Government leaders know there will be no silver bullets, only hard choices, when it comes to preparing the inevitable budget cuts now facing federal agencies.
The question is, how will they proceed?
If the lessons of the 1990s are any guide, agencies can take any of eight approaches that were used during the Clinton administration — not all to the best effect — when agencies were last forced to reduce the bloat and burden that had come to characterize many government programs.
The most successful agencies will be those which avoid some of the mistakes made during that period, and see smaller budgets as a time to reassess their priorities and programs and restructure, said Max Stier, president and CEO of the Partnership for Public Service, based on the findings of a new report on “Making Smart Cuts” released today by the Partnership and Booz Allen Hamilton.
“We’re going to go through a period of difficult budget cuts,” said Office of Management and Budget Director, Jack Lew, speaking at forum accompanying the report’s release. “We can’t look at this thinking we can do it by cutting waste. We know we’re moving from a freeze to reduction.”
Lew said that federal workers “are at the heart of what we do,” and that they deserve gratitude for the public service they perform. But pointing to the seriousness of the current budget climate, he said the administration could not rule out cuts in pay and benefits and increases in pension contributions which have already been proposed.
Lew also said that the goal for agencies isn’t just to find savings, but also to “make sure we’re being proper stewards of taxpayers’ dollars,” adding that it was important for agencies to balance saving money with the need to recruit talented people to government.
How agencies might strike that balance was the subject of the new report. It’s recommendations are based on the experience and observations of more than 30 senior current and former senior officials and other experts, assessing what was learned by the sweeping budget cuts of the 1990s.
The impetus then stemmed from the National Performance Review, an eight-year initiative led by Vice President Al Gore, not only to cut the size of government, but also to improve it. That initiative led to the Workforce Restructuring Act that called for cutting full-time positions by 12 percent, or about 272,900 employees, over five years.
Agencies in retrospect applied one or more of eight distinct strategies to reduce their size and expenses.
The results clearly suggest that some approaches work much better than others:
1. Across-the-board cuts – which reduce budgets, programs or functions by a flat-rate percentage reduction. They are easy to implement since they apply to all alike, but they ignore differences in priority, performance or efficiency.
2. Programmatic cuts – which reduce programs or functions according to relative importance or efficiency. They may allow agencies to protect those programs that have the highest priority or are achieving the best results, but they require difficult decisions that may be opposed by affected stakeholders.
3. Decreasing administrative costs – which can reduce overhead, but may lead to a weakening over time of managerial capacity or critical support functions, such as human resources and financial management.
4. Personnel reductions – which can contribute to major cost savings through attrition, forced layoffs or both. But they can also create severe skills imbalances, degrade morale and “hollow out” organizational units.
5. Consolidating or centralizing functions – which can lead to greater efficiency, but may degrade responsiveness or citizen and customer service.
6. Reengineering – which can improve service quality and speed but may require significant upfront resources, particularly if technology is employed, as is often recommended.
7. Investing in information technology – which can significantly increase productivity and efficiency, but requires significant initial investment and may result in unanticipated implementation costs.
8. Outsourcing – which assigns functions or tasks to external organizations, when allowed, ideally at a lower cost. But outsourcing requires oversight by skilled government personnel and may not achieve expected savings.
The report also identified four conditions that need to be in place to ensure that downsizing doesn’t merely reduce costs, but positions agencies to be more effective over the long run:
1. Leadership vision – There is an essential need for top-level leadership willing to make difficult decisions and the ability to present a vision to employees and key stakeholders.
2. Planning – The most successful agencies planned ahead and were prepared for how to respond, envisioning new ways of doing their work.
3. Let agency leaders make the decision. Trust those within agencies to recommend how best to apply a combination of cost-cutting strategies.
4. Change-management. Agencies can mitigate the adverse effect of budget cuts on citizens, federal employees and contractors by developing a strategy for making changes.