Federal Downsizing: Effective Buyout Practices and Their Use in FY 1997
(Letter Report, 06/30/97, GAO/GGD-97-124).

Pursuant to a congressional request, GAO reviewed the management and
results of agencies' buyout programs authorized by P.L. 104-208,
focusing on: (1) practices that GAO believes are associated with
effective use of buyouts; (2) the extent to which Office of Management
and Budget (OMB) requirements and Office of Personnel Management (OPM)
guidance for implementing buyouts under P.L. 104-208 incorporated these
practices; and (3) whether selected agencies' buyout programs were
better planned and implemented than was generally the case
governmentwide during the first non-DOD buyout program.

GAO noted that: (1) on the basis of GAO's prior studies of buyout
programs at the Department of Defense (DOD) and non-DOD agencies, other
organizations' studies of downsizing, and GAO's review of proposed and
enacted buyout legislation, GAO identified 13 practices that it believes
are associated with effective buyout usage; (2) taken together, the
practices can help agencies use buyouts as a tool as they manage their
downsizing efforts and engineer desired changes to their workforces; (3)
ten of the 13 practices were generally reflected in OMB's October 1996
bulletin to agency heads on how to implement the buyouts and/or OPM's
December 1996 buyout guidelines; (4) based on the justifications for,
and the result of, selected agencies' buyout programs, it appears that
the six agencies' buyout programs were better planned and implemented
than was generally the case among non-DOD agencies in 1994 and 1995; (5)
among the problems GAO reported on during that buyout window was the
granting of buyouts across the board rather than prioritizing them to
achieve specific organizational goals; (6) in granting a total of 5,948
buyouts as of late spring 1997, the 6 agencies generally linked buyouts
to achieving specific organizational objectives and implemented their
buyout programs in ways that tended to increase savings; (7) moreover,
as required by OMB, agencies provided estimates of the savings
anticipated from the buyouts (thus ensuring that money would in fact be
saved, but not necessarily that buyouts offered more savings than other
potential separation strategies); (8) also, per OPM's guidelines, in all
but one instance agencies reported that they limited the duration of
their buyout programs to a short window early in the fiscal year to
increase savings; (9) nevertheless, had OMB required agencies to include
in their strategic plans the three practices associated with effective
buyout usage that were not included in statutory, OMB, and OPM
requirements and guidance for implementing the buyout authority,
agencies may have further increased their savings; (10) these practices
included: (a) prior to downsizing, ensuring that actions planned to
maintain productivity and service levels do not cost more than the
savings generated by reducing the workforce; (b) performing an economic
analysis showing whether buyouts would generate more net savings than
other separation strategies; and (c) giving priority for buyouts to emp*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-97-124
     TITLE:  Federal Downsizing: Effective Buyout Practices and Their 
             Use in FY 1997
      DATE:  06/30/97
   SUBJECT:  Employee buyouts
             Federal downsizing
             Federal employees
             Federal agency reorganization
             Reductions in force
             Cost control
             Productivity
             Federal personnel law
             Strategic planning
             Economic analysis

             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Civil Service, Committee on
Government Reform and Oversight, House of Representatives

June 1997

FEDERAL DOWNSIZING - EFFECTIVE
BUYOUT PRACTICES AND THEIR USE IN
FY 1997

GAO/GGD-97-124

Effective Buyout Usage

(410102)


Abbreviations
=============================================================== ABBREV

  AID - Agency for International Development
  DOD - Department of Defense
  DOE - Department of Energy
  FERC - Federal Energy Regulatory Commission
  FWRA - Federal Workforce Restructuring Act
  GSA - General Services Administration
  IRS - Internal Revenue Service
  MBDA - Minority Business Development Agency
  NAPA - National Academy of Public Administration
  NASA - National Aeronautics and Space Administration
  OMB - Office of Management and Budget
  OPM - Office of Personnel Management
  RIF - Reduction-in-Force
  USDA - United States Department of Agriculture
  USIA - United States Information Agency
  VA - Department of Veterans Affairs
  VBA - Veterans Benefits Administration
  VHA - Veterans Health Administration

Letter
=============================================================== LETTER


B-277085

June 30, 1997

The Honorable John L.  Mica
Chairman, Subcommittee on Civil Service
Committee on Government Reform and
 Oversight
House of Representatives

Dear Mr.  Chairman: 

For the last several years, to help reduce and restructure their
workforces, federal agencies have been paying separation
incentives--commonly known as buyouts--of as much as $25,000 to
employees to voluntarily leave federal service.  The Department of
Defense (DOD) has had buyout authority since January 1993.\1 Most
non-DOD executive branch agencies have had two buyout opportunities. 
The first, under the Federal Workforce Restructuring Act (FWRA) of
1994,\2 generally gave agencies the authority to offer buyouts from
March 30, 1994, through March 31, 1995.  The second buyout
opportunity was authorized by section 663 of the Treasury, Postal
Service, and General Government Appropriations Act of 1997 (P.L. 
104-208, Sep.  30, 1996).  It gave most non-DOD executive branch
agencies the authority to offer buyouts from October 1, 1996, through
December 30, 1997.  Certain agencies with their own buyout
authorities were excluded from section 663 of the act.\3

According to Clinton Administration officials, the buyouts have had
three distinct purposes.  Initially they were used to help ease
reductions in the DOD civilian workforce following the end of the
Cold War.  Later, as part of the National Performance Review--the
Clinton Administration's initiative to reinvent government--buyouts
were used in both DOD and non-DOD agencies to reduce what the
administration has called "management control" positions.  These
positions included those held by managers and supervisors, and
employees in personnel, budget, procurement, and accounting
occupations.  The third purpose of the buyouts has been to help save
money by reducing the federal workforce as Congress and the President
agreed to pursue a balanced budget. 

During the first non-DOD buyout window, both Congress and we began
expressing concerns over the planning and implementation of agencies'
buyout programs and workforce reduction initiatives.\4 Congress
raised these concerns in a series of hearings and addressed some of
them when it passed P.L.  104-208, which directed agencies to prepare
strategic buyout plans for congressional review.  The Office of
Management and Budget (OMB) required agencies to first submit their
plans to OMB prior to submitting them to Congress. 

This letter responds to your request that we review the management
and results of agencies' buyout programs authorized by P.L.  104-208. 
As agreed with your office, we (1) identified practices that we
believe are associated with effective use of buyouts, (2) assessed
the extent to which OMB requirements and Office of Personnel
Management (OPM) guidance for implementing buyouts under P.L. 
104-208 incorporated these practices, and (3) determined whether
selected agencies' buyout programs were better planned and
implemented than was generally the case governmentwide during the
first non-DOD buyout program. 

We included in our analysis the six agencies whose buyout programs
had been approved by OMB when we began our study in mid-December
1996:  the Departments of Energy (DOE)\5 and Veterans Affairs (VA),
the General Services Administration (GSA), Internal Revenue Service
(IRS), U.S.  Information Agency (USIA), and Minority Business
Development Agency (MBDA).  Since then, OMB has approved buyout
programs at six additional agencies as of June 2, 1997.\6


--------------------
\1 P.L.  102-484, Oct.  23, 1992, authorized DOD buyouts through
Sept.  30, 1997; P.L.  103-337, Oct.  5, 1994, extended DOD buyouts
through Sept.  30, 1999. 

\2 P.L.  103-226, March 30, 1994. 

\3 Non-DOD agencies that had agency-specific buyout authorizations
during fiscal year 1997 included the U.S.  Department of Agriculture
(USDA), Agency for International Development (AID), Central
Intelligence Agency, National Aeronautics and Space Administration
(NASA), Railroad Retirement Board and its Office of Inspector
General, Smithsonian Institution, Bonneville Power Administration,
and Federal Deposit Insurance Corporation. 

\4 See, for example, Federal Employment:  The Results to Date of the
Fiscal Year 1994 Buyouts at Non-Defense Agencies (GAO/T-GGD-94-214,
Sep.  22, 1994); and Federal Downsizing:  Better Workforce and
Strategic Planning Could Have Made Buyouts More Effective
(GAO/GGD-96-62, Aug.  26, 1996). 

\5 DOE's large contractor workforce has also had a buyout program
that we reviewed.  See Department of Energy:  Value of Benefits Paid
to Separated Contractor Workforce Varied Widely (GAO/RCED-97-33, Jan. 
23, 1997). 

\6 The Bureau of Engraving and Printing, Merit Systems Protection
Board, Department of the Treasury Departmental Offices, Department of
Housing and Urban Development, U.S.  Mint, and the National Weather
Service. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

On the basis of our prior studies of buyout programs at DOD and
non-DOD agencies, other organizations' studies of downsizing, and our
review of proposed and enacted buyout legislation, we identified 13
practices that we believe are associated with effective buyout usage. 
These practices include, for example, prior to downsizing, ensuring
that actions planned to maintain productivity and service levels do
not cost more than the savings generated by the workforce reductions,
preceding buyouts with an economic analysis showing whether they
would generate more net savings than reductions-in-force (RIF) or
attrition, and using buyouts selectively to eliminate positions in
order to accomplish specific organizational objectives.  Taken
together, the practices can help agencies use buyouts as a tool as
they manage their downsizing efforts and engineer desired changes to
their workforces.  Nevertheless, because each agency's circumstances
are unique, all of these practices may not apply in every buyout
situation. 

Ten of the 13 practices were generally reflected in OMB's October
1996 bulletin to agency heads on how to implement the buyouts and/or
OPM's December 1996 buyout guidelines.  Four of these 10 practices
were required by P.L.  104-208, and OMB and/or OPM explained in more
detail how they were to be implemented.  The other six practices,
such as OMB's requirement for OPM to gather information on buyout
activity under P.L.  104-208, were over and above what was required
by statute. 

Based on the justifications for, and the results of, selected
agencies' buyout programs, it appears that the six agencies' buyout
programs were better planned and implemented than was generally the
case among non-DOD agencies in 1994 and 1995.  Among the problems we
reported on during that buyout window was the granting of buyouts
across the board rather than prioritizing them to achieve specific
organizational goals.  We also found that in a number of cases,
buyouts were granted late in the fiscal year, thereby diminishing
their potential savings. 

In contrast, in granting a total of 5,948 buyouts as of late spring
1997, the 6 agencies generally linked buyouts to achieving specific
organizational objectives and implemented their buyout programs in
ways that tended to increase savings.  For example, agencies reported
that they needed buyouts to minimize the need for RIFs brought on by
budget constraints and to restructure their workforces.  Thus,
agencies reported targeting their buyouts to those positions that met
these objectives and did not grant buyouts universally, as was often
the case in 1994 and 1995.  Moreover, as required by OMB, agencies
provided estimates of the savings anticipated from the buyouts (thus
ensuring that money would in fact be saved, but not necessarily that
buyouts offered more savings than other potential separation
strategies).  Also, per OPM's guidelines, in all but one instance
agencies reported that they limited the duration of their buyout
programs to a short window early in the fiscal year to increase
savings. 

Nevertheless, had OMB required agencies to include in their strategic
plans the three practices associated with effective buyout usage that
were not included in statutory, OMB, and OPM requirements and
guidance for implementing the buyout authority, agencies may have
further increased their savings.  These practices included (1) prior
to downsizing, ensuring that actions planned to maintain productivity
and service levels do not cost more than the savings generated by
reducing the workforce, (2) performing an economic analysis showing
whether buyouts would generate more net savings than other separation
strategies, and (3) giving priority for buyouts to employees not
eligible for regular retirement. 

As Congress and the President negotiate further steps to balance the
budget, the potential savings from reducing the workforce may
continue to be considered.  For example, in June 1997, H.R.  1778,
the Defense Reform Act of 1997, was introduced in the House and
included a provision to reduce DOD's acquisition workforce by 124,000
positions over 4 years.  To facilitate these reductions, H.R.  1778
contains a 1-year buyout authority, separate from DOD's existing
buyout authority, that provides buyouts to acquisition workforce
employees affected by the mandated reductions. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Buyouts were first authorized for non-DOD agencies by FWRA in 1994. 
In addition to requiring governmentwide downsizing, FWRA gave non-DOD
agencies the authority to offer buyouts of as much as $25,000 to
workers who left federal employment by March 31, 1995 (unless
extensions were approved by agency heads, but not later than March
31, 1997).  According to OPM data, 36,035 buyouts had been paid under
FWRA through September 1996.\7 Citing OMB's estimate that the average
full-time government worker costs more than $44,000 per year in net
pay and benefits, the administration calculated that cutting 250,000
jobs can save well over $10 billion each year. 

Currently, statutory buyout authority for most non-DOD agencies
expires on December 31, 1997, while the DOD buyout authority expires
on September 30, 1999.  However, continued efforts to balance the
federal budget may raise the buyout option again for congressional
consideration. 


--------------------
\7 According to OPM data, as of September 1996 DOD had paid 92,432
buyouts under its own legislation. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

We limited our review to the six agencies offering buyouts under
P.L.104-208 that had their buyout plans approved by OMB when we began
our study in mid-December 1996.  These agencies included DOE, VA,
IRS, GSA, MBDA, and USIA. 

To identify practices associated with effective buyout usage, we
reviewed our prior work on buyouts, the literature on workforce
downsizing,\8 and the provisions of five proposed bills and 10 pieces
of enacted legislation containing buyout provisions as of the end of
fiscal year 1996.\9 From the various buyout practices identified by
these reviews, we selected those that would require agencies to link
their buyout programs to achieving specific organizational objectives
and ensure they were implemented in ways that maximized savings in
conjunction with achieving other operational, human resource, and
agency objectives.  Taken together, we believe that these practices
could have alleviated many of the shortcomings we observed in the
first non-DOD buyout window in 1994 and 1995. 

To assess whether OMB requirements and OPM guidance were consistent
with these practices, we compared them to requirements contained in
OMB's October 24, 1996, buyout bulletin and OPM's December 2, 1996,
guide to implementing buyouts under P.L.  104-208.  Because the
practices we identified to meet the first objective had not been
refined when OMB and OPM issued their guidance, we would not
necessarily expect to find all of them reflected in the guidance. 
Our assessment, therefore, was not normative. 

To determine whether selected agencies' fiscal year 1997 buyouts were
better planned and implemented than was generally the case
governmentwide during the 1994 and 1995 buyout window, we interviewed
agency human resource, planning, and budget officials; and we
reviewed agencies' strategic plans to assess the extent to which the
six agencies linked their buyouts to specific organizational
objectives and managed their buyout programs to increase savings.  We
also discussed the management of the buyout authority with OMB.  We
did not verify the information that agencies and OMB provided. 

We did our audit work in Washington, D.C., between December 1996 and
April 1997, in accordance with generally accepted government auditing
standards. 

We requested comments on a draft of this report from the Directors of
OMB, OPM, and the heads of the six agencies.  (In MBDA's case,
comments were requested from the Secretary of Commerce, MBDA's parent
organization.) The comments we received are summarized and evaluated
at the end of this letter. 


--------------------
\8 In particular, we drew upon a study by the National Academy of
Public Administration (NAPA):  Effective Downsizing:  A Compendium of
Lessons Learned for Government Organizations, NAPA, 1995.  NAPA is a
congressionally chartered independent nonpartisan organization that
helps federal, state, and local governments improve their
performance. 

\9 The proposed legislation we examined included the Federal Employee
Separation Incentive and Reemployment Assistance Act (H.R.  2751),
Federal Employment Reduction Assistance Act of 1996 (H.R.  3532), as
well as provisions of appropriations bills that authorized buyouts
for specific agencies:  IRS, Bureau of Alcohol, Tobacco and Firearms,
and Customs Service (H.R.  3756); Department of Housing and Urban
Development (H.R.  3666); and DOE (H.R.  3816).  The enacted
legislation we examined authorized buyouts for DOD (P.L.  102-484,
Oct.  23, 1992, and P.L.  103-337, Oct.  5, 1994); most non-DOD
agencies (FWRA, P.L.  103-226, Mar.  30, 1994, and P.L.  104-208,
Sep.  30, 1996); Department of Transportation (P.L.  104-205, Sep. 
30, 1996, later superseded by P.L.  104-208); NASA (P.L.  104-204,
Sep.  26, 1996); USDA (P.L.  104-180, Aug.  6, 1996); AID (P.L. 
104-190, Aug.  20, 1996); and Smithsonian Institution (P.L.  104-134,
Apr.  26, 1996). 


   PRACTICES THAT CAN RESULT IN
   MORE EFFECTIVE BUYOUTS
------------------------------------------------------------ Letter :4

On the basis of our earlier work, a review of the literature on
workforce downsizing, and an analysis of specific provisions
contained in 5 proposed bills and 10 pieces of enacted legislation
containing buyout provisions, we identified 13 practices that we
believe are associated with effective buyout usage that could result
in better planned buyout programs that are linked to specific
organizational goals and managed in ways that tend to increase
savings. 

Because these are general practices, they may not apply in all
circumstances.  For example, although agencies will generally save
more money by separating employees earlier in the fiscal year, in
some cases it may make sense to have later separations to adequately
plan buyout programs and notify employees, or ensure that essential
work gets accomplished.  Therefore, these practices should be weighed
against agencies' operational, human resource, or other objectives. 

1.  Identify the agency's future operational, restructuring,
downsizing, or other goals and determine how buyouts will help meet
those goals.  This will assist agencies in linking buyouts to
specific organizational objectives. 

2.  Consider, prior to making downsizing decisions, how productivity
and service levels will be maintained with fewer employees.  This
could entail, for example, redeploying employees, reinventing work
processes, automating processes, and contracting out. 

3.  Prior to downsizing, ensure that actions planned to maintain
productivity and service levels do not cost more than the savings
generated by reducing the workforce. 

4.  Prioritize the granting of buyouts, targeting them to specific
positions, programs, occupations, grade levels, etc., as necessary to
achieve agencies' organizational objectives and to help ensure that
employees critical to the mission of an agency are retained while
surplus employees are separated. 

5.  Identify likely buyout takers by obtaining information on
employees' eligibility for early and regular retirements, prior
take-up rates, and other factors to better forecast who is likely to
take buyouts, how many, and where they are likely to occur.  Such an
analysis will also help an agency determine cost/savings and will aid
in succession planning. 

6.  Perform an economic analysis to determine the savings generated
by buyouts relative to other separation strategies, such as RIFs. 
The analysis should be done for the year of separation and a
reasonable number of subsequent years for which accurate assumptions
and estimates can be made.  Such an analysis would help agencies
determine whether buyouts will in fact provide anticipated cost
savings.  Nevertheless, as we noted in our earlier work, economic
considerations are just one factor an agency should consider when
deciding between buyouts and other workforce reduction options.\10
Other factors include, for example, which combination of separation
strategies is most likely to achieve the full set of agency
operational and workforce goals while minimizing adverse effects on
workforce diversity and morale. 

7.  Give priority for buyouts to those employees resigning or
retiring early.  Offer buyouts to those eligible for regular
retirement when the first applicant pool has been depleted or when,
after a review of employee demographics or as a result of employee
surveys, it is evident that limiting buyouts to those not eligible
for regular retirement would not generate sufficient numbers of
voluntary separations.  Although past buyouts frequently have been
taken by those who were retirement-eligible, giving priority to
employees not eligible for retirement may reduce the number of
payments made to employees who likely would leave without financial
incentives.  It could also help agencies' retirement rates return to
traditional levels more quickly.  (In our prior work, we noted that
recent studies and our own analysis of agency-reported data suggest
that when employees anticipate buyout offers, normal attrition
declines as some employees delay their separations to receive
buyouts.)\11

Further, our cost analysis of RIFs versus buyouts concluded that RIFs
can generate more savings than buyouts over a 5-year period if the
employees separated by RIFs are (1) eligible for early or regular
retirement (because such employees would not be entitled to severance
pay, which could be as much as a year's salary depending on age and
years of service); and (2) do not displace lower graded employees
through a process known as "bumping" and "retreating."\12

8.  Exclude certain employees from receiving buyouts when doing so
would be financially and operationally advantageous to the
government.  Such employees include, for example, those in positions
defined as "hard to fill," or those who have received a recent
recruitment, retention, or relocation bonus. 

9.  Maximize current year payroll savings by separating employees
early in the fiscal year, preferably in the first quarter. 

10.  Prohibit the reemployment of buyout recipients unless they repay
the full amount of the buyout payment before the first day of
work.\13

11.  Require agencies to contribute additional funds to the
government retirement fund (currently 15 percent of the final basic
pay of each buyout recipient) to ensure that any increased number of
retirements is adequately funded. 

12.  Limit the duration of the buyout program to as short a time
period as possible.  The faster employees separate, the greater the
savings, and the sooner normal attrition will likely return to
historical levels as employees stop delaying their departures to
receive a buyout. 

13.  Establish a tracking system to report relevant data on employees
who take buyouts.  This can help agencies determine where buyouts are
occurring and who is taking them, spot any trends that could result
in workforce imbalances, and take timely corrective action. 


--------------------
\10 Federal Downsizing:  The Costs and Savings of Buyouts Versus
Reductions-in-Force (GAO/GGD-96-63, May 14, 1996). 

\11 GAO/GGD-96-63. 

\12 Bumping means displacing an employee in the same competitive area
who is in a lower tenure group (type of appointment category). 
Although the employee who displaces another employee through bumping
must be qualified for the position, it may be a position that he or
she has never held.  Retreating means displacing an employee in the
same competitive area who has less service within the same tenure
group.  The position into which the employee is retreating must be
the same or an identical position the employee held in the past on a
permanent basis. 

\13 Both P.L.  104-208 and FWRA contained provisions that required
buyout recipients to repay the full amount of the buyout if, within 5
years of separating, they are reemployed by the federal government. 
P.L.  104-208 requires this repayment prior to the buyout recipient's
first day of reemployment. 


   OMB REQUIREMENTS AND OPM
   GUIDANCE WERE CONSISTENT WITH
   MOST OF THE PRACTICES IMPORTANT
   FOR AN EFFECTIVE BUYOUT PROGRAM
------------------------------------------------------------ Letter :5

Both OMB and OPM played important roles in the oversight and
implementation of the buyout authority.  For example, as outlined in
its October 1996 bulletin sent to agency heads on planning and
implementing the buyouts, OMB was to review and approve agencies'
strategic plans.\14 These plans were required by P.L.  104-208 and
were to provide information on agencies' intended buyout usage.  The
strategic plans were to include

  -- an organization chart showing the anticipated structure of the
     agency once the buyouts were completed,

  -- the positions and functions to be reduced or eliminated,

  -- the number and amounts of voluntary separation incentive
     payments to be offered, and

  -- a description of how the agency will operate without the
     eliminated positions and functions. 

In addition to the statutory requirements, OMB required agencies to
include in their strategic plans information about the timing of
buyout offers and scheduled separation dates, the maximum dollar
amount of buyout payments if determined by the agency head to be less
than $25,000, and an estimate of the savings to be achieved in the
fiscal years following the planned buyout separations.  OMB also
indicated it monitored agencies' buyout programs to ensure that
workforce reductions and restructuring efforts proceeded as planned
and directed OPM to collect information on agencies' buyout payments. 

According to an OMB official, OMB thoroughly reviewed agencies'
strategic plans.  In so doing, we were told that OMB officials
checked to see whether buyouts were targeted to specific positions,
and, in those cases where an agency was offering buyouts
governmentwide, OMB looked to see that agencies granted them
according to some type of prioritization system.  We were also told
that in some cases, OMB had agencies redo their plans until they met
OMB's standards. 

OPM helped agencies implement their buyout programs by issuing a
guide in December 1996.  It contained detailed information on 22
topics ranging from determining the amount of an employee's buyout
payment to setting the buyout window and processing applications. 

OMB's requirements and OPM's guidance generally reflected 10 of the
13 practices associated with effective buyout usage (see table 1). 
Four of these 10 practices were already required by P.L.  104-208,
and OMB and/or OPM reemphasized them or explained how they were to be
implemented.  Six practices, including OMB's requirement for agencies
to provide savings estimates and for OPM to track buyouts, were in
addition to what was required by P.L.  104-208. 



                                     Table 1
                     
                         Desirable Buyout Practices Were
                      Generally Reflected in Statutory, OMB,
                        and OPM Requirements and Guidance

                                                   Where reflected
                                     -------------------------------------------
                                     OMB bulletin/
Practice                             guidance       OPM guidance   P.L. 104-208
-----------------------------------  -------------  -------------  -------------
1. Identify the agency's future      X              X
operational, restructuring,
downsizing, or other goals and
determine how buyouts will help
meet those goals.

2. Consider, prior to making         X                             X
downsizing decisions, how
productivity and service levels
will be maintained with fewer
employees.

3. Prior to downsizing, ensure that
actions planned to maintain
productivity and service levels do
not cost more than the savings
generated by reducing the
workforce.

4. Prioritize the granting of        X              X
buyouts, targeting them to specific
positions, programs, occupations,
grade levels, etc. as necessary to
achieve goals.

5. Identify likely buyout takers.                   X

6. Perform an economic analysis
showing whether buyouts would
generate more net savings than
other separation strategies, such
as RIFs or attrition.

7. Give priority to employees
eligible for early retirement and
those not eligible for regular
optional retirement.

8. Exclude buyout coverage for       X              X              X
employees when it would not be
financially or operationally
advantageous to the government to
do so, such as employees in
positions defined as "hard-to-
fill," reemployed annuitants, etc.

9. Maximize current year savings by                 X
separating employees early in the
fiscal year, preferably in the
first quarter.

10. Prohibit the reemployment of     X              X              X
buyout recipients unless they first
repay the full amount of the buyout
payment before the first day of
work.

11. Include provisions for agencies  X              X              X
to contribute additional funds to
the government retirement fund to
help pay for additional retirements
resulting from buyouts.

12. Limit the duration of the                       X
buyout program to as short a time
period as possible.

13. Establish a tracking system to   X              X
report relevant data on buyout
recipients.
--------------------------------------------------------------------------------
Source:  GAO analysis. 

The three practices not reflected in statutory, OMB, and OPM
documents were (1) prior to downsizing, ensuring that actions planned
to maintain productivity and service levels do not cost more than the
savings generated by reducing the workforce, (2) performing an
economic analysis showing whether buyouts would generate more net
savings than other separation strategies, and (3) giving priority for
buyouts to employees not eligible for regular retirement.  The
savings generated by buyouts could increase if these practices are
adequately considered. 

For example, with regard to the first practice, prior to downsizing,
as an agency develops an overall strategy for maintaining
productivity and service levels with fewer employees, the costs of
these actions should be considered to ensure that they do not exceed
the savings generated by reducing the workforce.  Although some
options that agencies can pursue, such as reinventing work processes,
could have comparatively low costs, with other options, such as
contracting out work formerly done by federal employees, the costs
could be more substantial.  In such instances, it would be
appropriate for agencies to do a cost analysis and consider the
results when selecting a particular downsizing strategy.  Generally,
where contracting is concerned, doing so would be consistent with OMB
Circular A-76.\15

With regard to the second practice, although OMB required agencies to
estimate the savings produced by buyouts, this calculation by itself
would not help agencies determine whether alternative separation
strategies could have produced even greater savings (although, as
indicated above, noneconomic considerations such as impact on
employee morale can also play a role in determining the most
appropriate separation strategy). 

The third practice--giving priority for buyouts to those employees
who resign or take early retirement--can increase savings because it
could result in fewer buyouts paid to retirement-eligible employees,
some of whom might have left federal service without a buyout. 
Moreover, as we noted in our earlier work, RIFs may be more
economical for separating retirement-eligible employees who cannot
bump or retreat.\16 These employees are not eligible to receive
severance pay, which, as noted earlier, could be as much as a year's
salary. 


--------------------
\14 Once the plans were approved by OMB, agencies were to submit them
to Congress. 

\15 Under OMB Circular A-76, whenever commercial sector performance
of a government operated commercial activity is permissible,
generally the cost of contracting is to be compared with the cost of
in-house performance to determine who will do the work.  Circular
A-76 procedures can assist with the transition of current employees
through its provision that federal employees and existing federal
support contract employees adversely affected by a decision to
convert to contract have the right-of-first-refusal for jobs for
which they are qualified that are created by the firm that receives
the new federal contract. 

\16 GAO/GGD-96-63. 


   SELECTED AGENCIES' BUYOUT
   PROGRAMS WERE GENERALLY BETTER
   PLANNED AND IMPLEMENTED THAN
   WAS TYPICALLY THE CASE
   GOVERNMENTWIDE DURING THE 1994
   AND 1995 BUYOUT WINDOW
------------------------------------------------------------ Letter :6

Based on our review of the buyout programs at the six agencies
included in our study, it appears that statutory and OMB
requirements, as well as OPM's guidelines, led to better planning and
implementation of these agencies' buyout programs than was true
during the 1994 and 1995 non-DOD buyout window.  During that earlier
buyout opportunity, agencies did not consistently manage their buyout
programs in ways that produced the greatest savings consistent with
other organizational objectives. 


      OUR PRIOR WORK CONCLUDED
      THAT EARLIER BUYOUTS COULD
      HAVE BEEN BETTER PLANNED AND
      IMPLEMENTED
---------------------------------------------------------- Letter :6.1

As we noted in our August 1996 study, which, among other things,
reported the results of our survey of 24 departments and agencies
that granted the most buyouts between January 1993 and September
1995,\17 most agencies did not precede their buyout programs with
adequate strategic or workforce planning.  Strategic planning helps
establish an organization's future goals and the work to be carried
out, and workforce planning helps determine what skills are
necessary--and where--to achieve those goals. 

As a result, agencies often granted buyouts across the board rather
than prioritizing them to achieve specific organizational objectives. 
This contributed to a variety of adverse operational impacts.  For
example, 15 agencies said that they had experienced a loss of
corporate memory and expertise, and 11 agencies said that there were
work backlogs because key personnel had separated. 

Moreover, of the five agencies that said they were using contractors
to perform work previously done by employees who had taken a buyout,
four reported that some of the contract employees were former federal
workers who took buyouts and then returned to the agency under a
contract.\18 Although the reemployment of buyout recipients as
employees of service contractors was not prohibited under the DOD and
non-DOD buyout authorities, we noted that a cost comparison would
help ensure that a particular contracting action was financially
advantageous to government, and that any savings realized from
buyouts would not be offset by increased contracting costs. 

We also found that in a number of instances, agencies granted buyouts
late in the fiscal year, substantially reducing the savings they
generated.  Some agencies granted buyouts as late as September, the
last month of the fiscal year. 


--------------------
\17 GAO/GGD-96-62. 

\18 Non-DOD employees hired under a personal services contract are
required to repay the separation incentive to the agency from which
they had received it. 


      SIX AGENCIES' FISCAL YEAR
      1997 BUYOUTS IMPROVED
      COMPARED TO EARLIER NON- DOD
      BUYOUTS
---------------------------------------------------------- Letter :6.2

Although we did not have the data to compare the results of agencies'
buyout programs authorized by P.L.  104-208 with those authorized by
FWRA in 1994 and 1995, available data suggest that the 6 agencies
included in this review managed their buyout programs more
effectively than was typically the case among all non-DOD agencies
participating in the earlier buyout program.  Indeed, in granting a
reported total of 5,948 buyouts, the 6 agencies we examined generally
used buyouts as a management tool to achieve specific organizational
objectives and implemented their buyout programs using methods that
generally can be expected to produce the greatest savings. 

As shown in table 2, which summarizes the objectives and results of
agencies' buyout programs, all of the agencies reported using buyouts
to reduce or eliminate the need for RIFs.  Although agency officials
could not always determine precisely how many RIF separations they
avoided by using buyouts, buyouts clearly played an important role. 
Indeed, officials at 5 of the 6 agencies in our study said that had
it not been for buyouts, well over 2,600 employees could have been
involuntarily separated.  MBDA's buyout program did not help the
agency avoid the need for RIF separations.  (See app.  I for more
detailed information.)

The number of RIFs avoided is important for two reasons.  First, as
noted in our prior work, in most instances, a buyout for a typical
federal employee separating within the first half of fiscal year 1995
could have generated over $60,000 more in net savings for an agency
than a RIF for each vacated position over a 5-year period.  Second,
RIFs can have negative noneconomic effects, such as decreased
productivity, reduced morale, and diminished workforce diversity. 
Because of the voluntary nature of buyouts, these noneconomic effects
are usually less problematic. 

Agencies also reported using buyouts to help restructure their
workforces.  Certain VA components, for example, used buyouts to help
achieve a skill mix better suited to meeting its mission; IRS used
buyouts to help complete its field office reorganization. 

Agencies said they generally targeted their buyouts, typically giving
top priority to surplus positions or those identified for
elimination.  Other reported targets reflected the administration's
goal to reduce management control positions. 

Consistent with the buyout practices we identified, the six agencies
we examined increased buyout savings by, among other activities,
generally separating employees within the first quarter or early in
the second quarter of the fiscal year.  DOE reported that 40 of its
98 approved buyout separations occurred after March 31, 1997. 
However, DOE said that units offering these buyouts had to first
demonstrate their cost effectiveness using a formula provided by the
Department. 

Also consistent with the buyout practices we identified, IRS
indicated it gave priority to employees not eligible for optional
retirement.  Some agencies also reported they increased savings by
targeting buyouts to higher level employees. 



                                                                       Table 2
                                                       
                                                        Objectives and Results of Fiscal Year
                                                           1997 Buyout Programs at Selected
                                                                       Agencies

                    DOE                 VA                  GSA                    IRS                   MBDA                   USIA
------------------  ------------------  ------------------  ---------------------  --------------------  ---------------------  ---------------------
Buyout objectives   To help meet        To change the       To reduce employment   To help reorganize    To minimize the need   To mitigate the
                    assigned staffing   skill mix of key    levels while           field offices,        for RIFs because of    effects of a RIF and
                    and funding         components of the   minimizing the need    achieve targeted      budget constraints,    to provide
                    targets while       workforce; reduce   for a RIF. Buyouts     reductions at the     buyouts were targeted  flexibility in
                    minimizing the      certain             were offered           national office, and  toward administrative  reducing employment
                    need for RIFs.      administrative,     selectively to avoid   minimize the need to  support functions.     in certain Foreign
                                        upper level, and    skill imbalances or    conduct a RIF.                               Service occupations.
                                        supervisory         adversely affecting
                                        positions; and      customers' needs.
                                        alleviate the
                                        impacts of a
                                        proposed RIF.

Buyout eligibility  Decisions on        Varied with each    Generally excluded     Buyouts offered       Persons affected by    Persons affected by
                    workforce           component, but      from receiving         according to a 10-    impending RIF,         proposed RIF,
                    reductions left to  included surplus    buyouts were           tiered priority       including such         including overstaffed
                    each component,     employees in        employees in the       system. First         positions as program   occupations, higher
                    typically based on  consolidated        Federal Supply         priority went to      and policy,            grade levels, and
                    program needs.      facilities,         Service, Office of     employees in          administrative         supervisory
                                        administrative and  the Inspector          noncontinuing         services, and          positions.
                                        clerical            General, Office of     positions not         clerical and support.
                                        positions, and GS-  Governmentwide         eligible for
                                        14 and above.       Policy, regional       optional retirement.
                                                            Federal Protective
                                                            Service positions,
                                                            and certain positions
                                                            in the Federal
                                                            Telecommunications
                                                            Service.

Latest separation   58 separations      Jan. 3, 1997.       Jan. 3, 1997.          Feb. 28, 1997.        Dec. 21, 1996.         Jan. 3, 1997
date                occurred prior to
                    Mar. 31, 1997. An
                    additional 40
                    employees
                    separated after
                    March 31, 1997,
                    where cost
                    effective.

Number of           128 at DOE, 30 at   1,687               0                      As many as 3,388.     55                     80
positions           FERC.
identified for
elimination before
buy-out

Number of           78                  40                  0                      None, but RIFs were   55                     2
employees RIFed as                                                                 anticipated once
of May 1, 1997                                                                     agreement was
                                                                                   reached with the
                                                                                   employees union.

Extent to which     Buyouts combined    Buyouts mitigated   According to GSA, the  According to IRS      None.                  Buyouts mitigated
buyouts avoided     with internal and   a large number of   140 buyouts granted    officials, had it                            about half of the RIF
RIFs                external job        RIFs, but RIFs are  mitigated the need     not been for the                             impact.
                    placements helped   still expected.     for about as many      buyouts, about 2,500
                    to reduce the                           RIFs.                  employees would have
                    number of RIFs.                                                had to be separated
                    Also, FERC planned                                             in a RIF.
                    to initiate a RIF
                    in January 1997,
                    but because 30
                    employees took
                    buyouts, this was
                    unnecessary.

Number of buyouts   160                 5,062               Up to 223.             3,388 (although IRS   30                     100
authorized                                                                         estimated that 1,326
                                                                                   offers would be
                                                                                   accepted).

Number of buyouts   68 DOE              4,376               140                    1,261                 7                      60 Civil Service, 6
approved as of      30 FERC                                                                                                     Foreign Service.
late spring 1997

Estimated net FY    $1.0 DOE            $65.5               $9.0                   $14.4                 $0.15                  ($0.13)
1997 savings in     $0.30 FERC
millions of
dollars as
reported in
strategic plan
(costs are shown
in parentheses)\a
-----------------------------------------------------------------------------------------------------------------------------------------------------
\a Because agencies did not always include in their strategic plans
the assumptions and methodologies used to estimate savings, the
savings are not comparable across agencies and do not necessarily
reflect the actual savings that accrued once the buyout was
completed. 

Source:  GAO analysis of agency and OMB data. 

Our examination of the strategic plans agencies submitted to Congress
shows that the plans generally complied with statutory and OMB
content requirements.  Because much of OPM's guidance asked agencies
only to "consider" certain factors, we could not determine the extent
to which agencies' buyout programs addressed OPM's guidelines. 
However, agencies' buyout results suggest that agencies generally
implemented their buyout programs consistent with OPM's guidance. 
For example, it appears that agencies considered which functions,
units, and positions would receive buyouts, and what the final
organizational structure would be. 

With regard to offering additional buyouts before the authority
expires in December 1997, DOE, VA, GSA, and USIA indicated that
future buyouts were possible if circumstances warranted; MBDA said it
would wait and see.  IRS approved a buyout window for July 6 through
July 19, 1997, as part of an agreement with the National Treasury
Employees Union to further reduce the impact of an anticipated RIF. 

Each agency's buyout program is described in greater detail in
appendix I. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Overall, the fiscal year 1997 buyout programs at the six agencies we
examined appear to have been better managed than was generally the
case governmentwide during the 1994 and 1995 non-DOD buyout window. 
This was due in large part to statutory and OMB requirements, as well
as OPM guidance, that were generally consistent with all but three of
the practices that we found were associated with effective buyout
usage.  Together, the requirements and guidance resulted in more
structured programs in which agencies indicated they used buyouts to
accomplish specific objectives and reportedly will save millions of
dollars in the years ahead. 

Nevertheless, opportunities for still further savings may have been
identified if OMB had required agencies to not only estimate the
savings generated by buyouts, but compare them to estimated savings
produced by alternative separation strategies, such as a RIF.  This
would have allowed agencies to determine which separation strategy,
or combination of strategies, would have produced greater savings. 
We have stated in this report and in our earlier work that economic
considerations are just one factor that agencies should address in
determining which separation strategy to use.\19 By comparing the
costs and savings of each strategy, agencies could better determine
which makes more economic sense and better judge whether the economic
advantages are outweighed by noneconomic factors. 

Additional savings also may have been achieved had OMB required
agencies to (1) include in their comparisons the costs and savings
associated with the steps agencies planned to take to maintain
productivity and service levels and (2) consider giving priority for
buyouts to employees resigning or retiring early.  We found that
these practices were associated with effective buyout usage, but they
were not reflected in statutory, OMB, and OPM requirements and
guidance. 

All 13 of the practices we identified as associated with effective
buyout usage may not apply in all circumstances.  For example,
although agencies will generally save more money by separating
employees earlier in the fiscal year, in some cases it may make sense
to have later separations to adequately plan buyout programs and
notify employees, or ensure that essential work gets accomplished. 
Therefore, these practices should be weighed against agencies'
operational, human resource, or other agency objectives. 

The non-DOD buyout authority is to expire at the end of December
1997.  The DOD buyout program is to continue until September 30,
1999.  However, to the extent that further workforce reductions are
required in response to budgetary restrictions, buyouts may again be
raised as an option to help facilitate federal downsizing. 


--------------------
\19 GAO/GGD-96-63, p.  12. 


   RECOMMENDATIONS TO THE
   DIRECTOR, OMB
------------------------------------------------------------ Letter :8

To achieve the full potential savings from buyouts consistent with
other organizational objectives, we recommend that the Director, OMB,
require agencies to include the following in any future requests for
buyouts. 

1.  Agencies should include information comparing the estimated costs
and savings of buyouts versus other separation strategies, such as
RIFs, for the separation year and a reasonable number of subsequent
years for which accurate assumptions and estimates can be made. 
Agencies should include in their comparisons the anticipated costs
and savings of steps planned to maintain productivity and service
levels, such as contracting out, if they are expected to be
significant.  If RIFs are shown to save more money than buyouts but
agencies chose to use buyouts, then OMB should require agencies to
justify their use of buyouts by indicating the noneconomic factors
the agency considered that made buyouts more advantageous than a RIF. 

2.  Agencies should consider giving buyout priority to those
employees wishing to resign or take early retirement, and if such
priority is not given, provide an analysis showing why it is
advantageous to allow retirement-eligible employees to have equal
access to buyouts. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

We received written comments from the Secretary of Commerce; DOE's
Assistant Secretary for Human Resources and Administration; VA's
Deputy Assistant Secretary for Human Resources Management; IRS' Chief
of Management and Administration; and the Director, USIA.  Oral
comments were received from GSA's Director of Personnel Policy and
Planning, and OMB's Chief of the Budget Concepts Branch.  We
requested comments from the Director of OPM but, despite several
additional inquiries, comments were not received in time to be
included in this report. 

GSA indicated it agreed with the information we provided on GSA, but
it provided no comments on our recommendations.  The remaining
agencies, with the exceptions noted below, generally agreed with our
findings, provided updated information, and suggested ways of
improving the clarity of the report.  We incorporated their
suggestions where appropriate. 

DOE agreed with our recommendations but preferred that they not be
adopted governmentwide so that agencies maintain the flexibility to
apply them as needed.  VA commented on our recommendation to give
priority for buyouts to employees who wish to resign or take early
retirement.  VA noted that given the number and complexity of
reorganizations facing the agency, managers should retain the
flexibility to determine buyout priority appropriate to the
situation. 

We acknowledge the importance of flexibility and recognize that each
agency's buyout situation is unique.  We believe that our
recommendations do not limit agencies' buyout options; rather, they
help ensure that agencies' buyout decisions are supported by data and
structured in such a way that agencies realize the largest potential
savings consistent with other organizational objectives. 

The Chief of OMB's Budget Concepts Branch and other OMB officials
provided us with comments on the draft.  OMB officials said that the
linkage we made between buyouts and the requirement for an analysis
comparing the cost of performing work in-house with contracting out
was not relevant.  Buyouts, they said, are a tool to facilitate
downsizing and minimize the need for RIFs.  As such, buyouts are not
directly related to contracting.  OMB noted that OMB Circular A-76
already requires cost comparisons between in-house and contractor
performance in a number of circumstances, but not in all.  Further,
although OMB did not disagree with our recommendation that it require
agencies to give priority for buyouts to those employees wishing to
resign or take early retirement, OMB said that even if buyouts are
given to employees close to or at retirement, buyouts could still
save money if they accelerated those retirements. 

In response to OMB's comment on the lack of a relationship between
buyouts and contracting out, we added material that better clarifies
this connection.  We also modified the list of practices to reflect
the fact that contracting out is one of several actions that agencies
can consider prior to making downsizing decisions to ensure that
productivity and service levels are maintained with fewer employees. 
We believe that the cost of these actions is an appropriate
consideration in determining which employee separation strategy to
adopt.  Therefore, in our recommendation that agencies should include
information comparing the estimated costs and savings of buyouts
versus other separation strategies, we included a requirement that
agencies factor in the estimated costs and savings of these actions
as part of their comparisons. 

We agree with OMB's observation that buyouts could still save money
in certain instances if paid to employees eligible for regular
retirement.  However, as we noted in our report, giving priority for
buyouts to those employees not eligible for retirement could reduce
the number of buyouts paid to individuals who may leave without an
incentive.  Although buyouts have likely accelerated a number of
retirements, our data suggest that in other cases retirement-eligible
employees may delay their separations to receive buyouts.  Without
the prioritization we recommend, buyouts may come to be viewed as a
retirement "sweetener" for some individuals. 


---------------------------------------------------------- Letter :9.1

As arranged with your office, unless you announce the contents of
this report earlier, we plan no further distribution until 15 days
after its issue date.  At that time, we will send copies to the
Ranking Minority Member of the Subcommittee, the Directors of OMB and
OPM, the heads of the six agencies, and other interested parties.  We
will make copies available to others on request. 

Please call me on (202) 512-9039 if you have any questions concerning
this report.  The major contributors to this report are listed in
appendix II. 

Sincerely yours,

Michael Brostek
Associate Director,
Federal Management and Workforce
 Issues


HIGHLIGHTS OF SELECTED AGENCIES'
FISCAL YEAR 1997 BUYOUT PROGRAMS
=========================================================== Appendix I


   DOE USED BUYOUTS TO GIVE
   MANAGERS FLEXIBILITY IN
   REDUCING ITS WORKFORCE
--------------------------------------------------------- Appendix I:1

DOE requested buyout authority to help it reach its funding targets
and allow it some flexibility in reducing the size of its workforce. 
Included in DOE's strategic plan was a provision for offering 21
buyouts to employees in 4 organizations funded by the Departmental
Administration Account (employees in other units could take buyouts
as long as they were shown to be cost effective).  RIF notices had
been sent to 128 employees on October 29, 1996, with an effective
date of January 3, 1997.  DOE also made provisions for the Federal
Energy Regulatory Commission (FERC) to offer 30 buyouts through
January 3, 1997.  FERC was planning to issue 30 RIF notices on
January 7, 1997, and had hoped to use buyouts to reduce the number of
involuntary separations necessary. 

According to DOE, 68 employees accepted buyout offers, and 78
employees were ultimately RIFed.  The buyouts, along with internal
and external job placements, helped minimize the number of
involuntary separations.  At FERC, 30 employees accepted buyout
offers.  These separations, along with internal placements,
eliminated the need for a RIF. 

According to a DOE representative, the heads of each organizational
component subject to downsizing had discretion to determine where to
cut the workforce.  These decisions were generally based on program
needs, but they may also have been influenced by the administration's
desire to reduce management control positions.  Among the 128 DOE and
30 FERC positions identified for elimination, 43 were GS-14 and
above, 52 were science and engineering positions, 49 were
administrative/management control, and 6 were clerical. 

Cost effectiveness was one of DOE's nine explicit criteria for
offering buyouts.  It was determined by the amount of salary and
benefits DOE would be obligated to pay if the employee stayed for the
remainder of the fiscal year.  These savings were offset by the cost
of the buyouts, including the separation incentive and the additional
contribution to the federal retirement fund.  On the basis of this
formula, DOE calculated savings of $329,424 at DOE and $264,839 at
FERC for fiscal year 1997. 

According to DOE as of early June 1997, 58 of its 98 buyout
separations occurred prior to March 31, 1997.  Forty buyout
separations took place after March 31.  Although these buyouts were
later in the fiscal year, which could have decreased the savings they
generated, DOE said that each unit offering these buyouts had to
demonstrate their cost effectiveness according to a formula DOE
provided. 


   VA USED BUYOUTS TO HELP
   FACILITATE WORKFORCE
   RESTRUCTURING
--------------------------------------------------------- Appendix I:2

VA requested authority to offer as many as 5,062 buyouts to help it
convert to a primary/managed care model of health care delivery,
integrate facilities, reengineer business processes, and reduce the
number of management control positions while minimizing the need for
RIF separations.  RIF plans had already been approved for 1,687
employees at 19 separate facilities because of these reinvention
initiatives. 

As VA's largest employer, the Veterans Health Administration (VHA)
used the most buyouts.  As many as 4,442 buyouts were to be used to
help support the ongoing shift from a hospital-based method of health
care delivery to a primary/managed care model.  VHA is to accomplish
this transition by, among other actions, streamlining operations,
consolidating nearby facilities, and eliminating duplicative clinical
or support functions. 

According to VHA officials, priority for receiving buyouts included
surplus employees in those facilities that were to be integrated and
consolidated; surplus medical occupations, such as physicians and
registered nurses; and supervisory positions. 

Of the 4,442 buyouts authorized by VHA, 3,819 were granted.  Of
these, 818 were medical positions, 761 were wage grade, 2,171 were
GS-13 and below, and 69 were GS-14 and above.  VHA officials
explained that the actual number of buyouts fell short of their
expectations because of VHA's strict eligibility criteria.  They
noted that VHA could have paid the 4,442 buyouts authorized but chose
not do so, because it would have violated VHA's buyout criteria. 
Further, the officials noted that the buyouts did not attract young
to middle-age employees, because the separation incentive they would
have received was too low to cause them to quit. 

The Veterans Benefits Administration (VBA) was the second largest
user of buyouts at VA with up to 500 buyouts authorized to help it
achieve the right mix of skills in the right locations.  VBA
officials told us that VBA had 10 different eligibility categories. 
Receiving top priority for buyouts were administrative and clerical
positions and upper level employees in keeping with the agency's
mandate to reduce management control positions.  VBA also targeted a
large number of buyouts to employees in supervisory positions GS-13
and below to reduce supervisory layering. 

VBA paid a total of 483 buyouts.  These included 443 approved for
employees in positions GS-13 and below, as well as 40 in positions
GS-14 and above.  VBA officials believed that the buyout program was
successful because it attracted certain medical officers that VBA had
tried to separate for years but had been unable to.  VBA officials
also stated that the buyouts helped them better manage VBA's
downsizing by targeting certain supervisory functions in
administrative and clerical occupations that were no longer needed
because VBA was moving to a team/coaching environment.  Further, the
officials said that buyouts mitigated the need for RIFs.  VBA had
already convened a national team to organize a RIF of as many as 500
employees. 

VA estimated that buyouts would save about $65.5 million in fiscal
year 1997.  For VA to achieve these savings, buyout recipients
generally had to separate no later than January 3, 1997.  However, VA
granted an exception to employees who did not become eligible for
early retirement until after December 31, 1996.  These employees were
required to apply during the established window but could delay their
separations until they became eligible for early retirement. 


   GSA USED BUYOUTS TO HELP AVOID
   A RIF
--------------------------------------------------------- Appendix I:3

According to GSA's strategic plan, the President's Fiscal Year 1997
budget called on GSA to reduce its employment levels by 337 full-time
positions.  This decrease was over and above the reductions mandated
under the previous buyout authority and could not be accomplished by
attrition alone.  Thus, to avoid separating employees by a RIF, GSA
planned on using buyouts to achieve its downsizing goals. 

GSA's plan also notes that the agency intended to carefully target
its buyouts and thereby avoid some of the shortcomings of the 1994
and 1995 buyout window when buyouts were granted nonselectively. 
According to GSA's plan, these agencywide buyouts, along with normal
attrition, resulted in personnel reductions that were not always
consistent with GSA's organizational or business goals and led to
skill imbalance.  By tailoring its fiscal year 1997 buyout program,
GSA hoped to avoid exacerbating these imbalances or making it harder
to address customers' needs. 

To this end, GSA's buyout program excluded the Federal Supply Service
and the Office of Inspector General, which were already on track
toward meeting their workforce goals; the Office of Governmentwide
Policy and the Federal Protective Service, which were both growing in
size because of greater responsibilities; and certain regions and/or
job series where there was a shortage in specific telecommunications
skills. 

GSA granted 140 buyout applications from among the 223 employees who
had signed declarations of intent indicating their desire to receive
a buyout.  According to a GSA official, this was probably sufficient
to allow GSA to achieve its remaining workforce reduction goals by
attrition.  If not, GSA said it might consider opening another buyout
window in the fall of 1997. 

GSA concluded that for the buyouts to be cost effective, it could
offer them only in the first quarter of the fiscal year. 
Consequently, buyout recipients had to be off the employment rolls by
January 3, 1997.  GSA's buyout program also indicated that buyout
decisions were to be based on the impact individual buyouts would
have on GSA's mission, which may have increased the buyout's cost
effectiveness. 


   IRS USED BUYOUTS TO HELP
   REORGANIZE FIELD OFFICES AND
   REDUCE HEADQUARTERS EMPLOYMENT
   LEVELS
--------------------------------------------------------- Appendix I:4

The objectives of the IRS buyout program were to complete its field
office reorganization, selectively downsize its headquarters, and
reduce or eliminate the need to conduct a RIF.  Facing funding
reductions that caused it to accelerate the pace of its
reorganization efforts, IRS identified 3,388 positions for
realignment or elimination.  About 70 percent of these positions were
in field offices. 

Although 3,388 buyouts were authorized, IRS projected that 1,326
would actually be accepted.  According to IRS data as of late spring
1997, 1,261 buyouts had been approved.  Of these, 935 (74 percent)
went to field employees, and 326 (26 percent) went to headquarters
employees.  Had it not been for the buyouts, agency officials
estimated that about 2,500 employees would have had to be separated
in a RIF. 

To further reduce the impact of an anticipated RIF, as part of an
agreement with the National Treasury Employees Union, IRS plans on
offering another round of buyouts from July 6, 1997, through July 19,
1997.  Under the terms of the agreement, the buyouts are to be
limited to the number of RIF separations expected within each
commuting area and are to be offered in accordance with specific
eligibility criteria.  Receiving top priority are those employees
expected to be separated in a RIF who are not immediately eligible
for early or regular retirement.  Employees selected for a buyout are
to be off the rolls by August 2, 1997. 

IRS supported its strategic plan with extensive economic analysis
that not only calculated the savings generated by buyouts, but
compared those savings to those it estimated would accrue from a RIF. 
Assuming 1,326 buyouts, IRS calculated in its strategic plan that
buyouts would produce $8.4 million in net savings compared to
separating employees through a RIF and would result in $14.4 million
in net fiscal year 1997 savings. 

IRS offered buyouts according to a 10-tiered priority system. 
Buyouts were first offered to employees in noncontinuing positions,
then to employees in positions where departures would create
vacancies that could be filled by people in noncontinuing positions. 
Consistent with one of the practices associated with effective buyout
programs that we identified, IRS gave priority for buyouts to
employees not eligible for optional retirement. 


   MBDA'S BUYOUT PROGRAM TARGETED
   SPECIFIC GROUPS
--------------------------------------------------------- Appendix I:5

MBDA was forced to reduce its personnel expenses following severe
budget cuts that reduced MBDA's funding from $44 million in fiscal
year 1995 to $28 million in fiscal year 1997, a decline of about 36
percent.  To that end, it planned on conducting a RIF that would
affect approximately 73 positions, about 55 of which would ultimately
be abolished.  To minimize the impact of the impending RIF, MBDA
offered 30 buyouts to employees in the 75 positions affected by the
RIF. 

According to agency officials, the RIFs--and hence the buyouts--were
targeted toward general administrative support functions rather than
programmatic positions.  The cuts were aimed at headquarters units
that included data resources, planning and evaluation, and the office
of administration, because such services were more readily available
from MBDA's parent agency, the Department of Commerce. 

MBDA officials said that although MBDA was prepared to offer 30
buyouts and expected that 10 to 15 employees would accept them, 7
employees actually received buyouts.  According to agency officials,
the reason for the shortfall was that most employees in the targeted
positions were ineligible for retirement and wanted to eventually
return to the government.  The reemployment restrictions in the
buyout authority would have prevented them from returning to federal
employment for 5 years unless they first repaid the full amount of
the buyout. 

Because of the low acceptance rate, agency officials said that
buyouts did not help MBDA avoid a RIF, and 55 employees were
ultimately separated in this manner.  Nevertheless, agency officials
noted that the buyouts, together with RIF separations, helped MBDA
achieve its goal of reducing the ratio of headquarters personnel to
field personnel, moving from 1.7:1 to 1:1.5.  In its strategic plan,
MBDA estimated an average savings of $5,000 per buyout recipient. 


   USIA USED BUYOUTS TO MANAGE ITS
   WORKFORCE REDUCTIONS
--------------------------------------------------------- Appendix I:6

USIA's ongoing reinvention efforts, combined with funding
restrictions, led the agency to identify 80 positions for
elimination.  To minimize the impact of the impending RIFs, USIA
offered up to 100 buyouts.  The buyouts were to also reduce
over-staffed occupations, such as Foreign Service secretaries, and
decrease the number of employees in higher grade levels and
supervisory positions. 

Although employees in the 80 positions likely to be eliminated had
priority for receiving buyouts, USIA also allowed "swapping." Under
this procedure, USIA considered buyout applications from employees
elsewhere in the agency in comparable series and identical grade
levels who could substitute for the employees in affected positions. 

USIA paid 66 buyouts.  Of these, 60 were Civil Service and 6 were
Foreign Service.  As a result of the buyouts, an agency official
estimated that buyouts mitigated about half of the RIF impact. 
Further, once the buyout program was completed, two employees were
separated by RIF. 

Although USIA calculated that the buyouts produced a net cost of
$133,000 in fiscal year 1997, it estimated annual savings in fiscal
year 1998 and each year beyond at $3.24 million.  In addition to
reduced salary expenses, these savings were also generated by phasing
out programs, consolidating offices, and streamlining administrative
functions, among other activities. 

USIA's management of its buyout program also tended to increase
savings.  For example, in addition to aiming buyouts at higher graded
positions and generally requiring separations by January 3, 1997,
USIA granted separation deferments only to those individuals assigned
overseas and for a period not to exceed 60 days.  Further, in
instances where swapping took place, if there were multiple
candidates, USIA reported that the buyout was granted on the basis of
the greatest salary savings and least separation cost, among other
criteria. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

GENERAL GOVERNMENT DIVISION

Steven J.  Wozny, Assistant Director
Robert Goldenkoff, Evaluator-in-Charge

DENVER OFFICE

Thomas R.  Kingham, Senior Evaluator

*** End of document. ***