STATEMENT OF
JOHN A. KOSKINEN
DEPUTY DIRECTOR FOR MANAGEMENT
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION AND TECHNOLOGY OF THE
HOUSE COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
JULY 8, 1997
Mr. Chairman, I am pleased to appear before the Committee this
morning to discuss the
Administration's initiative to create Performance-Based Organizations,
also known as PBOs. We
believe these organizations can play a significant role in improving
government effectiveness and
increasing public confidence in government operations.
This Committee has been a leader in providing Federal managers with
the tools and incentives to
perform effectively and accountably. In the past few years this has
led to the adoption of the
Chief Financial Officers (CFOs) Act, the Government Performance and
Results Act (GPRA), the
Clinger-Cohen information technology reforms, and the Debt Collection
Improvement Act.
PBOs grew out of a concern that we share with this Committee for
management improvement.
Under Phase II of the National Performance Review, we set up teams to
study every function and
activity of government to decide which ones the Federal Government
should continue to perform,
which it should eliminate together, and which it should shift to other
levels of government.
During that effort it became clear that many agencies perform
businesslike functions that carry out
important public purposes. While not suitable for privatization,
these functions have the potential
to be managed much more effectively.
In March 1996, Vice President Al Gore announced that a series of
agencies would be transformed
into performance-based customer-oriented agencies. President Clinton
described the initial
candidates in his FY 1997 budget, an initiative carried forward into
the President's FY 1998
Budget.
What is a Performance-Based Organization?
A PBO is a discrete management unit that deals with the public and
has operations that can
provide clear measures of performance. Primary responsibility for
policy making is separated
from program operations and remains in the domain of the Department
under the control of
political appointees. Program operations are retained in the PBO.
While this division of
responsibilities will be clear, the managers of the PBO will continue
to operate within the
structure of the organization's present Department to ensure
communication between the policy
formulation and operation functions. However, by separating policy
decisions affecting those
operations from daily activities, we can create a management with
strong incentives to manage for
results by committing to clear objectives, specific measurable goals,
customer service standards,
and targets for improved performance.
A critical aspect of a PBO is that it would be led by a Chief
Operating Officer (COO) hired for a
fixed term based on a demonstrated track record of effective
management, as distinguished from
policy expertise. The COO might come from the private sector or from
the ranks of the civil
service. The COO will give us a manager with a longer time horizon
than the normal political
appointee, and, rather than having a focus on career tenure, the COO
would sign an annual
performance agreement with the Secretary; and his or her compensation
and tenure would be tied
to the organization's performance. The Secretary may reappoint the
COO to subsequent terms, if
he or she has met or exceeded organizational and individual
performance goals.
In exchange for this increased personal accountability for
performance, the PBO would be granted
legislative and administrative managerial flexiblities in areas such
as personnel, procurement, and
other administrative areas. A PBO will otherwise still be subject to
all other government wide
regulations, rules, policies, and procedures.
Candidates to be PBOs
Not all government agencies or functions are suited to become PBOs.
The concept works best
with operations that produce clear, measurable results. For example,
the foreign policy and
planning offices in the State Department or basic scientific research
offices at the National
Institutes for Health may be inappropriate candidates.
The best candidates to become a PBO are those that:
- Have a clear mission, measurable services, and a performance measurement system in place or in development;
- Generally focus on functions -- not necessarily entire agencies -- that have external customers. For the early candidates, we are not pursuing organizations or functions that primarily serve other government agencies;
- Have a clear line of accountability to an agency head who has policy accountability for the functions. As a result, independent agencies are not ready candidates;
- Have top level support to transform a function into a PBO; and
- Have predictable sources of funding.
Some have asked how PBOs differ from government corporations. As you know,
the concept of a government corporation has been applied
inconsistently in the past. The
corporate form is appropriate when an entity carries out commercial
functions that not only
produce revenue, but are self-sustaining. However, in the past some
entities have sought to
become corporations because that was seen as the only way to achieve
personnel and
procurement flexibilities. The problem is that, to achieve those
goals, they were turned into
independent, freestanding entities, making effective policy control
and oversight much more
difficult.
In contrast, a PBO will focus on performance and, importantly,
remain within its present
department under the policy guidance and direction of the Secretary.
It will still be subject to all
government wide regulations, rules, policies and procedures, unless
specific waivers are granted.
The Process for Converting to a PBO
Shortly after Vice President Gore's announcement of the PBO
initiative in early 1996, OMB and
NPR crafted a process for converting agencies or functions into PBOs.
I asked the President's
Management Council for potential candidates and the members nominated
nine candidates from
among their agencies. OMB and NPR then formed conversion teams for
each candidate with
representatives from OMB, NPR, the candidate function, and their home
Department.
These teams identified potential legislative and managerial
flexiblities that would allow them to
improve the management of their operations. The most progress was
made when the
candidates worked jointly as a team with their conversion colleagues,
especially with their
departments, NPR, and OMB representatives.
Early in the process, we discovered that the leaders of many PBO
candidates were unaware of the
flexibilities that were already available to them under existing law.
This was not surprising since
implementation and execution of statutory changes is just as
challenging and often takes longer
than getting the laws passed. We therefore worked with the candidates
to ensure they understood
and were using the flexiblities Congress and the Administration had
already given them.
Thanks to the long, hard work of executives in the candidate
agencies, the National Performance
Review, and OMB, we are ready to take the next step: seeking
legislative action. You will
shortly hear from a panel of the first three PBO candidates that have
submitted their legislative
proposals. While we have consulted with various Congressional offices
in the past few months
about PBOs generally, we are pleased to enter into a dialogue with you
now about these three
specific PBO candidates and to seek your support.
Lessons Learned and Progress to Date
In your letter of invitation, you asked that I summarize the
progress we've made in the past year
and the lessons we've learned that will help future candidates in the
conversion process.
One of the things we learned over the course of the past year was
the importance of developing
commitments for improved performance along with requests for increased
operating flexibilities.
While it is probably impossible to show a one-to-one correlation
between a specific flexibility and
a specific increase in performance, we think it is imperative for
candidates to commit to increases
in performance in exchange for obtaining desired flexibilities.
We also learned that a targeted approach is important. Candidates
that requested a wide range of
management flexiblities, some of which were minor or marginal to their
operations, became
bogged down in laborious interagency debates and clearances. Also,
successful candidates found
it useful to separate those flexiblities that could be achieved
administratively from those that
required legislative action.
To date, three of the Administration's nine PBO candidates conveyed
their legislative packages to
Congress in April or May -- the Patent and Trademark Office, the
Defense Commissary Agency,
and the St. Lawrence Seaway Development Corporation. Three others are
developing their
legislative packages and should have them completed in the coming
weeks -- the U.S. Mint, the
Government National Mortgage Association, and the Seafood Inspection
Service. Two others
are delayed in developing their legislative packages for unrelated
reasons -- the Federal Housing
Administration and the National Technical Information Service. The
Federal Retirement and
Insurance Service in the Office of Personnel Management believes it
can achieve all the authority
and flexibilities it needs administratively, without additional
legislation.
We have now asked the President's Management Council to identify
additional candidates to
begin the conversion process so the Administration can introduce
additional candidates next
Spring along with the President's FY 1999 budget proposal.
Conclusions
The challenge in creating new forms of organization is to balance
the desire for autonomy and
flexibility with the need for accountability and oversight. PBOs
provide an operational structure
that allows Federal entities to carry out their functions in the most
effective and efficient manner,
yet remain accountable to senior administration policy makers. While
the process for converting
agencies and functions to a PBO has taken time and effort, we believe
the concept is sound and
the progress to date has laid the groundwork for success.
As President Clinton said late last year, "We want hundreds of
organizations to become
performance-based, to be trailblazers in increasing productivity and
making their customers
happy."
Mr. Chairman, I appreciate your subcommittee's interest in this initiative and would be pleased to take any questions you might have.
