The Hard Sell

As federal managers struggle to satisfy the push to sell off government operations, they are hogtied by laws, regulations and even congressional opposition.

I

nvestment banker William Mulrow likens the privatization of government assets and services to teen sex in the 1940s: "There's a lot of heat and discussion, but very little consummation."

The comparison resonated with the federal managers assembled at the Capitol Hilton in Washington last December, where Mulrow was addressing a conference on privatization. Mulrow, managing director of Rothschild Inc., was there to describe the financial considerations inherent in privatizing government operations.

"Money is the critical driving force behind privatization," Mulrow told the managers. "I guarantee you, if the numbers don't stack up, if there's not a financial reason why [privatization should occur], it won't happen. And most of the time it does not happen."

The conference, "Creating a Competitive Government," was intended to provide executive branch managers with a nuts-and- bolts guide to privatizing their organizations. It also provided a forum for managers to vent their frustrations with a system where personnel and procurement rules often hinder productivity and a labyrinth of regulations and laws can make privatization a monumental undertaking.

Mulrow said he did not envy federal managers the task: "Public employees have been trapped in a system that punishes initiative, ignores efficiency and rewards big spenders."

At a time when Congress is trying to cut the deficit, the Clinton Administration is trying to reinvent government, and the public is calling for less government, privatization is seen as a magic bullet. But for some federal managers, it appears to have missed the target.

While Congress is full of privatization proponents, Congress itself stands in the way of many initiatives. When privatization advocates in Congress have proposed turning various executive branch operations over to the private sector, some of the fiercest opposition has come not from federal workers, but from Members of Congress, said Rep. Scott Klug, R-Wis., at the conference.

"Everyone supports privatization until you try to privatize something in their district. Some of my Republican colleagues in the Senate have fought [privatization] the hardest,'' said Klug, who heads a House task force on privatization. He has joined forces with the administration's National Performance Review in calling for the sale of government assets and the transfer of many operations to industry.

But while Klug is frustrated with his colleagues in Congress, federal managers are frustrated with his rhetoric on the issue.

At the Washington conference, sponsored by Syracuse University's Maxwell School Center for Advanced Public Management, some managers bristled when Klug sounded what has become his mantra. First, he blasted the Government Printing Office: "As soon as anybody can explain to me what government document is ever printed in an emergency I'll understand why they exist in the first place." About the Energy Department's power marketing administrations, he asked: "Why is it that in 1995 the federal government is in the hydroelectric business?" And Klug said the Transportation Department's air traffic control system is held together by vacuum tubes.

Klug suggests that if the government would only get out of those operations, the taxpayers would save money and receive better service. It's a sentiment that plays well in speeches, but rings hollow to those familiar with the programs. In truth, it is Congress that prevents many reforms from taking place, executive branch officials say.

Rhetoric vs. Reality

"We do want to privatize [the power marketing administrations], but our hands are tied," says Rodney Adelman, deputy assistant administrator in the Energy Department's power marketing liaison office. It took nine years of lobbying, with the support of three administrations and the state of Alaska, before Congress last November finally authorized the department to sell the Alaska Power Administration.

The department's power production projects in the lower 48 states are more complicated because they are not owned by the department, Adelman says. They are multi-purpose projects owned by the Army Corps of Engineers or the Bureau of Reclamation. The Energy Department is responsible only for selling the power generated at the projects. Even if there were a market for them, which some doubt, the buyer would have to be party to competing uses, he says.

The Clinton Administration proposed that DOE conduct a study of the possible sale of the power marketing administrations but the idea was never taken up by Congress. "We can't even initiate a study on our own," Adelman says. The department is prohibited from studying privatization by an energy and water development appropriations act passed in the 1980s. A provision to change the law in 1995 never made it out of conference committee, Adelman says.

As for the Federal Aviation Administration, Larry West, a spokesman for the agency, says to suggest that the nation's air traffic control system is held together by vacuum tubes is "grossly oversimplified."

"We are constantly upgrading and improving technology," says West. "It's not like if we need better radar we can just go to a catalog and pick out the one we like. We have to work with contractors to essentially invent new technologies and go through the process of building, testing and bringing them on line." Of the 21 air route traffic control centers that manage air space not managed by airport control towers over the continental United States, five have technology that is 30 years old. Those centers, slated to be modernized in 1997, are what Klug refers to when he talks about vacuum-tube technology.

The antiquated technology at the five centers does not present a safety problem, West says. The equipment is operating 99.4 percent of the time. During the 0.6 percent of the time the equipment is down, it is undergoing scheduled maintenance. "There's a very small fraction of time when something happens where we get surprised and have to go to a backup system. When this happens, the result is not a safety problem, but travel delays. Even of the delays that result, they are very small compared to those caused by poor weather," he says.

Critical Reforms Needed

The FAA is acutely aware of the need for reform, West says. The agency needs Congress to authorize changes in procurement, personnel and financing for the FAA to be responsive to the public and the industry it serves, he adds.

Right now, the FAA does not have enough flexibility in its personnel regulations to move people where they are needed when they are needed, to reward those who perform outstanding work or efficiently fire those whose work is substandard. Rigid pay scales make it difficult to attract qualified people for some scientific positions, so the agency ends up paying contractors more for services than the FAA would pay if it could hire people to do the work in house.

The agency also is bound by reams of procurement regulations that make upgrading to new technologies difficult. When FAA administrator David Hinson wanted to get a sense of the procurement requirements at the agency, he laid the volumes of regulations end to end in his office. They stretched 17 feet.

"It can be a nightmare of red tape. Streamlining is long overdue," West says.

Despite the red tape and personnel restrictions, FAA will be expected to do more with less in the next few years. Agency officials predict that by 2002, the number of air passengers will increase 35 percent and takeoffs and landings will increase 18 percent. Over the same period, FAA officials anticipate a 14 percent cut in the agency's budget.

Legislation proposed by Sen. John McCain, R-Ariz., (S 1239) would allow FAA to charge user fees for some audits and services the agency now provides without charge to airports, commercial real estate firms and the airline industry. The bill also would lift some personnel restrictions and require procurement reform.

"We think the bill is alive and well and we're quite optimistic about its chances of passage," West says.

At the Government Printing Office, which Klug would eliminate, more than three-quarters of all jobs are already contracted out to private printers, says Andy Sherman, a staff assistant to the public printer.

"We contract out as much procurable printing as we are allowed to do. What we are left with is printing that is not procurable due to [turnaround] requirements," he said. These jobs include printing the federal budget, the Federal Register and Congressional Record. Most of GPO's printing deadlines are measured in terms of hours.

"GPO is a good sound operation that already is privatized. We really limit in-house printing to essential services or those that are inherently governmental," he says.

Klug is doubtful.

"If I can get the Wall Street Journal delivered to my door in Madison, Wisconsin at 5:30 in the morning, with stories [from around the world], then I think somehow we can collect the Congressional Record and get it printed overnight right here in Washington," he said.

Savings May Prove Elusive

Sherman agrees it is possible, but doubts it would be cost-effective: "The only similarity between the Congressional Record and a newspaper is that both are printed on newsprint. In terms of production and turnaround time, they are vastly different."

The Congressional Record can range from 20 to more than 600 pages and is printed every night when Congress is in session. It includes the day's entire proceedings, and is delivered to Congress by 9 a.m. the following day. "The average Congressional Record is 200 pages long and contains as much type as four to six metro daily newspapers. Unlike a newspaper, it can't control the length or the content. There are very few private printers who could do that and it could not be done at competitive prices. We've never been approached by the private sector to do that," Sherman says.

If Congress wants GPO to print fewer documents, it needs to cut back on its orders, Sherman says. "We don't print anything that isn't requisitioned. We're just filling orders."

Donald Kettl, a senior fellow at the Brookings Institution and public affairs professor at University of Wisconsin-Madison, says there is often an assumption among lawmakers that the private sector will do things less expensively, but that is not always the case.

"It is often much harder to do than proponents realize," Kettl says. "There's more talk than action and more action than thought. The details prove to be a little sticky. Congress is obviously enthusiastic about privatization, but it doesn't recognize that the laws it establishes often restrict such efforts."

Chuck Sommer has been experiencing those restrictions for years. As executive vice president of the Army Management Engineering College in Rock Island, Ill., he has been working toward privatizing the school since 1989, when its funds began to shrink.

"We read some tea leaves in 1989 and it was obvious that funding for civilian training was not going to be a priority in the future. When you're looking for things to chop, training is always the first."

AMEC requested permission from the Army Materiel Command, the school's headquarters, to drop some courses from its curriculum in order to cope with budget cuts. The request was denied, but the school was given authority to seek customers elsewhere and bill them directly, Sommer says.

"The mechanics of it were a nightmare. There are all sorts of rules and interpretations of those rules," he says. While administrators navigated the regulatory waters necessary to turn AMEC into a customer-funded operation, the school made several innovations. It opened regional training centers and made faculty teams responsible for finding customers and managing their own schedules. The school also developed information management systems and financial systems to meet its revised needs. "We've really been out of the box on this. I believe that we are the first of what will be almost total privatization of the civilian training function," Sommer says.

The Army Management Engineering College isn't home free yet, however. Army Materiel Command is expected to divest itself of the school March 30, but AMEC has not yet found a new home. It has requested a six-month extension while it explores new locations and the possibility of an employee stock ownership plan (ESOP).

AMEC's small size (41 employees) has made the privatization process a much easier task than at larger organizations, Sommer says.

"I think this sort of thing works best when you have a small group of people. Our meetings are open to everyone. Everybody looks at the same information and has the same amount of opportunity for input. We're feeling our way through this, but I believe we will be successful."

Creating an employee-owned business is a viable option for government employees seeking to privatize their operations, says Roger Neece, president of ESOP Advisors Inc. The investment banking firm has conducted a feasibility study for AMEC and other government operations, including the Office of Personnel Management's Office of Federal Investigations, the Air Force Guidance and Metrology Center in Newark, Ohio, and other Defense Department operations.

Employee-owned companies tend to have higher revenues, less absenteeism and less turnover than other private companies, Neece says. "It's the difference between renting and owning a house. There's a tremendous economic incentive and a psychological difference," he says.

AMEC had no trouble finding consultants to help with the privatization process. "Those people are out there and they're very responsive," Sommer says. It is never too early to consider privatization options, and the sooner managers start, the better their organizations will be prepared for whatever may come.

Privatization Takes Many Forms

If the details of privatization are sticky, then so is the definition. Privatization can mean anything from selling off assets or contracting out services to forming employee stock ownership plans.

"People talk about privatization as if they know what they mean," Kettl says. "Anybody who uses the term ought to be very clear about what they mean."

Despite concern that the privatization process appears to be moving along slowly, Kettl believes there is a great deal going on in terms of improving business practices, developing partnerships with the private sector and contracting services out.

The Census Bureau has embarked on a unique privatization plan for conducting the next census in 2000, says Robert Marx, an associate director of the bureau. Instead of hiring hundreds of temporary employees for the census as the bureau has done in the past, it will contract out much of the new work. This includes jobs in advertising, data management and collection, Marx says.

"The decennial census has a very cyclical nature. We're at the midpoint in the valley now. Virtually everything we do between now and actually conducting the 2000 census is adding to what we're already doing. We'll be contracting out functions we're not yet doing.

"There are no real obstacles to this because we're not replacing government workers to do it. It is a cultural shift, though. People who in the past were technicians are now required to work as business managers," he says. There also is uncertainty among some of the 600 to 800 bureau employees. Until it is determined exactly what work will be contracted out, many of the permanent employees won't know what their responsibilities will be.

Another agency that will see more private sector involvement in the near future is the IRS. The agency's fiscal 1996 appropriations measure includes a provision that the agency spend $13 million to hire private firms to collect unpaid tax bills.

"It's premature to say what we'll do," says IRS spokesman Wilson Fadely. "We'll have to consider taxpayer privacy issues and how we would use these law firms or debt collection agencies. Everything is in the discussion phase right now."

Kettl is upbeat about the degree to which federal agencies are pursuing new ways of operating: "There's a concern that because the government is still in business this is a failure. But the reality is there is a lot going on. By the time we turn around and look back 10 years out, we will see that government has far broader public-private partnerships and a slightly smaller workforce. We're forcing innovations at a much more rapid rate than in the absence of budget cuts."

NEXT STORY: Meltdown

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