Federal Downsizing: Buyouts At the Farm Service Agency (Letter Report,
07/23/97, GAO/GGD-97-133).

Pursuant to a congressional request, GAO reviewed voluntary separation
incentives or "buyouts" at the Farm Service Agency (FSA), focusing on:
(1) whether FSA's fiscal year (FY) 1997 buyout program was planned in
accordance with legal requirements; (2) whether the decision to grant
buyouts was based on a well-supported cost and savings analysis; and (3)
the results of the FY 1997 buyouts, including the impact of buyouts and
downsizing on the agency's operations. GAO did not independently verify
agency officials' statements about the impact of downsizing on service
delivery nor about how successful agency efforts such as outsourcing
mitigated the loss of expertise created by downsizing.

GAO noted that: (1) faced with a need to reduce its staff by 1,339
positions (7.6 percent) during FY 1997, FSA designed its buyout program
to help it reach its downsizing goals while minimizing the need for
reductions-in-force (RIF); (2) FSA included all required legal
provisions in its buyout program; (3) these included a strategic plan
for using buyouts that identified the types of positions that were to be
eliminated by organizational unit, location, broad occupational groups
and grade levels, the number and amounts of buyout payments anticipated,
and how the mission areas would be affected by elimination of the
positions and functions; (4) although not required to do so by
legislation, the Department of Agriculture (USDA) completed a cost and
savings comparison of buyouts and RIFs for FSA prior to the FY 1997
buyouts at the request of the Chairman, Senate Committee on Agriculture,
Nutrition, and Forestry; (5) although these estimates appeared to be
high, they did not invalidate USDA's conclusion that buyouts should
generate more net savings than RIFs over a 5-year period; (6) separating
retirement-eligible employees who could not be reassigned through RIFs
in offices that were closing or scheduled to close may have generated
more savings than granting them buyouts; (7) since employees eligible
for a retirement annuity cannot receive severance pay under a RIF, a
significant cost element would have been avoided by separating an
employee under a RIF rather than a buyout; (8) FSA reported that 926
employees have been separated with buyouts in FY 1997, and 329 employees
have been separated under RIFs; (9) the total separations of 1,255
compared to a planned separation of 1,339 employees; (10) of the 926
buyout takers, 57 percent were eligible for regular retirement, and an
additional 33 percent were eligible for early retirement; (11) FSA
officials reported they generally used the buyout authority in those
areas of the agency where declining workloads and budgets dictated
staffing reductions; (12) officials at headquarters and in the Kansas
City Management Office (KCMO) reported that they experienced the loss of
expertise in the administrative and information technology areas when
employees separated with buyouts; (13) FSA officials indicated the use
of buyouts helped them meet downsizing goals while reducing the need for
RIFs; and (14) FSA officials expressed some strong concerns about futur*

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

 REPORTNUM:  GGD-97-133
     TITLE:  Federal Downsizing: Buyouts At the Farm Service Agency
      DATE:  07/23/97
   SUBJECT:  Employee buyouts
             Civilian employees
             Federal employees
             Reductions in force
             Federal downsizing
             Comparative analysis
             Severance pay
             Budget cuts
             Cost analysis
             Employee transfers
IDENTIFIER:  Kansas City (MO)
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Agriculture, Nutrition, and
Forestry
U.S.  Senate

July 1997

FEDERAL DOWNSIZING - BUYOUTS AT
THE FARM SERVICE AGENCY

GAO/GGD-97-133

Federal Downsizing

(410085)


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

  DOL - Department of Labor
  FSA - Farm Service Agency
  KCCO - Kansas City Commodity Office
  KCMO - Kansas City Management Office
  RIF - reduction-in-force
  USDA - United States Department of Agriculture

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


B-275640

July 23, 1997

The Honorable Richard Lugar
Chairman, Committee on Agriculture, Nutrition, and Forestry
United States Senate

Dear Mr.  Chairman: 

This letter responds to your request that we review voluntary
separation incentives or "buyouts" at the U.S.  Department of
Agriculture Farm Service Agency (FSA).  Specifically you asked us to
(1) determine if FSA's fiscal year 1997 buyout program was planned in
accordance with legal requirements, (2) determine if the decision to
grant buyouts was based on a well-supported cost and savings
analysis, and (3) describe the results of the fiscal year 1997
buyouts, including the impact of buyouts and downsizing on the
agency's operations. 


   BACKGROUND
------------------------------------------------------------ Letter :1

FSA, an agency of the U.S.  Department of Agriculture (USDA),
administers farm commodity and conservation programs for farmers and
makes farm loans.  With over 17,000 employees, FSA maintains its
headquarters in Washington, D.C., and operates offices in each state
and in most counties.  FSA is the lead agency for administering
payments to the farmers who receive federal agricultural assistance. 

Each state director oversees the operation of county field offices
through district directors, who generally supervise operations in 6
to 10 counties.  Employees in county offices can be either federal or
nonfederal.  Nonfederal employees are county employees who are
governed by separate FSA personnel regulations and are subject to
county supervision.  Their pay and benefits, including retirement
benefits, are provided by the federal government and are generally
the same as those federal employees receive.  A key difference in
personnel regulations is that nonfederal employees, unlike their
federal counterparts, cannot displace other employees under a
reduction-in-force (RIF).  Prior to a 1994 reorganization creating
FSA, these nonfederal employees managed farm commodity programs for
the Agricultural Stabilization and Conservation Service.  Under the
reorganization, these nonfederal employees joined the FSA
organization. 

Work in the county offices includes direct services to farmers and
producers; administering loans on commodity programs; administering
disaster assistance programs; managing direct and guaranteed farm
loan programs to help farmers who are temporarily unable to obtain
private, commercial credit; and administering a conservation program
that encourages farmers or producers to plant grass or trees instead
of crops on highly erodible and environmentally sensitive lands.  The
County Executive Director, a nonfederal employee, is selected by a
committee of local farmers. 

The Federal Agriculture Improvement and Reform Act of 1996 (P.L. 
104-127) provided fundamental changes to the way farm programs are
administered.  This act removed the link between income support
payments, production levels, and farm prices.  Farmers receiving
federal support for agriculture can now operate with fewer federal
controls over which crops to plant and how much acreage to put into
production. 

As part of its continuing streamlining and downsizing efforts, USDA
was authorized in its fiscal year 1997 appropriations to offer
voluntary separation incentive payments over a 4-year period to
assist those agencies within the Department that were targeted for
workforce reductions.\1 These payments, commonly referred to as
buyouts, were authorized for employees serving under a permanent
appointment for a continuous period of at least 3 years.  The law
established the amount of the fiscal year 1997 payments as the lesser
of the employee's severance pay entitlement or an amount up to
$25,000, as determined by the agency head.  The maximum buyout amount
authorized by the law is reduced by $5,000 each year until fiscal
year 2000, the final year of the authority, when the maximum amount
is $10,000. 


--------------------
\1 The buyouts were authorized by the Agriculture, Rural Development,
Food and Drug Administration, and Related Agencies Appropriations Act
of 1997 (P.L.  104-180). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Faced with a need to reduce its staff by 1,339 positions (7.6
percent) during fiscal year 1997, FSA designed its buyout program to
help it reach its downsizing goals while minimizing the need for
RIFs.  FSA included all required legal provisions in its buyout
program.  These included a strategic plan for using buyouts that
identified the types of positions that were to be eliminated by
organizational unit, location, broad occupational groups and grade
levels; the number and amounts of buyout payments anticipated; and
how the mission areas would be affected by elimination of the
positions and functions. 

Although not required to do so by legislation, USDA completed a cost
and savings comparison of buyouts and RIFs for FSA prior to the
fiscal year 1997 buyouts at the request of the Chairman, Senate
Committee on Agriculture, Nutrition, and Forestry.  Actual buyout and
RIF costs from fiscal year 1997 were not yet available at the time of
our study.  Although the USDA analysis showed that buyouts held an
economic advantage over RIFs, estimates for the RIF costs of
relocation and unemployment compensation were not well supported and
appeared to be higher than appropriate for FSA based on comments from
FSA personnel and on our prior work on the costs and savings of
buyouts and RIFs.  Although these estimates appeared to be high, they
did not invalidate USDA's conclusion that buyouts should generate
more net savings than RIFs over a 5-year period.\2

However, separating retirement-eligible employees who could not be
reassigned through RIFs in offices that were closing or scheduled to
close may have generated more savings than granting them buyouts. 
Since employees eligible for a retirement annuity cannot receive
severance pay under a RIF, a significant cost element would have been
avoided by separating an employee under a RIF rather than a buyout. 
However, RIFs can often cause noneconomic impacts that must also be
considered.  These include lower productivity and morale, increased
work in processing RIFs and in handling appeals of RIF decisions, and
disruptions in the efficient operation of the workplace. 
Nevertheless, an economic analysis of RIFs in those situations where
offices are closing can be an important part of the decision as to
which separation strategy to pursue.  USDA officials told us they had
analyzed the relative cost and savings of buyouts and RIFs across the
agency but had not considered applying the economic analysis to
employees in offices that are closing. 

As of the end of April, FSA reported that 926 employees have been
separated with buyouts in fiscal year 1997, and 329 employees have
been separated under RIFs.  The total separations of 1,255 compared
to a planned separation of 1,339 employees.  Of the 926
buyout-takers, 57 percent were eligible for regular retirement, and
an additional 33 percent were eligible for early retirement.  The
number of federal employees receiving buyouts met FSA's expectations;
however, 697 buyouts were granted to nonfederal county employees
compared to 875 planned nonfederal buyouts.  Agency officials
explained that the shortfall in nonfederal buyouts was created
because some overstaffed county offices did not receive a sufficient
number of applications. 

FSA officials reported they generally used the buyout authority in
those areas of the agency where declining workloads and budgets
dictated staffing reductions.  However, officials at headquarters and
in the Kansas City Management Office (KCMO) reported that they
experienced the loss of expertise in the administrative and
information technology areas when employees separated with buyouts. 
Although these employees worked in positions within the broad
administrative occupational area targeted in the strategic plan,
agency officials said that in hindsight, better targeting of buyouts
would have excluded these employees from buyout eligibility, thus
avoiding the loss of needed expertise. 

FSA officials indicated the use of buyouts helped them meet
downsizing goals while reducing the need for RIFs.  Although they
cited cases where they lost employees with valuable expertise to
buyouts, they reported they were generally able to mitigate this loss
through increased training, longer work hours for the remaining
employees, and increased use of contract services. 

FSA officials expressed some strong concerns about future workforce
reductions.  They told us that an additional reduction of 2,850 staff
years over the next 2 fiscal years, called for in the President's
fiscal year 1998 budget, could seriously affect the agency's ability
to meet its mission and maintain high customer service levels. 
Further, although agency officials indicated they intend to use the
buyout authority in fiscal year 1998 to facilitate the required
workforce reductions, they told us that buyouts may not be as
effective in avoiding RIFs because the lower buyout amount ($20,000)
and fewer retirement-eligible employees may generate fewer
buyout-takers than needed.  We did not examine the validity of these
concerns for this report.  However, as part of our ongoing work, we
are examining the impacts of projected FSA workloads on the agency's
operations and staffing levels. 


--------------------
\2 Federal Downsizing:  The Costs and Savings of Buyouts Versus
Reductions-in-Force GAO/GGD-96-63, May 14, 1996). 


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

To determine if FSA's fiscal year 1997 buyouts were planned in
accordance with legal and regulatory requirements, we compared FSA's
buyout plans with requirements identified in the authorizing
legislation.  These requirements included a strategic plan that
identified the positions and functions to be eliminated by
organizational unit, location, occupational category, and grade
levels; the number and amounts of buyout payments anticipated; and a
description of how the mission areas would be affected by elimination
of the positions and functions.  We interviewed key agency human
resource and budget personnel to determine how the buyouts were
planned. 

To determine if the decision to grant buyouts was based on a
well-supported cost and savings analysis, we analyzed USDA's cost and
savings analysis of FSA buyouts and RIFs, comparing it to our prior
work that identified the type of cost and savings data needed to
analyze the economics of buyouts.  We interviewed USDA and FSA human
resource management and budget personnel to obtain their rationale
for the estimates, and we interviewed FSA program personnel to
determine their perceptions about the appropriateness of the
estimates. 

To describe the results of the fiscal year 1997 buyouts, we collected
and analyzed demographic data on buyout-takers from the agency's
human resource managers, compared original expectations with results,
and interviewed agency officials in those areas where the greatest
number of buyouts took place.  These included the state directors in
the five states with the most buyouts and managers in KCMO and at
those headquarters units that had the most buyouts.\3 In addition, we
interviewed representatives of four employee associations and two
unions to obtain additional information on the results of the fiscal
year 1997 buyout program.  We did not independently verify agency
officials' statements about the impact of downsizing on service
delivery nor about how successful agency efforts such as outsourcing
mitigated the loss of expertise created by downsizing. 

Our work was performed in Washington, D.C., and Denver, Colorado,
between October 1996 and May 1997, in accordance with generally
accepted government auditing standards. 

We provided the Secretary of Agriculture and the Administrator of the
Farm Service Agency with a draft of this report for their comments on
May 30, 1997.  USDA's written comments are summarized and evaluated
at the end of this letter and are presented in full in appendix II. 


--------------------
\3 The five states included Illinois, Iowa, Minnesota, North
Carolina, and Texas.  These states, along with the Kansas City
Management Office, and the offices of the Deputy Administrator for
Management at headquarters, accounted for over one-third of the total
926 buyouts granted. 


   BUYOUT PROGRAM PLANNED IN
   ACCORDANCE WITH LEGAL
   REQUIREMENTS
------------------------------------------------------------ Letter :4

FSA's plan for using buyouts addressed all elements required by P.L. 
104-180, which authorized buyouts at USDA.  The law required USDA to
submit a strategic plan to the House and Senate Committees on
Appropriations, the Senate Committee on Governmental Affairs, and the
House Committee on Government Reform and Oversight that showed the
intended use of buyouts and a proposed organizational chart for the
agency once the buyouts have been completed.  The law required the
plan to include: 

(1)the positions or functions to be reduced or eliminated, identified
by organizational unit, geographic location, occupational category,
and grade level;

(2)the number and amounts of voluntary separation incentive payments
to be offered; and

(3)a description of how the agency will operate without the
eliminated positions and functions. 

According to FSA's strategic plan, 1,108 buyouts were to be directed
to positions within broad occupational groups at headquarters, in
KCMO, the Kansas City Commodity Office (KCCO), the Aerial Photography
Field Office in Salt Lake City, and in state offices.  Buyouts were
to be targeted at headquarters to higher graded employees who were
eligible for regular or early retirement.  At KCMO, KCCO, and the
Aerial Photography Office, buyouts were generally to be targeted to
positions within the broad occupational groups of personnel, general
administration and clerical, accounting/budgeting, legal, business
and industry, and education.  Buyouts were authorized for all series
and grades of federal positions in the state offices.  Nonfederal
employees in the counties could apply for buyouts, but buyouts
granted were targeted to those counties considered to be overstaffed
relative to their workloads.  It was also anticipated that almost all
buyouts (99 percent) would go to retirement-eligible federal and
nonfederal employees. 

In the field areas where the staffing reductions were being driven by
workload, the plan stated that adjustments in staffing would be made
to accommodate shortages and to conduct rightsizing where needed.\4
The plan further stated that program delivery and support would be
adjusted on the basis of fiscal year 1997 appropriation levels to
ensure the maintenance of customer service expectations. 

FSA did not anticipate any changes to the agency's mission areas or
organizational structure as a result of the buyouts.  A proposed
organizational chart approved on November 26, 1996, was submitted to
the cognizant congressional committees. 


--------------------
\4 Rightsizing occurs when personnel reductions made in overstaffed
units are offset by employees hired in units that are understaffed. 


   USDA'S ECONOMIC ANALYSIS OF
   BUYOUTS AND RIFS WAS NOT WELL
   SUPPORTED AND WAS NOT APPLIED
   TO SEPARATIONS CREATED BY
   OFFICE CLOSURES
------------------------------------------------------------ Letter :5

Although not required to do so by legislation, USDA, in November
1996, completed a cost and savings comparison of buyouts and RIFs in
the FSA and Rural Development mission areas over a 5-year period in
response to a request from the Chairman, Senate Committee on
Agriculture, Nutrition, and Forestry.  The analysis for FSA concluded
that if buyouts were granted to employees in all 1,339 positions
targeted for elimination, the first year's net savings would be
almost $3 million; separating the same number of employees through
RIFs would result in a net cost of $13 million.  The analysis also
concluded that after 5 years, the net savings from buyouts would be
almost $243 million; the net savings from RIFs would be $191 million. 

USDA's analysis of the relative costs and savings of buyouts and RIFs
in FSA appears to have overstated per capita RIF costs in two areas. 
USDA officials told us they based their RIF cost estimates on actual
costs from a small RIF in the Forest Service in 1993, and they said
that they realize the estimates may not be accurate for FSA.  Actual
cost and savings data from the fiscal year 1997 buyouts and RIFs were
not available for our analysis at the time of our study.  Appendix I
includes a comparison of USDA's buyout and RIF cost estimates for the
year of separation with the cost estimates we used in our previous
work on the costs and savings of buyouts and RIFs. 

RIF costs typically include unemployment compensation payments;
outplacement costs and, if the employee is not eligible for an
annuity, severance pay; and refunds of retirement contributions. 
Other costs such as processing costs or appeals costs could be
included if they represent additional costs, such as the hiring of an
employee to manage a RIF or the hiring of a lawyer to handle RIF
appeals.  Costs can be incurred for other employees not separated but
nevertheless affected by the RIF.  These include retraining and
relocation costs.  Buyout costs generally include the cost of the
incentive (up to $25,000) and the additional agency payment to the
retirement fund (15 percent of final salary) required by authorizing
legislation. 

The two RIF cost elements appearing high in the USDA analysis of FSA
RIFs were relocation and unemployment compensation costs.  The USDA
analysis included an estimate of $30,000 for relocation costs per RIF
for employees affected by each RIF action.  However, in our 1996
report, we estimated relocation costs at $3,500 per RIF based on a
1993 Congressional Budget Office study of RIF costs.  In addition,
FSA officials told us that very few relocations would occur as a
result of RIFs in FSA, since nonfederal employees cannot compete for
positions in other county offices in a RIF situation. 

USDA used an estimate of $13,200 per RIF for unemployment costs
incurred for each person separated by the RIF.  However, according to
the Department of Labor (DOL) data we used in our prior report, the
average 1994 recipient of unemployment compensation received $3,233. 
This varied from a low of $1,632 in Mississippi to a high of $6,341
in Pennsylvania.  In addition, DOL data showed that only about 60
percent of those individuals unemployed actually filed initial
claims.  USDA officials could not explain why the costs from the 1993
Forest Service RIF were substantially higher than the costs
documented in the 1994 DOL data. 

Although these estimates for RIF costs appear to have been
overstated, it is likely that buyouts would still generate greater
net savings than RIFs over a 5-year period.  If the estimates for
relocation costs and unemployment compensation were adjusted on the
basis of the estimates we used in our previous work, the revised
comparison would show RIFs as generating greater savings in the year
of separation.  However, because RIFs generally separate lower graded
employees, the higher savings in salaries and benefits of
buyout-takers would result in buyouts generating greater savings than
RIFs in the second and subsequent years of the analysis. 

Although buyouts are generally the more economical choice, RIFs could
generate greater net savings in specific situations where the
positions of retirement-eligible employees are targeted for
elimination in offices that are closing or scheduled to close.  If
positions are to be eliminated in an office that is closing and the
employees cannot relocate to another location, the agency has various
options available for separating the employees.  It can grant buyouts
to all employees desiring voluntary separations and issue RIF notices
to those not desiring buyouts, issue RIF notices to all employees, or
offer buyouts only to those employees not eligible to retire and RIF
notices to retirement-eligible employees.  Whatever approach the
agency takes can be based on noneconomic factors as well as costs and
savings estimates.  These noneconomic factors, such as lower
productivity and morale, increased work in handling appeals of RIF
decisions, and disruptions in workplace operations, can weigh heavily
in the decision as to which option to pursue.  Nevertheless, an
economic analysis of RIFs is an important part of this decision. 

In our prior work, we found that separating retirement-eligible
employees who cannot displace other employees through RIFs can
generate greater net savings than granting them buyouts.\5
Retirement-eligible employees cannot receive severance pay in a RIF. 
Since this pay could amount to as much as a year's salary, depending
on age and years of service, a significant cost could be avoided by
separating an employee under a RIF rather than a buyout.  Of
nonfederal FSA employees separating with buyouts in fiscal year 1997,
90 percent were eligible for a retirement annuity. 

We found that 14 retirement-eligible nonfederal employees received
buyouts in 13 county offices that were closing or scheduled to close. 
In addition, FSA data show that 19 federal district directors who
were stationed in the states and received buyouts were eligible for
retirement.  We were not able to determine which, if any, of these
federal employees were stationed in county offices that were closing. 
However, if they were precluded from displacing other employees, RIF
separations could have generated greater savings than buyouts.  USDA
officials told us they had analyzed the relative cost and savings of
buyouts and RIFs across the agency, but they had not considered
applying the economic analysis to those situations where offices were
closing.  Such an analysis may be an important part of decisions as
to which separation strategies to use in the next 2 years.  Fiscal
year 1998 budget documents project the closure of an additional 500
county offices by the end of fiscal year 1999. 


--------------------
\5 Under federal RIF procedures, an employee whose position is
targeted for elimination can, if qualified, displace another federal
employees who is in a lower tenure group (appointment category) or
who has less service.  These processes, often called "bumping" and
"retreating," do not apply to FSA's nonfederal employees. 


   BUYOUT RESULTS GENERALLY MET
   EXPECTATIONS, BUT FSA OFFICIALS
   NOTED SOME BUYOUTS RESULTED IN
   THE LOSS OF NEEDED EXPERTISE
------------------------------------------------------------ Letter :6

As shown in table 1, the total number of FSA reductions in fiscal
year 1997 has been slightly less than planned.  According to FSA
officials, the combination of a hiring freeze and higher than normal
attrition allowed the agency to reduce the size of the total
reduction it needed to take.  Although the number of nonfederal
employee buyouts in the counties fell slightly short of FSA's
expectations, the number of RIFs was higher than expected.  An agency
official estimated that about 10 percent of the 304 agency RIFs were
rightsizing RIFs, where the separation of an employee through a RIF
in an overstaffed unit was made so that an understaffed unit could
hire a new employee.  FSA officials said that the number of buyout
applications received from nonfederal employees in some offices
scheduled for downsizing was somewhat below the number needed at
these locations.  Although agency officials reported they were able
to avoid some RIFs by asking nonfederal employees in overstaffed
offices to relocate, this was not always successful. 



                                Table 1
                
                        FSA FY 1997 Separations

                                          Nonfederal
                           Federal         (county
                          employees       employees)        Totals
                        --------------  --------------  --------------
                        Planne          Planne          Planne
                             d  Actual       d  Actual       d  Actual
----------------------  ------  ------  ------  ------  ------  ------
Buyouts                    233     229     875     697   1,108     926
RIFs                         0    25\a     231     304     231     329
======================================================================
Total separations          233     254   1,106   1,001   1,339   1,255
----------------------------------------------------------------------
\a Includes 9 full-time permanent employees in the states and 16
temporary/term employees in the KCMO. 

Source:  FSA buyout plan, FSA statistics on buyouts and RIFs as of
April 30, 1997. 

As shown in table 2 below, most of the buyouts went to employees who
were eligible for either regular or early retirement. 



                                     Table 2
                     
                        FSA FY 1997 Buyouts by Retirement
                                   Eligibility

        Regular              Early
       retireme           retireme           Resignatio                    Perce
             nt  Percent        nt  Percent          ns  Percent   Totals   nt
-----  --------  -------  --------  -------  ----------  -------  -------  -----
Feder       113       49        89       39          27       12      229   100
 al
 empl
 oyee
 s
Nonfe       411       59       220       32          66       10      697   100
 deral
 empl
 oyee
 s
================================================================================
Total       524       57       309       33          93       10      926   100
 s
--------------------------------------------------------------------------------
Source:  FSA statistics on FY 1997 buyouts and GAO calculations. 

FSA officials considered buyouts as a useful management tool in
helping them reach agency downsizing goals while reducing the need
for RIFs.  The agency generally used buyouts in areas of declining
workloads and where budgets dictated staffing reductions.  Buyouts
were excluded for certain positions in the farm credit area, since
staffing was already at minimum levels considered essential for
meeting customer service expectations.  Although most FSA employees
could apply for buyouts, some states and organizational units offered
buyouts to all applicants; others screened applications, offering
buyouts only to employees from units or offices determined to be
overstaffed. 

Because the buyout program relied on voluntary separation decisions,
FSA officials said they could not directly control who would apply
for a buyout.  However, they stated that they were generally able to
manage the distribution of buyouts so that the number of RIFs would
be minimized.  For example, they said one of their options under the
buyout program was to grant a buyout in an office that was not
overstaffed, refill the position with an employee relocated from an
overstaffed office, and count the position reduction in the
overstaffed office as the required offset to the buyout. 

Although agency officials and representatives of employee
associations and unions stated they generally believed the buyout
program was well implemented, some cited examples where employees
separating with buyouts created the loss of critical expertise. 
State program officials cited some loss of expertise at the state and
county levels through buyout separations, but they indicated they
have instituted aggressive training programs to enable remaining
staff to complete the required work. 

Officials at headquarters and KCMO reported the buyouts granted to
federal employees in the administrative and information technology
areas resulted in the loss of valuable expertise and, as one official
stated, a "brain drain." Although these employees worked in
occupational groups targeted in the strategic plan, agency officials
at headquarters and in Kansas City said that in hindsight, it would
have been better to exclude employees in these positions from
receiving buyouts.  They said that better targeting of buyouts could
have prevented this situation from taking place. 

To compensate for the departure of buyout-takers, FSA officials
reported they have increased training of the remaining staff. 
Officials at KCMO have also increased the use of contract services,
primarily in the information technology services area, to mitigate
the effect of the loss of employees through buyouts. 

State officials we contacted reported they have generally been able
to maintain high levels of customer satisfaction during this
downsizing period and have received very few complaints from farmers
and producers, but they also said they are already operating at
staffing levels below what their workload levels would suggest.  As a
result, they said many employees are working longer hours to ensure
customer service levels are maintained. 

Fiscal year 1998 budget documents indicate that FSA may need to close
or consolidate at least 500 more county offices by the end of fiscal
year 1999, with additional staff reductions of 2,850 staff years. 
FSA officials indicated they are planning to use buyouts as a
management tool for separations in fiscal year 1998, as authorized by
P.L.  104-180, to assist in these future downsizing efforts. 
However, they expressed serious concerns about the impact of future
downsizing on their ability to meet their mission.  They said the
workload reductions are not dropping as fast as the budgets for
staffing, and as a result they will likely not be able to meet their
customers' service needs in the future.  Further, they told us that
buyouts may not be as effective in avoiding RIFs in the future,
because the lower buyout amount ($20,000) and fewer
retirement-eligible employees may result in fewer buyout-takers than
needed.  We did not examine the validity of these concerns for this
report.  However, as part of our ongoing work, we are examining the
impacts of projected FSA workloads on the agency's operations and
staffing levels. 


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

FSA's fiscal year 1997 buyout program included all the required legal
provisions and was beneficial in helping the agency manage its
downsizing efforts.  The legislation authorizing FSA's buyouts did
not require that decisions to grant buyouts be based on a cost and
savings comparison with RIFs.  Although USDA completed such an
analysis covering FSA, it included estimates for two RIF cost
elements that appear to be higher than what might be expected in an
FSA RIF.  Actual costs experienced were not available at the time of
our study.  If these cost estimates were revised, buyouts would still
generally hold an economic advantage over RIFs.  Nevertheless,
analyzing buyouts and RIFs in situations where offices are closing
could have yielded different results, especially in offices where
retirement-eligible employees were working.  Although noneconomic
considerations of RIFs can weigh heavily in the decision on which
separation strategy to pursue, the economics of separating employees
through buyouts versus RIFs in offices that are closing can be an
important element in the decisionmaking process.  Since the
President's fiscal year 1998 budget indicates an additional 500
county offices might be closed by the end of fiscal year 1999, the
potential exists that greater savings could be realized through RIF
separations in these offices than through buyouts. 

FSA officials reported that some buyouts granted to employees in the
administrative and information technology areas resulted in the loss
of needed skills and expertise.  A more selective use of buyouts
could have alleviated some of the adverse operational impacts noted,
such as the loss of expertise and critical skills. 


   RECOMMENDATIONS TO THE
   SECRETARY, USDA
------------------------------------------------------------ Letter :8

We recommend the Secretary, U.S.  Department of Agriculture, ensure
that a well-supported cost and savings analysis of buyouts and RIFs
is part of any future decision to offer buyouts to FSA employees. 
The analysis should show the economic advantage of either buyouts or
RIFs for the agency as a whole and for those situations where
employees might be separated in offices that are closing. 

In addition, we recommend that the Secretary direct the FSA
Administrator, in planning any future buyouts, to ensure that
positions or occupational series where the loss of experienced
personnel may adversely affect the agency's operations be excluded
from buyout offers.  The Administrator should ensure that buyouts are
linked to areas where workloads are anticipated to decline, or to
areas where separations will assist the agency in meeting
organizational workforce goals, rather than offered broadly across
occupational groups. 


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

USDA's Acting Under Secretary for Farm and Foreign Agricultural
Services provided written comments on a draft of this report.  These
comments and our responses to certain of the specific comments are
contained in appendix II. 

USDA generally agreed with our report and its recommendations.  In
particular, USDA agreed that a well-supported cost and savings
analysis of buyouts and RIFs should be part of any future plan.  In
doing future analyses, USDA said that it would review and revise as
appropriate its estimates of relocation and unemployment compensation
costs associated with RIFs.  However, USDA cautioned that it may be
difficult to estimate unemployment costs accurately given variation
in state laws.  Specifically in regard to addressing in the cost
analyses the economic advantage of buyouts or RIFs in offices that
are closing, USDA said that it would attempt to do so.  However, USDA
observed that the extent of any further downsizing and office
closures is uncertain, and, therefore, estimates must be tentative. 
Finally, USDA also agreed that future buyouts should be done in a way
that minimizes adverse effects on its ability to conduct its
operations. 

We believe USDA's commitment to doing well-supported cost and savings
analyses will better ensure that the full savings potential of
buyouts or other employee separation strategies will be realized
consistent with other USDA objectives.  We also recognize that
estimating specific cost components, like unemployment costs, can be
challenging and that budget uncertainties can complicate the task of
determining how best to conduct further downsizing and office
closures.  We believe that a well-supported cost and savings analysis
that takes the full range of options into account can help USDA
select buyout and other separation strategies that achieve savings
while minimizing adverse effects on mission-related operations. 

USDA also offered various suggestions to improve the clarity or
accuracy of the report.  We incorporated these changes in the report
where appropriate. 


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

As agreed with your office, unless you announce the contents of this
report earlier, we plan no further distribution until 5 days after
its issue date.  At that time, we will send copies to the Ranking
Minority Member of the Senate Committee on Agriculture, Nutrition,
and Forestry; the Chairman and Ranking Minority Member of the
Subcommittee on Civil Service, House Committee on Government Reform
and Oversight; the Chairman and Ranking Minority Member of the Senate
Committee on Governmental Affairs; the Secretary of Agriculture; and
the Administrator, Farm Service Agency.  We will make copies
available to others on request. 

The major contributors to this report are listed in appendix III.  If
you have any questions about the report, please call me on (202)
512-9039 or Assistant Director Steve Wozny on (202) 512-5767. 

Sincerely yours,

Michael Brostek
Associate Director,
Federal Management and
 Workforce Issues


COMPARISON OF USDA'S FIRST-YEAR
BUYOUT AND RIF COST ESTIMATES FOR
FSA WITH COST ESTIMATES USED IN
1996 GAO REPORT
=========================================================== Appendix I

                             Cost per buyout                  Cost per RIF
                    ----------------------------------  ------------------------
                                   GAO
                                   estimat                     USDA          GAO
Cost element        USDA estimate  e                       estimate     estimate
------------------  -------------  -------  ----------  -----------  -----------
Buyout amount       $25,000        regular  $24,501\a
                                   retirem  $24,802\a
                                   ent      $14,031\a
                                   early
                                   retirem
                                   ent
                                   resigna
                                   tion

Payment to          15 percent     15
retirement fund     of             percent
                    final salary   of
                                   final
                                   salary

Unemployment                                                $13,200       $1,222
compensation
payments

Outplacement                                                 $7,456       $7,456

Retraining                                                   $1,900       $1,900

Relocation\b                                                $30,000       $3,500

Severance pay                                              $9,527\c     $6,182\d

Refund of                                                      (not       $6,085
retirement                                                included)
contributions
--------------------------------------------------------------------------------
\a Actual buyout amounts will vary based on age and years of service. 
GAO figures shown are based on actual governmentwide demographic data
for buyout-takers. 

\b USDA estimate based on costs from a small 1993 Forest Service RIF;
GAO estimate based on a 1993 Congressional Budget Office study of
average relocation costs in the Department of Defense. 

\c Average severance pay of both federal and nonfederal employees in
previous agency RIFs. 

\d Based on average governmentwide demographic data for
non-retirement-eligible employees separated by a RIF from FY 1993
through the first half of FY 1995. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE U.S.  DEPARTMENT
OF AGRICULTURE
=========================================================== Appendix I

See comment 1. 

Now on pp.  7 and 8. 



(See figure in printed edition.)

Modified text
See p.  1. 

Now on p.  3.
See comment 2. 

Now on p.  8. 

Now on pp.  7 and 8.
See comment 3. 



(See figure in printed edition.)

Now on p.  11.
See comment 4


GAO COMMENTS

1.  USDA said that FSA had prepared analyses that were reviewed by
USDA, the Office of Management and Budget, and various congressional
staff.  These analyses were said to include cost and savings based on
many variables, but not including relocation and unemployment cost
elements.  We had suggested in the draft report that the relocation
and unemployment cost elements in the USDA cost and savings analyses
were inappropriately high.  The FSA estimates to which USDA refers
were conducted in the spring of 1997, after the buyout round was
virtually completed.  The cost and savings analyses we analyzed for
our report were those done by USDA at the Department level in
November 1996.  These are the analyses that supported FSA's buyout
decisions.  We clarified in the report that the analyses we analyzed
were those done by the Department. 

2.  USDA said that our statement that "separating employees through
RIFs in offices that were closing or scheduled to close may have
generated more savings than granting buyouts, especially in those
offices where retirement-eligible employees worked" was only
partially true.  USDA said our statement was partially true because
only the positions of the County Executive Director and at most one
subordinate position are eliminated in county offices that are
closing, since much of the work and most of the subordinate employees
usually move to a neighboring county office.  We have clarified the
report to show that additional savings may be realized when
separating through RIFs retirement-eligible employees whose positions
are eliminated in offices that are closing.  Buyouts may remain the
best option from a cost and savings standpoint for those excess
subordinate employees who are not retirement eligible and who would
receive severance pay under a RIF separation. 

3.  The report has been revised to state that nonfederal employees
compete only within their county offices in a RIF situation. 

4.  The report has been clarified to distinguish between buyout
applications and actual buyout offers made to employees. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

Steven J.  Wozny, Assistant Director
Robert Goldenkoff, Senior Evaluator

DENVER OFFICE

Thomas R.  Kingham, Evaluator-in-Charge

*** End of document. ***