Winning Compliance

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E

very other Wednesday, before the sun comes up, thousands of people in Minneapolis stumble to the ends of their driveways with bins full of old cans, bottles and newspapers. In Essex, Mass., they haul them to the dump every Saturday.

Like millions of other Americans, these people are participating in what has become a community ritual-recycling. It wasn't always this way. There was a time when we blissfully threw our bottles, cans and newspapers in the garbage. Now we treat them as if they were precious: We meticulously separate and wash the bottles and cans, we bag the newspapers, and we put them all in the right containers. Garbage just isn't what it used to be.

It was governments that got us to change how we think about garbage. Somehow, our governments persuaded us to comply with a new set of expectations and norms. But they did so without resorting to the usual set of compliance tools. There are no recycling inspectors. There are no recycling police or recycling tickets. There isn't even a 12-step program for recovering nonrecyclers.

Yet a majority of American households recycle regularly.

Recycling is a "compliance activity"-one designed to get individuals or organizations to comply with community norms, expectations and rules. Compliance functions are everywhere in government: Taxation, environmental protection, policing and food and drug enforcement are just a few examples.

The results they achieve vary wildly. More than 90 percent of us comply with the tax laws, but at best 60 percent to 70 percent of us comply with speed limits or mandatory seat belt laws, and only about half of all liquor stores comply with prohibitions on the sale of alcohol to minors.

To achieve compliance, most public organizations rely on enforcement: detecting and punishing violators in order to deter inappropriate behavior. Enforcement has a long history, and it is often effective. But it is very expensive, both in the taxpayers' dollars we spend on it and in the public support for government we squander in doing it.

Enforcement is costly in part because it is based on a set of assumptions that don't apply in most cases. Enforcement agencies often assume the worst (and often produce the worst) from people who are expected to comply. They assume we have to force people to do things they don't want to do, for example. Yet most people want to comply with what is expected of them, and when they don't, it's usually because they didn't know they were supposed to or they don't know how to comply. Enforcement also relies on fear as the primary motivator. While this may be necessary in some cases, people are more often motivated by other factors, such as pride, peer pressure, rewards and recognition.

All of this makes enforcement a blunt instrument. As public leaders recognize its limitations, governments around the world are shifting to cheaper, more effective options. They keep enforcement as a last resort, but they turn first to other tools. They build public support for community standards. They create partnerships with those who must comply: businesses, local governments and communities. They educate compliers about what is necessary and how to comply. They streamline processes such as permitting and inspections. They add services that make it easier to follow the rules. And they shift from requiring specific actions to requiring specific results-allowing compliers to figure out the best and cheapest way to produce those results.

Think back to our recycling example. Local governments worked to establish community norms and expectations. They used extensive advertising and education (especially in schools) to win support for recycling and to explain how it was done. Then they made it relatively easy, by distributing recycling bins, establishing regular collection cycles, and so on. The bins had the powerful side effect of mobilizing peer pressure: Everyone in your neighborhood could see if you were doing your civic duty. Finally, some governments rewarded recyclers with a small credit on their solid waste bills.

By using these tools many communities have achieved a high rate of voluntary compliance, without resorting to enforce- ment approaches that are expensive, antagonistic and often ineffective. This new strategy, which is spreading rapidly, can be described as "winning compliance." It includes nine elements-all of which federal agencies can use to win voluntary compliance.

1. Build support for standards by working in partnership with compliers and other stakeholders.

To persuade people and businesses to comply with society's rules, it helps to give them a voice in the process. Increasingly, compliance agencies are bringing businesses and environmentalists together to design programs that meet everyone's needs. At the Environmental Protection Agency, for example, the Common Sense Initiative brings together business, environmental, community and EPA leaders in committees that each focus on one industry, such as metal finishing, iron and steel, or computers and electronics. Together they develop methods to streamline compliance processes and eliminate barriers to compliance. EPA's Project XL does the same thing with individual companies.

The Occupational Safety and Health Administration's frustrations in taking a similar partnership national illustrate the importance of building support among compliers. In 1992, OSHA officials in Maine pioneered a remarkably successful partnership called the Maine 200 Program. Its leaders were frustrated by the failure of their traditional inspect-and-fine approach: Although they won gold medals from headquarters for issuing the most citations and fines, the state's workplace safety and health records remained the worst in the nation. So they decided to try something different: They asked the 200 employers with the highest volume of injury claims (45 percent of the state's total) to create employee teams dedicated to improving safety. The teams would draw up action plans, conduct comprehensive surveys of hazards in their plants, and correct most of them within 12 months. As long as the company was making a good-faith effort, OSHA would forgo its traditional inspections and fines. But each quarter the employers had to file a report on their progress, and OSHA would visit occasionally to verify those reports. Employers who failed to fulfill their obligations would be subject to comprehensive inspections.

Faced with the alternative of increased OSHA inspections, all but a handful of firms chose the self-inspection model. Over the previous eight years, OSHA had identified some 37,000 hazards at 1,316 work sites. In the program's first two years, employers identified 174,331 workplace hazards and corrected 118,671 of them. Two of every three companies decreased their injury and illness rates. Altogether, participating firms saw their payable workers' compensation claims drop by 47 percent-far outpacing declines in other companies.

OSHA consulted with the 200 firms in Maine before rolling out its experiment. But when it took the program national, the U.S. Chamber of Commerce filed suit to block it, claiming it was coercive, not voluntary, and therefore required a formal rule-making process in which business could comment. The lesson: Building partnerships requires extensive discussion with compliers to get their buy-in. "Even when an agency has the solution, you can't just impose it on people," says former OSHA head Joe Dear. "We got in a big rush to replicate the program and we skipped some of the preparatory work."

2. Use a performance-based approach to regulation.

Many regulations prescribe exactly how compliers have to follow the law, particularly in the environmental arena. For example, they tell businesses what technology they must use, how it must be installed, and how often it must be inspected. Often compliers know there is a better way, but the law won't let them use it. Now some agencies are beginning to substitute regulations that define the outcome required but leave it up to compliers to figure out how to produce it. This not only makes it easier for them to follow the rules, it stimulates innovation to find better and cheaper methods.

Both EPA's and OSHA's reinvention efforts exemplify this principle. For example, EPA's metal finishing committee, the furthest along in its Common Sense Initiative, has adopted performance goals that would cut toxic emissions by as much as 75 percent, while giving companies more flexibility in how they reach the goals.

OSHA shifted its performance goals for area offices from maximizing citations to reducing work-related injuries, illnesses and deaths. After surveying 80,000 employees around the nation, it gave field offices data on injury and illness rates in high-hazard industries, by company, so they could target workplaces with the highest rates.

3. Educate compliers about what is expected of them.

"For some, the failure to comply comes down to a simple lack of understanding about what's required," EPA officials concluded in a recent paper on the agency's reinvention efforts. "We need to do a better job of providing information in timely, helpful ways so people can fulfill their environmental responsibilities." Anyone who has filed the Internal Revenue Service's long form without the help of a tax accountant knows this problem firsthand.

The U.S. Customs Service developed an education strategy, called "Informed Compliance," in the mid-1990s. It shifted part of its staff from inspecting goods brought into ports and airports to helping importers improve their internal control processes. "Those out to break the law will continue to be apprehended," Dennis Murphy, director of public affairs, told Government Executive at the time, "but we're moving from what you might call a 'gotcha' focus to one of trying to make sure that the people we deal with understand what's required of them so they don't make mistakes based on ignorance, sloppy work or poor communications." Overall compliance rates, measured through statistical sampling of imports, have improved.

In a similar vein, the IRS has set up an education program to help small businesses. EPA has created virtual compliance assistance centers on the Web, developed in partnership with industry, environmental and academic organizations. They give businesses quick access to regulatory requirements, tips on preventing pollution, and information about best practices in other firms.

4. Make compliance easy.

The best way to do this is to simplify and streamline compliance requirements. If government can make it easier to pay our taxes, ensure a safe workplace, and meet our legal obligations when we employ nannies and after-school baby sitters, more of us will comply with the law. OSHA, EPA, the IRS and other federal agencies have begun creating one-stop permitting processes, consolidating related processes into single applications and waiving rules for businesses that are already performing well.

The second method is to offer services that facilitate compliance. For example, OSHA has developed a series of Web-based "expert systems"-computer programs that answer questions and guide people through compliance processes. Each is focused on a problem or substance, such as asbestos, lead or cadmium.

Since Congress hauled them on the carpet in 1998, IRS leaders have struggled to make it easier to file taxes (in the face of increased complexity imposed by Congress). They have:

  • Simplified forms and notices.
  • Created a 24-hour-a-day, seven-day-a-week telephone hot line.
  • Expanded their electronic and telephone filing options.
  • Opened 250 IRS offices on Saturday mornings during tax-filing season.
  • Added temporary locations in banks, libraries and shopping malls (even on a bus, in rural areas) to distribute forms and publications.
  • Implemented "problem-solving days" in every district, during which employees listen to and resolve taxpayer problems.

5. Make the quality of agency service to compliers consequential.

If compliance agencies face consequences when they provide poor service to compliers-and rewards when they provide excellent service-they will hasten to improve. The 1998 IRS reform law dipped a toe in this water by listing 10 actions for which employees could be fired and creating a new taxpayer advocate, who can determine compensation for taxpayers who suffer significant hardship because of poor performance at the IRS.

But these are relatively blunt instruments-and the list of firing offenses appears to have backfired, causing IRS employees to proceed with such caution that tax collections have plummeted. Several state governments have been far more creative, setting service standards and offering compliers some form of compensation when the agency fails to meet them.

A decade ago, for example, the Massachusetts Department of Environmental Protection set strict time limits for processing each permit and issued a money-back guarantee: If the department missed the deadline, it had to return the permit fee. "It was the single best thing we did," remembers former Commissioner Dan Greenbaum. "It created a dynamic like a business trying to collect a fee for a service. It provided impetus for management reforms, like a real tracking system so you would know what was happening with each permit.

"Staff told us they'd need lots more people to meet the time lines. But we met the deadlines the first year; it turned out there was a lot of slack in the system. Part of it was poor management: for example, no tracking system to tell you how many permits were in the pipeline, how many got permits and so on. And part of it was that the department had people who were environmentalists and believed that by delaying things they were protecting the environment."

Over the first four years the department missed only 75 deadlines out of 14,000. Word got around about which regional and program offices were refunding the most fees. "There's a certain pride in not being the one to show up as doing the worst," said Thomas Powers, Greenbaum's successor.

6. Report compliance information.

Feedback is the breakfast of champions. If taxpayers find out when they have filed incorrectly, or businesses are informed when they violate environmental rules, most will correct their problems.

When citizens care about compliance and organize to demand it-as the environmental movement does-reports to the public are even more powerful, because citizen groups use them to keep the heat on. The EPA has seized on this tool to give the public an extraordinary amount of data.

Its "Envirofacts" Web page (www.epa.gov/enviro/index.html) provides access to a dozen EPA databases, so users can see information on drinking water and air quality, toxic and hazardous waste sites, water discharge permits and Superfund sites in any ZIP code, city, county, state, watershed or basin in the country. It includes EnviroMapper, which can present the data on a national, state or county map. EPA's Sector Facility Indexing Project even gives the public access to environmental compliance data on 650 large industrial facilities in five sectors that create significant pollution: auto assembly, pulp manufacturing, petroleum refining, iron and steel production, and primary smelting and refining of aluminum, copper, lead and zinc.

7. Treat different compliers differently.

There is little sense in treating law-abiding citizens or businesses that have made a mistake the same as habitual lawbreakers. The police don't do it and the courts don't do it, but many compliance agencies do. Before its recent reforms, the IRS went after everyone who owed money. If it was a significant amount, it brought down the hammer-often going after the equity in people's homes, for example-regardless of the taxpayer's past record, current situation or ability to pay. Thanks to the 1998 reform bill, it can now use common sense. If the payment problem is chronic, the IRS still uses the hammer. But otherwise, its agents can offer taxpayers several options, including compromise settlements and installment payments. If a taxpayer is ill or has lost a job and has no history of avoiding payments, the agent can design a special hardship installment plan.

The Consumer Product Safety Commission won an Innovation in American Government Award from the Ford Foundation in 1998 for creating two different tracks for product recalls. Traditionally, recalls have dragged on for months, while the CPSC staff investigates, then negotiates with the manufacturer's attorneys. Meanwhile, the dangerous product stays on the market. In 1995, the agency announced a program called Fast Track Product Recall, in which companies that acknowledge defects can reach agreement with the agency and launch corrective action within 20 days. Since recalls miss most products once they have moved from the retail shelves into people's homes, speed is critical. According to Harvard Professor John Donohue, who reviewed the program for Ford, "Fast Track recalls take less than half as long as the traditional process and reach three times the proportion of affected products."

8. Create a continuum of public consequences and rewards for compliance.

Governments usually use sticks to ensure compliance: They create stiff penalties for failure, including fines and jail time. Those who adopt the winning compliance approach don't abandon the sticks, but they add carrots.

The EPA has developed a series of incentives for businesses that reduce pollution, from waivers and flexible permits to reduced reporting requirements and inspections. It is working to develop a "performance track" of rewards for businesses with outstanding environmental records. It may even emulate state experiments in Colorado and Oregon that reward facilities as they meet higher and higher standards, not only with regulatory flexibility but also with financial incentives.

The Interior Department's Fish and Wildlife Service has the ultimate stick: By invoking the Endangered Species Act, it can shut down commercial operations like logging or development on vast swaths of land. That kind of action is so Draconian, however, that it is rarely used. In the 1990s, FWS has turned to a carrot, called a habitat conservation plan. Businesses and local governments can apply for permits to work or develop land important to endangered species if the agency approves such plans, which must promote the long-term conservation of the species. For example, a plan negotiated with local governments and developers in Orange County, Calif., set aside 38,000 acres of land as nature reserves to protect more than 40 species. A similar plan set aside 172,000 acres in San Diego. The carrot: Those that donate the land get to develop other parcels free from restrictions under the act. They also get a promise that if they abide by the plan, they will not be required to take or pay for further conservation measures in the area, if the species continue to decline. The government will have to foot the bill the next time.

9. Create market incentives to
encourage compliance.

The most powerful way to win voluntary compliance is to reward it financially, through the marketplace. When some states required 5-cent deposits on bottles and cans, to be returned when the empty bottle or can was turned in for recycling, they were using a classic market incentive. Without a single public program or employee, these "bottle bills" significantly reduced litter and broken glass in streets and parks.

Any form of tax on pollution encourages voluntary compliance. Perhaps the granddaddy of winning compliance initiatives is emissions trading, in which the government gives credits to companies that reduce pollution below the amount required by law and allows them to sell those credits to other firms. The idea is to reward companies for reducing pollution but let them figure out how to do it. If they can reduce one source of pollution economically, they can use the credits they generate to offset areas where reduction is too costly. The federal government has used this mechanism for 25 years to clean up the air, get lead out of gasoline, and reduce acid rain. It has saved American businesses tens of billions of dollars, while meeting the government's environmental goals.

These nine steps to win voluntary compliance can work in virtually any compliance activity. Used as a checklist, they can help agencies find alternatives to enforcement strategies they cannot afford. When an agency like OSHA can afford to inspect the average workplace only once every 80 years, cheaper alternatives are necessary.

The winning compliance tool kit offers an enormous bang for the buck, because it can cut costs-for both government and business-at the same time that it improves outcomes. In the 21st century, with a shrinking federal workforce confronting such problems as the burgeoning specter of global warming, winning compliance is no longer simply a nice innovation. It may be our only hope.

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