Taking Charge of Federal Personnel

THE POWER OF THE WASHINGTON NETWORK

Washington's notorious Iron Triangle--the alliance of the federal bureaucracy, congressional staff, and interest groups based inside the Beltway--is perhaps at its strongest in resisting civil service reform. Members of Congress and their staffs are self-interested judges in their own cause; public employee associations are generally staffed with former big-government liberals from Capitol Hill who took their generous benefits with them when they left; and federal unions are committed to strengthening their political clout. Although business groups may identify with improved government management, most are concerned with buying access to Capitol Hill and often hire well-connected, senior-level liberal congressional staffers to represent them. And conservative advocacy organizations, which often talk about the need to get "government off our backs," find the social and economic issues far more attractive than mastering the boring details of civil service laws and regulations governing the functioning of the bureaucratic system they dislike.

In terms of federal personnel management, challenging the bureaucratic culture will mean taking on powerful congressional interests, regardless of party or ideological inclinations. It makes no difference whether Congress for the most part is friendly to an Administration. The levers of legislative power on federal personnel issues too often rest in the hands of Members who give more weight to political support from the "permanent government"² than to the philosophical importance of serious civil service reform. This is, of course, the greatest single psychological advantage enjoyed by the permanent government.

The federal civil service is overwhelmingly comprised of fine, capable, and competent individuals. They also are financially well-off: The average annual salary for a full-time federal employee in Washington, D.C., is over $60,000. They are generally opposed to making changes in federal pay and benefits to bring the civil service more in line with the private sector in terms of competitive job rates and management practices.³ Such an establishment understandably favors the perpetuation of its own bureaucratic power.⁴ Jealously guarding paychecks, pocketbooks, and power, the permanent government has too much at stake to offer anything less than stout resistance to change. Those who hope to change the way Washington works will be educated quickly to the influence, power, and resourcefulness of this sophisticated network.

To overcome the permanent government's resistance to change, serious reformers must be prepared--as President Jimmy Carter was during his campaign for passage of his historic Civil Service Reform Act of 1978--to expend serious political capital, to sweat the details of personnel policy, and to demonstrate political resourcefulness. Only with a clear agenda and the willingness to pursue reform can the new Administration and the 107th Congress accomplish major changes in the way government is run.

Every recent Administration from President Carter's through President Clinton's, in fact, can offer the new Administration key lessons for reform. In order to succeed at his agenda, the new President must base his management approach on clear policy objectives and sound management principles, reinforcing political leadership and accountability from the White House and Cabinet. He must be willing to call public attention to the weaknesses of the current system and to the importance of basing personnel management decisions on performance in carrying out the mission of the President. He must demonstrate a desire to eliminate duplicative programs and functions across the federal bureaucracy and to create a smaller, leaner federal workforce to manage the remaining functions. He will need to gain public support for transferring functions to the states, communities, and the private sector. And to make significant but necessary changes in federal pay and benefits, including more portable private-sector-style benefits, the President will need to gain the support of federal employees as well.

TAKING CHARGE

Because of the closeness of the 2000 election and subsequent legal challenges, President Bush has lost precious time in making the transition into the Oval Office and faces unprecedented pressure in getting his team quickly into place to do the necessary spade work for new policies in federal agencies and departments. Under the intensity of these historically unique pressures, the President and his advisers may be tempted to name fewer political appointees to various positions within the agencies and departments and rely instead on senior career civil servants to carry out the responsibilities that would otherwise belong to his appointees. Because this is not the responsibility of the career civil service, it is unfair to impose this burden of political accountability on them. Meanwhile, of course, political appointees of the previous Administration can be expected to use every loophole available in civil service law to burrow into the career bureaucracy and secure permanent civil service protection.

For the new President, succumbing to temptations to rely on the career civil service to begin implementing his political and policy agenda would be a profound mistake. Career civil servants should not be tasked with formulating and executing the details of an agenda for major policy change. Political appointees, personally loyal to the President and fully committed to his policy agenda, are essential to his success, especially in the crucial early months of his Presidency. No President can or will advance his agenda alone or with a small handful of staffers in the White House or the federal departments. The President needs a full cadre of personnel committed to him and his agenda in the federal agencies that execute the details of national policy.

Lessons from the Past
The task of improving the way the federal bureaucracy operates, however complex, will require that the new President has vision and the willingness to fight the status quo. Presidents Jimmy Carter and Ronald Reagan demonstrated those qualities; their experiences and those of other Presidents who established strong cabinet governments provide ample lessons for reformers in the new Administration. Among them:

• The new President must make liberal use of his power of appointment, get a loyal team in place to carry out his agenda, and insist on accountability while maintaining a clear distinction between career and non-career employees.

• Political appointments to key policymaking positions must be made in a timely fashion.

• Political appointees must be in charge of implementing the President's policies and readily available to speak for the Administration.

• Political appointees should make key management decisions; such decisions should not be delegated to the career bureaucracy.

• The new Administration should provide a clear rationale for continued reductions in the size of the federal workforce and for management changes; workforce reductions should be well planned and systematically implemented.

• The new Administration should use the Civil Service Reform Act to improve accountability to the public and improve management of the workforce.

• The new Administration should use good management and contracting-out of government services to save the taxpayers billions of dollars.

• The new Administration can reform federal employee benefit programs by making fundamental changes through the congressional budget process.

COMPETING THEORIES OF MANAGEMENT

It would be a profound mistake to view the recurring struggle between reformers and the permanent government as merely a contest over pay or power. Like most political struggles, this conflict exists on a higher level. It is a battle between proponents of very different theories of public administration and styles of management.

The Public Administration Model
Apologists for the permanent government, regardless of their partisan affiliation, are animated by a well-established theory of government administration known as the public administration or scientific management model. This model is identified most closely with Presidents Woodrow Wilson and Herbert Hoover. It emphasizes the Progressive ideal--a value-free "scientific" program of government administration, based on objective management and policy principles, which is technically administered by neutral career public officials. In such a system, the career officials lead the political appointees, including the President, teaching them the "scientific" solutions residing within the wisdom of the expert civil service and then engineering the solution into a program of action. In other words, theory determines practice. In spite of America's democratic political tradition, many senior career officials in government and their allies in academia believe this ideal is appropriate.

The public administration model has dominated discussions of government reform since the rise of the modern administrative state. Professor Woodrow Wilson brought the new administrative theory, learned from studies in Germany and Great Britain, to Princeton University, where it provided a vision for how the new welfare state could be managed. Wilson believed the separation of powers was "manifestly a radical defect in our federal system that it parcels out power and confuses responsibility." He sought instead a system that centralized power in the national government, particularly in the hands of the President, with an Administration staffed by the nation's top experts who would determine the proper "scientific" answer to the nation's problems. With the exception of a hiatus under President Dwight D. Eisenhower, the public administration model remained largely unchallenged until the presidencies of Jimmy Carter and Ronald Reagan.

The Political Administration Model
Policymakers today should be guided in their efforts to downsize the government and improve management practices by an alternative model of government management: the cabinet government or political administration model. Advocated in recent years by Presidents Dwight Eisenhower, Jimmy Carter, and Ronald Reagan, this model was the norm for presidential government throughout most of American history. It emphasizes political responsibility--providing presidential leadership to committed top political officials and then holding them and their subordinates personally accountable for achievement of the President's election-endorsed and value-defined program. These Cabinet and sub-Cabinet officials then suffuse this program throughout the labyrinth of a bureaucracy that is often resistant to change.

The Pitfalls of the Clinton Approach
President Clinton followed neither approach, opting for what appears to have been a model based on power sharing among constituent interests. As a result, his Administration has at times lurched from a "high-spoils" approach (a crude version of the political management model epitomized by the firing of long-time employees in the White House Travel Office, the use of a political trickster to head the Office of Personnel Security, and the planting of political operatives into senior-level career civil service positions) to turning the Administration over to federal labor unions, as in the President's October 1993 executive order creating "partnership councils" (a bizarre distortion of "public administration" giving de facto daily management and policymaking authority in federal agencies to labor-management councils).

Although the size of the federal workforce was reduced substantially during Clinton's tenure, nearly three-fourths of that number is attributable to downsizing the Department of Defense, reflecting the end of the Cold War rather than a government "reinvention" initiative.⁵ The vaunted Clinton management reforms did little, meanwhile, to downsize the bite on the taxpayer. In that crucial respect, government has grown. Total federal spending is $425 billion more in 2000 than it was in 1993--a 30 percent increase. More important, since 1993 the number of civilian Full Time Equivalent positions (FTEs) has declined by 19 percent, while the total cost of the civilian workforce has increased by 14 percent, from $111 billion to $127 billion.⁶

The new President will need to implement a careful strategy to carry out a serious agenda for change. A serious agenda of managerial change, changing the way government works, will necessitate the President's adoption of the cabinet government model, the model of political administration championed by Eisenhower and Reagan, rather than the public administration model promoted by Wilson.

LESSONS LEARNED

The new Administration can draw on an ample supply of historical experience for why reform of the federal bureaucracy is necessary and how best to achieve it. Since the Hoover Commission of 1947 and World War II, numerous blue-ribbon panels have been assembled to propose ways to streamline or downsize the federal government, but their impact has been disappointing. As Joseph A. Califano, Secretary of the Department of Health, Education and Welfare (HEW) under President Carter, observed in Governing America: An Insider's Report from the White House and the Cabinet:

The key commissions of the 1960s and the 1970s that had studied government organization--groups chaired by Ben Heineman, Sr., for Lyndon Johnson and Roy Ash and John Connally for Richard Nixon--had recommended essentially the same structure: consolidation, fewer departments and no Department of Education.⁷

Yet the initiatives embodied in these commissions, the Civil Service Reform Act of 1978 and the experience of the Reagan Administration in attempting to implement it, and the successes and failures, mistakes, and missed opportunities under Presidents Reagan, Bush, and Clinton provide clear lessons for reformers. Among them: When contemplating administrative changes, if existing law allows it, "just do it." Delay is the enemy of change. If doing it requires a change in law, make proposals for legislative changes early. And make sure that legislative decisions advance the cause of smaller and limited government, not merely reshuffle, reorganize, or "reinvent" agencies and programs. Reformers must be prepared to fight the resistance of the permanent government, because the benefits of achieving real reform will be well worth the effort.

Lesson #3: Political appointees must be in charge of policy.

Political appointees are an integral part of an effective Administration. The temporary absence of political appointees who could speak authoritatively for the Administration, for example, can be a source of frustration for Members of Congress, who may be trying to hammer out the details of legislation without clear communication from the Administration on sensitive matters of public policy.

Examples are numerous. Many are graphic. During the spring of 1982, Reagan's team at OPM had been locked in tough and tedious negotiations with Democratic House and Republican Senate staff on legislation to establish permanent flexible working hours ("alternative work schedules") for federal employees. Although the Administration and federal employee unions both favored extension of "flextime" to the entire federal workforce, the Administration insisted on management's rights to direct the program. The legal authority for the temporary flextime program was likely to expire during the negotiations, and congressional leaders sought a temporary extension to continue the program while a final compromise bill was being hammered out. Senior career staff at the Office of Management and Budget (OMB), insulated from the negotiations on the Hill and therefore ignorant of the political dynamics, flatly opposed the extension and declared that a "hang tough" posture would force Congress to capitulate at the conference table.

Having soundly beaten House Democrats in a previous floor vote, the Reagan team at OPM knew very well that this threat was politically silly. When notified of OMB's instructions, House Republicans, including some of President Reagan's strongest allies, angrily told Reagan's team at OPM that there would be no Republican leadership support on the floor for such an inflexible position, which would be a political embarrassment for the White House. At the very last minute, as the temporary extension provision was literally heading for full debate on the floor of the House, OPM's political leadership was able to override OMB career staff and reverse what was an "official position" of the Administration. This gave both the Reagan Administration and Congress breathing space to complete negotiations on a permanent authorization for the flextime program. The final compromise bill embodied the Administration's management rights provisions. Only the American Federation of Government Employees (AFGE) opposed the final flextime bill because of those provisions.

For the Reagan Administration, it was a good outcome, but it clearly could have been consummated earlier without an unnecessary loss of congressional goodwill if the process had been left entirely in the hands of the political leadership responsible for the decision.

While Congress should always give consideration to the views of senior career officials on technical matters of administration and take advantage of their impressive institutional memory, it should not do so on matters of Administration policy in which the most politically sensitive questions are sure to arise. For example, following the terrorist bombing of the World Trade Center in New York in 1993, members of the House Judiciary Committee trying to refashion federal immigration policy were frustrated because the White House kept sending career staff from the Immigration and Naturalization Service (INS) who could not speak authoritatively for the Administration. Seeking commitments from senior career officials who cannot or will not speak on behalf of the Administration's policy agenda wastes valuable legislative time.

Lesson #4: Key management decisions must not be delegated to the career bureaucracy.

Government management does not have the private-sector luxury of using bottom-line profit-and-loss statements to measure success. Government budget figures tell only what was spent last year, not whether the program or its staff were successful (e.g., made a "profit"). In government, the only real replacement for a private-sector-financial-statement form of management is personnel management, which inevitably becomes political personnel management. An effective career force is essential, but it cannot be led without strong political managers. Indeed, political appointees in the top positions can make or break any Administration.

Managing and leading people is what efficient government is all about, even more so in the sprawling national bureaucracy. Although President Carter was successful in passing the Civil Service Reform Act of 1978, which embodied this principle, he tended to rely too much on the Executive Office of the President, viewing management much as he would from the governor's mansion of a small state or as an engineering problem to be solved with tools he used in an earlier occupation. Although the White House Office must play a central role in planning, it would be more effective if it delegated the effort to a leaner Executive Office staff and if "line-function" Cabinet and major agency heads were included more in the top management team. Placing trusted political appointees who are dedicated to the President, rather than to their own personal or narrow agency agendas, throughout the bureaus of government is the secret to controlling both the management and policy processes.

This in turn means that the Office of Presidential Personnel (OPP) must make appointment decisions based on loyalty first and expertise second, and that the whole governmental apparatus must be managed from this perspective. Picking appointees who are "best for the job" merely in terms of expert qualifications can be disastrous for an Administration genuinely committed to change, because the best qualified are already in the career positions and part of the status quo--the permanent government. Yet sound cabinet government is not simply a spoils system either, so expertise cannot be ignored. If the Reagan Administration failed on a few early appointments based on the loyalty criteria, the Clinton Administration tended to fail on expertise.

OPM is the central federal agency that manages the federal workforce, and it must play a critical part in developing a team, managing the Senior Executive Service, and overseeing Schedule C positions. Because political appointees are so critical to an Administration's success, they should receive special attention--access to the President, limited of course by rank and importance; special training in political responsibility for the tasks and agencies they are to manage; and exemption from actions otherwise affecting the personnel process, such as hiring freezes. In return for this special treatment, they will be better able to manage the agency morass that lies beneath them.

Presidents Carter and Reagan fought to give their political executives the tools they would need to manage the bureaucracy. For a few short years, it worked. More was accomplished with less, and measures of productivity increased as personnel were cut. Presidents Bush and Clinton, however, made decisions that removed essential management tools from the very political executives that had been the focus of Carter's reforms and, in Clinton's case, actually sought to transfer management authority to a new entity called labor-management councils. Clinton's decision to use collective-like councils (even if they were not union-dominated) could only strengthen the permanent government and weaken the direct management link between political appointments and career staff so essential to the success of the political administration model of government.

Incredibly, congressional conservatives, perhaps motivated more by political hostility to President Clinton than by a commitment to increase the power of career staff, in the last three Congresses proposed cutting the already tiny number of executive branch political appointees--a step that would weaken not only the President's control over the execution of his policy agenda, but also his overall management of the government. Advocates of reform in the new Administration and the 107th Congress should realize that reducing the number of political appointees to weaken political control is a long-sought goal of unions as well as the career manager-dominated American Society of Public Administration.

It is the political appointees, in the end, who can and must be held accountable for how the bureaucracy functions. It is expecting too much of subordinate career executives and union officials to make difficult and politically sensitive decisions about such issues as pay, hiring, firing, and performance ratings. The strategy developed by the labor-management councils during the Clinton Administration illustrates this point perfectly. Performance management systems in several agencies were changed to evaluation performance on a simple pass-or-fail system. Funds earmarked for individual performance and recognition awards were redirected to group performance awards. Individual accountability for performance was effectively severed from evaluations. This trend of reduced accountability continued through Clinton's second term, supported by federal managers and federal unions alike. Under this system, only political appointees, whose rewards come directly from the President, would have incentive to resist the dominant cultural pressures and make tough decisions. But when there is a lack of political leadership on tough issues within an agency, there is no reason to assume that anything will happen down the line in the bureaucracy when the President gives an order. For this reason, all of the responsibility must rest with the political agency head.

Turning control of management decisions over to unions makes even less sense. Unions exist entirely to get more for their members in an environment within which the public demands less. To the extent that President Clinton's plan shifted power to the labor-dominated councils, "reinventing government" proved simply to be a political gift to federal unions. In a perverse way, however, the Clinton Administration plan acknowledged that responsibility should lie with the agency head. Its plan gave decision-making power to the labor-management councils but also recommended that recourse for abuses committed on employees should be taken against the political agency head. There is no ignoring the fact that democratic government, at some level, must place responsibility in the hands of political appointees who represent the elected executive.

President Carter's management reforms recognized this principle and moved responsibility down the management chain to successively lower-level political executives, then to career executives and managers, and finally down to the level where the work was performed. All were bound together by a performance appraisal and performance reward system that rewarded those who successfully enacted the policies set by the President within the limits imposed by laws of Congress. His system demonstrated that, although employee work groups and organizations can be useful in some situations, and although employee input and needs must be considered by management, effective government management requires strong agency leadership communicated through successive subordinate officials. To the degree a mission is simplified, the easier leadership becomes. Under the Reagan Administration, reforms were based on management principles appropriate to the organizational reality of government: leadership, simplicity of mission and work, and political responsibility.

The new Administration should return to the principles embodied in the Carter-Reagan reforms and implement changes based on intelligent, dedicated leadership and sound management principles.

Lesson #5: A clear rationale must be put forth for reducing the size of the federal workforce and making management changes.

Reforming and streamlining the federal government has been a stated goal of every recent Administration. Yet, in the case of the non-defense sector, only two--those of Eisenhower and Reagan--actually managed to achieve any significant reductions in numbers and impose managerial leadership on the federal bureaucracy. These Administrations were successful because they used such broad-scale management tools as eliminating personnel along with entire functions of government, setting reduction targets and monitoring progress, and focusing on political responsibility for results.

The rationale used by the Reagan Administration in creating management efficiencies and reducing the size of the federal workforce was based on its clear understanding of cabinet government and the model of political administration based on responsibility. The President sets the policy, and politically appointed Cabinet members and their subordinate officers implement it, all in accord with the President's election mandate. The government is managed at the top by the President and his political officials, who in turn work through career senior executives to direct their career civil service staff. The focus is on people and managing personnel.

Before reducing the civil service workforce is even discussed, the Administration, policymakers, politicians, and the media must differentiate among several key groups within the federal bureaucracy. When reporting federal civilian employment figures, for example, the media routinely include the independent Postal Service, which is not directly managed by the President. Journalists also do not typically distinguish between defense civilian employees (which, for example, President Reagan wanted to expand to win the Cold War) and domestic non-defense civilian personnel (which he planned to cut). Rarely are political and career officials separately identified. Such clarity, however, is essential because the civilian personnel system is immensely complex. As pictured in the accompanying chart, it has many discrete elements.

The Reagan Administration began by focusing on the appointment of the top presidential and non-career appointees, because Reagan understood how critical they were for its success. It focused on training and support for senior political appointees to give them the management tools they would need to perform. In a major series of reports on the federal bureaucracy at the time, Washington Post reporter Paul Taylor noted that "The Reagan Administration has moved more aggressively, more systematically, and more successfully than any in modern times to assert its policy control over the top levels of the bureaucracy."

The experience of the Clinton Administration offers a dramatic contrast. President Clinton frittered away critical months by focusing on ethnic and gender diversity in his appointments, which delayed them and contributed to the lack of strong agency management during his first two years. The criticism of Clinton's management of the executive branch during those two years was nearly universal because he had not consistently followed one of the models of personnel management.

These two Administrations also took different paths in reducing the size of the career government. The Reagan Administration set the goal of reducing domestic government employment by 75,000 FTEs, and it set targets for each operating agency. It monitored the progress of agencies through a new monthly personnel accounting process. By the end of Reagan's first term, the Administration had achieved its goal because the President had rallied support from his own top political management, his Cabinet officers, and his sub-Cabinet management team.

By the time the Clinton Administration took office, however, this monthly accounting system no longer existed, and personnel reductions were driven largely by the budget. Congress legislated personnel reductions of 270,000 FTEs from fiscal year 1993 baseline levels, to be achieved by FY 1997. Initially, little was done to achieve these reductions, but conveniently for the Administration, the Department of Defense was already well into post-Cold War restructuring and downsizing begun under President Bush. During the Clinton Administration's first two years, 97 percent of the workforce reductions came from Defense as a direct result of those policies. During the succeeding two years, most reductions in non-defense personnel were driven by decisions of the Republican-led Congress on federal spending. Indeed, pressure exerted by the 104th Congress reduced the number of federal employees at 29 of 39 major government agencies.

Clinton's initial difficulty in driving the personnel reductions stemmed from his alliance with federal labor unions. The unions politically would not support policies that decimated their ranks, and Clinton promised them that reductions would come from management. His strategy was to flatten the management hierarchy and increase the supervisor-to-employee ratio from 1:7 to 1:15. This goal, however, proved to be unrealistic; the federal workforce simply did not have enough managers to meet the congressionally mandated reduction targets. The Clinton Administration then targeted management-related overhead positions: the administrative occupations of personnel, budgeting, accounting, procurement, and auditing. These occupations were seen as excess overhead in need of streamlining and, together with managers and supervisors, were targeted for reductions of up to 50 percent. Four years of reducing the numbers in these targeted occupations made federal workforce "reinvention" a boon to private-sector employers, as federal agencies turned to contractors to fill the administrative vacuum. Although the workforce has indeed been reduced in sheer numbers, the new Administration will find that the workload has remained largely intact.

Lesson #6: The Civil Service Reform Act should be used to improve management and accountability.

As noted above, the Civil Service Reform Act of 1978 (CSRA) applied sound principles of performance management to the daily workings of the federal government. Central to this law is Title 5, U.S. Code 2301(b), which requires that "recruitment, selection, and promotion" are to be determined "solely" on the basis of "relative ability, knowledge and skills"; that "appropriate incentives" are to be provided to encourage "excellence in performance"; and that "employees should be retained on the basis of their performance."

Backed by this statute, the Reagan Administration created a comprehensive and standardized employee performance appraisal system, tightened employee discipline systems, implemented a merit pay system for managers and executives, and increased flexibility in assignments of the Senior Executive Service. The Reagan Administration wanted to expand these reforms from the executive ranks to establish a direct link between pay and all monetary awards and performance and to eliminate the automatic nature of within-grade pay increases for all General Schedule employees. It attempted to increase the role of performance as the basis of employee retention in reduction-in-force efforts in federal agencies as well in order to extend the performance principle throughout the entire work force.

President Carter had prepared the way. He was elected on a platform promising to reform the bureaucracy, and he acted on that promise. Carter did not tell the American people that he had fulfilled his promise to reform the bureaucracy and explain clearly what this success meant. He did not highlight this accomplishment even to his own managers. As a result, he received only negative media coverage on the subject, largely generated by the unions and others who opposed his efforts. In the end, therefore, the CSRA yielded few tangible results under Carter; to a great degree, time simply ran out on his term. But from day one, President Reagan and his team used the tools of the CSRA to reform the bureaucracy and kept the issue of reducing the size of government while increasing efficiency firmly before Americans in the daily news, thereby generating countervailing support from a public that praised the Administration's efforts.

While President Clinton's National Performance Review (NPR) supported performance in principle, it devolved control over government systems to the agencies and the unions, and therefore to the very entities that historically have resisted a direct link between performance and accountability. More important, his Administration chose to go in a different direction, which is easily discernible in three areas: the Federal Employee Performance Appraisal System, reduction-in-force (RIF) procedures, and merit pay.

Clinton's Approach to Performance Appraisal
Performance appraisal means nothing if it is not, in the words of David Osborne in Reinventing Government, tied directly to "real consequences" for success or failure. Before the enactment of the CSRA, performance appraisal in the federal system used a three-tiered rating system in which 99 percent of federal employees received a "satisfactory" rating at the middle range of performance. The Carter Administration realized this was meaningless and created a five-step performance appraisal system, which rated job performance as "outstanding," "exceeds fully successful," "successful," "below successful" (needs improvement), and "unsuccessful." The Reagan Administration enforced this new system, spreading the ratings over at least four of these categories so that performance levels could be distinguished more clearly and rewards distributed accordingly, even if relatively few were actually rated unsuccessful and fired for poor performance.

Instead of strengthening this performance appraisal system, the Clinton Administration OPM aggressively encouraged agencies to adopt a two-level pass-fail system. This was even more primitive than the federal employee appraisal system scrapped by President Carter, and it effectively ended any serious appraisal of job performance in the federal workforce. If work is not even appraised, it is not possible to reward those who perform it best (which could not be considered a victory for anyone except, perhaps, the permanent government).

Reduction-in-Force Procedures
Reduction-in-force procedures are rules for laying off federal employees. Historically, one of the biggest federal management problems has been the policy of laying off federal workers with little consideration for how well they perform.

Four factors govern the decision to lay off federal workers: tenure, veterans preference, seniority, and performance. The main goal of the Reagan Administration, against strong opposition from federal employee unions and their allies in Congress, was to upgrade the role of performance relative to seniority, enforcing the legal principle that employees should be retained on the basis of performance. After months of negotiation with interested parties, regulations were issued only to be blocked by an appropriations rider added in the Democratic House which would block reform in the following years. An unfortunate byproduct of the Clinton OPM guidance supporting a pass-fail system was further diminution of the role of performance relative to seniority in RIF procedures. As a result, it is now easier for top performers to be laid off during agency consolidations or reductions in force--an outcome that is hardly consistent with improving efficiency or providing positive consequences for good performance in the federal workforce.

Despite several attempts by conservatives in the House of Representatives in recent Congresses to enact legislation that would modestly increase the weight given to performance, the predictable unity of federal managers and federal unions against the principle of rating employee performance and the Clinton Administration's opposition to such measures should make it no surprise that the bills failed to advance.

Merit Pay
According to a 1994 survey of major U.S. companies, 90 percent use a system of merit pay for performance.¹¹ This is not the case in the federal government. While the Clinton Administration lobbied furiously to get its huge tax and budget package through the 103rd Congress, Democrat Delegate Eleanor Holmes Norton of the District of Columbia sponsored a provision in the legislation that would have eliminated all bonuses and cash awards for good performance among federal employees--generating stunned reaction from (among others) Vice President Al Gore, who told reporters, "That's not going to happen." Although it did not happen in that budget bill, the entire CSRA pay-for-performance system created by President Carter in 1978 and implemented by President Reagan in 1981 for the managerial corps has been effectively eliminated nonetheless.

After implementing merit pay for executives and managers, beginning in the summer of 1982, the Reagan OPM team entered 18 months of negotiations with House and Senate staff on extending merit pay to the entire workforce. Long and detailed talks between OPM and both Democrats and Republicans in Congress ensued, and a final agreement was reached in 1983 that supposedly assured the passage of legislation creating a new Performance Management and Recognition System (PMRS) for all GS-13 through GS-15 employees. Meanwhile, OPM issued regulations to expand the role of performance throughout the entire workforce. But congressional allies of the permanent government, led by Representative Steny Hoyer of Maryland, stoutly resisted this extension of pay-for-performance and, with strong union support, blocked OPM administrative pay reforms through the congressional appropriations process.

It got worse. The original merit pay system for federal managers (GM 13-15 grade levels) expired on September 30, 1993. The Bush Administration did nothing. And, to date, nothing has been done by the Clinton Administration either to reinstate the federal merit pay program for managers or to extend one to the remainder of the workforce. This must be considered a resounding victory for the permanent government.

President Clinton proposed to decentralize decisions like performance management, merit pay, pay classification, merit hiring, and management rights and give authority for those decisions to the permanent bureaucracy at each agency. The new President should instead stoutly champion his right to manage the executive branch, to make performance appraisal meaningful, to protect better performers during reductions in force, and to reward better performers with higher pay. These are the essential tools that hold people accountable for performing the work that is assigned to them.

Lesson #7: Good management and contracting out can save taxpayers billions of dollars.

Even with recent declines in personnel, the federal bureaucracy with its duplicated functions and programs is still a hefty target for management and budgetary reform. Personnel costs (wages and benefits for the year 2000) equal 21 percent of total discretionary spending. Other administrative overhead adds another roughly 5 percent. With expenditures for management so large, even minor gains in efficiency would translate into big savings.

Management theory holds that performance-based management yields more efficient work of higher quality and with fewer staff, that pay based on performance results in greater productivity, and that central oversight of agency operations with decentralized decision-making by line managers uses resources more efficiently. If that is true, even a 1 percent efficiency gain in payroll cost would generate more than $1 billion a year in savings. Contracting out federal functions to the private sector will have an even greater effect.

Virtually no one outside of the permanent government thinks the comparability measurements between federal and private-sector pay scales are accurate. The permanent government supports existing comparability measurements because they suggest, against all common sense, that federal workers are grossly underpaid. The OPM, in fact, conducted an independent study in the 1980s and found that federal pay was about 11 percent above that for comparable jobs in the private sector. If one uses that estimate today, contracting out the work conducted by only half of the existing federal workforce could reduce expenditures by $7 billion per year. The OPM also estimated pension benefit costs, and its most conservative estimate found that pension benefits in federal employment were 4.3 percent of payroll more than in the private sector. Using that estimate, if contractors were paid the private pension rate, the government could save an additional $2.7 billion per year.

In adopting the policy of contracting out as a management strategy, congressional reformers will need to address practical questions regarding separation costs. This would argue for a more gradual implementation of outsourcing and that contracting savings would be slightly offset by higher pay for the higher-skilled contract managers who would remain in the federal government. Nonetheless, the OPM studies conducted in the 1980s give some idea of the sizable permanent savings to the taxpayers that are available from federal personnel reductions. As the size of the workforce is reduced, other reductions in overhead are produced. For example, the reduction of space used in overpriced federal buildings and facilities alone would result in billions of additional dollars in savings to the taxpayer.

If one goes beyond personnel into the programs and functions performed, still greater savings are possible. For example, after taking out the effects of interest payments and savings and loan bailout costs, domestic spending targeted by Reagan initiatives declined from 14.8 percent of gross domestic product to 12.2 percent. When the 1996 budget process came to a close, the Republican-controlled 104th Congress had made real cuts in discretionary spending by eliminating 270 federal programs, agencies, offices, and projects, helping to reduce the deficit to its lowest levels since 1982. Still more would have been accomplished had President Clinton not vetoed the congressional budgets.

Lesson #8: Federal workforce reduction should be planned and implemented in a systematic fashion.

Cutting the federal workforce is difficult but probably inevitable. It must be done rationally. To cut the workforce and leave the workload intact is unfair to the remaining workers and to the public whose expectations for service remain high. Some workforce reductions can be achieved through performance or productivity enhancements, but significant cuts must be tied to programmatic reforms. Ineffective programs should be abolished, duplicative functions consolidated, fragmented jurisdictions rationalized. Some functions should be devolved to state or local jurisdictions, while others should be outsourced or privatized. These are the real reforms that will lead to a more efficient government.

The reorganizations of the Department of Defense since the end of the Cold War provide numerous lessons in systematic downsizing. Over the past 12 years, the Defense Department was cut nearly by half. Such a momentous task required bipartisan political cooperation and support to a degree that may be difficult to attain for many non-defense programs and agencies. Nevertheless, a serious review of the viability of many old-line federal programs is long overdue.

Lesson #9: In reforming the Federal Retirement System and other federal employee benefit programs, getting serious changes enacted into law will require careful monitoring and managing of the congressional budget process.

Washington Post cartoonist Herblock once called federal retirement the government's sacred cow of entitlement programs. This means that a meat-ax occasionally will prove more useful than a scalpel. Because Members who serve on the committees with jurisdiction over federal personnel programs will present obstacles to serious change, advocates of reform must be prepared to pursue fundamental changes rather than simple business-as-usual decisions that chip away at the margins.

NEW STRATEGIES FOR MANAGING THE CIVIL SERVICE

Many federal workers today prefer to think of themselves as employees rather than civil "servants." As servants of the people, they had merited special protection against unwarranted abuse from powerful political bosses. Over time, however, the environment in the federal workplace changed dramatically. The civil servant, now "employee," has been empowered to police his environment, blow the whistle on his employer, lobby to effect changes in his employment contract, dispute a host of management actions, and even initiate retaliatory complaints against a hated manager or supervisor. The secure protective environment of the past has morphed into a workplace culture of entitlement and adversarial employee relations in which longevity rules.

However, vestiges of the past remain. While private-sector employers compete with human resource innovations to attract and retain a competent workforce, the federal government is stuck with a personnel system more attuned to expectations from the early 20th century. It suffers from a rigid, one-size-fits-all national pay scheme that undercompensates some and overpays many. It offers a benefit package that is overly generous in some areas and inadequate or miserly in others. The Federal Employees Retirement System, though more portable in its Social Security and 401(k) portion than its predecessor, is still running up debt that must be redeemed by future generations of taxpayers. The old Civil Service Retirement System was seen as a "golden handcuff" because of its generous vesting and early retirement options; the defined benefit portion of the FERS system is still a handcuff, though perhaps a "silver" one. Some components of the benefit package offer choice and flexibility, as in health care; others require congressional intervention to effect even minor changes or improvements. Others, such as medical savings accounts and cafeteria-style plans that enhance employee choices, cannot even be offered because of intense political opposition from special-interest groups.

In developing strategies for managing federal personnel, the new Administration must also be more mindful of the trends that will shape the future. The workforce of today is much more mobile than the workforce of even two decades ago. People change jobs frequently and are no longer worried about lifetime security as they were even a generation ago. Their mobility is reflected in the highly competitive labor market, a dynamic that is likely to endure as long as the country grows and the economy continues to expand. Technological advances enhance productivity and challenge the way Americans work and conduct business.

Whether reformers in the new Administration opt to "reinvent" the government or to "re-engineer" the process or brighten the government's disposition with a "customer relations" campaign, they must take care not to make matters worse, however inadvertently. When the Clinton Administration was forced to deliver on the personnel reductions it had promised, it sought the authority to foster early retirements with cash rewards of up to $25,000. When word of the "buyout" program spilled out during the summer of 1993, the normal retirement levels plummeted from 42,000 per year to 28,000 that year. Over fiscal years 1994 to 1995, 110,000 buyouts at an average cost of $24,500 each were processed. The total cost to the Treasury was $2.8 billion, and 92 percent of these buyouts went to employees already eligible for voluntary or early retirement.

This approach embodied such poor personnel policy, and was so costly to the Treasury and the retirement system, that it can only be explained as a political payment to federal unions to mute their opposition to downsizing. Now that reduction goals have been met, many agencies have turned from reduction planning to accession planning. Nevertheless, the clamor for buyouts remains. Congress granted buyout authority to a number of agencies with little justification. The practice is so ingrained, and buyout expectations are so high, that some employees have come to view a buyout as an entitlement. As a measure of how far this has gone, in 1999, OPM submitted a request to Congress for permanent government-wide buyout authority. A strategy developed by the private sector to be used on a one-time basis by an organization facing large-scale downsizing has been elevated in just six short years to routine practice in the management of federal personnel.

Reforming the system will require the following strategic steps.

CONCLUSION

Politicians running for office often promise constituents that they are going to change the way Washington works. Delivering on that promise when the subject is federal personnel management turns out to be a much tougher task than they expected. But even if the new Administration pursues only modest reforms or simply backs away from the task altogether, it should not assume that nothing will happen. In the absence of planned and determined action, powerful congressional and bureaucratic interests will step in to define the civil service agenda.

Advocates of reform must base their reforms on the twin foundations of political responsibility and performance management--emphasizing managerial accountability and making sure that job performance has consequences. At the same time, they must maintain the bright line between career and non-career positions and functions and avoid blurring the distinctions or confusing their roles. Because further federal workforce reductions are almost inevitable, they should be managed carefully by the Administration and its Office of Personnel Management. Finally, as has been done with other entitlement programs, reformers should not hesitate to use both legislation and the congressional budget process to obtain significant changes in the federal benefits program. It has been done before; it can be done again.

In creating a smaller but more effective federal government for the 21st century, the new Administration must take the lead in building broad public support for comprehensive reform. This includes redefining the roles and functions of the federal government, ending duplication of its functions and programs, and introducing more efficiency into its organization, staffing, and pay and benefits structure. Advocates of reform should argue the case not only to the general public, but to new federal employees as well. It is these new civil servants who will form the core workforce of a reformed federal government, serving in well-compensated jobs with portable benefits comparable to those available in the best private enterprises. Such a workforce will appreciate the premium put on performance and accountability and applaud the restoration of merit in hiring and retention. With a more efficient and effective federal government, America's taxpayers will be better served.

George Nesterczuk is Vice President of Global USA Inc., a Washington, D.C., government relations firm, and a former Staff Director for the Civil Service Subcommittee of the House Committee on Government Reform. Donald J. Devine is an Adjunct Scholar at The Heritage Foundation and served President Ronald Reagan as Director of the U.S. Office of Personnel Management from 1981 to 1985. Robert E. Moffit, Ph.D.  is Director of Domestic Policy Studies at The Heritage Foundation and a former senior official at the U. S. Department of Health and Human Services and the U.S. Office of Personnel Management during the Reagan Administration.