Stretching the Dime

ike Scrooge, the people running federal programs and agencies have seen in this bleak budget year a grim Christmas portrait of present and future. Not so fortunate as Scrooge, they have little hope that improvements in their performance will change the depressing outlook.

The message was conveyed early in the year by the unprecedented length of furloughs inflicted on hundreds of thousands of federal workers. It was reinforced by an unprecedented 13 continuing resolutions, each providing reduced operating levels for many agencies. Some small agencies were actually eliminated. And even when, in April, Congress and the President finally reached a fiscal 1996 funding agreement, the real aim was to balance the federal budget by 2002 at a considerable cost to agency budgets.

So the unmistakable message of fiscal 1996 has been to expect a future of shrinking appropriations.

An appropriation, as every manager knows, is the authority to obligate funds for payment by the U.S. Treasury. That authority is granted through Congress with the agreement of the President. Lately, such agreement has been difficult to reach, and where it exists, the tendency has been to agree on lower rather than higher funding.

So what is an agency to do when it finds its power to obligate funds is limited or reduced? Hold a bake sale? Look for loose change behind the sofa? Actually, there are more options than one might think, but they come with a number of pitfalls.

A look at the last couple years shows how agencies have been stretching the dime, or finding new ways to cope with their reduced resources.

When an agency finds its ability to spend Treasury funds limited, the immediate reaction is to begin cutting back. Before the passage of final 1996 appropriations, many agencies were forced into a triage process, where they cut back on things like travel, overtime, cash awards and bonuses, temporary employees and office space. In the worst cases, employees were forced to take unpaid leave.

In March, for example, the Social Security Administration laid out contingency plans for budget cuts of 10 percent. The plans included up to 55 furlough days, reductions in the purchases of training and office supplies and cuts in travel. The Occupational Safety and Health Administration meanwhile cut its travel budget by two-thirds, from $9 million to $3.5 million, to meet the strictures of one of the continuing resolutions. In addition, OSHA virtually stopped training its inspectors. At the Environmental Protection Agency, about 500 temporary workers were laid off in an effort to insulate full-time employees from anticipated budget cuts.

Other agencies have deferred the implementation of new projects to conserve cash flow. Sometimes these coping strategies become permanent ways of operating. The Office of Management and Budget estimates that federal employment, measured in terms of full-time equivalents, has fallen by almost 8 percent between 1993 and 1995.

Easy Cuts

But all this scrimping to make ends meet has its limits. Many of the easy cuts have already been made. The cuts now in the works have more impact on agency operations and missions. Less travel and training money at agencies such as the IRS, Food Safety and Inspection Service and EPA can mean fewer inspections, according to officials at those agencies. Fewer people may mean that less of the agency's work gets done or that it takes a lot longer to get the work done.

Many of these courses of action cannot be taken easily, or without consideration of the consequences. Unpaid furloughs require authority from Congress. Legislators granted that authority to some agencies in fiscal 1996 continuing resolutions. Reductions in force often unwind quite messily, and can be challenged, as is the case with a planned RIF at the U.S. Information Agency. The American Federation of Government Employees local has filed an unfair labor practice charge in that case. Furloughs, too, are under review by the courts.

Some short-term strategies can interfere with long-term responses to change. For example, if an agency wants to reduce overhead expenses by relying more on temporary help in the future, it might be penny-wise and pound-foolish to lay off qualified and experienced temporary workers to meet current budget shortfalls. Similarly, restructuring plans won't work without certain types of employees, such as personnel specialists, to ensure the seamless implementation of the proposals. Laying off such employees to gain short-term savings could undermine long-term plans with greater budgetary kick.

Squeezing Dollars

Tight times in the government have been with us long enough that many managers have gone beyond mere cutting of frills and nonessential expenses. Call it reinvention, or performance management, but another response to the falloff in appropriations is to make reduced funding do more work.

Pressure to do more with less has been coming from both ends of Pennsylvania Avenue. The Clinton Administration's "Reinventing Government" initiative is well-known. Recently, the National Performance Review proposed converting six programs into "performance-based organizations" in which performance goals are negotiated with the parent agency. (See "Command Performance," page 20.) Under the plan, programs would be headed by chief executive officers with fixed-term contracts-including customer service and taxpayer savings goals-and eligibility for six-figure bonuses. The CEOs would head organizations whose personnel, while retaining federal pay and benefits, could be managed with more flexibility than current civil service rules permit. Candidate agencies are the Animal and Plant Health Inspection Service, the Patent and Trademark Office, the National Technical Information Service, the Defense Commissary Agency, the Federal Housing Administration, the Government National Mortgage Association, the Office of Personnel Management's Federal Retirement and Insurance Service, and the St. Lawrence Seaway Development Corporation. Nearly 33,000 federal employees could be affected-if Congress goes along.

Over the last three years, the NPR has spawned many proposals to boost agency effectiveness and many agencies have taken the initiative to reorganize their programs. SSA is cross-training employees, for example, allowing them to do more than one job to maximize use of their time and skills. The agency's Direct Service Unit teaches worker volunteers to answer toll-free calls, do disability reviews and perform other tasks to help reduce backlogs of uncompleted work and to help spread the workload during peak demand. The IRS also has used cross-training to help employees better respond to taxpayer inquiries and perform other taxpayer service and revenue collection tasks.

Agencies are consolidating offices and facilities to eliminate duplication of services and achieve economies of scale in operations. The Food and Drug Administration plans to eliminate half its laboratories and the Transportation Department announced a reinvention plan to consolidate ten operating administrations into three. The Health and Human Services Department is planning to merge the Office of the Secretary and the Office of the Assistant Secretary for Health into a single corporate headquarters, while the Energy Department has consolidated its Office of Congressional and Intergovernmental Affairs and its Office of Public and Consumer Affairs. The National Park Service is replacing regional offices with fewer, smaller field offices. The Agriculture Department has eliminated field offices and consolidated headquarters units. The list goes on and on.

Sometimes pressure to cut costs results in decentralization instead of consolidation. Several years ago the Bureau of Reclamation made big cuts at headquarters and devolved various functions to the field. In 1995, the National Park Service reduced headquarters staff by 25 percent and moved many employees nearer parks and their customers. In these cases, the agencies hope to eliminate unnecessary administrative services and to test the market by putting services closer to users to see how much those users really want them.

Even basic management techniques such as better accounting and reporting can have an impact on the bottom line. The General Services Administration is an example. Roger Johnson recently left as administrator of GSA after cutting almost $11 billion from the agency's budget and reducing its staff by 4,000 people, to the current level of 16,000, all without layoffs or reductions in services. In a recent interview with the Christian Science Monitor, Johnson tallied the ways he accomplished this task: instituting the use of balance sheets to track inventory, analyzing whether assets were cheaper to rent or to own, and using capital budgeting and planning. Johnson's goal was to gear incentives at the agency toward making better use of its money.

Whether you call it reinvention, reengineering or restructuring, organizational change has received plenty of attention and agencies will continue using it to stretch dollars. Both Congress and the President are pushing for such savings, but here, too, the easy cuts already have been made.

Auditors have begun asking tough questions about restructuring plans now being undertaken. For example, the General Accounting Office has questioned the FDA lab consolidation on the grounds that the expected speedup of work may not come to pass, particularly if a large percentage of analysts refuse to relocate. And has questioned whether the IRS retraining initiative could lead to increased mistakes caused by employees handling too many areas at once.

Even if reforms work, their main cost savings come from reducing staff, which can hurt morale and disrupt operations. Moreover, managers usually need special authority, either from the agency head or from Congress, to make many of these changes. While there is agreement on the need to streamline, the specifics of those efforts are a matter of some contention. Closing field offices, for example, can be an especially sensitive issue for Members of Congress-one reason USDA's initial reorganization plan in 1993 ran into trouble.

Leveraging Money or Mission

If restructuring and cutting back on immediate cash needs can't keep a program alive, and appropriations are not going to be increased, then an agency may have no choice but to leverage its money or its mission.

Leveraging is supplementing existing funds for specific missions with other people's money, whether from another agency or an outside source. The National Gallery of Art was forced to close its popular special exhibit of 19th century Dutch painter Johannes Vermeer last winter due to furloughs. But the Richard Mellon Foundation stepped in with subsidies large enough to reopen the show. Similarly, when Arizona was faced with the closure of its most popular tourist destination-the Grand Canyon-the state donated $17,600 a day to pay National Park Service workers to keep the park partially open during the shutdown. At the time, other states considered negotiating agreements to do the same thing.

The National Park Service is enhancing its efforts to repair the flood-ravaged C&O Canal in the Washington, D.C., area with volunteer labor and private donations. Perhaps most significantly, before eliminating certain low-traffic routes, AMTRAK negotiated with some states, such as Pennsylvania, to have those governments fill in the gaps in funding.

As these examples show, leveraging tends to work best with specific and clearly delineated services with strong constituencies. Even in these cases, it takes time and effort to find contributors and negotiate deals. And leveraging can create problems if reliance on outside money weakens agency control or accountability.

A twist on leveraging of money is the leveraging of mission. In this case, outside entities help deliver agency services. To some degree, this is happening with the use of volunteer labor in the C&O Canal restoration. During the budget shutdown, Arizona Gov. Fyfe Symington considered sending in the National Guard to reopen the Grand Canyon before the stopgap state funding deal was sealed. Congressional Republicans wanted to give mission leveraging legislative backing, proposing a bill that would have required the Interior Secretary to accept a state's offer to run a national park or refuge during a shutdown. Interior officials opposed the idea, arguing it would compromise the agency's management control, and the bill was rejected.

Mission leveraging need not take place only in the midst of budget crisis. In small ways, federal agencies are pursuing the idea in their dealings with one another. Recently, the Energy and Interior departments agreed to share data and analysis on development of natural gas and oil resources missions. And the four primary federal campground managers-the National Park Service, the U.S. Forest Service, the Bureau of Land Management and the U.S. Army Corps of Engineers-have agreed to establish a combined reservation system for campsites on federal lands nationwide.

Kicking the Appropriations Habit

Leveraging is one step on the continuum of moving from federally appropriated to nonfederal funding. Many agencies have long accepted outside funding for general overhead. The Smithsonian, public television and public radio all have had individual members and contributors for some time. The United States Advisory Commission on Intergovernmental Relations, a small agency slated for extinction, has accepted general contributions from state governments for years.

Many agencies are considering the more extreme form of mission leveraging known as privatization. NASA is considering setting up eleven new science institutes which would be private entities partly funded by the agency. Major aspects of space shuttle operations also will be performed by private firms. The Pentagon has been working to privatize its maintenance depots. The U.S. Postal Service is considering firms to run its Priority Mail Centers and HHS is looking at privatizing parts of the Clinical Center at the National Institutes of Health, the Agency for Health Care Policy and Research, and the Federal Employees Occupational Health program. In addition, agencies which have been eliminated, such as the Administrative Conference of the U.S. and the U.S. Travel and Tourism Administration might continue their lives as private entities. In the case of USTTA, legislation has been introduced to replace the defunct agency with a public-private partnership.

Such moves toward the extreme end of the continuum aren't easy to undertake, nor are they possible to achieve in many cases. Privatization can be especially problematic. The DoD depot privatization effort has hit strong resistance from federal unions and Members of Congress whose districts would be affected. And while some missions, such as tourism development and public radio, might be natural candidates for privatization or outside funding, other missions, such as welfare grants, may not be. Also, agencies cannot privatize with abandon. OMB has extensive guidance on the matter and approval from OMB is necessary before agencies can proceed.

There's a middle ground for agencies that must break the appropriations habit, and it often takes the form of making users pay for services. In this increasingly widespread practice, the Park Service has been a leader. The service has proposed to eliminate existing caps on park entrance fees and current prohibitions against fee collection at certain parks. It also wants permission to charge fees for commercial and nonrecreational uses of parks, and establishment of a Park Renewal Fund that would earmark fee collections for park improvements. Legislation embodying some of these ideas has already been approved by the House Resources Committee. A related measure, being pushed by the agency and considered by the House, would raise the amount that park concessionaires pay to the Park Service and open up the process to competitive bidding.

User fees require that the agency have products or services that can be sold, something which does not always hold true. And the current opposition to tax increases makes user fees politically unpalatable as well as unpopular with users accustomed to getting services at little or no cost. Nonetheless, if the choice is between abandoning a service or charging for it, this may be a happy medium.

There is one way to raise cash in a hurry, but it is the agency equivalent of selling the family china. The Department of Energy did something like this when it was authorized to sell up to 7 million barrels of oil from the Strategic Petroleum Reserve to fund a task it needed to complete-transfer of oil out of the reserve's Weeks Island underground storage facility and the decommissioning of the site. While selling assets obviously works as a stopgap measure, it is not sustainable over the long term.

Going Out of Business

Of course, one response to a funding shortfall is to give up activities entirely. Agencies don't like to talk about this because their activities are all undertaken, in theory at least, in pursuit of congressional objectives framed in law. But still, there are many ways to implement broad statutory goals, and many ways not to do so, too, when resources become scarce.

There aren't many examples of agencies shutting down whole programs without explicit direction from Congress. But elements of programs can go by the boards, as was the case with part of the IRS compliance program earlier this year. The IRS was planning to conduct floor-to-ceiling audits of some taxpayers to detect patterns of reporting, but abandoned the effort when its compliance budget was cut. Data collection and research programs are often the first victims of appropriations cuts.

There is nothing wrong with eliminating an activity and, in fact, cessation is commendable if the activity has stopped serving a useful purpose. The trick is setting priorities so the least useful activities are eliminated before the most useful ones.

Considering the Options

Declines in appropriated funding are changing the way agencies operate. That is clear enough. But the changes need not be Draconian, and agencies may find ways to fund parts of their operation that don't require authority to obligate U.S. Treasury funds. Here are some of the questions executives need to pose:

• What activities are your agency absolutely required to do and what can it forego if need be?
• What does your authorizing legislation say about collecting outside funding, spinning off services or other strategies?
• Is the authorization for the activity permanent or temporary-that is, will the authority to do something continue even if appropriations are eliminated for now?
• Does the authorization contain any special and perhaps rarely used flexibility?
• What has been, or might be, the stance of Congress, the President and OMB with regards to the course of action currently under consideration?