first complaint involving the Internet. The FDA now has about 60 pending cases-many involving unlicensed online sales of prescription drugs. The agency has taken action in about a dozen others and, like the FTC and SEC, has many more in the pipeline.

The Internet's growth has compelled regulatory agencies to devote more resources, both technological and human, to it-with the result being a new generation of cases and significant changes in how they do business. They're finding that, by and large, their existing authorities are up to the task. But sometimes they have been forced to be as quick on their feet as the fraud practitioners.

All of that has happened while these agencies are trying to define their role on the Internet, whose rapid growth postdates practically all the laws they enforce.

Old Scams in New Bottles

While state laws apply to some illegal consumer activity on the Internet, federal agencies are playing the most prominent role in watching the Web because of its wide scope. The server hosting a site might be in one state, the people maintaining the site in another, the people collecting money in another, and the people getting the money in yet another. The federal government is in the best position to reach across so many borders.

How much illegal activity is occurring on the Internet is impossible to quantify, but there's no dispute that the Web is fertile ground for fraud. It's a new medium for most users, and its operation is based on an underlying sense of trust. The Web's anonymity makes it harder for a consumer to check out who is making a sales pitch. And the lack of an identifiable location makes the resolution of consumer problems much more difficult.

"What the Internet does is remove face-to-face contact between the seller and the purchaser, so someone buying the product is less likely to know who they're dealing with," says Jeffrey Shuren, a medical officer with FDA's office of policy, planning and legislation.

The low cost of setting up Web pages and sending out vast numbers of e-mails makes it easier for fraud artists to strike and move on before they can be found.

"They're using all these new technologies, the browsers and so forth, that we never have seen in traditional fraud artists," says Jodie Bernstein, director of the FTC's Bureau of Consumer Protection. "The techniques they use are really different. [But] theft is theft. Whether it's a Web page or your bank account or your suitcase, it's still theft and it's still against the law."

"It's old scams in new bottles. The government had to learn what the bottles were. We're learning about that," says a senior Commerce Department official involved in electronic commerce policy. "We just have to make sure that we are not only learning this new dance but also using the quite extraordinary capabilities of the Internet to make people aware of the problem and give them new tools to deal with the problem."

Agencies have posted information advising the public how to avoid getting taken in by Internet scams, which by and large mirror traditional frauds such as pyramid schemes, phony business opportunities, credit repair and deceptive travel programs. The FTC has even used "teaser" Web sites that mimic such sites, full of glowing testimonials and promises, ending with a warning to visitors that if they were prepared to buy at that point, they are vulnerable to being scammed.

The agencies also have realized that they must fight fire with fire: They must have computers just as fast and powerful as the fraud artists, and agency employees must be just as adept at using the technology. That has meant not only investing in hardware and software but also adding technology specialists and training investigators, some of whom now work full time, or nearly so, on Internet cases.

The FTC recently created an Internet lab with a staff of technology specialists and an array of the latest hardware and software to aid its investigators. The terminals are available on a drop-in basis but also will be used during "surf days," when the agency will identify a general area such as pyramid schemes or health claims and will investigate the status of marketing on the Web in that area.

One key feature of the lab is that it operates on its own server, so that the hosts of the sites viewed won't know the visits are coming from FTC employees. Internet fraud artists watch for hits from federal agencies and sometimes display different pages to anyone coming in from a government server. They also might close a site after detecting repeated views by an agency.

"[The Internet] changes what we do here every day," says Dean Forbes, an attorney in the division of advertising practices at FTC who works on Internet-based cases. "It helps us not only conduct our law enforcement efforts but also shows us that consumers can be affected in a variety of ways. We're using the means that are out there to replicate what consumers would experience and to make sure that we can jump on these types of schemes right away."

Agencies also have discovered that their traditional enforcement tools remain valuable. For example, Internet frauds generally involve collecting money, or at least attempting to do so. Money creates a trail that can be followed just as effectively as if the fraud were perpetrated in a telephone boiler room operation or anywhere else in the physical world.

In some ways, use of the Internet by fraud artists actually has made them easier to catch, officials say. Activity on the Internet leaves electronic fingerprints that can be traced. More important is that the public nature of the Net allows investigators to effectively look over the consumer's shoulder while a fraud or scam is going on. In some cases, such as certain stock offerings, agencies have been able to step in before anyone lost any money. That's extremely rare in the physical world.

However, Internet-based commerce also can make it more difficult for investigators to prove what the targets were offering or purporting to do. The relatively low cost of creating Web sites makes them highly disposable, and once taken down the information on a site might be gone forever.

And Internet tools or no, enforcement cases can take a long time to assemble. Once information is captured, it needs to be analyzed by program experts. Also, Internet cases still must pass through the agencies' regular review channels before being filed.

"By the time you work up the case, if the person closes down the site and moves across the state line and pops up with a different name on his site, we may have difficulty proving that it is really the same operator," says William Hubbard, FDA's senior associate commissioner for policy, planning and legislation. "He may have changed his name. . . .There may not be any similarities in the site except that he's selling the same drugs."

"We know that the Internet frauds go in fast, rip people off and get out much more quickly than conventional fraud operators. They stayed around longer, they had capital investments that these guys don't have," says Bernstein. "We have to move faster because if we don't, they're gone and we'll never recapture the data."

Walking the Line

As they step up their Internet enforcement activities, agencies find themselves trying to walk the line between regulating activity on the Internet and regulating the Internet itself. On one side are consumer protection groups that widely publicize Internet frauds and scams, creating pressure for new rules. On the other is resistance from the Internet community-both companies and many individual users-to government involvement in the individualistic cyberworld.

As one measure of that sensitivity, the Federal Communications Commission, which takes great pains to make clear that it takes a "hands-off" policy toward the Internet, has received hundreds of thousands of e-mails in the last two years accusing it of trying to regulate the manner in which consumers obtain and pay for Internet access. Many of those missives focus on a widely misunderstood February 1999 FCC decision relating to reciprocal compensation among long-distance telephone carriers. But the agency still is beset with rumors that it is trying to impose a "modem tax," based on a proposal that was abandoned in 1988.

The Clinton administration's general policy on the Net is also largely hands-off. A 1997 memo to agencies stated that the government "should encourage industry self-regulation wherever appropriate. . . . Where governmental involvement is necessary, its aim should be to support and enforce a predictable, consistent and simple legal environment for commerce."

Says the Commerce Department official, "There is a concern that if regulation comes, it's unlikely to be as flexible, to move as quickly, to be as technologically sophisticated as [the industry] may be able to do on their own. This is not this group of malefactors who came to do business on the Web. These are the people who live next door to you-or did before they cashed in their stock options-and who want to run a good business and do it with integrity."

An important role for the government in the Internet world, the administration believes, lies in giving consumers confidence that they can do business there safely.

"For some people, the response is everyone will figure this out for themselves," the official says. "By and large the feedback we get is that people don't want it to be the Wild West. They don't want a situation where if they buy something they're not going to get what they buy, that the rules against deceptive advertising and misrepresentation won't apply to them. It's not a question of regulating the Internet. You can't commit fraud on the Internet just like you can't commit fraud on the street corner. That's not regulating the Internet or the street corner, that's regulating fraud."

"There's always been a notion of caveat emptor, but we still bring our fraud cases anyway. I've talked to way too many victims and I've seen way too many charlatans," Stark says. "The real bad guys we prosecute are relentless in their desire to steal. When you have someone who's that motivated and is willing to use the Internet's culture of trust and benevolence, people can fall prey to that.

"I'm a big proponent of the Internet, I feel very strongly about free speech, but I never have any doubts when I'm prosecuting these cases for a minute that I'm imposing on someone," he adds.

Proponents of an active government role cite the experience of "900" phone numbers. They say technology can be a valuable way to get information to consumers for a fee, but 900 numbers almost failed, and their reputation still suffers, because of some of the very issues now facing the Internet-fraud and pornography.

Meanwhile, the industry is urging a go-slow approach to government involvement. "In the bricks and mortar world, we have hundreds of years in understanding law and behavior and jurisdiction and actors. In the global Internet medium, we're just beginning to discover what the good and less good aspects are," says Jeff Richards, executive director of the Internet Alliance, an industry trade association.

"One of the few things [agencies] have in common is that they have been cautious in attempting to exert regulation on the Internet, for a variety of reasons," he says. "In some cases, it's about testing or understanding their jurisdiction. In others, it's being cautious about over-reaching. In others, it's because this is all so new, and agencies are looking to implement sound ideas rather than the first idea."

The Internet community argues that self-regulation works best. For example, in response to complaints about fraud in Internet auctions, the sites now increasingly are using escrow services to assure that the goods being sold get to the buyer and that the money promised for the goods gets to the seller.

Consumer advocates, though, contend that, as in the physical world, government intervention is needed. They note that not every business participates in self-regulatory programs and that such programs vary in their requirements and how strongly they are enforced.

"I see government's role and industry's role dovetailing," says Susan Grant, director of the Internet Fraud Watch at the National Consumers League. "I don't think we can just abdicate government responsibility to consumers. I'm very impatient with arguments about the Internet that we should let private industry police itself because we know from the physical world that that is not going to be a complete solution to the problem. It's foolish to think it ever will be, and it sets up a false dichotomy between regulation vs. self-regulation."

The Laws Still Work

Officials of regulatory agencies say the debate over additional regulation of the Internet has yet to affect them significantly. They have found that the laws already on the books largely are sufficient to cover the new medium. It's just a matter of applying them in a new way, they say.

"We have very broad authority both to bring administrative cases and to bring cases in court," says the FTC's Bernstein. "In addition we have a number of specific statutes that cover credit-type transactions that we also use. Because of the combination . . . we feel we have adequate authority to proceed."

The SEC similarly applies the same anti-fraud statutes to the Internet that it uses elsewhere. In fact, the Internet gave new life to a law that otherwise wasn't being applied much-a 1933 provision in the Securities Act saying that anyone who is compensated for promoting a company must disclose the nature of the compensation and the amount. Such information can be scarce among stock touts on the Internet.

Says Hubbard of the FDA, "I actually believe that we can get our arms around and get control of these domestic sites through the various licensing and other legal authorities that the state and federal governments have. I believe they are manageable if we are vigilant and go out there and leave the legitimate ones alone and focus on the illegitimate ones."

If there's a need for new authority, agencies say, it's in the international area. It's one thing for the FDA to prosecute an unlicensed online pharmacy that crosses the border between Texas and Louisiana, but it's much more difficult if the operators cross the border to Mexico. International bodies to which the agencies belong are helpful, but there are restrictions involving disclosure of law enforcement information. And the agencies don't have the authority to fine or prosecute people in other countries.

Meanwhile, regulatory agencies say they are getting significant help from an unexpected quarter: Internet users. Despite their reputation as averse to a government role in the Internet, users provide a regular stream of e-mail to agencies about potentially illegal online activity.

SEC's enforcement complaints center site (www.sec.gov/enforce/comctr.htm), created in 1996, started off getting five to 10 e-mails a day. Now it gets 200 to 300 a day and the agency has assigned five attorneys who spend about a third of their time reviewing them. The FTC has created an online complaints form on its site and the FDA, too, regularly gets tips that lead to enforcement actions.

"Any type of enforcement program that you have, you've got to have members of the public out there doing some of the work for you. They are the first line of defense," says Stark. "We find things through active surveillance but it turns out our No. 1 source of leads is complaints that come in from the investing public."

After one of its sweeps of online securities fraud, the SEC received nearly 1,000 e-mails a day congratulating the agency, he says, and the agency continues to get a regular flow of messages about its Internet enforcement activities.

"The majority say 'Good job and keep it up,' " Stark says. "If it turned around and suddenly we were getting a lot of criticism we would probably look at the program. But we've never had cause to do that."

Even if identifiable resistance should arise, agency officials say they have laws to enforce and they intend to enforce them. The Internet will only continue to grow, and with it will come more fraud.

"I think that everybody recognizes that this is the new frontier of fraud and that [agencies] need to be out there. To the extent that they're able to, they're putting resources into doing that," says Grant of the National Consumers League, who tracks how regulatory agencies cope with the Internet challenge. "It's hard for them because the same old problems are not going away. It's not as if you're necessarily being given more money and personnel to do things with, so it may mean in some cases taking resources out of things you were doing to focus on this."

"The very fact that the fraud is going on on the Internet as opposed to the physical world doesn't mean that they're helpless to do anything about it," she adds. "It does pose some special challenges. It can be harder to track the perpetrators down because even if you can apply the same legal principles in cyberspace, you still are suing somebody in the physical world. It can be more complicated and difficult to go after these companies and to show exactly what it was they were offering or purporting to do. I think that government agencies are doing a good job and are putting an increasing amount of resources into it."

Eric Yoder is a Washington-based journalist with 18 years of experience covering the government.

]]>

Rising Rates

Eric Yoder — Wed, 01 Dec 1999 00:00:00 -0500

ne day in early September, Office of Personnel Management Director Janice Lachance was stopped outside the Oval Office by one of President Clinton's personal guards. The Secret Service agent wasn't challenging her right to be there-she was on her way out of a White House event on health insurance reform-he simply had a question about his insurance.

"I apologize, I know I should just call somebody in your office, but I wanted to ask you something," the agent said, according to Lachance. "My family and the other agents are all desperate for dental benefits. Are we going to get some for next year?"

"I had to tell him no," says Lachance.

Several weeks later Lachance had more bad news for that agent and the millions of other participants in the Federal Employees Health Benefits Program (FEHBP): Premium rates for calendar year 2000 would rise substantially for the third straight year, up an average of 9.3 percent. And more than 40 more plans were dropping out of the program, following a loss of more than 60 plans in 1999.

The FEHBP is by far the largest employer-sponsored health insurance program in the country, covering nearly 9 million federal and postal employees, retirees, survivors, spouses and dependent family members. The program, which will include 13 fee-for-service plans and nearly 300 managed care organizations next year, often is cited as a model combination of competition and control. The FEHBP has been touted as a potential blueprint for Medicare reform, and a test is under way to allow military retirees who lack health insurance coverage into the program. Politicians of both parties-most recently Democratic presidential candidate Bill Bradley-have proposed using the FEHBP as a vehicle to cover the uninsured.

But as the recent rate increases and plan dropouts show, the FEHBP is experiencing the same pressures as other large health insurance plans. Its participant pool is aging quickly and new benefits are being added virtually every year, translating into more demand for health care and higher premiums.

The annual FEHBP open season-this year running from Nov. 8 to Dec. 13-allows enrollees to change plans or levels of coverage. If past patterns hold, there will be a net switch to less costly coverage. But that will not change the forces driving premiums upward. Proposals are arising to revise the managed competition design of FEHBP, with some interests saying that more management is needed and others saying that more competition is the answer. But all sides agree on one thing: Further premium increases are inevitable if something isn't done.

"At this rate, we're not going to be able to keep this as an affordable program," says Lachance.

External Forces

The FEHBP cost hikes mirror increases in large plans in both the private sector and other levels of government. Cost control measures imposed in recent years have helped hold down inflation in some areas, but not enough to offset growth in others.

For example, in 1981, 52 percent of total claims paid by FEHBP's fee-for-service plans went to cover inpatient hospital care. In 1998, just 22 percent did. Payments for inpatient hospital surgery went down from 11 percent of total claims in 1981 to just 3.5 percent last year. Meanwhile, the percentage of claims paid that went for outpatient benefits has risen steadily.

Even more significantly, payments for prescription drugs have climbed from just 4 percent of total claims in 1981 to 24 percent in 1998. That reflects a national trend in which health plans' drug costs are rising at about 20 percent a year, according to an April 1999 report by the Employee Benefit Research Institute.

Several factors are at work in the rising prescription drug costs. Drugs more often are being used as treatments for conditions that otherwise might require more expensive alternatives, such as chemotherapy or even surgery. Newer drugs are more expensive than the ones they replace. Loosening of rules restricting direct advertising of drugs to consumers has increased demand, as has the emergence of "lifestyle" drugs such as Viagra.

A basic principle of health care is that while younger people generally use prescription drugs only for acute episodes of illness, older people are more likely to be on maintenance programs for high cholesterol and other conditions. Within FEHBP, OPM says the average prescription drug expense for an enrollee aged 45 to 49 is about $400 a year, but for people aged 65 to 69 it's three times as much. Older people are more likely to consume other health services as well.

Such factors are having a major effect on the FEHBP because the federal workforce is aging. Restrictions on federal hiring in recent years have boosted the average age of a federal employee to about 45. During the downsizing push, thousands of older workers took early retirement, but they and their families remained eligible for FEHBP coverage, unlike workers in many private health plans.

"If this group mirrored, for example, Microsoft, I don't imagine we would have near the cost pressures," says Steve Gammarino, senior vice president and program manager for FEHBP plans at Blue Cross/Blue Shield Association, the largest FEHBP plan. "But this group doesn't mirror Microsoft. It mirrors a group that hasn't grown since Jimmy Carter was put in office. Restrictions on growth have pretty much resulted in a stagnant, aging population."

"If we were insuring the FEHBP work force of the 1970s today, even with the prices and the technology, we wouldn't be paying what we're paying for prescription drugs," agrees Tom DeYulia, group vice-president for government relations at CNA, which underwrites the Mail Handlers plan, the second-largest FEHBP plan.

But Bill Smith, director of retirement benefits for the National Association of Retired Federal Employees, notes that when retirees hit age 65, Medicare becomes the primary payer in almost all cases and FEHBP acts mainly to fill in gaps in coverage for federal retirees. "I'm not sure the aging population really has a dramatic impact," Smith says. "It's obvious that the older population would use more prescriptions and more services, for example. But with that Medicare primary coverage feature there, a lot of that gets charged to Medicare."

But representatives of the health plans note that while the retiree contingent of FEHBP has been growing rapidly, the average age of all FEHBP enrollees in 1998 was 58-well under the age at which Medicare kicks in.

"As long as you've got an aging active workforce and you have a tremendous number of annuitants that are 55 to 65 and not Medicare-eligible, you're going to have a difficult time keeping premium increases down," says DeYulia, who was staff director of the House Post Office and Civil Service Committee from 1983 to 1989.

Another factor driving recent premium increases is that plans in general no longer are drawing down their financial reserves as they did in previous years to dampen premium increases. The earlier drawdowns, coupled with competitive and political pressures on plans, are credited with helping keep FEHBP premiums relatively flat in the mid-1990s.

Additionally, experts say, FEHBP enrollees tend to be educated consumers of health care, using their coverage to their maximum benefit. And in health care, the educated choice is not always the least expensive choice. In fact, it's often the most expensive choice-for example, finding the best surgeon to perform an operation or the leading expert to treat a child's serious illness.

FEHBP plans have taken various steps to control costs, such as requiring enrollees to obtain pre-admission certification before hospital stays. They have also tried to steer enrollees into less expensive options by creating financial incentives to stay within networks of physicians and hospitals that give the plans discounts on costs. But plans say they have only so much leeway, given the government's controls.

Internal Changes

Practically every year, new requirements are added to the FEHBP in the annual "call letter" in which OPM tells carriers what it wants covered and begins negotiating with them over premiums for the upcoming year. By OPM's count, there have been 17 significant mandates since 1992, some of them building on previous ones.

"We have a system that we can keep adding features as the science warrants or as the industry warrants," says Lachance. "I'm not going to sit back and deny federal employees [a benefit] if the science has advanced to the point that they should have that and it's beneficial for them. I'm always going to err on the side of adding benefits as either the science or the state of the industry or the economy warrants."

Although OPM specifies the requirements, they often are initiated, or at least actively encouraged, from outside the agency. Members of both parties and both chambers in Congress have been instrumental in adding benefits through the 1990s, including prostate cancer screening, bone-marrow transplants for treating breast cancer and fuller coverage for contraceptives. Meanwhile, the White House has pushed the program's patients' rights provisions and expanded mental health benefits.

"Every one of those benefits is basically a seed for inflationary growth," says George Nesterczuk, staff director of the House Government Reform Subcommittee on the Civil Service, who is quick to acknowledge Congress' role in adding mandates. "The problem is the way the FEHBP has been managed in the last several years. We've been planting more and more of those seeds through mandates that OPM has imposed on all plans," he says. "Any one benefit in the first year it's offered may be pennies on the dollar. But once people get used to it and start taking advantage of it, it grows in its utilization. We're seeing clearly a greater utilization of the benefits."

OPM officials don't even like to use the word "mandate," saying that one person's unnecessary cost is another person's vitally needed coverage. But semantics aside, they say new requirements for coverage add relatively little to the cost of the program. By their estimate, which they believe is high, the mandates of the 1990s account for only about $330 million of the $18 billion in enrollee and government premium costs in 1999.

In most cases, OPM officials say, carriers did not even seek higher premiums to cover the costs of new requirements. The main exception was the bone-marrow transplant procedure, which is by far the most expensive of the recent mandates, at an estimated annual cost of $120 million. Some plans also made minor adjustments for the 1999 addition of patients' rights protections, whose cost OPM estimates at $3.8 million a year.

Cost issues aside, questions have arisen of whether the mandates have changed the very nature of the FEHBP. "The program has been converted from a health insurance program to pay for unanticipated expensive health treatments to one in which it's almost become, like many health programs, prepaid health care," says DeYulia. The FEHBP "was initiated as a private individual choice competitive model," says Gammarino. "You wanted a number of competitors and you wanted them to provide choice. If you mandate and restrict, which the government is continuing to do, then you reduce choice of what's available out there. I think that's problematic going forward, because then we all look like vanilla."

"Nothing could be farther from the truth. This is not a vanilla program," replies an OPM official. "We have worked very hard, particularly over the last 10 years, to make sure that the medical benefits offered in this program by every plan are comprehensive and are designed to cover the most frequently occurring needs that people are going to have." OPM officials stress that the FEHBP's purpose is not to create a perfectly open market for health care competition, but to provide an important element of the government's overall compensation package. OPM also believes that having benefit packages that are too different from each other runs the risk of "adverse selection," in which enrollees with certain shared traits concentrate in a certain plan because of its low cost or attractive features. That effect-in particular a high percentage of older enrollees drawn to generous hospital, home care and other benefits-was a key reason that Aetna withdrew from the FEHBP in 1989.

The withdrawal of Aetna, at the time the fifth-largest plan, turned out to be the first of an exodus that later saw departures of other national plans, including several sponsored by employee organizations. But the greatest number of defections have been among the health maintenance organizations, which flocked to the program in the 1980s and early 1990s. The dropouts among HMOs generally affect relatively few enrollees-the plans that are leaving this year, for example, have an average of only 1,000 people-but nevertheless the House Civil Service Subcommittee has asked the General Accounting Office to report on the cause. OPM is looking into it too, although officials say they think the plans are leaving for their own internal business reasons and not because of the FEHBP's design or management. In most cases, the plans found they could not compete effectively for enrollees. Other dropouts were due to mergers of insurers, officials say.

"I think you still have enough health plans in there to have good competition. But you have a lot of churning in that program," says Paul Fronstin, a senior research associate at the Employee Benefit Research Institute. "It seems like there's always some kind of adverse selection going on because of the choices people have.

"People keep changing health plans every single year based on price, as opposed to quality. People change based on price because most people are healthy. So you have more flexibility there and what the health plans wind up doing is competing for the healthy people."

Says Lachance, "We think that fundamentally the 9 million people we represent have choices, they all have options no matter where they live in the country. We're comfortable that people have the choices they need to meet their requirements for themselves and their families."

Less Management or More?

Still, plan dropouts have caused concern that FEHBP is becoming less internally competitive, potentially reducing enrollee choice and contributing to higher premiums. The program "is much less competitive today than it was 15, 18 years ago," says Nesterczuk. "What would help the FEHBP tremendously would be to allow the carriers to start modifying their plans to try to compete with each other for greater market share."

"What really needs to happen in the FEHBP is less control by OPM and I say that as a guy who ran the program at OPM," agrees Jim Morrison, who was OPM associate director in charge of FEHBP from 1981 to 1987. He is now president of Morrison Associates, a public relations and consulting firm whose primary account is lobbying for Blue Cross/Blue Shield on the FEHBP program. "I now see it from a different perspective and I see this attempt to micromanage, to provide politically attractive benefits," he says. "This program is becoming a poster child for both sides of the aisle. The conservatives tout it because of the free market aspect and the Clinton administration uses it as a political football."

Advocates of a more open FEHBP market believe that with more freedom, carriers could design lower-cost plans. They might drop some current benefits-possibly adding in others, possibly not-or they might try to hold down premiums through higher deductibles and co-payments. Bills pending in Congress would allow FEHBP to include plans based on "medical savings accounts," featuring very high deductibles and very low premiums, coupled with tax-favored accounts to help enrollees pay out-of-pocket costs.

OPM says it wants to avoid creating niche programs. "I don't know that I want somebody coming in and marketing to the single 30-something healthy person who doesn't smoke and works out every day in the gym," says Lachance. "Somebody's going to take that plan who probably shouldn't and I think we have to be really careful about that. We have to make sure that people will be protected when unforeseen things happen to them."

Instead, OPM is considering how the government could get more leverage from having such a large pool of participants. It currently is focusing on areas that are not part of the basic comprehensive package, such as dental and vision care. Officials also see the potential for lowering the costs of prescription drugs, but such an effort seems farther down the road.

Exactly how the new approaches would work is still under discussion, but it could involve the government negotiating directly with providers for certain benefits. "I think if we go out in the private marketplace with 9 million customers and ask, what can you do for us, we're probably going to come up with a benefit that is both needed and affordable and can be a model for other employers. There's a way for us to use this buying power," Lachance says.

Some employee representatives favor such a move. Bobby L. Harnage, president of the American Federation of Government Employees, says, "If you really wanted competition, then you would design six or eight plans, enough to give federal employees the flexibility to go shopping for what they need and they can afford. You would put them on the table and say, 'Now, providers, bid on these. Low bidder gets it.' That would be true competition."

However, any such changes would require legislation, which would be difficult to move, at least in he current Congress. There's skepticism that the government could manage such an effort well or could get a better deal from providers than the insurance carriers now get.

"There is no way that if the government tries to direct contract it's going to bring prices down. That's just a blueprint for failure. That's the Medicare model, which is out of control," says Morrison. "This is not a question of more volume. You could set a price by legislative or administrative fiat. But what they don't seem to understand is that you can always legislate the same price but you can't ever legislate the lowest price."

Even if the program were deregulated, it's questionable how much more variety of coverage the carriers would create. A carrier that voluntarily dropped a benefit could lose enrollees to another that retained it. It's much easier to get a benefit into the program than out of it.

"Which benefits do you not want to cover?" asks Robert Levi, director of government relations for the National Association of Postmasters of the United States and a former House Compensation and Benefits Subcommittee staff member. "I don't know of anyone who's going to oppose making sure that FEHBP covers routine vaccines for kids. Prostate cancer screenings, mammography-all politically popular. Does it increase costs? Yes, but I think that's a cost that we need to pay to give adequate health care coverage to beneficiaries.

"You have to get down to what is health care insurance for. It's to insure you against the risk of disease. That's a necessity but it also does not come cheap."

Eric Yoder is a Washington-based journalist with 18 years of experience covering the government.

]]>

Who Has Better Benefits?

Eric Yoder — Wed, 01 Dec 1999 00:00:00 -0500

ebate over whether the Federal Employees Health Benefits Program is too generous or not generous enough and what should or shouldn't be done with it often is phrased in the context of how it compares with other employer-sponsored health plans. The most comprehensive recent look at the question came in an August 1998 Congressional Budget Office report comparing federal and private sector benefits overall. Based on data gathered from about 800 private firms, CBO concluded that for active employees, "the value of federal health benefits is lower than the value of those offered by the firms in the sample." That conclusion was reached after estimating a package of medical expenses for a hypothetical employee and applying the major provisions of insurance plans against those expenses to determine how much each plan would cover.

FEHBP requires enrollees to pay a larger share of the cost of health insurance than do many private-sector firms-about a fourth of the firms in the database picked up the entire cost of individual coverage and about 10 percent paid the entire cost for family coverage with up to two dependents. However, CBO noted that private firms increasingly are asking enrollees to pay a larger share of costs.

"Also, if the comparisons covered all private-sector employees, about one-third of whom have no health insurance, federal insurance would compare favorably," CBO said. "Finally, the method used for comparing employee health benefits does not capture the full value associated with the option federal employees have to pick health insurance plans best suited to their needs. Therefore, the federal benefits may actually have a higher value to employees than the comparisons suggest."

For retirees, CBO placed the value of FEHBP "well above the value of benefits offered by the private firms in the database," although it warned that the data were limited.

The FEHBP's favorable showing for retirees' benefits reflected the fact that such benefits are less common in the private sector. Only about two-thirds of the firms in the database provided health programs for retirees. If compared with all private firms, federal retiree health benefits would look even more generous, CBO said, because "well below half" of all employers provide medical benefits to retirees. In addition, offering health insurance to retirees is becoming less common among private firms, said CBO.

]]>

Countdown

Eric Yoder — Wed, 01 Sep 1999 00:00:00 -0400

arvin Raines is worried about pencils. Not just handfuls or even boxfuls of pencils, but 1.5 million of them. They will have to be distributed to hundreds of Census Bureau offices, most of which haven't opened yet, and then passed on to hundreds of thousands of employees, most of whom haven't been hired yet.

"It's a massive planning situation to try to deal with all the logistics--all the people, all the furniture, all the training manuals you've got to put together," says Raines, associate census director for field operations. "You've got to worry about the 500-and-some-odd locations around the country--making sure we have space, computer equipment that all works, something as simple as chairs. You've got to make sure you've got enough pencils and that they get to where they've got to get to so they have something to write with."

April 1, 2000, is officially the next Census Day, but at the Census Bureau the big count is well under way. Planning started soon after the 1990 census ended. More recently, the bureau has conducted dress rehearsals in three areas and has put more than 100,000 people to work building a new national mailing address list.

Over the next year, the agency, whose permanent field structure consists of about 3,500 employees and 12 regional offices, will expand to 520 offices, test some 3 million people for potential temporary positions, hire and train about 850,000 of them, send them out to knock on millions of doors, collate information from hundreds of millions of forms, and then shut down the entire operation.

Some agencies are larger in terms of employees, offices and structure, but none has to do what the Census Bureau does--set up a mammoth operation and tear it all down quickly, with virtually no room for disruptions during the short period of peak operations. Agency officials say there's virtually no model, inside or outside of government, for what they do.

In the 2000 census, the bureau will be making greater use of technology than ever, integrating address lists and geographic data, providing enumerators with laptop computers pre-loaded with census information, decentralizing administrative functions such as payroll processing, and using improved methods to capture and analyze data. But several demographic and cultural trends are working against the agency. And political wrangling between the White House and Congress over how the count should be done has further complicated the job.

Declining Response Rates

Planning for a census begins with a basic principle: The more people who mail back the census form, the less work there will be for the bureau. So the mailing of questionnaires to about 120 million households will be both preceded and followed by publicity efforts encouraging people to respond.

The forms have been redesigned to make them more readable and user-friendly. The short version, which 83 percent of housing units will receive, is even shorter than it was a decade ago. It will take only about 10 minutes to complete, versus 14 minutes for the 1990 version. Census officials will issue constant reminders, in the form of advertisements, promotional announcements and other outreach efforts, that filling out the form ensures accurate apportionment of seats in the House of Representatives and proper distribution of government funding to localities.

But even with all that, the Census Bureau knows it is in for a difficult time in getting people to respond. The bureau has hard evidence of declining response rates.In the 1990 census, the mail response rate fell by 10 percentage points, from 75 percent in the 1980 census to 65 percent.

One result was that the undercount increased; the 1990 census was the first deemed to be less accurate than the one that preceded it. About 8.4 million people were missed, and another 4 million were double-counted. The overall undercount rate was 1.6 percent, but it was much higher among minority groups: 12.2 percent for American Indians on reservations, 5 percent among Hispanics and 4.4 percent among African-Americans.

"It is our perception that the 2000 census will be moving upstream against cynicism, against fear, against an unwillingness to be cooperative toward any kind of government programs," says Census Bureau Director Kenneth Prewitt. "We're already running into it, even in block canvassing, where people slam the door on us and say, 'Why should I cooperate with this?' We're not asking them to do anything, just simply verify the address.

"We know there's a lot of fear. There are much higher immigrant populations. There are more linguistically isolated populations. We know the census form has got to fight its way through a much larger stack of junk mail in 2000 than it did in 1990," he adds.

With a larger population to count--an estimated 275 million--and with plans to do both a full enumeration and a count supplemented by statistical sampling, the bureau's job in 2000 already will be bigger than it was in 1990. A drop in response rates would worsen the problem--and bureau officials now expect a response rate next year of about 61 percent. "If it drops much below 61 percent, we will have both operational and budgetary challenges, serious ones," Prewitt says. "If it moves above 61 percent--which, of course, we hope--then we will be able to use more of our resources to find those last, difficult-to-reach cases."

Reaching Out

Barriers to obtaining voluntary participation from all Americans include not only cultural and language difficulties but also increased concerns about privacy in a digitized world and outright hostility to anything associated with government. "Our experience in 1990 showed us that some targeted audiences that are hard to persuade need more information about why it's important and more reassurance that it's confidential," says Jennifer Marks, assistant division chief of the Census 2000 publicity office. "We certainly learned that mistrust is growing and we had to do something to combat that."

Since 1990, the bureau has revamped its marketing program. Besides changes to the forms, other efforts include production of new fact sheets, novelty items, news articles, and special events, possibly to include a national road tour with vehicles starting from each coast. The "Census in the Schools" program also has been beefed up, on the theory that children are an effective way to get a message to parents.

One of the more significant changes is the addition of paid advertising, ranging from billboards to prime-time television ads. Previously, the Census Bureau had simply distributed public service announcements hoping that media organizations would run them. The new ad campaign, estimated to cost more than $100 million, will begin in November with messages addressing the importance of the census and providing assurances of confidentiality.

The main ad campaign will be accompanied by smaller campaigns targeted at groups least likely to respond to the questionnaire, including African-American, African, Caribbean, Spanish-speaking and American Indian population segments. Advertising will go out in 15 languages. "We had evaluations that showed that in 1990 the average person was exposed to census advertising 65 times. I, for one, don't remember any of it," says Marks. "It was very uneven. Most of the messages went to part of the population and the remainder got almost nothing. That's the kind of thing that happens with a public service campaign when you're just looking for free space."

The Census Bureau also is stepping up its use of partnerships to encourage people to cooperate with census enumerators. The agency has doubled its in-house staff devoted to pursuing partnerships to about 600 employees. Partners include state, local and tribal governments, national organizations ranging from labor unions to Goodwill Industries, community-based organizations, local businesses and the media. The main message they are being asked to convey is that being counted brings government dollars and political representation to a community.

"They are the gatekeepers, they are the community leaders, they know their communities far better than the Census Bureau ever will," says Brenda August, branch chief of the bureau's partnership and data services branch. "We know that a number of persons who are undocumented in this country are fearful of the census or any type of government-related activity. There are others who are fearful in general--they might fear that information collected by the census may be given to the landlord, the FBI, the INS, whoever. Those are the challenges we face in motivating the community that the census is a very safe thing to do, and that we have no affiliation nor do we plan to give information to any other government agency or to anyone."

The bureau takes a wide reading of who is a community leader. "We reach out to everyone, because our goal is to count everyone," says August. "This is one national activity that touches all segments of the population. In order to succeed in that, we have to be sure that our strategy includes outreaching to the entire country."

Political, Practical Problems

Any government initiative that determines how tax dollars and representation in Congress will be apportioned inevitably brings politics into play. Given the near-balance in the House between Democrats and Republicans, it's hardly surprising that the upcoming census has become a political football.

The heart of the conflict was the agency's plan to address the undercount problem by supplementing the actual count with statistical sampling. Congressional Republicans challenged that approach, saying sampling was simply an effort to increase the numbers of minority groups, who have traditionally supported Democrats. In January, the Supreme Court ruled that sampling was illegal for purposes of apportioning House seats. The high court, however, did not address other uses of the figures, such as allocating government grants. The administration then announced that it would perform both types of counts.

Also, the fiscal 1999 appropriations bill covering the bureau contained an unusual clause cutting off funds on June 15, pending resolution of the sampling dispute. After waiting until a few weeks before the deadline, the parties agreed that continued disputes over methodology would have to be settled in court, not in Congress, and provided supplemental fiscal 1999 funds. Soon afterward, the agency sent up another request for supplemental 1999 funding, largely reflecting the increased costs of doing both types of counts.

"It's very difficult to plan a census not knowing for certain what the design is and not knowing for certain if you might be facing a shutdown for an undetermined period of time," says Prewitt. "Of course, there have been lesser uncertainties, even after the Supreme Court decision, because of the need to change the design in substantial ways, and thus the requirement of supplemental funding in '99."

"They have made it complicated for themselves," responds Chip Walker, communications director for the House census subcommittee. "I say that because Congress in 1997 passed a law and appropriated money that said Census would prepare along a dual track, for full enumeration and the statistical sampling they wanted to use. We believe they were putting more resources toward the statistical sampling side of the equation than toward the full enumeration.

"If they are behind--and we believe they are slightly behind--that's because they didn't prepare as the law required. They were essentially holding out, hoping that they were going to win the court case, and they lost the court case."

The fighting about which type of count is better has upset planning that in some cases was years in the making. For example, the decision to go to a full enumeration meant a need to open 44 more offices than had been planned and to realign many others. It also has meant increased hiring. The bureau now plans to hire up to 850,000 workers, 200,000 more than it had originally planned and 300,000 more than were hired in 1990.

Of course, all 850,000 people won't be sent out at once. The number of census employees at any given time will vary according to how many people fill different positions at different stages of the census, particularly next spring and summer when enumerators will go out to count people who didn't respond to the questionnaires. Also, turnover in the ranks of temporary workers is high--enumerators frequently are chased by dogs and physically threatened, sometimes with weapons. The agency front-loads its hiring to be sure to have enough people on hand throughout the census.

Still, hiring hundreds of thousands of people for temporary, part-time jobs that involve night and weekend work, sometimes with risk, at moderate pay is no small task. The economy is roaring, and many agencies are having trouble filling just a few much more attractive positions.

"To us, [850,000 is] not a terribly daunting number, because in the past censuses we've had very high targets as well. We have a tremendous amount of experience in this," says Janet Cummings, assistant field division chief responsible for recruiting. The agency uses traditional means, such as classified advertising in local newspapers, as well as fliers, transit posters, word of mouth, state employment offices, outreach to community organizations, and other forms of advertising. But bureau officials have found the most effective recruitment method is a direct-mail campaign to send postcards to people in hard-to-recruit areas.

Recruiting has gone well so far, officials say, in part because a new salary system allows more flexibility in pay rates. The agency hasn't yet analyzed who is taking jobs, but most of those hired are people who don't need or want to work full time, such as retirees, and people who have other jobs but are free to work night or weekend hours. (Most federal agencies have agreements exempting their employees from dual employment restrictions for temporary census jobs).

Finding and equipping office space to house the census employees can be challenging. Building owners prefer longer leases than the Census Bureau is offering, and office space often must be altered to fit the standard census office layout: a large open area with few private offices. The bureau previously negotiated its own leases but has partnered with the General Services Administration for this census.

Opening one of the offices requires purchasing a wide range of office supplies and setting up fax, phone, computer and security systems. But the work must be done on a tight schedule, with virtually no room for delays or breakdowns. Almost all the operations are done by contractors and almost all of the equipment is leased--except for the cardboard desks used by nearly everyone except office managers. Those desks are so badly beat up by the end of the process that they are discarded.

"The one thing that just jumps out at you is that the people in these offices, even the managers, are not Census Bureau employees and are not trained in the bureaucracy," says Hugh Brennan, special assistant for space logistics in the office of field operations. "A lot of these people have never worked with a lessor, for example, when a lock breaks. The telephone system . . . copiers and fax equipment may be new to them. We've got to train them all from scratch. Other than a military operation, in my 30 years of working for Uncle Sam I've never seen anything like it."

Most census officials agree--and say that's why they find the project attractive. Getting the entire country to participate in anything is as much a thrill as a challenge. "There is no other civic event that requires the whole nation to participate," says Raines. "Nothing else even comes close."

For most temporary census managers, the job is unlike anything they've ever done or are likely to do elsewhere--unless they come back for the next one, which many of them do. "I tell my wife virtually every week how much I love this job, because it's so much fun," says Caldwell. "The challenge and the accomplishment that you have are virtually on a daily basis, versus many other government jobs that I've had, where if you see something that you've been working on for two or three years actually come to fruition, you're lucky."

Conducting the census requires

Leasing and equipping office space equivalent to 1.5 Empire State Buildings
Pencils that if laid end-to-end would stretch 125 miles
Enumerator manuals that if stacked would reach 1,300 stories high
50 million daily payroll forms
Extension cords stretching 40,000 feet
About 15,000 chairs and desks
Questionnaires that if laid side-by-side would stretch from Chicago to Tokyo and back and would weigh as much as 100 737 jet airplanes.

Eric Yoder is a Washington-based journalist with 18 years of experience covering the government.

]]>

Major Mobilization

Eric Yoder — Wed, 01 Sep 1999 00:00:00 -0400

ne day in early November last year, a key and an address arrived in a package at Joseph Boyce's home. Arriving at the building on the appointed day, he met Steve Caldwell, who was headed for the same place at the same time.

"We found one another in the elevator, opened the door and came in to see what was here. It was an enormous space with a lot of supplies, and we started from scratch and built the office," says Boyce, manager of the local census office in Alexandria, Va.

Within several months, about 400 people were working out of the office to record addresses in nine counties. The operation shrank when that was over, after about five weeks, expanded again to several hundred employees for a check of addresses from other sources, then shrank again. The peak will be next spring and early summer, when the biggest workload hits -- trying to find those people who don't respond to the large mailing of census questionnaires. Then, the in-house staff could be as large as 100 and the field staff will number around 1,500, even though the office will be responsible for a smaller area as other offices open.

The pattern followed by the Alexandria office is being repeated in other local census offices across the country. Federal agencies open and close offices all the time, but it's rare that such activities are carried out so quickly, with such variations in workload while they are in operation, and with the need to prepare to shut it all down in a matter of months-plus doing it all with temporary employees.

Even the managers are temps-in the case of the Alexandria office, the appointments will not go past September 2000. In an economy in which virtually anyone with skills can get a permanent position, it might seem that managers would be unwilling to work under such conditions. But in this office, at least, Census Bureau officials didn't have any trouble finding managers.

"Probably the most important [reason] was it was a chance to do something for our nation and our government," says Boyce, an Air Force retiree. "I feel gratified to be part of this. It's more than patriotism, if you will, but I'm very proud to be part of Census 2000."

"This is a chance to go back and work for our country a little bit, and I think it's a neat thing to be able to tell your kids I was involved in the census at the turn of the century," says Caldwell, the office's assistant manager for field operations and also an Air Force veteran.

Similar factors are motivating field employees. They range in age from new high school graduates to elderly and in education level from GEDs to PhDs. Many told the managers they want to give something to the nation, including immigrants who said they felt an obligation to pay back the country that took them in. The variety of responsibilities and speed of change in operations is also attractive to both employees and managers. "The uniqueness of this job is hard to describe and hard to get away from," says Caldwell. "There aren't very many outfits out there where in an extremely short period of time you go from 12 people in an office to 1,200 people and then back down to 20 people in literally weeks."

Most of the managers in the office are either retired from the military or at least have performed some military service. They're finding that background useful. The census is "kind of like a military operation," says David Hellum, assistant manager for administration at the office and a retired Marine. "We're going to be going through one of the nation's largest manpower mobilizations."

]]>

The Millennium Spin

Eric Yoder — Thu, 01 Jul 1999 00:00:00 -0400

ohn Koskinen knows what he'll be doing at the turn of the millennium. He'll take the last flight out from Washington in the evening to New York.

He won't be going there to participate in the revelry in Times Square. He'll be trying to prove that the head of the President's Council on Year 2000 Conversion is confident that air travel still will be safe despite the most publicized-and most difficult-date change in history.

Koskinen's New Year's holiday plan is just one small part of the message government is sending the public about the year 2000 problem. Virtually every agency has geared up information outreach programs, which will expand as Jan. 1 draws closer.

The government's basic message on the year 2000 is that people should prepare for it as if it were a winter storm:

Stock disaster supplies to last several days, including food, bottled water and medicine.
Have some extra cash on hand.
Keep the car's tank more than half full.
Have blankets, flashlights and extra batteries handy.
Be prepared to use alternative cooking devices or to relocate to a shelter for warmth.

However, while federal officials are generally positive about the state of Y2K preparedness in most sectors of the economy, they have to temper their optimism because of the often sketchy information on compliance from the private sector, especially from small businesses, local governments and utilities.

Agencies are finding that no matter what they say or do, some people will conclude that things will be much worse than the government is letting on. It's important, officials say, to find the delicate balance between preventing unwarranted fear and leaving agencies vulnerable to criticism that they aren't providing enough details on how to deal with the problem.

Late Start?

Critics say agencies have simply been too quiet about the millennium bug.

"I don't think we've seen a lot of information for public consumption coming out of the departments," says Don Meyer, spokesman for the Senate's special Year 2000 committee. "It just hasn't been happening. That is a bit disappointing. It's almost getting to the point where it's not going to be an issue, because we're getting so close to the deadline.

"What we've been pushing for, and the public has been asking for, over the last year, is why aren't we seeing public service announcements? Why isn't the President on television talking about this?"

But executive branch officials argue that the public wasn't much interested in the year 2000 until 1999 rolled around. For example, through last year, the Federal Information Center-the government's primary point of contact for general inquiries from the public-received only 20 to 30 calls a month on the subject. By contrast, the federal Y2K hot line (888-USA-4-Y2K), established in January, received more than 100,000 calls in its first three months of operation.

Similarly, in the spring of 1998, the Federal Trade Commission published a Federal Register notice seeking information about what people thought might happen with retail products and financial matters that aren't controlled by the banking regulatory agencies. But the agency got so little feedback that it had to hold meetings with industry and trade groups to try to define the issues.

"I think people are interested now, but the huge bulk of interest is going to come later in the year," says Elaine Kolish, associate director of the enforcement division in the FTC's Bureau of Consumer Protection and the agency's representative on the Y2K Council's consumer affairs working group.

Agencies are continuing to fine-tune their Y2K communications. They are putting out new publications, adding information to Web sites, and setting up hot lines and fax-back services. Federal officials who speak before trade associations and other groups are incorporating Y2K into their presentations. A large part of what they are doing, though, involves reworking information that previously was available but was not necessarily comprehensible to the general public.

"A number of agencies are still in the process of making more consumer-friendly material available. Many of them had information on their Web sites that was good, but in some instances was directed at their sophisticated users or vendors," says Kolish. "Not all agencies deal with the consumer on the street as their typical customer, so they may be less familiar with material for that type of audience."

"There may not be crystal-clear answers in every instance," she adds. "But silence can be more panic-inducing than saying, 'It's not fixed yet but we're working on it.' "

Striking a Balance

The potential for panic is a common concern among federal officials involved in Y2K communication efforts. A recent Time/CNN poll showed that half of Americans plan to take extra cash out of the bank before the end of the year and a third say they'll stockpile food. The Federal Reserve Board has ordered an extra $50 billion in currency-about a third as much as is now in circulation within the United States-but hoarding could cause shortages of food, gas and other essentials even if production and distribution systems work perfectly.

"That's a particularly sensitive issue," says Catherine Woteki, undersecretary for food safety at the Agriculture Department and co-chair of the food supply working group under the Y2K Council. "Panic buying of food in the last several weeks of the year is probably a bigger problem than the small disruptions that could possibly occur because of the Y2K problem. [When you try] to get across that message of having a few days worth of food available, that immediately gets interpreted as being that we're recommending that people hoard food."

Officials of other agencies agree that the challenge is to spur the public to take prudent steps without setting off a panic.

"That's always a concern of ours," says Donna Gambrell, associate director for compliance and consumer affairs at the Federal Deposit Insurance Corp. and the agency's communications project manager for the year 2000. "We can certainly say that the vast majority of our financial institutions are on track. [But] as a regulatory agency we cannot divulge information that would be confidential. We find ourselves in a delicate position, because people always want to know more. That's one of the reasons why we encourage banks to go out to the public."

"There are a lot of thoughtful people who say we ought to tell people they should be prepared for two or three weeks of outages," Koskinen says. "My view is our goal is not to lull people into a false sense of security, but we ought not to cause them to do things [when] there's no evidence for national purposes [they] are necessary.

"The risk is that if we start saying nationally that this is going to be a big catastrophe when we don't think it is, or if people start to think that's the reality, they could create a self-fulfilling prophecy by creating shortages, whether it's taking their money out of the bank, or taking money out of the markets or buying more food or any commodity. If 100 million Americans all decide to do one thing
differently in any one week, economically that's a big problem."

Balanced against the concern over stirring panic is the obligation of the government to tell what it knows, even if what it knows isn't exactly comforting. For example, a Year 2000 Council report issued earlier this year said that most other countries "are significantly behind the United States. . . . Lack of progress on the international front may lead to failures that could affect the United States, especially in areas that rely upon cross-border networks such as finance, telecommunications and transportation."

Likewise, an Energy Department review in January of a report from the North American Electric Reliability Council reached the hardly confidence-inspiring conclusion that "we can be cautiously optimistic about the prospects for [the electrical] industry meeting its Y2K challenge." (A later test of the power grid produced more reassuring results).

Similarly, a report earlier this year from the special Senate committee expressed concern about the ability of local communities to provide 911 and emergency services, noting that the health care industry "lags significantly in its Y2K preparations compared with other sectors," and concluded that "public transit could be seriously disrupted."

Sen. Robert Bennett, R-Utah, chairman of the Senate Year 2000 Committee, has likened the task of communicating on the Y2K issue to "striking the balance between being Paul Revere and Chicken Little."

Complicating that task is the difficulty agencies have experienced in getting accurate information to give out. Compliance efforts in the private sector are largely self-directed and self-policed by industries and even individual companies. Such caveats as "industry representatives say" are common throughout the government's Y2K materials.

The rule of thumb, says Meyer, is that the less eager an industry is to talk about its progress on Y2K, the more reason there is for concern about its compliance. Also, the smaller the business or utility, the less likely it was to take early and strong action on the year 2000 issue.

Public Skepticism

One of the government's primary means of communicating what it has learned-especially to those who do not have Internet access-is the Federal Information Center's Y2K hot line. The system features an automated phone tree with information on about a dozen topics, plus the option of speaking to a live operator, and takes orders for Y2K publications from various agencies. It also serves as an informal means to take the public's pulse on the issue.

About a tenth of callers "are showing significant anxiety or panic" and about half are "very badly informed about what the problem is, what its implications are and its probable consequences," says project director Stephen Smith of Biospherics Inc., the contractor that operates the Federal Information Center. "People hear from other sources that they really need to hunker down and prepare for a long-term obstruction in basic services-utilities, health care, food supplies, things like that. They are asking either for some confirmation or refutation of that."

Callers are told that while there may be glitches, there probably will be no long-term, widespread collapses of the national infrastructure. Many of them feel better just for having talked to someone about the issue, Smith says. But others don't believe what the operators tell them.

"There's a measurable number of callers who say, 'I know that is not true. You're just trying to make excuses for the government. We're in big trouble.' "

"I think there is a level of skepticism out there about government in general," says Rick Weiland, Denver regional director of the Federal Emergency Management Agency, who recently hosted one of the agency's series of conferences on Y2K emergency preparedness. "I don't think it's nearly as high as it used to be. People do believe a little more that the government can do some things effectively. What we heard more than anything is that the biggest concern is public information-making sure people know about it, know what kinds of steps they can personally take to avoid any major disruption in their own lives."

Nevertheless, Weiland notes, at the same time FEMA's workshop in Denver was going on, there was a Y2K exposition nearby with more than 100 vendors selling water filters, electrical generators, freeze-dried food and other supplies for just the type of long-haul self-sufficiency that the federal government says won't be necessary.

"I thought that was a little ironic," says Weiland. "There are folks out there that are trying to stir up hysteria and create panic, which results in the problems that we're trying to avoid."

John Miller, FEMA regional director in Kansas City, Mo., agrees. "The clamor of 'the sky is falling' is coming from some of the local militia, some of the anti-government forces, some churches, saying the government is lying to you again and you need to be prepared," he says. "We, on the other hand, are working with the states and the locals to try and counter that."

Rumors and Scams

Increasingly, agencies are focusing on combating misinformation. The Internet, especially, is rife with warnings of food shortages, power blackouts, water supply cutoffs and other disruptions of basic services that allegedly could go on for months or longer. Those messages often are accompanied by sales pitches for survivalist supplies and even gold bullion.

The Y2K Council has taken the unusual step for a government entity of posting a list of rumors and responses on its World Wide Web site (www.y2k.gov/java/whatsnew1.html), including assurances that nuclear missiles won't launch accidentally, elevators generally will not be affected, the Federal Aviation Administration will not ground all flights overnight on Dec. 31, and pacemakers won't stop ticking.

Agencies also increasingly are putting out warnings about scams. For example, phone solicitors have popped up, claiming to represent credit card companies and saying they need a card number to verify the card will work after Jan. 1, 2000. Others pretend to be calling from banks, saying they are having trouble getting in compliance and recommending that individuals transfer money into an account whose number they give.

Agencies say they are being careful to send their own employees the same messages they give to the general public. There have been reports of employees being told to take preventive steps beyond the advice being given to the public, such as paying bills early and stocking up on cash. Officials say such extra precautions are necessary only for employees stationed overseas or in remote areas where utility failures might be more likely.

Moreover, says Koskinen, civil servants, like other Americans, "are free to make their own judgments" about Y2K's likely effects. "I'd be the last person to tell people to say something they don't believe. It's perfectly all right for federal employees to have their own perspective as we go forward. I've said that even about people buying lots in New Mexico. My concern is to make sure people are informed consumers of information."

As for Koskinen himself, when he lands in New York on New Year's Eve, he says he probably won't be in the mood to party.

"I have a feeling what I'm going to do is find a convenient hotel room so I can take the first plane out the next morning," he says. "I'm not sure how much celebrating I'm going to do."

Eric Yoder is a Washington-area freelance journalist who has covered the federal government for 17 years.

]]>

Netiquette

Eric Yoder — Sat, 01 May 1999 00:00:00 -0400

As federal Internet usage grows, so do concerns about where to draw the line on employee use of the Net.

By Eric Yoder

ichard Eisinger of the Social Security Administration was riding a shuttle bus from the agency's headquarters near Baltimore to his Washington office at the end of a workday when the shuttle driver mentioned she was buying a car for the first time and and was afraid she'd get taken.

He invited her to his office, logged onto the Internet, found the wholesale price of the car, printed it out and advised her to negotiate from that price, not the sticker price.

"I happened to mention this to somebody a few days later and they said, 'Dick, you can't do that,' " Eisinger says. "I said, 'I can't use the Internet after work?' They said, 'No, you can't use your computer for personal use.' I said, 'Is there a cost to the government?' I went to our systems people and I was told there is no additional cost. The only cost is if you print out a piece of paper. I thought, 'Maybe I shouldn't have done that,' and I stopped doing it. But it didn't make sense. It still doesn't make sense."

Unlike many federal employees who bump up against agency Internet use policies, though, Eisinger, as a senior SSA executive, was in a position to do something about it. When he started looking into Internet policies, he discovered similar dissatisfaction at other agencies as well.

Ultimately, SSA became one of the lead agencies in a push late last year and early this year to create the first government-wide policy on employee use of the Internet, several years after it became commonly available in the executive branch. The move to set a central standard did not arise because there has been widespread abuse of the technology. Officials say that flagrant abuse has proven to be a relatively minor problem-especially when weighed against the advantages the government has reaped. But developments of the last several years have raised other issues that weren't foreseen at the outset.

The interagency effort led to a draft policy on Internet use that was sent to the Chief Information Officers Council earlier this year. The group's work revealed that while the executive branch has largely delivered on its commitment to get its employees on the Internet, it has a grab bag of policies on how that access should be used. Until several months ago, no one organization even knew what all the policies said.

Widening Access

Like information out on the Internet itself, data on its use inside the government is not always reliable nor up to date. The most recent comprehensive study, published by the General Accounting Office in June 1997 (eons ago in the Internet world), found that 42 large federal agencies provided e-mail access to about half their employees and World Wide Web access to about a third. Those numbers included both civilian and military personnel.

GAO also found that Internet-related expenses at those agencies, including both capital and operating costs, rose from $51 million in fiscal 1994 to $182 million in fiscal 1996. But those were only estimates, because agencies typically do not account for Internet expenses separately from other information technology spending.

The government's commitment to the Internet has no doubt increased significantly since then both in terms of employee access and expenditures, although there are no firm accountings of either. Federal officials overseeing Internet issues say the majority of white-collar employees who are not involved in repetitive work such as forms processing now have World Wide Web access, with more coming online all the time.

Some agencies, such as the General Services Administration, have given access to all their employees, while others give it to everyone at certain facilities-for example, an entire Defense Department base. Others limit access because of the nature of the work, security considerations or lack of funds. In many cases where employees don't have full Internet access, though, they at least have e-mail.

There is a widespread assumption that the Internet has improved federal productivity. Commonly reported benefits include faster and more effective communication between colleagues and with the public; easy access to professional, scientific or technical information needed for work projects; faster and more cost-effective dissemination of information; and reduced paperwork. Stories abound of reports that used to take weeks of research in libraries being completed with a few days of research on the Internet and of faster purchasing through electronic ordering. Many employees and managers say they don't know how they lived without the Internet.

"I know there's a lot of hand-wringing, particularly at levels above us, that people would misuse this thing. But overall it's a good tool to access information quickly that you couldn't get otherwise," says Mike Klinker, traffic management supervisor at the Federal Aviation Administration's Washington In-Route Air Traffic Control Center in Leesburg, Va., where Internet access was installed at the watch desk several months ago. "There's weather information, aviation information, accident reports and information about FAA policies and directives that we can readily access, whereas before we had to hunt down where the books would be."

However, no formal study to quantify productivity improvement around the government has been conducted. Firm measures of such gains are notoriously elusive in the information technology field.

"It's very hard to isolate Internet access. There isn't a simple way [to conclude] that because you have Internet access 'X' has happened," says G. Edward DeSeve, who recently departed as deputy director for management at the Office of Management and Budget. "To us, it's just another tool. It's like having a fax machine or a long-distance telephone. It's the overall set of business processes that are enabled by the tool."

"It's given us instantaneous access to information that we previously had to wait for," DeSeve adds. "We're now operating in real time in a lot of circumstances. If you need to get a document cleared or you need to get minutes of a meeting out, it just happens a lot faster than it used to."

Drawing the Line

The experience has not been totally positive, though. Officials say there have been abuses, ranging from wasted working hours to criminal misconduct, plus new management challenges.

Searches of decisions from the Merit Systems Protection Board and Federal Labor Relations Authority of recent years did not reveal any cases involving Internet misuse. But that means only that no appeals reached the top review levels of those agencies. It could be that disciplinary actions were taken but were not contested, or were upheld at lower levels of MSPB and FLRA and not appealed.

As with benefits from Internet use, information on misuse and its consequences remains largely anecdotal. In its 1997 report, GAO recounted several incidents, including:

An Interior Department employee provided private citizens with free access to Internet services through the department's networks, resulting in a letter of counseling.
Two National Oceanic and Atmospheric Administration employees were suspended for two weeks for downloading sexually explicit material, and one employee was fired for sending threatening e-mail.
Nearly 100 employees of an Energy Department laboratory were disciplined-penalties ranged from reprimands to dismissal, with criminal charges in one case-for inappropriately using computers to access adult-oriented sites.

Officials say there have been other prosecutions as well, including a few charging that employees used agency computers to visit sites featuring child pornography.

Many agencies allow some personal use of the World Wide Web. The Environmental Protection Agency, for example, allows "limited, occasional access to the Internet on government computers, provided that there is no fee charged to the government and provided that there is no access to or transmission of sexually explicit or obscene materials or information, or access to or transmission of gambling materials and information."

Other offices have stricter policies. The Office of the Senate Sergeant at Arms, for example, views accessing pornographic information as a violation of sexual harassment policy and as such "grounds for immediate termination of employment."

Agencies also commonly block the types of Web sites their employees can visit, with a few offices even barring access to any commercial Web pages.

Most collect statistics on what sites their employees access, or at least have tools that can track Web page visits. Sometimes they also take special action. Several agencies notified employees last year not to download independent counsel Kenneth Starr's lengthy report on the Monica Lewinsky scandal when it first was posted, because it was jamming their networks.

Preventing and punishing Web misuse has proved difficult, though, even where agencies have strict policies. The nature of the Internet means that users visit sites they know nothing about and go down blind alleys. Some turn out to be mere dead ends, while others lead to places the user should not be, at least not while on a government computer. Sites that carry pornography, for example, sometimes use misleading identifiers to draw traffic.

Officials who follow Internet-use policies say that as a practical matter, an individual's pattern of use draws attention only when someone repeatedly goes to a site with no official purpose. They add that there's not much enthusiasm in agencies for imposing maximum penalties if misuse
doesn't involve much time, doesn't disrupt work and carries negligible cost.

"I think one of the issues we have to be sensitive to is that when you're doing research on the Internet, sometimes it might appear somebody was doing something personal because the hyperlinks are not always what they appear to be. You can end up at an unusual site," says Richard Kellett, director of the emerging IT policies division at the General Services Administration. "I don't think we want to create an environment where somebody accidentally goes in an area that might appear personal, they have this fear that the chain of command is going to come down on them."

Excessive misuse, however, can bring into play standards of ethical conduct regarding use of government property and of official time. The problem in drawing the line is that the Web virtually guarantees that some time that employees spend on it will be wasted, if the definition of waste is time not on sites hosting information directly needed for the employee's job.

"It's very difficult to find the information you're looking for unless you already know where to go," says Melinda NesSmith-Picard, an environmental engineer at the Navy submarine base at Kings Bay, Ga., who uses the Web extensively. "You think you're getting close and you can't quite get there. You have to be very diligent and focused on what you're doing, and you have to be able to say, 'Hey, I've been surfing for an hour and I'm not getting anywhere. I need to try something different.' It's a double-edged sword. It's a great resource if you're skilled at using it. But it's really easy to waste time."

Within limits, even unfocused surfing can be a good thing, some managers say. They encourage browsing, at least at the outset, so that employees can learn how to use the Web and find out what information is available to help them in their jobs. Once employees are over the mystique of the Internet, these managers say, they see it as a tool and not a toy.

Still, the Web offers temptations. While outright abuse such as visiting pornographic sites is considered fairly rare, visits to favorite unofficial sites are more common.

"Even people who are scrupulous find fringe areas," says Mike Oliver, an engineering manager at the Energy Department's Carlsbad, N.M., area office. "They don't dabble in blatant abuse, but there are little things they check on. For instance, hardly any office that I'm aware of would tell people they couldn't check the weather. Yet that's not official business. And there are other things in the realm of being a good neighbor in your community, checking on community events--that's a little shaky with or without the blessings of the hierarchy. The scrupulous would do those sorts of things. The unscrupulous would head for Playboy."

Even innocent surfing can be a problem when too much time becomes involved, as can easily happen. "It's like your child--'I'll just be on it for a minute.' Well, the minute turns out to be an hour, and the hour goes to two," says a manager at a Defense Department depot.

Managers and other officials say employees with strong ethical principles won't abuse the Internet; for more unscrupulous workers, it just offers another way to waste time. If they weren't on the Internet, they'd be in the cafeteria or talking to their friends on the telephone. Viewed in that light, Internet abuse by employees is more a symptom than a problem in itself. Gregory Chow, a manager in the competition and closure office at McClellan Air Force Base, Calif., says that the Internet can highlight not only behavioral problems but also internal problems in an agency. "You may go along without thinking you have a problem where the Internet isn't a factor," he says. "But now that it is available, you see the symptoms. The causes are deeper rooted."

Flood of E-Mail

Aside from its potential for misuse, the Internet has brought new challenges and opportunities that have become intertwined with the government's drives to reduce staff and push decision-making to lower levels.

"What we think as we go forward is that a lot of the downsizing in government has been permitted by Internet communications," says OMB's DeSeve. "The fact that I can deal with a lot of people directly means there's less need for intermediate staff. I find myself looking at things I never would have looked at and people are sending me things that I never would have gotten without the Internet. So many more people have visibility of what's going on and are able to make contributions."

Managers say the difficulty in such an environment, both in general and with the Internet in particular, is to maintain a balance between employee empowerment and necessary controls.

"In an effort to provide 'quality' in the workplace, the workplace has been turned into a freelance opportunity," says a supervisor at a Navy facility. "It has given employees a wide range of information that has nothing to do with the position description of the job. Supervisors are overworked due to downsizing and now have to monitor daily use of government equipment.

"I have made it very clear that only work-related items may be searched on the Internet," she adds. "Unfortunately, with separate workstations a supervisor is not aware every minute of the day of what the employee is doing on the computer."

Agencies also are wrestling with the implications of the increasing amounts of e-mail coming in from the public-so many for some employees that they say they sometimes have to choose between answering their e-mail and getting their work done.

In order to answer the large volume of e-mail, questions from the public are being pushed farther down the organization. Thus, the Internet is helping to make experts more accessible-while adding to their workloads.

At the same time, how e-mail is answered affects the agency's image and its relationship with the public. Also, agencies must make sure that when employees respond, they provide information that is consistent with what would be written in a letter. That might mean supervisory review, which can be difficult when each subordinate employee may be sending out dozens of replies a day.

Some agencies have integrated e-mail and Web content rules with their general policies on correspondence and release of information. One growing trend is the use of e-mail control systems that route questions on certain topics to designated employees. Also, agencies are posting more "frequently asked questions" pages on their Web sites and are linking to sites of other agencies that might have the needed information. Some agency Web sites make no provision for receiving e-mail, while others may promise to review messages but don't promise to respond to them.

Internal e-mail volume is growing as well, improving communications within agencies. But there, too, the growth has produced some drawbacks, officials say. E-mail makes it easy to send messages to a large audience, contrasting with paper memos, where policy limits distribution to those who have a need to know. The result is that many people are forced to waste time going through e-mail that isn't pertinent to their jobs.

And while drawers full of forms have been eliminated, so too has some of the control over decision-making that the paper-oriented workplace entailed. Not all of those controls were just red tape; they created records assuring that plans passed through the proper hands before decisions were made. With electronic communication, such trails can vanish into the ether or, at least, require reconstruction from the computer's files.

Some employees have simply abused e-mail, officials say. At holiday times, agencies commonly send out reminders against circulating electronic greeting cards. At other times, system postmasters have had to step in to cut off chain e-mails. Employees have used the systems to circulate jokes and in some cases to act as mail list servers for outside organizations such as churches, says Keith Thurston of GSA, who works with the federal postmasters group under the CIO Council.

Similarly, employees sometimes send individual messages large enough to clog agency systems. But even in such cases, it can be hard to say definitively that the use was improper. Thurston recalls an employee who brought a system to a halt by sending a 200-megabyte e-mail--3 megabytes is about the standard maximum for Internet service providers. But it turned out that he was sending PowerPoint slides home to work on them over the weekend.

Flexible Policy

Officials working on the proposed model Internet policy have tried to take such conflicting factors into account. And the policy would leave room for agencies to tailor rules according to their own needs. The guidance has been drafted in terms of general policy on the use of government office equipment, since officials quickly found that Internet policies can't easily be separated from those governing use of computers in general and other types of equipment.

In fact, one of the main points of the draft policy-allowing minimal personal use of the Internet during off-duty hours, including during lunch, if there's no added cost to the government-is based on the government's reasoning when it loosened rules on personal use of agency telephones several years ago. It's more efficient, in that view, to allow employees to make occasional personal calls from their desks than to require them to leave the office and go to a public phone. Similarly, employees should be allowed to perform minor personal chores on the Internet.

At the same time, the policy will make it clear that Internet access is a privilege, not a right, and that employees should have no expectations of privacy while using government computers, even on their own time. Officials say that the idea of officially sanctioned personal use of the Internet, even off the clock and at no cost to the taxpayer, will require some selling both inside and outside the government. But in the government information technology community at least, the overriding issues on Internet use are quality of work life for employees and consistency among agencies.

GSA's Michele Heffner, program manager for the CIO Council, notes that for CIOs, the major Internet-use issue is security. "They're less concerned with people abusing [the Internet] because I think the productivity outweighs any problems that you have," she says. "It's just becoming such a critical part of an agency's mission in getting information out to the public and sharing between agencies. They want to promote that as much as possible and they're looking at having a common policy as a means of trying to create an open environment and a fair standard across the government."

Says Eisinger, "Because you have a couple of people who have taken advantage of the privilege, who have violated the policies, do you ruin it for everybody else? I say no. We expect almost all of our employees except a handful to do the right thing. There will always be those that don't. Hopefully we'll find them and we'll take the privilege away.

"I think employees are going to be grateful. They're going to feel better about their jobs and their workplace. I'm not going to say it's going to increase productivity, but it's not going to decrease productivity."

Eric Yoder is a Washington-area freelance journalist who has covered the federal government for 17 years.

]]>

A Personal Policy

Eric Yoder — Sat, 01 May 1999 00:00:00 -0400

This policy establishes new privileges and additional responsibilities for employees in the executive branch. It recognizes these employees as responsible individuals who are the key to making government more responsive to its citizens. It allows employees to use government office equipment for non-government purposes when such use involves minimal additional expense to the government, is performed on the employee's non-work time, does not interfere with the mission or operations of a department or agency and does not violate the Standards of Ethical Conduct for Employees of the Executive Branch.

Executive branch employees should be provided with a professional supportive work environment. They should be given the tools needed to effectively carry out their assigned responsibilities. Allowing limited personal use of these tools helps enhance the quality of the workplace and helps the government to retain highly qualified and skilled workers.

Inappropriate Personal Uses

Misuse or inappropriate personal use of government office equipment includes:

Any personal use that could cause congestion, delay or disruption of service to any government system or equipment. For example, greeting cards, video, sound or other large file attachments can degrade the performance of the entire network.
Using the government systems as a staging ground or platform to gain unauthorized access to other systems.
The creation, copying, transmission or retransmission of chain letters or other unauthorized mass mailings.
Using government office equipment for activities that are illegal, inappropriate, or offensive to fellow employees or the public. Such activities include, but are not limited to: hate speech, or material that ridicules others on the basis of race, creed, religion, color, sex, disability, national origin or sexual orientation.
The creation, download, viewing, storage, copying or transmission of sexually explicit or sexually oriented materials;
The creation, download, viewing, storage, copying or transmission of materials related to illegal gambling, illegal weapons, terrorist activities, and any other illegal activities or activities otherwise prohibited, etc.
Use for commercial purposes or in support of "for-profit" activities or in support of other outside employment or business activity (e.g. consulting for pay, sales or administration of business transactions, sale of goods or services).
Engaging in any outside fund-raising activity, endorsing any product or service, participating in any lobbying activity, or engaging in any prohibited partisan political activity.
Use for posting agency information to external newsgroups, bulletin boards or other public forums without authority.
Any use that could generate more than minimal additional expense to the government.
The unauthorized acquisition, use, reproduction, transmission or distribution of any controlled information including computer software and data, that includes privacy information, copyrighted, trademarked or material with other intellectual property rights (beyond fair use), proprietary data, or export controlled software or data.

]]>

Out of Print

Eric Yoder — Mon, 01 Mar 1999 00:00:00 -0500

he Government Printing Office, hunkered down in a massive New Deal-era structure on a Washington site it has occupied since the Civil War, is often viewed as a living symbol of centralized, bureaucratic government. Public Printer Michael F. DiMario, the head of GPO, finds the perception more than a little frustrating.

"We sit here in this great big old red brick building, and our workforce is a blue-collar workforce, a good part of it," says DiMario. "Today if you don't have a suit and tie on and you don't sit in a chalk-white building, you're seen as obsolete, a dinosaur."

As often as GPO is called a dinosaur it is called an octopus, reaching into agency decisions on what gets printed, when, where, how and for how much. GPO, which is officially an arm of Congress, is by law the mandatory first stop executive branch agencies must make for most of their printing jobs, and is the primary distributor of those documents to the public. GPO's reach has been shortening in recent years, though. In 1993, the first report of the National Performance Review recommended the enactment of legislation to "give the executive branch authority to make its own printing policy that will eliminate GPO as a mandatory printing service." While that hasn't happened, the report emboldened those who believe a centralized printing structure runs counter to the trend toward devolving procurement and other decisions to lower levels.

Requirements for agencies to go through GPO for their printing work have been eroding. Some agencies with heavy printing volumes-such as the Postal Service, the Defense Department and the IRS-are specifically exempt from the requirement to go first to GPO. Over the years, many other waivers also have been granted allowing other agencies to do their own printing or to contract directly with commercial printers on certain types of jobs. The number of such waivers is unknown, but is believed to run into the hundreds.

And where waivers don't exist, GPO's authority was weakened by a May 1996 Justice Department legal opinion stating that legislative branch control over executive branch activities raises constitutional separation of powers concerns.

Meanwhile, relatively low-cost desktop publishing systems, coupled with advanced photocopying and collating equipment, have brought sophisticated in-house printing capabilities within the budgets of more federal offices. No one is sure how many offices operate their own printing operations, but all sides agree the number is significant and growing.

Sen. John Warner, R-Va., until this year chairman of the Joint Committee on Printing (JCP)-which oversees and traditionally strongly supports GPO-thinks the decentralization of printing operations has gone too far. Last year, he proposed legislation to reaffirm the agency's central role. The bill, which may be reintroduced in this session of Congress, cleared the Senate Rules Committee late in the last congressional session but did not reach the Senate floor.

Warner's proposal would have revoked all waivers of the requirement that agencies use GPO and would have set new rules for issuing such waivers. It also would have required agencies to produce plans for reducing their in-house printing capacity over five years and to route all documents, no matter where produced, through GPO to the depositary library system. Under Warner's bill, GPO also would have become an independent agency, renamed the Government Publications Office to make clear that it had authority over electronic documents as well as paper ones.

"What we basically have in the federal government is an overcapacity of printing equipment and that's across the board," says Eric Peterson, staff director of the JCP under Warner. "One of the interests of [Warner's] legislation was to reduce that capacity with the view to contracting out as much of it as possible." He notes that while individual agencies are doing more of their printing in-house, GPO is doing less. GPO itself prints only about a fifth of the work orders it receives and contracts out the rest.

Quality Complaints

Many agency managers, however, think government needs more, not less, decentralization of printing authority. "We've been unhappy for years with the requirement that we go through GPO," says an official at a small agency office responsible for making sure that about a half-dozen reports get printed each year. "It takes us usually a minimum of 30 days to get something printed [at GPO]. We do not know in advance what our cost is going to be. We'd also like to keep some quality control of this process. We prefer to do a press inspection before they actually print. One of our staff will run out to the printer if it's local, but if it's not, we just have to keep our fingers crossed."

"We're supposed to be an entrepreneurial government," the official adds. "I'm convinced personally that I could go down to one of our local printers and establish a relationship and end up having my stuff printed at lower expense than what I end up with by going through the GPO process. I cannot do that and it's very frustrating."

This manager says the quality of GPO's work usually is acceptable, but not always. Once, for example, he got a report back with a footprint stamped on one page.

"That doesn't happen often, but GPO's only response is, 'File a complaint and we can take [the printer] off the list [of approved printers].' We can ask them to rerun it, but that costs more and you're not sure when you're going to get the thing," he says.

GPO officials say that given the volume of work the agency prints or has printed under contract, some problems are unavoidable. But they defend the quality of the work overall and note that GPO has a quality assurance system based on standards set for each job. Agencies sometimes expect a higher level of work than they choose to pay for, they say.

"I think that the performance is much more substantial than we're given credit for," says DiMario, who has been with GPO since 1971 in a variety of positions. "We get blamed for deficiencies that contractors may perform. But if the contractor meets the specification, you can't reject it. Sometimes an agency will accept a product because it needs it at a particular time even if it doesn't meet the specification. To turn around later and use it in an anecdotal way seems to me unfair."

Jim Bradley, GPO's director of customer service, says the agency often serves as a convenient scapegoat and the process of procuring printing services isn't as simple as it sounds. "You can go down the street and buy from a printer, that's true," he says. "But if you make a wrong decision on paper, for example, you double the price of the job. You've got to have some knowledge of what you get and how quick you get it. Sometimes very simple decisions make a big difference." In some cases, when agencies contract for work directly and later ask GPO for technical assistance, GPO discovers the job could be done for much less with minor changes in paper, color requirements or schedule, he says.

GPO has a ready supply of examples of agencies overpaying or getting poor-quality work when they contract or print on their own. GPO officials also have compiled a series of studies by congressional and executive branch auditors concluding that the economies of scale make centralized printing more cost-effective.

Dividing the Work

Just how much the government spends on printing has become difficult to determine as new equipment blurs the line between photocopying and traditional printing. The government budget account labeled "printing and reproduction" is around $2 billion yearly, but under GPO's method of accounting the actual amount is closer to $1.3 billion, and under yet another interpretation, by the Office of Management and Budget, the figure is about $1 billion.

There's general agreement, though, that GPO handles about 60 percent of the printing total, agencies do about 30 percent in-house and the rest is produced through cross-servicing or direct contracting arrangements. Two decades ago, GPO contracted out about half of the procurement orders coming in and printed the other half itself. But since then, the agency's staff has been cut from 8,500 employees to 3,400. Now GPO contracts with about 3,000 private printers for about four-fifths of the work orders it receives.

The most comprehensive recent look at printing costs, produced by a Clinton administration working group early in 1998, found that government printing practices "make economic sense overall. Agencies are procuring, generally through GPO, the large, complicated jobs that are more cost effectively produced by commercial sources, and are producing small and immediate-need duplicating jobs in-house, along with the jobs for sensitive information. The small, uncomplicated jobs are more cost effectively produced in-house."

GPO officials say such reports show that the agency does not have the monopolistic printing power that critics say it does. A monopolistic organization, they argue, would control far more of its market than GPO does and would not farm out the large majority of what it does control. Nor would it allow agencies that go through its procurement system to deal directly with the printers who won the contracts, as GPO does in one of its procurement options.

GPO officials also reject insinuations that the agency hasn't kept pace in the information age, pointing out that GPO was an early user of technologies such as fiber optics, electronic distribution, CD-ROMs and computer text formatting languages. The agency has automated its procurement system and the GPO Access Web site (www.
access.gpo.gov), which has about 100,000 posted documents that are downloaded 15 million times a month, making it one of the government's most-visited sites.

Under such circumstances, it appears that support for the Clinton administration's goal of decentralizing federal printing has subsided. A report issued last year by Booz-Allen and Hamilton under contract with the General Accounting Office found that "from the customer perspective, there appears to be little support for eliminating GPO. There is, however, a strong desire on the part of customers to improve the efficiency and effectiveness of the organization."

Now, even administration officials give the GPO at least limited praise. "We think that the GPO has a strong role in government printing. It's a good central source for lots of different documents-the Congressional Record, judicial opinions and much of the printing the agencies do. We also believe they've been a strong force for dissemination," says G. Edward DeSeve, OMB's deputy director for management, who oversees federal information management efforts. "We think that we have an equilibrium between GPO printing and agency printing that respects the need for centralization of many kinds of printing, but where GPO has also recognized the need to provide waivers to many agencies to do their own printing."

The overall push to move government decision-making authority to lower levels has encouraged the waiver trend. At the same time, printing equipment has become available that sells for as little as $250,000-although service contracts, maintenance and other expenses can push costs much higher. Such equipment holds the promise of getting the work done right down the hall, more quickly and with less red tape. Manufacturers of such equipment-Xerox is the largest-have a strong interest in decentralized printing.

"The more agencies have moved into technology, sellers of technology have created the impression that everybody can do desktop publishing," says DiMario. "It's simple; here's a little kit and you can go out and do it. That really is just not true. The desktop technology, if used by a professional, can be an enormous time-saver and advance the ability to output very high quality products. But there is this element of the amateur now viewing himself as a professional because of the technology that's there. You can do a lot as an individual but you cannot output the same kind of high-quality products that are out there through the printing community."

An executive branch official with long experience in printing policy says agencies are buying equipment in quantities and with features they don't need. "[Most agencies] don't need 50 pieces of equipment," the official says. "There's a lack of management."

Bradley says he's aware of several cases where agencies have overbought. "Somebody should step back and say, 'Do you really need this? What do you need it for? If this is one item that comes up every six months, let's find a way to get it done [elsewhere],' " he says. GPO itself maintains much more printing capacity than it usually needs, however. Jobs for Congress, such as bills, committee reports and other documents, account for just under half of the printing GPO does in-house.

But GPO must also be able to handle large rush jobs-the report of independent counsel Kenneth Starr on President Clinton is only the most prominent recent example. When Congress is out of session, GPO needs to keep its people and equipment busy by doing work for executive agencies.

Fugitive Documents

While there may be disagreements over whether agencies' purchasing decisions are wise-no specific study of that issue has been conducted-all sides agree that the growth of agency-controlled printing has resulted in fewer documents making their way into public dissemination channels. Warner and others argue GPO's control over these "fugitive" documents must be strengthened.

Increasingly, agencies are electronically storing and publishing documents that used to be available only in hard copy. While this trend has cut costs and speeded up the publishing of documents in many cases, rapid changes in technology have left the government lacking standards to make information available to the public in a consistent way.

Another problem is that information produced only in electronic form can be lost forever when someone decides, for example, to streamline or clean up a Web site. The American Association of Law Libraries has compiled a list of some 70 publications from about 30 agencies that previously were posted on the Internet but are no longer available, with no record of whether the information was updated or simply wiped out.

But the dissemination problem isn't limited to electronic publishing, says Robert L. Oakley, library director of the Georgetown University Law Center and Washington affairs representative of the law libraries association. "Once [agencies] go outside the normal production chain, the information product they produce doesn't get into the hands of libraries and therefore into the hands of the American people," he says. "I don't want to suggest that they're doing it on purpose. It falls through the cracks. That's not their primary focus, getting these things into the hands of libraries, whereas with the depository library program, that is their focus."

OMB's DeSeve acknowledges that the agency has received "anecdotal information from librarians and others that when the agencies do printing or what might be called printing that it's not getting to the libraries. That's not what we want. We want the libraries to be the primary distribution mechanisms for electronic documents and print documents."

The administration and Congress currently are reviewing these and other issues in light of the failure of Warner's bill to pass in 1998. The measure's future is uncertain. Warner has rotated out as chairman of the JCP and another key advocate of GPO, Sen. Wendell Ford, D-Ky., has retired. Another attempt at least to fix the separation of powers problem seems likely, officials say, but the scope of other initiatives remains to be seen.

Whatever happens legislatively, at GPO headquarters officials are preparing to defend themselves once again. "My perception is that there are people who have their own interests they're attempting to advance, so they're motivated to advance negative claims about GPO. I think that's true both in the private sector and internally in government," says DiMario. "Some [inside government] perceive they ought to be able to do what we do. In the private sector there are vendors who do not like a centralized structure, because it goes against their ability to sell equipment.

"This is an agency that's hammered on the head from the outside," he adds. "You have to look at the motivation of the people hammering."

Eric Yoder is a Washington-area freelance journalist who has covered the federal government for 17 years.

]]>

The New Model

Eric Yoder — Mon, 01 Mar 1999 00:00:00 -0500

f the Government Printing Office is the traditional model of government, the Defense Automated Printing Service may be the new model. DAPS is an arm of the Defense Logistics Agency that provides mostly small-job printing for the military services and defense agencies, plus a small amount for other agencies.

Where GPO is centralized, with almost all employees and equipment at its headquarters, DPAS has its 2,000 employees spread out at 300 production sites nationwide and worldwide. The largest facility has about 20 employees. "They're right there where the customer is. The customers want to come, they want to get in, they want to have it handed to them quickly. They don't want to have it centralized somewhere, except where they have huge volumes and they can afford to wait," says Marshall H. Bailey, director of the
Defense Automated Printing and Support Center at Ft. Belvoir, Va., which oversees DAPS.

For most jobs costing more than $500, DAPS uses GPO. "They do a great job and we don't want to get in that business," says Bailey. "We're doing the work that we need to do decentralized. It's not necessarily a fair comparison. There may be a use for their model for some types of work. It's not because our model is better, it's because it's the type of work that suits our model. Any work that doesn't suit our model, we go to GPO."

With its decentralized structure and quick response times, DAPS might seem a prime candidate to take on work from other agencies, acting as the type of franchise agent that reinventors want to establish throughout government. Currently, DAPS, which operates on a revolving fund basis, performs only about $29 million in non-DoD work out of a total workload of some $363 million annually. About half of the non-DoD work came to DAPS a year ago when it took over the 10 regional printing facilities previously operated by the General Services Administration.

However, Bailey says DAPS has no particular interest in expanding its role in printing government-wide. "We're an element organized by DoD to try and reduce their costs. I really feel like we ought to do that first," he says. "It seems to me that you really have to feel like you've reached your full potential within Defense before you do that."

"Our primary thrust is to reduce the cost for the warfighter and still produce the maximum service," says Bailey. "It is not to move out to other federal sectors."

]]>

Mint Condition

Eric Yoder — Tue, 01 Sep 1998 00:00:00 -0400

magine a federal organization that sells products to the public. It has a director who refers to it as "the company." It has a marketing department, glossy direct-mail catalogs and an online shopping operation. It gets no appropriations from Congress and doesn't follow government procurement rules. It makes a profit and is vulnerable to changes in the financial markets.

This unlikely creature is the United States Mint.

The Mint has been so thoroughly reinvented that it's barely recognizable as an executive branch agency. As a Government Performance and Results Act pilot agency, the Mint has revamped almost all of its administrative operations, from personnel to financial management. But it wants to go still further; recently, its leaders asked Congress for permission to become a "performance-based organization," in which it would get still more autonomy in managing its people and processes.

In addition to winning two awards for labor-management partnership from the National Partnership for Reinventing Government and four Hammer Awards from Vice President Al Gore, the Mint has for three years running scored the highest marks ever recorded for a government agency by the American Customer Satisfaction Index-a ranking of government agencies and U.S. companies conducted by the National Quality Research Center at the University of Michigan School of Business-and the second-highest mark overall, placing second only to Mercedes-Benz.

While many agencies struggle just to upgrade their computer systems, the Mint is replacing much of the basic machinery at its manufacturing plants, some of which dates back to the 1960s. It has won four clean audit reports while some other agencies haven't even been able to get their books in auditable shape. And last year the Mint turned over a profit of $456 million to the Treasury.

Though he concedes that the Mint has some advantages over other government agencies in reinventing itself, Mint director Philip Diehl says other agencies also have the ability to change. "It's easy to dismiss what we've done because we're so different-that we create a profit, that we have a real product, we have real customers who are either happy or unhappy and you can measure it," he says. "All of that is true but irrelevant. What we have done here is doable in any government agency."

Diehl says he's glad his 2,200-employee agency is small enough "that you can actually see the organization culture change on a human-scale time frame," and admits that's tougher to do at bigger agencies. "But the approaches are the same," he says. "You've got to mobilize the vision of the executive leadership of the organization and plug it into the people who work in the agency. You don't have to mobilize 100 percent of the employees. All organizations that move are moved by probably a core of 10 percent who have a vision and a shared point of view.

"Then it takes something that government agencies are not really very good at, and that is strategic planning. In some quarters, there's an assumption that you put together a strategic plan and you come back and revisit it in five years. That plan is dead on arrival. The thing that's changed the most is us-our ability to strategically plan and to engage our abilities."

One main focus of the agency's strategic plan is customer service. The Mint has one very big customer-the Federal Reserve system, which buys up to 20 billion coins each year for circulation-and several million smaller customers, the collectors and investors who buy commemorative, special issue and bullion coins and medals. While those individual buyers have always given the Mint high marks for quality, they traditionally rated it low in customer service, a shortcoming the agency made it a priority to correct.

All Eyes on the Goal

Another element of the strategic plan is greater cooperation between labor and management through a partnership arrangement that is designed to encourage employee input, resolve problems before they turn into formal complaints and involve the union in setting agency goals. The Mint was the first Treasury Department agency to set up a formal partnership, and both the Denver and the Philadelphia facilities were among six National Partnership Award winners in the first two years of that program. In the early 1990s, by contrast, the American Federation of Government Employees was picketing at the Mint to complain about its management.

"There have been a lot of exciting changes in involving our people in the mutual goal of making the Mint successful so that everybody has jobs and career opportunities in the future," says Terry Rosen, an AFGE labor relations specialist who has dealt extensively with Mint matters. "I've seen our folks-front-line workers, union representatives-go from being somewhat uncomfortable raising an issue dealing with the business side of the organization to now being enthusiastic participants in the discussion, raising ideas of how things could be done better.

"I think we've gone further, faster than other agencies, and probably the single most important thing is that the director really believes in this and union leadership really believes in this," Rosen says. "I'm not saying that everybody's holding hands and it's all sweetness and light. It's just that when problems and issues come up, everybody has their eye on the important goal, the organization being successful. People don't get bogged down as much either being trivial about problems or being obstructive and stonewalling solutions."

One change was encouraging employees to develop individual development plans and then providing career-progression training targeted to the goals of both the employee and the organization. That program was created after an organizational assessment survey revealed that employees believed the agency wasn't investing enough in them. Also, both management and labor saw that new equipment and new operating approaches will change the nature of many Mint jobs.

Employees initiate the process by contacting their supervisors, who work with them in developing and monitoring their progress. "The philosophy we came to, management and union together, was that we want to help those who want to help themselves," says Diehl, who has been Mint director since 1994. "The biggest way to waste training dollars is to spend them on someone who doesn't want to be there or isn't ready to learn. So we said, 'We're making a commitment as an organization that if you want an individual development plan you'll get one. But you've got to work for it. It's not easy. It's really kind of uncomfortable because it takes a frank assessment of your strengths and weaknesses and it takes the hard work of knowing where the organization is going and matching what you want to do in your career with what we want to do in this organization.' "

So far the response hasn't been especially strong, partly because employees are too busy to fit in classes and partly because supervisors are reluctant to release people during the work day for training. However, employees who request training almost always follow through with it. So far, 33 employees have individual development plans, of whom 27 are receiving tuition assistance for training deemed to be directly job-related. Under the program, the Mint will pay up to $3,000 a year for such training.

The Mint also has increased training of supervisors and union leaders and has taught employees how to use a new integrated information system. Overall, the agency's training budget has tripled in recent years to $1.5 million.

Shedding Strictures

But the Mint-which in 1995 eliminated five of its 10 politically appointed positions requiring Senate confirmation and converted four others to career status-believes that still more personnel changes are needed. Several years ago, management identified 36 personnel flexibilities that are available either through legislation or administrative action. The Mint is now using almost all of them, but top managers believe they need more. The Mint has to compete directly with the private sector for employees, especially in certain specialized jobs not common to government, such as metal work and plant management.

"We move faster than most government agencies, but we are constantly finding ourselves at a disadvantage because it takes us four months or six months to go through the process of hiring somebody," Diehl says. "They have three or four job offers from the private sector before we're even halfway through the process, and we lose good candidates because of that. We need to have the ability to much more flexibly define jobs. When circulating coin demand is up and demand [from coin collectors] is down, I need to be able to move people around in the production facilities. I need broad-banding and job definition flexibility."

The agency recently proposed legislation that would allow such freedoms by designating the Mint a performance-based organization. Under the proposal, the Treasury Department would continue to provide political control, but the Mint would have wider autonomy over its operations. For example, the agency would have more control over setting salaries, and would be able to offer employees promotions more quickly. PBO authority also would let the Mint tie the goals and objectives of the strategic plan to financial incentives for executives and other employees in the organization.

The PBO proposal is currently pending before Congress, which has yet to approve any of the Clinton administration's PBO requests. But if the Mint succeeds in getting PBO authority, it would be the culmination of a series of changes that have granted the agency freedom from many of the operating restrictions that apply to most executive branch agencies.

The agency has in recent years received a waiver from the Federal Acquisition Regulation-a change that required its acquisition employees to unlearn much of what they knew-and won conversion to revolving fund status, meaning it no longer gets annual appropriations from Congress. Those changes allowed the Mint to cut the time required for a major procurement from nine months to two months and to award contracts to metals suppliers in four days rather than 40. They've also let the agency embark on a $176 million, five-year program of capital improvements that had been deferred for years due to appropriations and contracting restrictions-a common lament even among agencies less capital-intensive than the Mint.

"I had to make a business case, first to Treasury and then more importantly to the Hill, that the return on investment is great and that it really is foolish not to invest in the capital infrastructure of the enterprise," Diehl says. "Also, we had to demonstrate that if we continued to fail to invest, we were threatening our mission. In peak seasons we were biting our fingernails. If we had one furnace go down or one other bottleneck, we were going to have coin shortages. We had to convince folks that we weren't crying wolf, that this was the real thing. But we also made the business case that there were big efficiency gains to be had."

Taking Coins Private?

While the future may hold still greater freedoms for the Mint, it also presents threats. The increased use of electronic payments could cut into the demand for circulating coins. The number of coin collectors is shrinking, and sales of collectibles and investment-grade coins decline when stock and bond markets do well, as they have recently. Proposals arise from time to time to eliminate pennies, which make up two-thirds of the Mint's output, and round prices to the nearest nickel. But more significant are suggestions that the Mint, which operates so much like a business already, should be turned into a government corporation like the Postal Service or simply be privatized.

The General Accounting Office last year researched how Canada, Germany, France, Italy, Japan and the United Kingdom handle the production of money. It found that while Canada and Germany use private companies to produce paper money, coin production is solely a government function in all six countries, except for some small-denomination coins in Japan.

GAO also found that while the U.S. Mint already relies heavily on contractors for functions such as the manufacture of coin blanks, training and telemarketing services, the Treasury Department has security concerns about further privatization. "Since the advantages and disadvantages of further contracting out have not been thoroughly studied, it is not clear whether savings would be achieved or whether the concerns raised by Treasury are valid or could be mitigated," GAO concluded.

Says Diehl: "The creation of legal tender is a constitutional function. It is as inherently governmental as it gets. I think it is appropriate that it is a government agency. I find there is significant value added to being a bureau of the Treasury Department. There is a legitimacy, there is authority that comes from that that I'd hate to give up."

A Brand You Can Trust

The agency has found the government status a benefit not only in negotiations with contractors but also in dealings with the coin-collecting public. Coin collectors tend to be white males over 50-not the group with the highest level of confidence in the federal government. Yet the "U.S. Mint" name has cachet with them.

"You will hear people say they don't trust the government but they do trust the Mint," says marketing director David Pickens. "We are involved almost on a daily basis in ensuring that we retain them and that we give them perceived value. If you look at our brand as the United States Mint, we've been in business a long time, and we probably have one of the finest brands in government."

Very few federal employees outside the Postal Service have the job Pickens does: selling products directly to the public. The job involves acting much like a private sector direct-mail firm by culling the Mint's database of customers to refine its marketing approaches and renting lists of potential prospects from jewelry and department store purchasers.

New lines of business are opening as well. The recent introduction of platinum bullion coins expanded the Mint's presence in investment-grade products, a new dollar coin has been approved to replace the Susan B. Anthony coin when the supply runs out in two years, and Congress has authorized a series of quarters commemorating every state-to be released five per year starting next year-that the Mint hopes will start a new generation of coin collectors. And proposals continually circulate to replace the dollar bill with the dollar coin.

The Mint also is looking to expand its reimbursable services to other agencies. It not only protects $100 billion of the Treasury's precious metals at Fort Knox, Ky., and elsewhere but also safeguards strategic metals for the Defense Department. It's exploring an arrangement with the Postal Service to store stamps and money orders, and executives think other agencies also might want the Mint to do their deep storage.

"There's an intent to expand the mindset of entrepreneurship and customer service within the organization," Diehl says. "I don't want to take that too far. I think there are undoubtedly services or products that we could get into that would be inappropriate for us. But there are certain services and products that are within our core competency that we know there is a demand for."

The best indication of the Mint's condition, agency officials say, is that private mints often try to leave the impression that their products are produced by the government. They do that through vague advertisements that sell coins based on U.S. Mint designs and by using names similar to the Mint's.

Says Diehl: "We never thought of the United States Mint as a brand-we're an agency. It's been only in the last year we've come to realize the United States Mint is a brand and we've come to appreciate the extraordinary value of that brand. That's the crucial thing, the value of the brand that people want to ride on. When people start to pose as you, that's a signal."

Eric Yoder is a Washington-based journalist.

]]>

Better Service for Coin Collectors

Eric Yoder — Tue, 01 Sep 1998 00:00:00 -0400

everal years ago, members of the public who ordered products from the Mint were told to expect to wait at least eight weeks for delivery, which in effect meant "between eight weeks and infinity," says assistant director for customer service Kevin Cullinane. Today they're told to expect to wait four weeks, and they often receive their orders faster.

"We were very good at protecting the assets of the United States government," Cullinane says. "As part of that, lots of people would get involved in every transaction. It would take a lot of time to accomplish any transaction. As we were going through reinvention, we all had a tendency to say, 'It's because of the system that we can't do any more.' We were 90 percent wrong on that. It was all of our complex labor procedures."

Before the customer service operation was reinvented, the Mint didn't have good figures on such basic issues as how long callers waited on the phone before being helped. Now the agency has a standard-answering 90 percent of calls within 17.5 seconds-and the results are posted on a bulletin board in the phone department each hour.

The rewards for meeting goals range from doughnuts or pizza after particularly heavy days to formal citations and cash awards. The computer system also tracks length of calls, products ordered, which representatives are not on the phone and how long it's been since their last call, how long calls spend in the wrap-up stage and other data. Such tracking not only gives the agency information on how well it is doing at the moment, but allows for longer-term planning to handle peak work periods. Managers of the various departments at the 50-employee office in Lanham, Md., meet weekly to go over performance statistics.

"We are religious about tracking on a continuous basis," Cullinane says. "We know exactly where we are at all times. We have gone in two years from responding to what happens to us to where we control our lives and control the service we deliver to our customers. From a manager's standpoint, it is much more pleasurable and much more satisfying to be in this position."

Cutting out steps has improved response times in many areas. For example, returned products, which typically are sent to the mint that produced and shipped them, often would go unopened for several days, then would be logged by hand. The reports would then be mailed to the service center, where they would pass through many more sets of hands-resulting in about a six-week turnaround before a refund or exchange was issued. Now, returned items are opened every day, reports are faxed, returns are processed in one day and the accounting department has three more days to wrap up the matter. A new computer system being installed will speed the process even further.

Similarly, in the correspondence section, average turnaround time on letters from customers is down to two to three days on queries ranging from the status of orders to detailed questions about the manufacture of coins. Letters are scanned into the computer system, eliminating the need to keep hard copies. A report on the types and status of correspondence is posted daily on a bulletin board, along with letters of thanks from customers. Unlike customer service representatives at some agencies, those at the Mint do not hide behind anonymity; their correspondence contains their names, addresses and phone numbers. One result has been that they get to know certain customers.

"Our customers feel like they are our only customer, and we have tried to treat them like that," says consumer affairs representative Gwen Manley.

]]>

Time for a Change

Eric Yoder — Fri, 01 May 1998 00:00:00 -0400

he U.S. Postal Service is by far the largest government corporation in the United States. Marvin Runyon, who took over as postmaster general in 1992 and is scheduled to leave this month, arguably was the first postal chief to think of the Postal Service as more of a corporation than a government agency.

Formerly a senior executive with Ford Motor Co. and president and CEO of Nissan America, Runyon came to USPS fresh from a stint at the Tennessee Valley Authority, where he earned the nickname "Carvin' Marvin" for his plan to reduce management layers and cut costs. He immediately applied the same philosophy at the Postal Service, triggering a reorganization that reduced staff by 40 percent, cut layers of oversight, and eliminated overhead and headquarters positions. In his use of employee buyouts and other incentives to achieve his goals, Runyon anticipated strategies that would be used across the federal government.

Runyon later introduced the CustomerPerfect program, based on criteria from the Malcolm Baldrige National Quality Award, that once again was ahead of executive branch efforts under the 1993 Government Performance and Results Act. He reached a goal, thought by some to be unachievable, of delivering 90 percent of local first class mail overnight.

After the initial period of cutting, USPS grew under Runyon's tenure, both in employees-it is now the largest employer in the country apart from the uniformed military services-and in capital-with a $50 billion budget that would rank it No. 8 in the Fortune 500.

He also expanded the agency's reach into international and electronic markets, while processing 43 percent of the world's mail volume, some 183 billion pieces of mail a year. Runyon broke the cycle of postage rate increases every three years, and after three years of surpluses exceeding $1 billion each, USPS expects to finish with a small surplus in the current fiscal year even though a requested rate increase won't take effect until later in the year.

However, Runyon's tenure at USPS was not without controversy. Employee unions complained that his emphasis on automation and privatization cost jobs. They also criticized his management incentive program, which they believe overemphasizes numeric goals, and his advocacy of higher salaries for top executives. Nor did Runyon eradicate the problem of sporadic violence in the postal workplace.

Runyon announced earlier this year that after a decade of service in government he wanted to return to the private sector. He spoke with Government Executive as he was readying his departure.

INTERVIEW with Marvin Runyon

Q: Many other agencies are trying to do the same thing you did here-operate in a more businesslike manner. What's your No. 1 piece of advice to them?

A: Recognize that they have customers and set their operations up so that they satisfy their customers. That's what people in government are supposed to do. In the Postal Service, we're a service business, and our job is to satisfy our customers. For example, when I came in here, post offices were closed at 5 o'clock. People really wanted them open later, but we had rules that sort of said you work from 8 to 5. A lot of people have to be at work at 8 o'clock, and they want to drop their mail off on the way. A lot of people are at work at 6 o'clock, and they'd like the post office to be open at 7.

You have to allow your people to tell you what your customers want. When you talk to your employees, in addition to talking to your customers . . . you'll find employees know more about the business than anybody. Employees understand it.

Q: Do you ever feel like the first government reinventor?

A: When I went to TVA in 1988, one of the reasons I went was to prove to myself that you could run a government agency as effectively as a private business. We made TVA very efficient. They haven't had a rate increase at TVA for 10 years as a result of some of the things we put in. When I went there, they'd had rate increases for 22 straight years that averaged 10.4 percent a year. There were companies that were leaving the Tennessee Valley because the cost of power was going up so much. So we did make that operate as efficiently as a private business. At the Postal Service we've done the same thing.

Q: Do you think there's similar slack built into pretty much every agency?

A: I do. When you go into an agency and look at it from a business standpoint, you'll find there are many, many things you can improve. It's just that way. First you need to find out what your customers want and need. Stop doing the things they don't want or need. The government doesn't exist just to exist, it exists for the people. And if you're satisfying a need, that's good. If you're not, you ought to pack up and leave.

Q: One of the first things you did when you came in was a reorganization that involved paring the management ranks in the middle. Again, the executive branch is trying to do the same thing, without much to show for it. Do they need a new approach over there?

A: I just know what we did. We looked at the way we were organized. We had too many levels. I think we eliminated about five levels of management. And we operate much better.

Q: The Postal Service historically has had an image problem. There are several other agencies right now in the same boat-the IRS for example. What would you tell an agency that has that problem?

A: I have to go back to customer service-do what the customers tell you to do. You get a bad [image] because you're not doing what you ought to be doing. If people are saying my mail is late, you've got to figure out a way to get them the mail on time. If people are saying it's costing too much, you have to figure out why. You've just got to go to work on it. In our particular case, we have surveys. We measure our performance. In the Pew Center report on government agencies, nine out of 10 Americans are very pleased with the Postal Service. The second best was the Park Service at 85 percent and nobody else was 80 percent. Well, that's a reality check.

Q: The reorganization, for at least the initial period, really threw things into an uproar. If you had to do that over, would you do it any differently?

A: The way we did it was to allow people to opt out, and we gave them six months' pay if they opted to retire. So we didn't have anybody laid off. The people who left chose to leave. We didn't tell them to go. Then we reorganized on what we had left. I don't think I'd do that any differently. Just going in and saying, "OK, all of you are out of here," that's not a good way to do it. We had, I think, 46,000 people leave, and 30,000 is what we were looking for. We let too many people leave with experience, and if I had it to do over again, I'd try to figure out what I could do to have the number leave that I wanted to leave. That's difficult to do, though.

Q:The era of cutting back on jobs certainly is over at USPS and seems to be pretty much over in corporate America generally. The executive branch is continuing down that road. Are they going in the wrong direction?

A: I haven't studied what the executive branch is doing. We are continuing to try to improve our operations, improve our productivity, to look at our processes. We're putting in automation that over time will make us do our operation more productively, more effectively, more efficiently. I think that people really need to look at . . . the process of what we do, so that changing the processes actually [requires] fewer people.

To say, "We've got 10 percent too many people," and figure out where you're going to take out 10 percent of the people, that's the wrong way to do it. I know that's the way people used to do it, and there are maybe some people still doing it that way today. A better way of doing that is to look at the processes, improve the quality of the product, improve the value-added that you make and figure out how to do that more efficiently.

Anything you do, you've got to be sure you've got accountability involved. You've got to be credible. And in our case, and I think in all government agencies, you have to be sure you're competitive. That's not a government word, "competitive," but in the Postal Service we've got more competitors than I ever had in the automotive industry. Everybody has competitors. I don't care what branch of government you are in. If your competitors can do it better than you, then you shouldn't be doing that. If you can do it better than your competitors, then you ought to be improving your methods so that you can do it even better.

Q: Your CustomerPerfect program emphasizes timeliness, setting targets and measuring progress. The Government Performance and Results Act emphasizes the same sort of thing. Having been down that road, what advice would you give agencies?

A: Four years ago, we decided we needed a better way of running the Postal Service. So we installed the Baldrige concepts. We called it CustomerPerfect, because that's what we're really aimed at-the customer. There are management principles behind that. Part of the concept there is that you set goals. You have to first get indicators. It's difficult to get indicators. Overnight on time is an indicator. So we started on that. We are now measuring two- and three-day performance and priority mail.

Q: What if you're running an agency that doesn't have those kinds of indicators?

A: You might be surprised if you start to analyze what number of calls they have been getting, how many people are satisfied in those calls, and so forth. You have to assign people to find those indicators. But there are indicators in everything you do, whether it's filling out income tax reports or government contracts. How many times are they on time? How many times are they not on time? How many times do you have to make a change order? All of those things lend themselves to being indicators. You just have to find them.

Also, we've tied that to pay for executives, our supervisors. I think pay for performance is very important, and I think that's something government agencies need to figure out.

Q: To what extent has the executive compensation program made you able to meet goals?

A: Every employee should be paid on [a performance basis]. When you go for pay for performance, you have to be very sure you know what you're doing when you set the indicators. Make sure those indicators are what you want to receive, because I guarantee that's what you're going to get. If you want the quality of delivery to improve, then set that as an indicator. If you want employee satisfaction to improve, set that as an indicator. If you want safety to improve, set safety as an indicator. Because what gets measured gets managed.

Q:You've been criticized for creating too much of a bottom line-driven organization.

A:It's not necessarily the bottom line we're driving at. That is one factor. Employee satisfaction is one factor. Customer satisfaction is another factor. We have three voices-voice of the business, voice of the employee, voice of the customer. We have indicators, and we measure all of those factors.

I frankly would like to see all of the unions accept performance pay. They could all increase their pay by improving performance. And not on the sweat of their labor. You don't get things done working harder, you get things done working smarter, and that's what we're all about.

We're looking at how our processes are managed. We have members of our unions who are members of those process management teams, and they like it. A lot of our people would like to see performance pay. Take letter carriers. I think letter carriers would be very pleased to be in a performance pay proposition, where they know what the standards are, and they figure out a better way. Not a harder way. Not running from door to door. That's not the answer; that's never the answer. The answer is smarter. Figure out how to improve their productivity and they receive more pay for it.

Q: Relations between labor and management at the Postal Service historically have been tense. Do you ever look across the street at the executive branch and say, "If I only had the cooperation they're getting over there."

A: Relations between any union and management that want to be adversarial are tense. You don't have those kinds of relationships in the automotive industry. The unions in the automotive industry have decided that they have competitors. They have now figured out that they need to work with management. I don't mean roll over and play dead, anything like that. I'm talking about teams work better than individuals. They have decided they need to do that.

One of the problems we have in the Postal Service is that we continue to be successful, we continue to get new business, we're running a surplus, and people say that's because we're working so hard. So therefore that's really bad. It's not bad. We need to continue to grow our business in every way we can, but we need to work together.

I think in a lot of ways we are working together better. One of the problems with postal pundits is they look at grievances. Grievances are not a measure of relations. I could take you to many locations in this country where labor-management relations are really good, where management and unions are really working together. We have other places that need help, and we're making those changes as fast as we can from a management standpoint.

Q: USPS has thrived as it has grown. What about an agency where you know you're going to be more or less where you are, if not smaller, for as far out into the future as you can see?

A: I'd have to look at what I was being asked to do by Congress, and I'd be looking at my customers and asking them, "What is it that you don't want done?" If I were going to have to cut back, I'd find out what my customers didn't want and I'd stop it. That's a tough situation. When people just mandate dollars, that's not the way to do it.

Q: To what extent does being governmental, with government retirement, health and life insurance, help or hinder managing the Postal Service?

A: The Postal Service has some different personnel practices than the regular government. Some people have civil service retirement, then 12 years ago they came in with FERS. I'm finding with civil service, they stay until they can retire. A lot of people with civil service are now reaching 50 to 55 years of age, and at 55, I think they're out of here. In five years, a lot of people with FERS will have 17 years [of service]. They can be out of here too.

It's going to make it harder to run an operation like the Postal Service, where we have a lot of people at the upper levels who are grossly underpaid in relation to the outside market. The delivery companies pay much more than we do. We're able to pay our top executives $151,000. But you take somebody who's a chief financial officer or a chief operating officer at one of those companies, and it's $600,000, $700,000. So how are we going to continue to fill those jobs, to keep people here who are quite competent to go out and get some of those jobs?

Q: What advice do you have for the next postmaster general?

A: They should have a really tough skin. They need to understand that there's going to be 280 million owners, there's going to be 435-plus-100 overseers [in Congress]. You've got more customers than anybody in the United States that you've got to satisfy, and some big customers-$600 million a year, $400 million a year, $100 million a year. You really have to be dedicated . . . and to work maybe 16, 18 hours a day-and listen to people who are unhappy because they didn't get their letter.

]]>

First Class Feud

Eric Yoder — Sun, 01 Feb 1998 00:00:00 -0500

espite job cuts and deficit-driven restrictions on agency budgets, relations between management and organized labor in the executive branch have been relatively cordial in recent years. The situation at the U.S. Postal Service, however, is exactly the reverse.

Employment is growing-with 820,000 workers, an increase of 60,000 over the last five years, USPS is the country's largest employer outside the armed forces. Profits are high-a $1.3 billion profit in fiscal 1997 followed gains of $1.8 billion in 1995 and $1.6 billion in 1996, allowing USPS to cut in half the debt accumulated over the last two decades of postal independence. New markets are opening-the Postal Service is positioning itself to move into business lines ranging from electronic delivery to new international services. Revenue and mail volume achieved new records in 1997 of $58 billion and 190 billion pieces.

Yet relations between USPS management and its employees "are the worst I have seen in the past 40 years and are getting worse," says American Postal Workers Union President Moe Biller.

The General Accounting Office agreed with that assessment in a recent report, saying USPS suffers from persistent labor-management problems characterized by "autocratic management styles . . . sometimes adversarial attitudes of employees, unions and management [and] . . . a sometimes contentious work environment." GAO added that "little progress" had been made since 1994, when it issued a report finding virtually the same problems.

Labor relations at USPS briefly catch the public's attention after incidents of violence at postal facilities in which job frustrations play a role, such as the December shootings in Milwaukee in which a worker wounded a supervisor who had reprimanded him, wounded one co-worker and killed another and then killed himself. But while violent acts are sporadic, bad blood is ongoing-stirred by management's pressure to meet production goals, according to unions, and by bare-knuckled rhetoric and an entitlement mentality by union officials, according to management.

Grievances are one indicator of the state of relations. The annual number of grievances lodged by unions that weren't resolved at the local level and were taken to higher-level offices rose from 65,062 in 1994 to 89,931 in 1996, while the backlog of cases awaiting formal arbitration grew from 36,669 to 69,555, GAO said. Not surprisingly, labor and management officials "tended to blame each other for the high volume of grievances being filed and the large number of backlogged grievances awaiting arbitration," GAO found.

Postal officials say they do not have detailed statistics on types of grievances, but common themes include treatment of employees who commit minor infractions; disputes over leave, overtime and work processes; lack of employee participation in decisions affecting their work; and perceptions of disparate treatment, particularly in disciplinary cases. "The relationship between managers and employees remains adversarial instead of instructive and educational," says Hugh Bates, president of the National Association of Postmasters of the United States. "When mistakes are made, threats follow. There is rarely an attempt in the field to correct a problem and move on."

The partnership program created by presidential order in 1993 to foster cooperation between labor and management has helped smooth relations in the executive branch, but the program didn't cover the semi-governmental, semi-corporate Postal Service. In executive agencies, "we've had some successes in terms of changing the culture of the adversarial relationships that existed traditionally. On the postal side . . . things have deteriorated or are still as bad as they've ever been," says John Leyden, secretary-treasurer of the AFL-CIO's Public Employee Department. Leyden is a member of the National Partnership Council, which includes major executive branch employee unions, management groups and representatives from the Office of Management and Budget, Office of Personnel Management and other agencies.

"There's no diminution of the hard rhetoric between the various organizations and the Postal Service," Leyden adds. "The increase in the number of grievances that have been filed is a clear indication of the adversarial relationship and the non-progress in resolving differences between the Postal Service and the employee rep- resentative groups."

To George Gould, assistant to the president for legislative and political affairs at the National Association of Letter Carriers, the state of postal labor relations is revealed in what employees tell Congress. "I'm having more and more members of Congress in the last two or three years telling me about letter carriers going into their offices, and the first thing they lead off with is the negative way they perceive their jobs and the way they're being treated by management," he says. "They call me and tell me, 'I've just had a group of clerks or letter carriers in my office, and I wanted to talk about legislation and they wanted to talk about how they're being treated on the job.' When they start talking about that instead of losing benefits from congressional action, I know that there's a serious problem."

Postmaster General Marvin Runyon agrees there are problems in labor-management relations. "I'd be the first to acknowledge that we're not where we want to be. We have a lot of offices where employees work together to serve the customer, and where teamwork and cooperation are a way of life. But more need to be that way," he says.

But Runyon sees the relationship in a more positive light. The number of grievances raised to the national level is only one indicator of the state of labor-management relations, he says, noting that the level of authority at local levels partly determines whether complaints are resolved at the work site or higher up.

"I think if you went around to a lot of different locations around the country, you would find a lot of locations where they're getting along very well, they don't have problems," Runyon says. "Unhappy people don't perform the way our workers are performing now. They may be filing grievances, but I would contend that their morale is not so low as people would think." He notes that overnight delivery scores for first-class mail stand at 92 percent nationwide, the highest ever and 13 points better than 1994, and that measured satisfaction among businesses and customers also is at record highs.

People vs. Profits

But unions say the high scores and profits have come at a price. They especially criticize the incentive pay system for managers, which rewards them for meeting financial and performance goals. "The system is devised to reward the managers who push from the top down on the workers," Leyden says. "It's driven to create that type of a gap and an adversarial relationship, because the reward to individual managers and supervisors is if they come down hard. The supervisors make numbers and make money at the expense of maintaining good employee relations. It's supposed to be performance-based incentives, but it actually rewards ill-treatment of workers by supervisors."

Says William Young, NALC vice president, "Managers are paid by their ability to achieve the bottom line. They are not measured on the way they treat employees; they are not compensated by the way they treat employees. They became so bottom-line driven over the last year or year-and-a-half that they've lost the broader view."

Biller says the labor-management problems are "the result of a management system designed to make compliance with employee contractual rights subservient to operational goals, and to defer resolution of problems somewhere out into the distant future."

The two sides recently took several steps that, while falling well short of the partnership arrangements in the executive branch, provide an opening for a more cooperative relationship. First, Runyon visited APWU headquarters for what the union described in State Department-like terms as a "frank, open and candid dialogue." Then, leaders of the major postal unions and postmaster and supervisor organizations met with top management at a "summit" under the auspices of the Federal Mediation and Conciliation Service. The parties agreed to work on developing a joint understanding on the roles of labor and management and the Postal Service's business goals. Follow-up meetings are planned.

The Postal Service and APWU also have agreed on a memorandum of understanding to reduce the backlog of grievances and to review barriers that might be impeding voluntary settlements. USPS has signed agreements with NALC to improve the way workplace disputes are resolved and to conduct joint tests to create a better work environment. Runyon, meanwhile, has promised greater union involvement in setting USPS strategic plans and has gone out of his way to praise his employees before Congress and in other forums.

Good Intentions Gone Awry

Postal labor and management, though, have a history of good intentions gone awry. GAO's report identified 32 initiatives designed to address labor-management problems. Of the 10 it examined closely, disagreements between the parties on approaches prevented full implementation of five and caused the cancellation of two others, while GAO found it difficult to gauge the results, "if any," of the other three.

For example, a partnership-like program called "employee involvement" that was intended to alleviate adversarial relationships on the work floor started in 1981 with NALC. (APWU refused to participate, saying the program would undercut union representation rights and give employees a false feeling of authority over decisions in the workplace.) USPS abandoned the venture in 1996, saying the program was "unable to address the root causes of conflict in the workplace or to foster empowerment of letter carriers." NALC continues to criticize the decision to end the program, calling it a step in the right direction.

Another now-discontinued initiative was an annual employee survey started in 1992 to gather opinions on the Postal Service's strengths and shortcomings as an employer. But APWU and NALC later urged their members to boycott the surveys, saying the results had been used improperly in the 1994 bargaining. USPS ended the program in 1996, saying that without responses from clerks and city carriers, the results would be almost useless.

"Mr. Runyon is the 18th postmaster general under whom I have served. Every one of them came in saying, 'We know there's an autocratic culture and we're going to change it,'" says Biller. "And somehow they get co-opted by the bureaucracy. The players change, but the culture remains the same."

Pressures to Reform

USPS and the unions have been getting the message to reform the culture not only from GAO but also from Capitol Hill. Participants say the summit might never have been held except for the interest of Rep. John M. McHugh, R-N.Y., chairman of the House Government Reform and Oversight Subcommittee on the Postal Service. And at a recent hearing of the panel, members said that employee relations should get higher priority.

"You've been quite successful in a number of areas-financially, and in terms of service delivery," Rep. Chaka Fattah, D-Pa., told Runyon. "And there's one glaring deficiency [labor relations]. That either means that the same skills and effort and priorities that allow the service to address these other areas of concern have not been applied to this area, or that there is something peculiar about the difficulties between labor and management at the Postal Service that requires some extraordinary effort that is absent from your management team's ability to get to the bottom line."

McHugh told the postmaster general there is a wide perception that the Postal Service has a "dual system of accountability," in which infractions by craft workers are strictly penalized but those by managers are not. He cited the removal of an 18-year letter carrier who took 13 minutes longer than scheduled to complete her route because of her short stride , while a postmaster was only transferred with no loss in pay after having an accident after hours in a postal vehicle and allegedly lying about it to postal inspectors.

Simply in financial terms, USPS may no longer be able to afford poor relations. "The existence of labor-management relations problems at the Postal Service does not come without a cost, and that cost is to the service, the unions and to the public at large," says Bernard Ungar, GAO's director of government business operations issues. GAO estimates that USPS spends more than $200 million annually just in processing grievances, and said there are added costs in lower employee morale, delays in efficiency improvements and employee reluctance to suggest and carry out better ways of doing business.

After three strong years, the Postal Service expects to lose more than $200 million in its current fiscal year as it awaits revenue from a requested rate increase that will take effect later this year. But even that rate increase will not overcome the financial challenges USPS faces from increased competition in areas ranging from parcel services to overnight delivery. And the two categories of mail that make up four-fifths of postal revenues, first class and third class, "face the highest risk of diversion from both competitors and electronic alternatives such as e-mail and faxes," by the Postal Service's own assessment.

Also, McHugh has proposed legislation requiring USPS to compete on the same ground as private-sector companies. For example, it could not subsidize competitive operations with revenues from services that have no direct competition, such as first-class mail. The outlook has led USPS to not only explore new openings for revenues-for example, it believes it can nearly double its revenue from international products to $2.9 billion by the year 2000-but also to look for ways to hold down spending.

From the management side, the numbers tell a plain story: USPS is an exceptionally labor-intensive business. Most of the potential for savings in postal operations lies in personnel costs. Compensation and benefits together make up about 80 percent of expenses. The next largest single cost, transportation, represents only 7 percent.

The proportion of labor costs has declined slightly in recent years, partly because of relatively low inflation that has held down cost-of-living pay raises, but also because of increased automation. USPS also is looking to hold down personnel costs through privatization-for example, by contracting with Emery Worldwide for priority mail processing centers in 10 Eastern cities. A recent report by a blue-ribbon committee, comprising major postal customers such as AT&T, L.L. Bean and CTC Distribution Direct, recommended that USPS "continue to look for opportunities to improve service and/or reduce costs through the appropriate use of outsourcing."

From the labor side, the story is equally plain: Reducing labor costs means less hiring, less potential for advancement and the threat of job cuts. Despite the job growth of recent years, employment security is a major concern for postal workers, says NALC's Gould, who adds, "If you don't have the job, the rest of it is rather irrelevant."

Contracting is taking jobs out of the hands of postal employees and giving them to the private sector, unions say. Several Emery centers where priority mail is processed have been picketed by APWU with the theme "return our work."

Employees also see their jobs threatened by machines. The Postal Service estimates that without its investments in automation since 1987, it would have 100,000 more employees than it has today, and the automation push is continuing. A new five-year capital investment plan targets $6.7 billion for equipment and robotics to sort and handle mail. USPS has set a goal of automating the processing of all letter mail by the end of 1998.

While executive branch unions increasingly have turned to partnership in the face of similar threats, postal unions are more inclined to take a hard line, and they are better positioned to do it. While they cannot strike, they have the authority to bargain over pocketbook issues such as pay and benefits, and they have much larger bargaining units-the four largest unions represent about 660,000 workers. About 90 percent of unit workers are dues-paying members, compared with about 20 percent of those represented by executive branch unions.

Says APWU's Biller of the recent dialogue with postal management: "I want to be optimistic. I want to work with this. I've never objected to labor-management cooperation, either publicly or privately. But we're not going to be co-opted. We get paid to represent the employees."

Says NALC's Young, "I think there's reason for optimism, but I guess I'd term it guarded optimism, and maybe that's because of the baggage that I carry from the failed previous efforts that we've made."

Even while taking steps toward conciliation, Runyon has signaled that he felt that outside help might be needed to achieve better relations by endorsing McHugh's proposal to create a special commission on labor-management issues. Unions remain opposed, saying that the parties should resolve their differences among themselves.

However, the recent record at the national level shows as much division as the relations on the work floor. Only the National Rural Letter Carriers Association reached a negotiated contract with USPS during the last round of bargaining. The other three major unions-APWU, NALC and the Mail Handlers Union-went to arbitration, as they had in every contract since 1984. Those three contracts expire in November (the rural carriers contract runs an extra year) and negotiations begin in August.

For now, there is a feeling of cautious optimism for improvement in the relationship. But there may be little time for that to take root. Traditionally, the months before negotiations have been a time of increasingly heated rhetoric as both sides stake out their bargaining positions.

"Time is critical," says Anne Barkas Hoffman of the Federal Mediation and Conciliation Service. "The occurrence of the bargaining and the actual agreement has slowed progress in the past. We're hoping that it doesn't do it in the future. I think there is a window, and I'm hoping that it is important enough that we can use it."

Eric Yoder is a Washington-area journalist who has covered the federal government for 17 years.

]]>

Tips for Managers Caught in Appeals

Eric Yoder — Thu, 01 Jan 1998 00:00:00 -0500

o show he respects the administrative judge, the supervisor arrives at the Merit Systems Protection Board hearing dressed in the suit he reserves for special occasions. To project an air of confidence, he tosses a few jokes into his testimony. He injects a bit of shop talk to show he knows what he's talking about. He shades his answers with "to the best of my recollection," and "in my opinion" so he isn't pinned down on points he's not confident about.

That supervisor has just gone a long way toward losing the agency's case. So says Representing the Agency Before the Merit Systems Protection Board, designed primarily for agency attorneys but also valuable to managers and supervisors. Author Harold J. Ashner, a former MSPB and Office of Personnel Management official now with the Pension Benefit Guaranty Corporation, provides a handbook for managers drawn into the appeals process, as well as for those deciding whether to take an action that could lead to an appeal.

The book also works in the other direction, revealing agency strategies, burdens and potential weaknesses to those on the receiving end of adverse actions. Ashner outlines legal precedent in misconduct, poor performance, reduction in force and other cases commonly appealed. He describes common defenses, such as whistleblower retaliation. The author discusses burdens of proof, the weight given to various types of evidence and steps to avoid having charges dismissed on procedural grounds.

A manager had better be able to answer critical questions when bringing charges, and know how to document them. Those documents should be prepared immediately, the author advises, because records made immediately after the event are likely to be more reliable and to be given more weight by MSPB than documents prepared months later. "There is no excuse for waiting until an action is formally proposed or, worse yet, until an appeal is filed, to develop documentation that should have been developed at an earlier stage," Ashner writes.

While the temptation to throw the book at an employee might be strong, especially in misconduct cases, "the importance of selecting the right charges cannot be overemphasized. If those charges are not upheld, the agency will lose the case. The agency will not have the opportunity, on appeal, to prove the employee is guilty of other charges that warrant the action taken," Ashner writes. Similarly, thought should be given to the choice of penalty, in order to demonstrate that the decision was not made hastily. A record of careful deliberation also will help officials involved "be very effective witnesses if the penalty is challenged on appeal."

Relative Credibility

Agency officials should be able to prove that they considered the employee's oral and written replies to the charges. While management need not go into great detail, a decision to sustain charges "that includes a convincing explanation for its conclusions can be a very persuasive document on appeal and will tend to reflect fair and objective agency consideration," Ashner writes.

Testimony at a hearing also is crucial since "a great many MSPB appeals turn on the relative credibility of the witnesses presented by the agency and the appellant." Tips on improving credibility range from what to wear (normal work attire is best; dressing up makes a person look and feel uncomfortable) to demeanor (although joking helps control stress, the hearing officer likely won't be amused).

Witnesses are advised against stretching the truth to help the agency's case, worrying about inability to recall certain details, using technical jargon, and hedging answers with "I think," "I believe" and similar qualifiers.

While witnesses should be prepared for the agency representative's questions, memorized answers sound too rehearsed, the book says. When being cross-examined, witnesses should be cautious with leading questions "that can lull a witness into answering without thinking first."

Witnesses are entitled to representation when testifying and might want to consider exercising that right if the case could lead to charges against them, such as allegations of a prohibited personnel practice. As a further warning, the book describes circumstances where an agency's representative might turn on his own witness and what tactics attorneys use in such situations.

An agency's legal representative might disagree with the manager or supervisor on whether to settle. In some instances, an agency representative might believe the case isn't strong enough and should be settled. In these cases, the representative may use tactics such as bringing management officials into settlement discussions to convince them that the risk of losing is real. The total effect seems to be that the person initiating the action is on the spot as much as the person charged-which is just what managers and supervisors have been saying about the federal employee appeals process all along.

Eric Yoder is a Washington journalist.

]]>

Nest Egg

Eric Yoder — Thu, 01 Jan 1998 00:00:00 -0500

en years ago, hard on the heels of the stock market crash of 1987, the government offered federal and postal employees a new option: They could take their retirement savings out of boring government securities and put them in stocks and bonds.

The initial response was underwhelming. Partly due to skittishness and partly due to restrictions on how much could be put in the thrift savings plan's common stock (C) and fixed-income bond (F) funds after their startup in January 1988, the two new funds began as poor cousins to the government securities (G) fund. In early 1991, when the restrictions were lifted, the G fund's $193 million in assets was 15 times the amount of the other two funds combined.

But since then, participants have steadily shifted both newly invested and previously invested money into the C fund. Helped by several years of roaring stock markets, the C fund became the largest of the three funds in June 1997. As of September, there was $27.9 billion in the C fund, $24.7 billion in the G fund and $2.8 billion in the F fund.

The TSP as a whole now has a record $55.5 billion and is growing by $1 billion a month. Participation rates also are at an all-time high. About 84 percent of employees under the Federal Employees Retirement System invest some of their own money in the plan (the rest have accounts holding only an automatic government contribution equal to 1 percent of their salary), while 56 percent of employees under the Civil Service Retirement System are investing. Four-fifths of investors now have some money in either the C or F funds.

In a world of bewildering investment options, the TSP stands out for its simplicity in fund choices and attractive features-low overhead costs, tax deferral of investments and earnings, and employer contributions of up to 5 percent of salary for those under FERS.

"I think it is relatively straightforward, and I have to say I think that is one of the reasons our participation rate is as high as it is," says Roger W. Mehle, executive director of the Federal Retirement Thrift Investment Board, which operates the TSP. "And I think that seeing the investments in the C and F funds continue to grow should indicate a growing comfort on the part of federal employees with the plan. I think for many federal employees it is the only avenue."

Market Timers

Even though the TSP has been operating for more than a decade, the board still is working to educate employees about the program. For example, agency TSP coordinators were told at a recent meeting that some CSRS employees still believe they cannot participate, even though they can. (Unlike FERS employees, however, they get no contribution from their agencies.)

Meanwhile, many employees think of the TSP as a mutual fund, which it is not. A better analogy is to private sector 401(k) programs, which also invest employees' money for retirement.

Starting in about two years, when a new computer system is installed, the TSP will become more like the best 401(k) plans. The new system will allow the creation of two more investment funds, tracking indexes of international stocks and small capitalization U.S. companies, and will allow investors to mix and match their withdrawal options when they retire.

The new system also will bring the TSP up to standards in the 401(k) and mutual fund industries by providing daily valuations of accounts. Under the current system, TSP accounts are calculated, and transactions are processed, monthly. Investors are limited to one interfund transfer per month.

Daily valuation will allow what some TSP investors long have been seeking-the ability to check their balances and transfer money as often as each working day.

Some financial experts don't think that's a good idea. "I suppose it will let people make changes and have the change occur instantaneously and that's valuable, but if it encourages people to be shifting around more frequently, that will probably lower their rate of return in the long run," says Mark Waldman, a Falls Church, Va., certified financial planner who advises employees about their TSP investments. "I think that's going to lead some employees either to try to game things, which they're not going to do well at, or to act on their immediate emotions, which are usually not a good guide to making investment decisions."

TSP investors haven't shown much talent for market timing. For example, after the C fund dropped more than 4 percent in March 1997, investors broke the long-term pattern of gradually moving money into stocks by shifting $113 million out of the C fund in April. By doing so, many of them missed the C fund gains of nearly 27 percent in the next four months.

The only extended period of shifting out of the C fund since the original investment restrictions were lifted ran from May 1994 through February 1995, when the stock market was flat. TSP participants who shifted a total of $175 million out of the C fund during that period missed the start of a three-year stock rally.

"This is a long-haul investment, it is not a trader's investment," says Mehle. "Look at the monthly returns of the C fund and you'll note the extreme variability of the returns-up, down, up, down. So you would be whipsawed if you tried to outguess the C fund, invariably taking your money out when it was at its low and putting your money back in when it's high."

Nonetheless, there is demand for more active trading in the plan. TSP investment clubs, some formal, some less so, are operating in many agencies. Mehle recalls receiving a letter from a group of employees who asked to make daily transactions, saying they had developed theories they wanted to apply.

"I'll bet you they number among the people in April who took their money out and missed the upswing thereafter," he says. "You have a handful of people like that. I'm concerned about those people, but after all, it's a free country."

Day of Awakening

While many employees are doing well under the TSP, others may be left behind. A recent General Accounting Office report said that FERS employees who receive only the automatic 1 percent government share could retire with TSP accounts only a tenth the size of those who invest 5 percent of their own salary and force the government to kick in its maximum 5 percent.

The average current account balance for FERS employees who invest some of their own money is about $30,000, but the average balance for those who get only the automatic government amount is only about $3,300. (The average CSRS account is about $18,500.) At the last look at individual account sizes nearly a year ago, several investors had accounts near $300,000.

Some retirement experts on Capitol Hill and in employee organizations believe a day of awakening may be ahead when employees who haven't been saving through the TSP-or haven't been saving enough-are going to realize that their retirement benefits won't be equal to what employees under CSRS will receive.

When the TSP was designed in the mid-1980s as part of the legislation creating FERS, legislators focused on making FERS comparable to CSRS in terms of replacing a percentage of the annuitant's final salary. Unlike CSRS employees, those under FERS are eligible for Social Security benefits, ranging from 56 percent of pre-retirement earnings of low-income employees to 28 percent for high-income employees. But at the same time, the civil service annuity portion of FERS is considerably less generous than that under CSRS.

In general, that means to make FERS benefits comparable to those under CSRS, FERS employees must invest 5 percent of salary, forcing the maximum government match. "You have the Social Security tilt [in FERS], that's true," says Sandra Sue Adams-Choate, assistant general counsel for legislation of the American Federation of Government Employees and vice-chair of the Employee Thrift Advisory Council, an organization of employee and retiree groups that monitors the plan. "Well, it doesn't make up for the difference. It just doesn't."

Adams-Choate concedes that the stock market has done better in recent years than financial experts may have anticipated when FERS was designed. "I suppose with hindsight you could say given the sort of performance of the plan of the last eight years or whatever you don't need to max out, you could do a little less," she says. But in the future, "it could be the other way too," she notes.

Employees at higher salary levels seem to be getting the message. Among FERS investors, nine-tenths of those earning above $60,000 save 5 percent of salary, compared with 72 percent of those earning $30,000 to $35,000. Nearly half of those at the higher level save the FERS maximum of 10 percent, versus less than 30 percent of those in the lower range.

Mehle says the FERS employees most at risk are those in the middle grades. "Those are the ones who must save," he says, "because if they don't save, their replacement rates will not be equivalent to CSRS. The low-paid people will be [because they will get a higher percentage of Social Security benefits]. We are concerned about the middle people."

The Federal Retirement Thrift Investment Board, though, does not advise employees on how to invest; it only tells them what the options are. That approach sometimes frustrates individuals who are looking for more guidance, but there is little pressure from Congress or elsewhere for it to change.

"From our perspective, it's the employee's money and the employer has no right to interfere," says George Nesterczuk, staff director of the House Civil Service Subcommittee. "With that comes the responsibility of the employee to choose wisely."

However, Nesterczuk says the board might be remiss in not at least mentioning that employees might want to get professional advice. "The board doesn't talk about it, but I don't see why not," he says. "It's a significant amount of money and they [employees] should get some advice."

The board's information policy became an issue last summer when Standard & Poor's, in an open letter to Congress, said that although private-sector savings programs are encouraged to provide investment information to enrollees, "federal employees may not be afforded these same protections." S&P added that it was available to "aid federal agencies in helping their employees maximize the value of the Thrift Savings Plan for their retirement."

In a response that also was sent to Congress, the board replied that employees are guaranteed access to information on the program but that the board "does not and will not furnish investment advice or opinions, but only investment information and education." The board had previously rejected a bid by S&P to provide information that the board considered duplicative of its own publications.

Is Bigger Better?

Apart from such tangles, the board keeps a low political profile, commenting on legislative proposals when asked and seeking technical fixes to the TSP when needed. The most significant legislative initiative of recent years was its request to create the two new funds.

Bigger things may be ahead for the TSP, though, even if the board doesn't take the lead. This fall, Congress passed a provision sponsored by Sen. Ted Stevens, R-Alaska, to create another open season for CSRS employees to switch to FERS. But President Clinton line-item-vetoed the measure, calling it "a hastily conceived, undebated provision" that would cost agencies $850 million in additional retirement costs over five years.

On the House side, Civil Service Subcommittee Chairman John Mica, R-Fla., has toyed with the idea of creating a new retirement system for newly hired employees that would stress the TSP and investment of government contributions in private markets. "A more flexible and more portable retirement system is the future," Nesterczuk says. "The TSP is the model. It's working well. We don't have to look for new models, we can just build on the TSP."

Both the idea of a new open season and a new retirement system are on the shelf for now, but they are likely to reappear.

The overall trend toward greater individual control of retirement benefits might bring a demand for more variety of choices in the TSP, Nesterczuk says. "Over time, as people rely on it more and more and Social Security's future looks tenuous, people will look at the TSP as a more dominant feature of their income security. Younger employees especially might be looking for greater investment options, including the option to invest in individual stocks," he says.

The board, even with its new computer system, would not be able to handle that. Accommodating such a range of options likely would mean contracting with brokerages.

Mehle, for one, is not eager for such a future. "Heaven knows what would happen in a system like that, to have brokerages calling on federal employees, attempting to have every employee get a brokerage account, with a huge number of securities choices possible, all loaded with commissions," he says. Mehle believes that once the two new funds are available, the TSP will be offering diversity comparable to that available in private-sector 401(k) programs.

"I'm a believer, frankly, in a rather more limited number of choices," he says. "Mutual funds are fond of making every single investment that you can imagine available to people. To get a broad diversification in the marketplace you don't need 25 choices. More is not necessarily better."

Even if the investment options in the TSP don't expand, the number of people allowed to invest through the program might. The new computer system will be designed to handle a large influx of new enrollees if necessary.

The military services have been working on options for allowing TSP participation by uniformed personnel, either across the board or only for those covered by the less generous military retirement system for those who entered service since 1986. The Pentagon reaction so far has been cool, but not because of any perceived shortcomings of the TSP or a belief that military personnel would not fit in well.

Instead, Defense Department officials worry that the military retirement system would be vulnerable to cuts on Capitol Hill if it were opened to review. They have ruled out proposing TSP participation for the military for now.

Another group looking longingly at the program is federal retirees, many of whom retired before the TSP came into existence or who had only a few years to build up savings in it. While annuitants can continue to manage accounts that they take with them into retirement, they cannot open new accounts or add money to existing accounts.

"Many, many of them still write us to ask to participate," says Al Golato, vice president of the National Association of Retired Federal Employees. "They're getting an annuity, not a pension. An annuity is in effect deferred compensation for services rendered. If you use that concept, then why not [let them participate]?"

Similar requests come from former federal employees who receive benefits for becoming disabled on the job. They, like retirees, cannot open new accounts nor make new investments. However, since retirees and disability beneficiaries are not on agency payrolls, such changes would require revising the TSP's basic design as a payroll savings plan. And there's a political argument similar to the one being raised regarding military participation: It could appear that anyone who can afford to make such investments must be receiving a generous benefit.

Regardless of what happens, it's clear that the TSP is on a roll. "We've even had suggestions that the public be able to contribute to the TSP," says Mehle. "Everybody wants to ride a winner."

Eric Yoder is a Washington journalist.

]]>

New Stock Funds: Risks and Rewards

Eric Yoder — Thu, 01 Jan 1998 00:00:00 -0500

The two new funds scheduled to be added to the Thrift Savings Plan historically have been more volatile than even the most widely fluctuating of the three current funds, the common stock (C) fund, but the two funds could increase earnings for TSP account holders willing to accept risk.

The new funds, which will be added when a TSP computer upgrade is completed early in 2000, will track the Morgan Stanley EAFE fund of stocks in 20 countries in Europe, Australasia and the Far East, and the Wilshire 4500, which despite its name covers about 6,500 stocks of smaller U.S. companies. The new funds will be called the I and S funds, respectively.

An analysis done by the TSP governing board when the funds were under consideration found that a hypothetical TSP investor with money evenly split among the three current funds over 1985 to 1994, assuming the TSP had been in existence that entire time, would have seen a compound annual return of 11.2 percent. Dividing the money equally among all five funds would have netted a 13 percent compound annual return.

But the new funds bring increased risk as well. The three-fund TSP portfolio would have seen an average 7 percent fluctuation from its average performance during that period, but the fluctuation around the average would have risen to 10 percent if the new funds had been included. The same pattern holds true over longer periods as well, according to the board's analysis.

For investors concentrating their money in the C fund, though, the EAFE fund might be a counter-balance, actually decreasing volatility. Over the last 20 years, the EAFE has outperformed what would have been the C fund returns in each of the U.S. stock market's five weakest periods. However, the EAFE outperformed the C fund in only one of the five strongest periods for U.S. stocks.

The Wilshire 4500 could increase fluctuations for the C fund-oriented investor, since it tends to move in the same direction but farther. The Wilshire lost more than did the C fund during four of the five weakest periods for U.S. stocks over the 20 years, but outgained the C fund in three of the five strongest periods.

Here are the funds' returns since 1988, when the TSP's C and F funds started operating. The figures for C, F and G funds reflect reductions for administrative costs, while the returns for the other two do not.

]]>