October 7, 1993

October 7, 1993 | Backgrounder on

The National Performance Review: Falling Short of Real Government Reform

(Archived document, may contain errors)

962 October 7, 1993 THENATIONALpERMlRMANcEREVIEW FALLING SHORT OF REAL GOWRNMENT REFORM The federal government is not simply broke; it is broken The National Performance Review I INTRODUCT ION When Vice President Al Gore released the recommendations of The National Performance Review (NPR) on September 7, Americans were told this was a blueprint for reinventing government. The six-month-long, government-wide investigation was intended to pr oduce a plan to make government work better and cost less.

The report does contain hundreds of specific recommendations. Gore claims these will d Streamline government programs and make them more efficient d Trim the civil service by a total of 252,000 federal workers and make the bureau I cracy more accountable; and I Improve government services and make agencies more responsive to taxpayers.

I Over five years, the Clinton Administration says, these measures will save taxpayers $108 billion 29 billion from itemized program savings 8 billion from new revenues, and the re maining savings from other unspecified improvements in efficiency.

Although many of the National Performance Reviews recommendations sound ambitious a closer look at the report reveals that the Administration has avoided the tough actions needed t o deliver on its promise of structural reform some improvement in the way the government functions. But tinkering with the process of I I To be sure, reforming the civil service and instituting better financial standards will mean 1 The National Performan c e Review, Creating u Govemment Thar Wonks Better COSZS Less. September 7.1993, p. 1. government, rather than addressing the substance of what government does, is not radical re form. Moving paperwork more efficiently through programs that should no longer exist, or which are beyond repair, is not reinventing government. Moreover, for Gore to deliver on many of his proposed reforms the Administration will have to confront powerful congres sional committees that have thwarted similar reforms in the past. It is not at all clear that the White House is prepared to do that.

The true tests of the Clinton Administrations seriousness in reshaping Washingtons land scape thus lie ahead Example: The NPR rightly identifies Congress as the major cause of many problems i n government and the biggest stumbling block to instituting reforms But will the Ad ministration push hard to move its recommendations through Congress Example: The NPR says it wants to make government more consumer-friendly by re quiring bureaucrats to b e more courteous But will the Administration enact measures that would empower taxpayers to punish agencies that fail to deliver the promised level of service Example: The NPR says introducing market mechanisms into government will lead to greater efficien c y and accountability, and lower costs But is the Administration ple pared to overcome congressional opposition to serious privatization measures of the kind used by local governments and many foreign countries governments will foster innovation, creativit y , and neighborhood-based solutions But will the Administration be able to persuade Congress to devolve functions to the state and local levels Example: The NPR says reducing Washingtons micromanagment of state and local The Administration must go well bey o nd the mainly process-oriented prescriptions con tained in the NPR report if it is really serious about reforming government. In particular, three steps are needed to get to accomplish a real reform of the federal government Step #1: Eliminate all unneces sary programs. The Administration should determine which programs have outlived their usefulness, or engage in activities that simply should not be done by government at all. These programs should be eliminated.

But while there are scores of programs which fit these categories, the NPR could find only three of any significance-the Wool and Mohair Subsidy pm gram, and the Honey Subsidy program, and the curiously named Essential Air Service program? And the NPRs answer to duplication and fragmentation is not to eliminate programs with overlapping functions, but to create seven new programs and councils to coordinate these duplicative efforts should determine which government programs should be run by lower levels of Step #2: Use federalism to move services cl oser to taxpayers. The Administration 2 Note: Congress began work to eliminate these three programs well before the release of the NPR report 2 government rather than by the federal government. These should be transferred to state or local governments.

The NPR admittedly chose not to transfer any federal functions to a more ap propriate level of government because of likely political opposition in Congress. Instead the NPR merely makes two modest proposals to remove some red tape from lower tiers of govern m ent. It recommends giving lpcal gov ernments greater flexibility to consolidate funds from small federal grants. And it recommends consolidating 55-out of over 600-federal grant programs into six broad flexible grants to states Step #3: Use privatization t o bring market discipline to government services. The Admin istration should determine which programs are private in nature and best delivered by private enterprises or nonprofit organizations. The appropriate privatization tech nique should then be used t o deliver these services 3 The NPRs authors clearly understand that because government programs are monopolies they are impervious to the market penalties that force innovation and efficiency in private firms. But instead of recommending the full privatiz a tion of many government functions, the NPR would place just a few government activities in protected competition with private firms or other government agencies. Such limited measures would merely create more entities like the U.S. Postal Service-private in appearance, but shielded from real market forces.

The National Performance Review report does contain a number of sound recommenda tions that can and should be adopted immediately. But the report should not be hailed as a road map for reinventing govern ment. Accomplishing that worthy goal will take far more sweeping actions, and a greater willingness to confront the political opposition, than the NPR is prepared to contemplate COMMISSIONS MANDATE When President Bill Clinton announced he was appointing A l Gore to head the National Performance Review, the White House claimed the NPR would challenge the basic assumptions of every government program, by asking the hard questions that government has dodged for too long: Does the program work? Does it waste ta x payer dollars? Does it provide customer service Does it encourage innovation and reward hard work? If the answer to these questions is no, can the program be fixed or is it no longer needed?4 In releasing the task force report, however, Gore admits that h i s review stopped short of the promised critical appraisal of programs needed to downsize government. Said Gore, the Na tional Performance Review focused primarily on how government should work, not on what it should do. Our job was to improve performance i n areas where policymakers had already decided government should play a role.5 But as President Clinton pointed out, overhauling 3 4 National Performance Review, p. 39 White House press release, March 3,1993 3government includes reaching the conclusion th at government should not be undertaking some programs.

Vice President Gore established three benchmarks for his commissions proposals 1) Does the proposal make federal programs work better and, as a result, will programs be more responsive and accountable to customers of government services 2) Does the proposal lead to a smaller, more efficient bureaucracy 3) Does the proposal produce a more streamlined government, free from outmoded or obso lete programs, or programs that simply do not work Holding the re c ommendations to Gores own standard shows the report, unfortunately, did not live up to its promise WOULD THE PROPOSALS MAKE GOVERNMENT MORE CONSUMER-FRIENDLY The Administration clearly understands that two key elements are needed to empower cus First, con s umers must have the freedom of choice in both services and the means of delivery; and Second, consumers must have a method of redress to punish the company-or government agency-that fails to deliver the promised level of service tomers of government servi c es in the same way the competitive economy empowers them The NPR urges the President to direct departments and agencies to take steps to give con sumers these powers. But although the NPRs authors seem to understand the essence of con sumerism-choice and r edress-the reports recommendations do not reflect this understand ing. For instance, instead of proposing voucher systems, which for some services would allow customers to choose from among a variety of vendors, the NPR wants to establish coordinat ing co uncils to act as intermediaries between customers and government agencies.

Typical of this misunderstanding of choice, the NPR would create a new quasi-government business enterprise to solve the confusion caused by some 150 different federally funded ed u cation and training programs. Gore proposes creating a nationwide system of one-stop, ca reer development centers open to all Americans. But a genuine consumer-based solution to the duplication within education and training services would be to cash out a l l of these pro grams and use the money to fund vouchers that those who need training could use where they chose This is similar to the approach taken to providing veterans education. The government did not set up a nationwide chain of veterans education c enters; instead it offered veterans the G.1 Bill, which could be taken to any institution of higher education-public or private.

Similarly, the NPR would not give real redress when an agency failed to perform its obliga tions to its clients or customers; T o be sure, the NPR proposes service or performance stan dards for a number of agencies, including the U.S. Postal Service and the Internal Revenue 5 National Performance Review, p. ii [emphasis in original 4 Service. But the NPR does not specify what pena lties the Postal Service will suffer if mail is not delivered within a specified time.

Significantly, it did not take a government commission to require private overnight delivery companies to give customers full refunds if a package was not delivered by 1 0 a.m. Competi tion did that, not directives NEEDED: A CITIZENS CHARTER Gore should have journeyed to the United Kingdom to see how agencies can really be forced to serve ordinary citizens. Britains Citizens Charter, established by Parliament in 1991, lay s down precise standards of service for a range of agencies. The government devel oped a set of 26 individualized charters detailing performance standards taxpayers should ex pect from particular programs and-just as important-specific remedies should thes e pro grams fail to meet the standards.

Some examples The Tenants Charter. If a public housing authority does not provide a standard level of quality service, the tenants are entitled to compensation or can be given the power to transfer management to a private landlord.

The Parents Charter. This Charter outlines the specific performance guarantees that parents should expect from the public school system. Parents are entitled to com plete information concerning their childs education and the quality of their school.

Quality rankings are released each year by the government and published in major newspapers and made available at local libraries. Parents are also allowed to trans fer their children to schools they feel are of superior quality THE BUREAUCRACY BE MADE EF FICIENT?

The National Performance Review identifies several problems that have long plagued the federal civil service. Among the most pervasive: excessive layers of middle management, a lack of accountability, poorly trained workers, inefficient procuremen t, and a lack of perfor mance goals or standards ommends that several actions To remedy these long-standing ills and to initiate serious civil service reform, the NPR rec d Eliminate 252,000 positions over a five-year period, saving an estimated $40 billi on d Introduce flexible performance management and reward systems to improve agency d Adopt reforms to simplify the procurement system.

While these suggestions are welcome, and would lead to some improvements in efficiency several recent actions taken by t heWhite House call into question the Administrations deter mination to carry out these worthwhile reforms. For example, just days before the release of the NPR report, on August 25, the Ofice of Personnel Management (OPM) proposed new regulations which wo u ld move civil service reform in exactly the opposite direction of the NPRs recommendations pay for meritorious work; and 5 PRINCIPLES OF THE CITIZENS CHARTER The purpose of the Citizens Charter is to empower individuals as consumers of public services by e stablish ing mechanisms and procedures for public services that give citizens rights similar to those they have in deal ing with private businesses. Under a Charter system every citizen is entitled to expect the following from their government LOW COST, Q U ALITY SERVICE The government should provide the highest quality services at the lowest possible cost COMPREHENDIBLE STANDARDS Specific and explicit standards for every government program and function should be developed. These standards should be publishe d and prominently displayed for public consumption ACCOUNTABILITY Programs and employees should be held accountable for failure to comply with the defined performance standards. Clearly defined penalties for performance failures should be developed and dis s eminated to the public CLEAR PROCEDURES FOR REDRESS Every federal program should develop standardized procedures for citizen complaints and specific remedies for citizens if the government service fails to live up to standards OPENNESS The operations of t h e government should be as public as possible. There should be no secrecy about how public services are run, how much they cost, who is in charge, and whether or not they are meeting their stan dards. All of this information should be provided in clear, la ymans language.

CHOICE IN SERVICE Whenever feasible, the government should provide choice to taxpayers. Citizens should not be stuck with only a monopoly service NON-DISCRIMINATION Services should always be available regardless of race or sex. As well, all government services should benefit the widest possible spectrum of citizens and avoid reaping inordinate benefits on a select few ACCESSIBILITY Government services should be run to suit the convenience of citizens not staff. Taxpayers should expect court eous and efficient customer service from public servants.

Source: The Citizens Churrer: Raising the Standard (London: Her Majestys Stationery Ofice, July 1991 While the NPR report recommends merit-based performance standards, OPMs proposed iew rules would emphasize seniority, especially among non-veterans, in retention policies for federal employees6 These new rules not only contradict the NPRs recommendations; they would substantially reverse the efforts of both the Carter and Reagan Administrations to up grade the importance of employee performance in personnel policy. The OPM rules would make it even more difficult for managers to retain top performers during reductions-in-force x the consolidation of federal agency function If the NPRs lofty promise of a more efficient civil service is to be believed, the Administra tion should withdraw these proposed regulations and instead modify reduction-in-force regula tions to allow managers more authority to base retention or release decisions upon perfor mance ra ther than seniority. Federal managers must be able to apply the same standards of ex zellence to their employees as a private sector firm would use when reducing its work force 6 7 Veterans are afforded hiring preference by civil service hiring rules.

Mike Causey, Good News, Bad News. Tke Washington Post, August 25, 1993. p. B2 6 Another new regulation now being considered by OPM will make the NPRs promised merit-based performance standards even less believable. This regulation will establish a two tiered q uality rating system, under which employees will be ranked on a pasdfail basis with no other performance descriptions applicable ees are ranked on a five-step performance chart. This rates worker quality as outstanding exceeds fully successful, successful , below successful, or unsuccessful. OPMs pro posed pass/fail ranking would remove a strong incentive for employees to perform above a merely acceptable level.

Equally disturbing, the NPR report itself recommends the creation of a new employee-man agement organization that could undermine the Carter-Reagan reforms. Establishing a Na tional Partnership Council, says the NPR, would lead to better employee-management co operation by giving the public employee unions a greater say in restructuring government p a rticular, the Council would be a vehicle for career bureaucrats to frustrate change report also fails to provide serious answers to many of the problems it identifies Under the current system, which was established during the Carter Administration, employ Far more likely, a Partnership Council would be a bureaucracy-driven brake on reform In But beyond these OPM regulations and the shortcomings of particular proposals, the NPR Example: The Commissions recommendations would fail to ensure that its proposed w ork force reductions are measured. To prevent deceptive reporting of personnel re ductions, such as counting cuts among temporary employees rather than strictly full-time employees as part of the overall reduction of the permanent work force OPM must be r e quired to report monthly on the number of full-time equivalent FIE) employees in each agency. This will enable the Administration and the pub lic to measure real progress in reducing the size of the federal work force Example: Although the NPR has recomme n ded many useful procurement reforms, the Administration needs to take tough action to make sure agencies use private con tractors whenever they are appropriate and save money. Executive Order 12615 and OMB Circular A-76 already require agencies to use pri v ate contractors when that would save taxpayers money. But these directives are widely ignored or frus trated through congressional action such as minimum staffing requirements and explicit prohibitions on agencies even studying possible savings from priva tization.

If the federal government is to sharpen its efficiency, the Administration must fight for repeal of these congressional prohibitions Example: The report makes no mention at all of the Ramspeck Act. This 1940 Act al lows political appointees to by pass civil service entry requirements, and burrow into the career civil service in the early days of each new Administration. The Clin ton Administration should urge Congress to repeal the Ramspeck Act, since it undermines the independence of the civil se r vice WILL OBSOLETE AND FAILED PROGRAMS BE ELIMINATED The most disappointing portion of the NPR report is the chapter entitled Cutting Back to Basics. Reading this chapter makes it clear that Gores team is not serious about carrying through on the Presiden t s promise to eliminate wasteful or unnecessary programs. The title of the chapter lulls the reader into inferring that the NPR will get tough on obsolete programs eliminate scores of programs that duplicate others, and dismantle programs that simply do no t 7 work. But out of the thousands of federal programs funded each year, the NPR could identify only three programs-the Wool and Mohair Subsidy program, the Honey Subsidy program and the Essential Air Service program-that are no longer needed.

The best the NPR could do in meeting Gores promise to challenge the basic assumption of every program is to propose the closure of a few hundred field offices in the Departments of Agriculture and Housing and Urban Development, the Small Business Administration Army C orps of Engineers, and the Department of Energy By most objective studies, such as those performed by the General Accounting Office (GAO) and the Congressional Research Service (CRS), these agencies have problems far beyond the number of field offices the y oper ate8 Closing a few field offices will not challenge the basic assumptions of any program.

The NPR stretches its credibility further in this chapter by including a section on Collect ing More. Here the authors suggest measures such as raising user fe es in public parks, boost ing taxes on companies inspected by the Food and Drug Administration (the NPR calls these fees even though regulated companies cannot avoid them and accelerating the debt pay ments of the Power Marketing Administrations (PMAs), w h ich are government-owned dams and electric utilities. To be sure, these proposals might improve the governments financial l practices, but they should not be misrepresented as shrinking government back to its basic functions If the Administration were rea l ly serious about eliminating unnecessary government pro grams, it would propose privatizing such inherently commercial activities as the PMAs. The NPR does recommend pushing for congressional approval of the sale of the Alaska Power Ad ministration (APA o n e of the PMAs. But this was first proposed during the Reagan Adminis tration and it has been held up in Congress since then. If the Clinton Administration is serious about selling the APA, it will have to fight Congress to do so. Then it should set about s elling the remaining PMAs There are many other chances the Gore team missed to eliminate the dinosaurs of the fed eral government. Yet in other cases, where obsolete programs are discussed, the NPR actually proposes reinventing these programs instead of a b olishing them Example: The Federal Helium Reserves and the Rural Electrification Administration REA) have long outlived their original missions. The helium program was started in 1929 to ensure a constant supply of helium for military blimps and balloons. The REA was created in 1935 to use low-interest loans to encourage private utilities to provide electricity to rural areas. The NPR merely recommends making the obso lete Federal Helium Reserves more effi~ient It is silent about the REA Example: In 1987, t he Bureau of Reclamation issued a report conceding that its origi nal mission had ended, stating that the era of constructing large federally financed water projects is drawing to a close lo The NPRs recommendation: Create a new mission for the Bureau of Reclamation 8 See Geoffrey S. Baker, USDA Background on the Depamnent and Reorganization Issues, Congressional Research Service, CRS Repon to Congress, August 5,19

92. Also, U.S. General Accounting Office.Transition Series, Housing and Community Developmen t Issues (GAO/OCG-93-22TR and Energy Issues (GAO/OCG-93- 13TR). December 1992 9 National Performance Review, p. 144 10 U.S. Department of the Interior, Bureau of Reclamation, Assessment 87: A New Direction for the Bureau of 8 Example: The 193 1 Davis-Baco n Act is a Depression-era Jim Crow wage-setting law passed to prevent black workers from competing with white labor on federal construction projects. Unfortunately, it still does this very effectively. Davis-Bacon requires that workers receive the prevaili ng wage, meaning union wage, when working on a construction or repair project valued in excess of 2,0

00. This makes it harder for lower-skilled, often minority workers to com ete for these jobs. The NPR suggests raising this contract threshold to $100,0

00. Raising the threshold will not change the Jim Crow aspects of this law. It should be abolished Example: According to the General Accounting Office, there is little or no evidence to show that the Small Business Administration has had an impact on expa n ding small business development since it was formed in 1954.13 Rather than close this failed program, the NPR recommends improved management to increase loans to small business.14 Example: The GAO reports that the Department of Commerce shares its mission with at least 71 federal departments, agencies, and offices.15 Further, says GAO, Ex port promotion programs are distributed among 10 agencies. The U.S. Department of Agriculture, not Commerce, receives about 74 percent of total funding for these programs , although it accounts for only about 10 percent of U.S. exports.16 Rather than question the need for a department that shares its mission with so many other agencies, Gores team recommends giving the Department of Commerce Trade Pro motion Coordinating Co m mittee a greater role in coordinating federal export efforp Example: As of 1990, more than twenty departments and agencies were involved in mapmaking activities, spending over $1 billion per year and employing over 8,000 civil servants. Rather than close s ome of these departments or privatize map-mak ing altogether, the NPR proposes collecting all of this information into a single computer database named National Spatial Data Infra~tructure The goal is to make this information accessible to anyone with a p e rsonal computer P2 To be considered credible, government reform cannot tinker at the margins of programs in this way. This sort of approach leads to such artificial and ineffective reforms as creating coor dinating councils when the sensible approach is t o eliminate duplicative or obsolete programs Reclamation, 1987 11 National Performance Review, p. 144 12 National Performance Review, p. 3 1 13 U.S. General Accounting Office, Transition Series, Housing Issues (GAO/OCG-93-22TR December 1992, p. 20 14 Natio n al Performance Review, p. 148 15 U.S. General Accounting Office, Transition Series, Commerce Issues (GAO/OCG-93-12TR December 1992, p. 9 16 Ibid p. 10 17 National Performance Review, p. 1 16 9 Any serious plan to reform the federal government must first a d dress the fundamental ques tion: What is the proper role of the national level of government? Though individuals of dif ferent philosophical persuasions would answer this question differently, most taxpayers would broadly agree with the following statemen t s 1) The federal government should not continue programs that have become obsolete. Nor should the federal government continue programs that have clearly failed, or activities that the government performs far less effectively and efficiently than alternat i ve institu tions 2) The federal government should not engage in governmental activities that have no clear na tional priority. Thus it should not perform functions that are the proper role of state or local governments 3) The federal government should not engage in activities that traditionally and most properly are done by private enterprises either profit-making businesses or charities.

These three statements provide a framework for streamlining the federal government. This framework suggests broad areas for action and several specific steps ACTION #1 Take honest steps for cutting back to basics.

A serious reform plan must scrutinize each program according to a tough set of criteria.

This is especially true for programs designed during a bygone era for reasons that have long since passed, and programs with a long history of problems. Among the basic questions that need to be asked of eac h program Has the program become outmoded and outlived its usefulness Has the program already fulfilled its original mission and, therefore, is no longer needed Is the program working at all, and is it so ineffective that it cannot be reformed Is the prog r am unnecessary because its functions are carried out by other programs Should the government-any level of government-be engaged in the activity at Fortunately, finding an answer to these questions in general does not require exhaustive new studies of prog r ams. Studies published by the General Accounting Office, the Congres sional Budget Office, the Office of Management and Budget (OMB and various non-govern mental organizations already contain the analysis necessary for the Administration to take a number of steps all 10

11 Step 1 Eliminate outmoded or obsolete programs Example: The Interstate Commerce Commission (ICC) was created in 1887 to oversee federal regulation of the railroad industry. Its jurisdiction now includes interstate trucking, barges, buse s, and other surface transportation. But transportation deregu lation, especially of the trucking industry has rendered the ICC obsolete. It should be closed down Example: The Corporation for Public'Broadcasting was created in 1967 to improve the quality o f radio and television programming during a time when viewers had few choices. However, today there are over 9,OOO private radio stations, and the cable television revolution means that most viewers have access to dozens of specialty channels. The CPB is o bsolete and should be closed Step #2: Eliminate programs that have completed their missions and are no longer Example: Started in 1935 to encourage private utilities to provide electricity, and later telephone service, the Rural Electrification Administra t ion has completed its mis sion. Nearly 100 percent of rural America has electric service and nearly 98 percent has telephone service. Clinton should applaud its success, then close it down Example: Since the early 1960s. the federal government has funded m edical education programs through the Public Health Service. These subsidies were the result of con cern that there might be a future shortage of doctors In 1965 there were 148 doctors for every 100,OOO Americans. By 1988 the ratio was 233, a 57 percent i n crease. This ratio is expected to grow, leading some experts to predict a glut of doctors in the near future. These subsidies should be discontinued. l8 needed Step #3: Eliminate programs that do not work, have never worked, or which are in Example: Sinc e 1935, the Fanners Home Administration (FmHA) ha loaned over $172 such a condition that they cannot be reformed billion to farmers and rural communities. But according to the House Appropria tions Committee report accompanying the fiscal 1994 Department o f Agriculture appropriations bill, "the unpaid principal on all FmHA loans as of September 30 1992, totals $56 billion Based upon FmHA's past performance, it is likely that 8 sizeable portion of this total, and the interest due on it, will never be repaid. Fur thermore, GAO reports that FmHA is extending loans to individuals just so that they may repay old loans. l9 This program is beyond reform and should be closed down Example: For decades, the U.S. Department of Agriculture has used a variety of subsi di es and protectionist methods to increase the incomes of dairy fanners at the 18 Congressional Budget Office, Reducing rhe Deficit: Spending and Revenue Options (Washington, D.C U.S.

Government Printing Mice, 1990 p. 298 19 U.S. General Accounting Office Th e Farmers Home Administration: Billions of Dollars in Farm Loans Are At Risk GAORCED -92-86). April 1992 12 expense of taxpayers and consumers. As a result of the market distortions produced by this program, the federal government had to spend over $17 bi l lion purchasing surplus dairy products during the 1980s. while consumers paid over 40 billion in higher prices for dairy products. Since 1952, reports the Office of Technology As sessment, the number of commercial dairy producers has fallen from 600,000 t o about 130,000 today and could fall to 5,000 by the end of the century2 This pro gram has been an expensive failure for dairy farmers, taxpayers, and consumers Step #4: Eliminate programs whose activities are duplicated by other programs Example: The Appa l achian Regional Commission duplicates the activities of fourteen federal rural aid programs administered by the Departments of Agriculture, Labor and Transportation. Over the last 25 years, the federal government has spent over 7 billion in this region, m o st of it on road construction. But by most objective measures, the ARC has had no noticeable effect on the economic health of the Ap palachian region?l It should be closed down mercial oil fields at Elk Hills, California, and Teapot Dome, Wyoming. These f i elds were set aside by Presidents William Howard Taft in 1912 and Woodrow Wilson in 1915 to ensure the U.S. Navy a reserve supply of oil. Today, these fields account for about 1 percent of U.S. domestic oil production and duplicate the 600-million barrel Strategic Petroleum Reserves. These fields should be sold to the private sector Example: The Naval Petroleum Reserves are two taxpayer-owned and operated com Step #5: Eliminate programs or activities that should not be government functions.

Example: At an annual cost of $1.6 billion, the USDAs Conservation Reserve Program pays farmers not to plant crops for ten- or fifteen-year periods on highly erodible cropland and other environmentally sensitive land. This program has already en couraged farmers to set aside 35 million acres of land, equivalent in size to Illinois.

There are two reasons to terminate this program. First, over a typical ten-year pay ment period, the governments total payments to most farmers will exceed the entire value of the land. This practice has ruined land values in many rural areas.

Second, the USDA estimated in 1988 that taking this much farmland out of produc tion would cost over 150,000 agriculturally dependent jobsF2 Example: The Market Promotion Program subsidizes foreign adver tising costs for large U.S. businesses such as McDonalds Corporation, the Pillsbury Company, and the Ernest and Julio Gallo Winery, Inc. Though this $200 million per year program is scheduled for a modest reduction in funding as a result of the recent def i cit reduc tion bill, it should be eliminated entirely. Taxpayers should not be contributing to the cost of routine profit-generating activities of private industry 20 James Bovard. The Farm Fiasco (San Francisco: Institute for Contemporary Studies Press. 1 989 p. 103 21 Stephen Moore. Director of Fiscal Policy Studies, The Cat0 Institute, Testimony before the House Subcommittee on Banking, Finance, and Urban Affairs, July 23, 1991 22 Bovard, op. cit pp. 22 1-224 13 ACTION #2 Use federalism to bring the deli v ery of public services closer to consumers Americas federal structure furnishes a ready-made framework for an important facet of government reform. Many services currently provided at the federal level could and should be passed down to the states, counti es, and cities of America. Transferring these programs when ever possible to states and. local governments would give control to levels of government bet ter able to tailor programs to fit the needs of ordinary Americans.

For example, many welfare, educati on, and transportation programs currently managed and funded by federal bureaucracies could be transferred directly to state authorities. Using feder alism in this way would improve the operation and management of these programs and permit the federal gov e rnment to concentrate on its most appropriate functions Unfortunately, the NPR report does not seriously consider federalism as a system for im proving the functioning of government. Although it does recommend consolidating a small number of federal grant s and allowing the states greater spending flexibility with federal mon etary aid, the list of NPR federalism options ends there. There is no real discussion of how state and local governments could take over the provision of certain public services and br ing the control over the delivery of those services closer to taxpayers.

This is unforpnate and somewhat surprising since a number or ringing endorsements for federalism have come recently from close associates of President Clinton. For example, in a book published by the Washington-based Progressive Policy Institute, David Osborne, who is a member of the NPR board, calls for the creation of a cabinet-level federalism czar to lead a commission that would formulate and oversee federalism 0ptions.2~ And Alic e Rivlin, cur rent deputy director of the OMB and former Brookings Institution scholar, has advocated de volving almost all federal social welfare and economic development programs to the states in exchange for federal responsibility for health ~are.2~ Fed e ralism is a widely accepted tool for government reform. But, strangely, the NPR report gave it scant attention I FEDERALISM STRATEGIES Several steps could be taken by the Clinton Administration if it is serious about utilizing federalism as a method of st r uctural government reform. In general, only those programs which are vital to the national interest should be administered by the federal government. Re gional affairs should be left to the states or localities, which are better able to address their re s p ective concerns Step #1: Require full funding of any program currently mandated by the federal government Rather than transferring programs to state governments, the federal government is more in clined to require states to carry out activities that the s t ates would not otherwise choose to do 23 David Osborne, A New Federal Compact: Sorting Out Washingtons Propex Role, in Will Marshall Martin Schram eds Mandate For Change (Washington. D.C Progressive Policy Institute, 1993 pp. 237-261 24 Alice Rivlin, Revi v ing the American Dream: The Economy, the States, and the Federal Government (Washington. D.C The Brookings Institution, 1992 14 The cost of such federal mandates upon the states has skyrocketed in the past decade. Clean 25 Water Act mandates alone will co st states over $80 billion to meet compliance standards.

Mandated Medicaid spending has risen from 10 percent of state budgets in 1987 to 17 percent in 1992, and could rise to 25 percent by 1995F6 But if any issue is considered so vital by the federal gove rnment that it mandates state compliance, it is de facto a national concern. There fore, existing and future mandates should be accompanied by federal funds. That requirement on the federal government would force it to consider whether the activity is tru l y of national significance Step #2: Whenever possible, transfer full control of federally funded programs that are currently Many expensive programs are funded by Washington but carried out by state and local gov ernments. Two such examples are Medicaid a n d Food Stamps. In programs such as Medicaid the federal government pays a portion of the cost, say 55 percent, and the state government must pay the remainder In other cases, Washington pays for the cost of benefits but states are responsible for paying m a nagement and overhead costs. In both types of program, this leads to numerous problems, including: questions of jurisdiction and accountability, excessive red tape and higher costs for local governments, and continual attempts by both federal and local go vernments to shift rising costs to the other level of government This design flaw in the way these programs are funded and managed should be corrected.

As an interim step, the federal government should give local governments fixed, or capitated payments to both deliver the benefits and manage the program with the available funds This change would encourage state and local governments to deliver the benefits more efficiently and resolve many of the problems of jurisdiction and accountability operated by sta tes to the respective state governments Step #3: End federal grants to the states that do not serve a specific and vital national interest.

End all direct funding of local governments. Consolidate remaining grants Of the more than 600 grants to the states, few would qualify as being in the national inter est. Programs that are inherently local in nature include: the State Underground Water Source Protection Program, Urban Formula Capital Grants, Vocational Education, and Waste Water Treatment Grants. Besid e s the excessive amount of taxpayer money that is spent on these pro grams, grants tend to drive up local spending by encouraging them to take on costly projects and activities, far more expensive than they would usually fund. No federal funds should be gi v en directly to the cities, as this duty traditionally, and more appropriately, belongs to the states and not the federal government. Those few grants which do serve a national purpose should be consolidated to improve operational efficiency Step #4: End a l l requirements on the states to compensate the federal government for any assets they privatize that are jointly held or that once received federal funds President Bush's Executive Order 12803 ended the compensation requirement for infra structure, but fo r little else. States and localities should, however, be able to collect the full 25 Andrew J. Cowin How Washington Boosts State and Local Budget Deficits Heritage Foundation Buckgrounder No. 908, July 3 1. 1992, p. 10 26 Matthew Rees The Mandate Milestone The Wall Street Jouml. August 18,1993, p. A10 15 benefit of all their asset sales to ensure they are carried out where needed. Requirements to compensate the federal government for asset sales is a major disincentive to privatization and other service inn o vations Step #5: Monitor all federal rules and regulations for their impact on the states, and minimize This Reagan Administration executive order requires agencies not to promulgate regula tions that, directly regulate the states in such a way that would interfere with functions essen tial to the States separate and independent existence The order also requires that state law not be preempted unless it serves a clearly legitimate national purpose. Hopefully the Administration will apply the Reagan standar d when considering potential impacts in the future their impact in keeping with Executive Order 12612 Step #6: Extend regulatory waivers to the states to allow them to more effectively manage environmental and housing programs as they have entitlement prog rams.

Even if states are required t6 carry ou t a given program, they should be given a greater amount of discretion when administering the program or service. By waiving certain federal regulations concerning the administration of federally mandated programs, states can be given the freedom to devel op innovative and more efficient ways to use federal funds to achieve the objectives of the program. This is exactly what the Reagan Administration did when they cre ated the Low-Income Opportunity Board in 19

87. Under this cabinet-level interagency group cabinet secretaries and senior welfare and anti-poverty program officials met together with governors to consider state requests for exemptions from specific federal regulations. Under this arrangement, states were able to obtain one-stop waivers from th e requirements of several agencies, allowing them to proceed with innovative reforms. Unfortunately this procedure was given less emphasis during the Bush Administration. President Clinton should re-invigo rate the Board and create similar boards for such areas as housing and the environment ACTION #3 Use privatization to improve the delivery of needed services.

Privatization is now universally recognized as an effective method of delivering high-qual ity public services at the lowest possible cost. Unfortu nately, just as the NPR makes no effort to eliminate useless programs or utilize federalism options, the report also ignores the poten tial benefits of a comprehensive federal privatization policy. Instead, the report merely hints that certain programs wo u ld benefit either from a small degree of private sector involvement or from better management. For example, the report recommends Strengthening the Tourism Policy Council, to allow the government greater author Improving the Helium Reserve Program, to enc o urage more efficient helium man ity to coordinate tourism promotion efforts agement; and Eliminating the Government Printing Offices monopoly, to allow private provid ers to enter the market for public document service 16 Such half-hearted recommendations will do nothing to provide the benefits achieved from real privatization by other countries or by states and cities in the United States.

Tourism promotion, energy production, helium manage ment, and printing services are all inherently private sec tor ta sks, where efficiency depends on competitive, for profit operation driven by consumer choice In many cases, moreover, privatization provides the only hope of survival for many inefficient and unre formed programs, because they are starved of capital due t o federal budget constraints But in the private sector, in vestment flows to enterprises that can produce valuable goods and services. Consider the roblems in three pro grams documented by the GAO 8 Many of the 337 dams built by the Bureau of Rec lamation a re over a half-century old and in desper ate need of repair?8 The Forest Service now needs $644 million to pay for the maintenance and reconstruction of their trails and recreation sites; and Within a few years, many ofthe corps of Engineers aging 125 bil l ion inventory of water resources projects will have reached the end of their design life.2 Privatization is probably the only remaining option for raising the capital necessary for these programs A 1989 study by the National Commission for Employment Pol i cy showed that state and local privatization helped pro grams raise capital and greatly increase worker productiv ity Despite the well-documented benefits of privatization initiatives, Vice President Gore has recently referred to privatization as that gim m ick trotted out to produce some short-term budget red~ctions He should take 27 US. General Accounting Office, Transition Series, Natural Resources Management Issues (GAO/OCG-93- 17TR December 1992, p. 8 28 Ibid..p.9 29 Ibid 30 The Long Term Employment Imp l ications of Privatization: Evidence from Selected U.S. Cities and Counties, National Commission for Employment Policy, March 1989, pp. 29-31 31 Vice Resident Gore Speech Outlining National Performance Review Initiatives. The Reuter Transcript Report. May 2 4. 1993 17 time to discuss privatization with government officials in the dozens of countries, from Brit ain, to Czechoslovakia, to Japan, who understand why transferring assets to the private sector is so important to improve their efficiency METHODS OF P RIVATIZATION There are many methods by which consumers can assume control of the allocation or deliv ery of a needed public service. The most.popular methods of privatization include A) Asset Sales. This means selling all or part of a government-owned and -operated service to the private sector. Many buyers could be found for federal assets: private companies, the general public through a stock offering, or even the employees of the organization. Asset sales have been used widely in Europe and Asia to achi e ve dramatic improvements in efficiency. The table on the following page provides sev eral examples of programs that could be sold off to the private sector B) Contracting Out. This method encourages private firms to bid competitively for public service co n tracts, which will be carried out in a given period of time, after which authority over the service or product reverts to public control. Contracting out is now a standard management tool in municipal government same management tool. For example, several f ederal prison services by the fed eral government could be contracted out, including the construction and administration of low-security facilities, the provision of medical services to in mates, food preparation, and inmate counseling. Other federal serv i ces that could be contracted out include data processing, running military commissaries air travel?* building maintenance and janitorial services, and consulting or in formational services C) Deregulation. Where federal officials deem it absolutely necess a ry to remain in volved in the delivery of a service, private sector fums should be able to compete with the public sector to assure choice and spur competition. Deregulation is one method of accomplishing this D) Voucher Schemes. Vouchers retain the gover n ment's role as the funder of ser vices-thereby assuring that the target group can afford the service-and yet permit individuals to seek the best value for money in the private sector. Housing vouchers and food stamps are two examples of vouchers funded by the federal gov ernment There are many opportunities for the federal government to introduce the Other areas where voucher plans could be used to improve services and expand freedom of choice include education, job training programs, health care for the p o or, and child care 32 The government owns and operates 1,406 nonm'lirury aircraft spread throughout a dozen agencies. This fleet is larger than the combined fleets of Continental. TWA, Northwest, and USAir. See Frank J. Murray US. Fleet is Lost in Airspac e : Government Can't Track Its Aircraft The Washington Times, May 20,1993, Al 18 PRIVATIZATION STRATEGIES At a time when federal officials are forced by tight budgets to control costs, these privatization options offer a fresh approach. Services can be im p roved without an increase in the deficit, and with no additional public employees.

To implement a privatization strategy, the Ad ministration should take several steps Step #1: Reinvigorate OMBs privatization To be effective, privatization will need not on ly off ice presidential leadership, but a forceful guiding hand within the White House. The OMBs privatization office, which lost much of its influ ence during the Bush Administration, needs to be strengthened. It should continue the past practice of forw a rding privatization strategies for the Presidents consideration and personal support In addition, it should issue an annual report, detailing privatization options for agencies and requiring de tails of actions taken Step #2: Strictly enforce Executive Or d er 1261 5, OMB Circular A-76, and any other relevant legislation to force agencies to find private sector alternatives before increasing the federal work force Unfortunately, these important privatization mandates have been ignored. The result has been in e fficient and ineffective public service delivery. Enforcing these directives would force agencies to re-evaluate their hiring and spending decisions, leading to better service de livery Step #3: End all congressional prohibitions and micromanagement of th e Since 198 1, Congress has enacted over forty separate laws expressly prohibiting the privatization process privatization of government services. In some cases these laws prohibit agencies from even studying privatization options. The White House should f i ght to have these laws overturned Step #4: Encourage public employee unions to develop worker buy-out plans and give these proposals priority in the bidding process Although public employee unions, such as the National Association of Letter Carriers, are a mong the biggest opponents of privatization, they could become its champions. Allowing unions and employee organizations to submit worker buy-out plans before alternative buyers or contractors are sought would give employees the chance to control their ow n fate and to gain materially from contracting out 19 I Step #5: Remove all federal barriers to state and local privatization.

Regardless of how many programs federal legislators feel should or should not be privat ized at the federal level, there is no re ason why they should impede privatization initiatives at the state level. President Bushs Executive Order 12803, which gives the states more privatiza tion discretion, was a step in the right direction, but further action is needed. Eliminating all wage a n d financing restrictions would allow states and localities to press ahead with innova tive privatization tools to improve services. 33 CONCLUSION Although Vice President Gore promised taxpayers that his National Performance Review of the government would c hallenge the very nature of federal programs, the report issued by the NPR falls well short of this goal. The proposals put forward in the NPR report amount to minor tinkering with the process of government, and avoid the tough actions needed to bring las ting structural reforms in what the federal government does.

If Clinton and Gore are serious about reinventing government, far bolder measures are needed. For example, they must eliminate scores of outmoded programs or activities that du plicate the functi ons of other programs. Adding yet another layer of bureaucracy to coordinate government activities is not real reform. In addition, they must work to divest the federal gov ernment of functions that are better provided by local levels of government. The N P Rs pro posal to loosen a few restrictions on federal funds is only a half-hearted step toward real feder alism. And, among other genuine reforms, they must mount an aggressive privatization initia tive, as governments across the globe are doing, as are mu nicipalities in the United States.

Though the NPR recognized the efficacy and efficiency of the private market, its proposals are poor imitations of real privatization.

To be sure, some of the NPRs proposals will lead to modest improvements in the way Was hington functions. But these measures do not meet the basic tests of real government re form. The NPR report merely tries to polish the machinery of government; it does not reinv ent it.

Scott A. Hodge Grover M. Hennann Fellow in Federal Budgetary Affairs AdamThierer Policy Analyst 33 SeeTerree P. Wasley, A Private Sector Foundation for Roads and Bridges, in Edward L. Hudgins and Ronald D. Utt eds How Privatization Can Solve Americas Infmstmcture Crisis (Washington, D.C.;The Heritage Foundation, 1992 20 } {\f1

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