In the preamble to its December report on how to wrangle Americas fiscal crisis, President Obamas deficit commission conjured the image of a family hunkered down around the kitchen table, making tough choices about what they hold most dear and what they can learn to live without. The attempt to make fiscal reform sound human sizedlike something out of a very special episode of The Waltonswas understandable, given the colossal abstractions that followedin the reports recommendations (Extend Medicaid drug rebate to dual eligibles in Part D; Move to a competitive territorial tax system). But at least one of the bipartisan commissions ideas did possess a kind of after-supper, intuitive appeal: cutting the federal workforce by 10 percent and freezing federal salaries.
In tough times, everyone understands downsizing. If the symbolism of belt tightening werent so powerful, President Obama probably wouldnt have announced his call for a two-year freeze on federal salaries in November. The actual savings associated with the move are fairly trivial in the grand scheme, but the signal was bright and clear. All of us are called on to make some sacrifices, Obama said to the cameras. And Im asking civil servants to do what theyve always doneplay their part.
The new Republican majority in the House has, naturally, been happy to take up this theme. In January, Representative Kevin Brady of Texas introduced the too cleverly named Cut Unsustainable and Top-heavy Spending (CUTS) Act, whose provisions closely mirrored the debt commissions plan for downsizing the federal workforce: a 10 percent cut through attrition, a three-year pay freeze. Then the Republican Study Committee, a congressional group crowded with Tea Party freshmen, upped the ante, calling for a 15 percent slash to the civil service amid a long menu of other spending cuts that, while drastic, would actually do little to ease the workload of the federal bureaucracy. In both cases, the sales pitch for gutting the civil service was more or less the same. Theres not a business in America thats survived this recession without right-sizing its workforce, Brady told the Washington Post after introducing his bill. The federal government cant be the exception.
The problem is that, as employers go, the federal government is in fact pretty exceptional. A corporation can shed workers and then revise its overall business strategy accordingly. A strapped city government can lay off a few street sweepers and then elect to sweep the streets less often. But federal agencies are governed by statutory requirements. Unless Congress changes those statutes, federal agencies mandatestheir work assignmentsstay the same, regardless of how many people are on hand to carry them out. Medicare checks still have to go out within thirty days of a claim, offshore oil wells still need to be inspected, soldiers in Afghanistan still need to be provisioned, Social Security databases still need to be maintained, and on and on. It raises the hairs on my neck when I hear people say weve got to do more with less, says John Palguta, a vice president for policy at the Partnership for Public Service, a nonprofit focused on the government workforce. The logical conclusion is were going to do more with nothing.
In practice, cutting civil servants often means either adding private contractors orin areas where the government plays a regulatory functionresorting to the belief that industries have a deep capacity to police themselves. (This idea, of course, has taken some dings in recent years.) And though contractors can be enormously useful, they too have to be, well, governed. You can cut and cut and cut and try to streamline the government workforce, but at some point you lose the ability to oversee the money that youre spending, and that puts everything at greater risk, says Don Kettl, dean of the University of Marylands School of Public Policy. The opportunities for program failureand waste of public dollars grow exponentially.
In other words, if Congress and the White House agree to substantial cuts in the federal workforce but dont also agree to eliminate programs and reduce services, the end result could be more spending and deficits, not less. Strange as it may sound, to get a grip on costs, we should in many cases be hiring many more bureaucratsand paying more to get better onesnot cutting their numbers and freezing their pay. Because in many parts of government, the bureaucracy has already crossed that dangerous threshold beyond which further cuts can only mean greater risk of a breakdown. Indeed, much of the runaway spending weve seen over the past decade is the result of our having crossed that line years agothe last time there was a Democrat in the White House, a divided government, and calls for slashing the federal workforce in the air.
One night in the autumn of 1993, Americans watching their bedroom TV sets caught an unusual appearance by Vice President Al Gore on Late Night with David Letterman. He had come to smash an ashtray. In an unlikely pop tutorial on the federal bureaucracy, Gore explained to the studio audience that any time a hapless federal acquisitions officersomeone in charge of buying stuff for the governmentfaced the thankless task of purchasing an ashtray, he had to pore through ten pages of bureaucratese to find out what specifications the thing had to meet. There were even mandatory instructions for ashtray safety testing. When smashed with a hammer, the official writ had it, the specimen should break into a small number of irregularly shaped pieces, no greater than 35. With that, Gore and Letterman gamely strapped on safety goggles and conducted an in-studio ashtray safety testall to lampoon the manner in which a fusty bureaucracy did its shopping.
Gores stunt was meant to promote a new White House initiative called the National Partnership for Reinventing Government. With the Cold War fading from the rearview mirror and defense spending ratcheting down, the brand-new Clinton administration wanted to seize their moment to modernize the government through a system of information-age reforms. (One example: giving civil servants the freedom to go buy office suppliesor ashtraysat their local Staples using a federal credit card.) Reinventing Governments noble, liberal aim was to restore public faith in federal institutions. But it also came to serve a more tactical purpose. As the Gingrich revolution swept Washington, Reinventing Government allowed the White House to politically outflank a GOP eager to gut the bureaucracy for the sake of gutting. A central argument for the initiative became, If you fix the process, you dont need the people. When the initiative tallied its accomplishments in 1998, at the top of its list was cutting the federal workforce by 351,000 civil servants.
One of the greatest targets of all those cuts was the Defense Departments acquisitions workforcethe lowly ashtray buyers, yes, but also the cadre of professionals who write the militarys more sophisticated contracts for goods or services, negotiate their terms, manage their execution, and audit their end results. This tribe of bureaucrats came under fire on multiple fronts. The biggest blow came not from Reinventing Government, but from the Republican Congress, which in 1996 ordered a 25 percent decrease in the Defense acquisitions workforce before the year 2000. With that plus other workforce reductions that had already taken place earlier in the decade, the number of Defense contracting officers fell by 50 percentfrom 460,000 to 230,000over the course of the 1990s.
It turned out to be a case of modernization gone horribly awry. At roughly the same time as the Defense contract management workforce was being hollowed out, the military was reorganizing itself around a vastly increased dependence on outside contractors. The balance of acquisitions was shifting from the relatively straightforward purchase of goods (Gores ashtray) to the more sophisticated enlistment of services (the rapid construction of a field power station). And the weapons systems that the Pentagon was buying were only becoming more technologically complex. If anything, the workforce needed beefed-up expertise. A lot of people in acquisition and procurement were people with a high school education, says John Kamensky, a senior fellow at the IBM Center for the Business of Government who was among the leaders of Reinventing Government. What we needed was people with degrees who knew how to manage contracts. But instead the workforce simply eroded.
The signs of impending danger were already apparent in 2000. Staffing reductions have clearly outpaced productivity increases, said a Pentagon inspector generals report that year, citing contract backlogs and rising costs. From there, things only got worse. First came the terror attacks of September 11, 2001, then the war in Afghanistan, and then the war in Iraq, all under the watch of a presidentGeorge W. Bushwhose administration favored the use of contractors wherever possible. Defense spending soared, but the diminished contracting workforce was largely passed over in all the hubbub. After 9/11, the Defense Department chose to increase war-fighter abilities, says Jacques Gansler, a former undersecretary of defense for acquisition, technology, and logistics under Clinton. And yet in Iraq and Afghanistan we actually have more contractors on the battlefield than people in uniform.
In 2007, Gansler was appointed by the secretary of the army to lead a commission looking into the problem of contracting in Iraq and Afghanistan. The commissions report called the buildup to the crisis a perfect storm: the workload of contracting officers had increased sevenfold in recent years, but their ranks had never recovered from cutbacks in the 90s. Essentially, the report said, the Army sent a skeleton contracting force into theater. The battlefield had become a complex, uncoordinated, and chaotic overlay of soldiers under command and private contractors roaming free. When the critical need is to get a power station running, and there are no resources to monitor contractor performance, the report said, only the contractor knows whether the completed work is being sabotaged nightly. For the military at war, the job of getting what it vitally needed from contractors had become a pickup game.
But perhaps the most ringing effect of the hollow acquisitions workforce is higher costs. Every year, the Government Accountability Office analyzes a portfolio of major weapons contracts to see how the Pentagon is handling its acquisitions process, and the past decade has seen a staggering trend of increased cost overruns. In 2000, the average weapons system contract ultimately cost 6 percent more than originally projected. In 2009, the average weapons program ended up costing 25 percent more. Cost overruns for that year alone amounted to $296 billion. Among the causes of the problem, the GAOs 2009 report cited shortages of acquisition professionals as well as degradation in oversight, delays in certain management and contracting activities, increased workloads for existing staff, and a reliance on support contractors to fill some voids.
The acquisitions nightmare is, unfortunately, not just a problem at the Pentagon. For years now, the FBI has famously (and expensively) struggled to create a centralized, web-based case management systemin large part, according to the agencys inspector general, because of weak government contract management. Or consider the case of the Coast Guard: after 9/11, when the agency was subsumed under the new Department of Homeland Security, its leaders secured $24 billion to refurbish the Guards badly antiquated fleet. But having been subject to the same 1990s personnel cuts as the Pentagon, the Coast Guard didnt even have a dedicated acquisitions department. So the agency seized on an innovative solution: Northrop Grumman and Lockheed Martin managed the contracting themselves. The result was a disaster (see Sunk Costs, November/December 2008). The extended hulls on a fleet of refurbished boats buckled, while eight large new ships that had been commissioned came in with serious design flaws, causing huge delays and cost overruns in the hundreds of millions of dollars.
In the realm of acquisitions, then, elected officials whittled down the ranks of key personnel just as the government was becoming strategically married to the use of outsourcingand just before a national crisis dumped a ten-year avalanche of work on anyone involved in managing contracts for the government. A decrease in the workforce coincided with an increase in responsibilityand a rise in stray costs. As it happens, an uncannily similar pattern has played out in the biggest regulatory failures of recent years.
Chronic manpower problems at the Minerals Management Servicethe office within the Interior Department charged with regulating offshore oil wellsstretched all the way back to the 1990s, when a long boom in deepwater drilling coincided with a bust in the agencys funding. In December of 1996, the year when the agencys budget bottomed out, the Houston Chronicle reported that offshore fires, explosions, and blowouts had increased by 81 percent in the years of heightening offshore oil extraction since 1992. Yet over the remainder of the decade, the frequency of surprise inspections took a nosedive and never recovered. Precisely when the need for regulatory oversight intensified, wrote the National Oil Spill Commission in its report this January, the governments capacity for oversight diminished.
The situation barely improved in the 2000s. The Washington Post recently reported that, between 1988 and 2008, the number of deep-sea oil extraction projects in the Gulf of Mexico increased tenfold. But the number of inspectors assigned to the region barely budged. By the time of last years Deepwater Horizon oil spillthe largest environmental disaster in U.S. historyMinerals Management had fifty-five inspectors matched against some 3,000 far-flung offshore facilities across the Gulfa ratio of 1 to 55.
Whats worse, those inspectors were woefully undertrainedthey complained of it themselvesand significantly underpaid. As oil companies moved into deeper and deeper water, their drilling technologyincluding the now-infamous blowout preventersfar outpaced the inspectors knowledge and the agencys technical regulations. Some inspectors noted that they rely on industry representatives to explain the technology at a facility, the commission report says. And at a time when even the industry struggled to recruit enough qualified engineers to staff its expansion, the regulator stood virtually no chance in the competition for talent. Minerals Management has difficulty recruiting inspectors, said the Department of Interiors inspector general in congressional testimony last year. Industry tends to offer considerably higher wages and bonuses.
Is it any mystery, then, why the Minerals Management Service failed to prevent a blowout in the Macondo Well 5,000 feet undersea? Quite apart from other huge problems facing the small agency (the conflicts of interest inherent in its lucrative royalty-collecting program, its place in a Department of Interior largely run by energy lobbyists during the Bush administration, and the much-reported culture of substance abuse and promiscuity in certain suboffices), its manpower issues alone would seem fatal enough.
Much the same pattern held in the Securities and Exchange Commissions oversight of the financial sector in the run-up to the financial crisis. In the early Bush years, SEC Chairman William H. Donaldson understood that his famously understaffed and outmatched agency was having to oversee increasing volumes of ever-more-complex financial activity. There was a real need to increase the staff, says Donaldson. We had to really fight to get that done. In addition to adding personnel, Donaldson created a central Office of Risk Assessment to monitor warning signals across the SECs various divisions. And he set about trying to hire a few brokerage and investment pros familiar with the kinds of innovative financial instruments then sweeping Wall Street (an uphill battle in an agency predisposed to hiring lawyers).
While Donaldson was playing catch-up by beefing up his staff, the SEC was also fatefully handed a key new responsibility. The European Union had just told Americas largest financial holding companiesthe likes of Bear Stearns, Goldman Sachs, and Lehman Brothersthat, if they wanted to keep doing business on the Continent, they would need to submit to consolidated supervision from an American regulatory agency. (Their subsidiaries were regulated by various agencies, but the holding companies as such were not.) And so in 2004 the five biggest investment firms crafted a voluntary arrangement with the SEC that afforded the regulatory agency unprecedented access to their books. But there was also a riskier side to the bargain: the deal significantly eased the limits on how much debt the major firms could take on, freeing up billions of dollarsusually held in reserve as an asset cushionto be invested in the kinds of exotic financial instruments that would become household names after the crash in 2008.
The SEC might have been able to handle this perilous and demanding set of new responsibilities had it continued down the road Donaldson laid out. But instead, between 2005 and 2007, the agency lost about 10 percent of its total personnel due to a hiring freeze, including 11 percent of its enforcement division. According to the Financial Crisis Inquiry Commission, the new supervisory program over the big-five investment firms, which relied heavily on the firms own computer models and self-reporting, was troubled from the start. In the summer of 2005, Donaldson resigned and was replaced by the former Republican Congressman Christopher Cox, for whom the supervisory program was not a priority, according to the New York Times. Preoccupied with its own staff reorganization, the FCIC says, the supervisory program went more than a year without conducting a major examination.
All of this coincided, under Coxs leadership, with an agency outlook more generally in line with the Bush-era faith in laissez-faireoversight and industry self-policing. In a move that many have highlighted, Cox all but dismantled the Office of Risk Assessment that Donaldson had set up, reducing its staff to four part-time workers, according to Portfolio magazine. The exact places where you didnt want to make cuts were in the risk assessment and financial products area, says James D. Cox, an expert on securities law at Duke University (and no relation to the former chairman). In 2005 alone, enforcement cases fell by 9 percent.
By the time that Bear Stearns collapsed in 2008, by many reports the commissions staff was already badly demoralized. In an op-ed headlined Muzzling the Watchdog, three former heads of the commission wrote that the SEC lacks the money, manpower, and tools it needs to do its job. (Pathetically outmoded technology was another major problem.) You never have enough people, but if you could bump up enforcement levels, say, 20%, it would make a huge difference, a former senior counsel to the enforcement division named Bruce Carton told Time magazine. Tweaking policies wont replace more manpower and training.
If there were any place where the federal government might have had a fighting chance to fend off or at least ameliorate the worst financial crisis since the Great Depression, it was at the SEC in the mid-2000s. Instead, the SEC divested itself of personnel and initiative. Consider the breathtaking consequences: not just the $700 billion bailout (most of which has been or will be paid back), but $400 billion in lost federal revenue as a result of the recession (thats in 2009 alone) and the $800 billion stimulus to get us out of it. Suddenly, shaving a few million dollars from the overhead costs of the SEC doesnt sound like much of a bargain.
The average voter may imagine federal bureaucracies as overstaffed, full of people leaning on their rakes and sharpening their pencils. But the truth is, most agencies are, if anything, understaffed. The government has grown tremendously in its spending and scope since the 1960s, and the population of the nation has grown by a margin of 100 million people, but the size of the federal workforce has remained remarkably static at about 2 million. Since coming into office two years ago, the Obama administration has bumped up staff levels by about 100,000, in part through in-sourcingbringing back into the civil service inherently governmental work that had been farmed out to contractors. If this leads to better management, it could well mean a stanching of some of the cost overruns and regulatory failures that have been causing the government to bleed red ink. Todays mindless demands for austerity, however, could reverse this trend.
This is not to say that there arent big bureaucratic reforms that need to be made that could lead to people losing their jobs. Many agencies, for instance, exhibit excessive layering in their management ranks (think job titles that start with deputy- or under-). And if Congress and the administration could agree to lift some of the outdated procedural requirements and redundant reporting demands that are the bane of the average civil servants life, it might be possible for agencies to fulfill their mission as well or better with fewer people.
But reforms like this almost never happen. Instead, what you usually get are demands like what were now seeing in Congress for across-the-board cuts in the workforce. This is often accomplished through attrition and incentives for early retirement. But the people most likely to walk away in those cases are the ones most confident of their ability to land a job in the private sectorin other words, often the best employees. Another method is to leave decisions about cutting up to the leaders of the agencies themselves. But as some veterans of Reinventing Government learned, that can have the effect of simply consolidating inertia in the managerial ranks. Headquarters isnt ever gonna cut itself, says John Kamensky. Headquarters cuts field.
Ideally, the White House ought to be able to keep agencies from playing such games. But just as agencies lack the manpower and expertise to oversee their contractors, the White House strains to oversee the rest of government. The Office of Management and Budget is meant to be the eyes and ears of the executive branch. But with its staff of about 500, it is simply incapable of knowing whats working and whats not out in the labyrinths of the federal bureaucracy.
The paradox, then, is this: if the aim is to reform the civil service in order to put a lid on federal spending, what we really need are targeted increases in the federal workforce. A wise first move would be to double the size of the OMB. More and better staff at revenue-producing agencies like the IRS would also make sense. The SEC will need a big boost in personnel in order to fulfill the new demands of last years financial reform legislation, which wisely calls for the agency to oversee derivatives trading and other potentially destabilizing aspects of the financial world. And our best hope for controlling the burgeoning costs of Medicare and Medicaidthe biggest drivers of long-term federal deficitslies in new, yet-to-be staffed bureaucracies whose founding is authorized in last years health care reform law.
But of course, Republicans have not only vowed to block funding for the financial and health reform laws, theyre also making demands to cut the federal workforce by as much as 15 percentall in the spirit of so-called fiscal responsibility. The idea that were somehow going to balance the budget by cutting the workforce is absurd, says John Palguta of the Partnership for Public Service. Its absurd for a number of reasons, but the biggest one is that, in todays government, cutting civil servants is bound to prove an exceedingly expensive way to be thrifty.