Department of Energy Workforce Reduction: Community Assistance Can Be
Better Targeted (Letter Report, 05/07/99, GAO/RCED-99-135).

Pursuant to a legislative requirement, GAO reviewed the Department of
Energy's (DOE) community assistance program for minimizing the impact of
downsizing its contractor workforce, focusing on: (1) how much funding
DOE had committed to spend and spent in support of its worker and
community assistance program for fiscal years (FY) 1994 through 1998;
(2) who received benefits during FY 1997 and FY 1998; (3) comparing
DOE's separation benefits with the benefit packages of other federal and
nonfederal organizations; and (4) what effect DOE's criteria had on
determining which communities received assistance.

GAO noted that: (1) DOE's assistance to separated contractor workers is
reasonably consistent with the types of benefits offered by other
government and private sector employers; (2) however, its community
development assistance funds did not necessarily go to those communities
most affected by downsizing or with the highest unemployment; (3) for FY
1994 through FY 1998, DOE obligated and spent about $1.033 billion on
benefits for the contractor workers and communities affected by its
downsizing; (4) about $853 million was spent on worker assistance and
the rest on community assistance; (5) about $460 million of the $1.033
billion was provided by DOE's Office of Worker and Community Transition
and the remainder by other DOE programs; (6) at the end of FY 1998, DOE
had a carryover balance of $72 million, including $10 million in
unobligated funds and $62 million in funds that were obligated but not
yet spent; (7) most of the contractor workers separated during FY 1997
and FY 1998 received benefits under DOE's workforce restructuring
program; (8) while DOE generally offered its separated contractor
employees a large range of benefits, the value of the benefits varied
widely, primarily because of the differences in benefits packages among
sites and in the employees' length of service and base pay; (9) these
benefit packages are reasonably consistent with the types of benefits
offered by public and private employers; (10) DOE's community assistance
criteria, which focus on the merits of individual projects and not on
relative economic need, do not necessarily result in the most assistance
going to the communities most affected by its downsizing or with the
highest unemployment; (11) for example, for FY 1995 through FY 1998, the
communities surrounding DOE's Richland, Washington, facility had more
than twice the unemployment rate and nearly twice the DOE job loss of
those surrounding the Rocky Flats, Colorado, facility, but Richland
received $18 million less than the $24 million that Rocky Flats
received; (12) had the Department of Commerce's Economic Development
Administration unemployment and jobs lost criteria been used to evaluate
the request for community assistance, Rocky Flats would have been
ineligible for funding, given the strength of its employment; (13) in
addition, 5 of the 8 DOE sites that received community assistance would
have been ineligible under these criteria; and (14) furthermore, because
most DOE assistance went to communities with relatively strong
economies, the extent to which DOE's assistance aided in creating or
retaining jobs is not clear.

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

 REPORTNUM:  RCED-99-135
     TITLE:  Department of Energy Workforce Reduction: Community
	     Assistance Can Be Better Targeted
      DATE:  05/07/99
   SUBJECT:  Federal downsizing
	     Economic development
	     Reductions in force
	     Eligibility criteria
	     Impacted area programs
	     Community development
	     Unemployment rates
	     Comparative analysis
	     Contractor personnel
IDENTIFIER:  DOE Workforce Restructuring Plan
	     DOE Worker and Community Assistance Program

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Department of Energy Workforce Reduction: Community AssistanceCan
Be Better Targeted GAO/RCED-99-135 United States General
Accounting Office

GAO Report to Congressional Requesters

May 1999 Department of Energy Workforce Reduction Community
Assistance Can Be Better Targeted

GAO/RCED-99-135

  GAO/RCED-99-135

GAO United States General Accounting Office

Washington, D. C. 20548 Resources, Community, and Economic
Development Division

B-282320 May 7, 1999 The Honorable John Warner Chairman The
Honorable Carl Levin Ranking Minority Member Committee on Armed
Services United States Senate

The Honorable Floyd D. Spence Chairman The Honorable Ike Skelton
Ranking Minority Member Committee on Armed Services House of
Representatives

Since 1993, the Department of Energy (DOE) has reduced its
contractor workforce by 46,000 employees from a high of about
149,000. Brought on by the end of the Cold War, 1 this downsizing
has been carried out using the benefits authorized by the National
Defense Authorization Act for Fiscal Year 1993. The act requires
DOE to develop workforce restructuring plans for minimizing the
impact of downsizing at its affected defense nuclear facilities.
These plans provide assistance retraining, early retirement, and
other options for workers affected by the downsizing. DOE also
provides assistance to surrounding communities so that they can
create and attract new businesses to compensate for the jobs lost
in DOE's downsizing.

The Strom Thurmond National Defense Authorization Act for Fiscal
Year 1999 required that we, among other things, describe the funds
DOE committed to spend (obligated) and spent (expended) for
workforce restructuring, compare the separation benefits paid to
DOE contractor employees with other organizations' benefits, and
describe the criteria used in providing community assistance. The
act also required that we describe the length of service for
contractor workers separated during fiscal years 1997 and 1998 and
analyze the number of jobs created.

To address these matters, we focused on three questions: (1) How
much funding has DOE obligated and expended to support its worker
and community assistance program for fiscal years 1994 through
1998? (2) Who received benefits during fiscal years 1997 and 1998
and how did

1 DOE recognizes Sept. 27, 1991, the date of the first
announcement of a unilateral reduction in the nation's nuclear
stockpile, as the Cold War's end.

GAO/RCED-99-135 DOE Workforce Reduction Page 1

B-282320

the separation benefits compare with the benefit packages of other
federal and nonfederal organizations? (3) What effect did DOE's
criteria have on determining which communities received
assistance?

Appendix I describes the length of service for DOE's defense
facility contractor workers separated during fiscal years 1997 and
1998. Appendix II describes the length of service for the
remaining DOE defense facility contractor workers. As agreed with
your offices, in order to assess DOE's job creation efforts, we
analyzed the methodology of a 1998 study on the number of jobs
created or retained through DOE's program. This analysis is in
appendix III.

Results in Brief DOE's assistance to separated contractor workers
is reasonably consistent with the types of benefits offered by
other government and private

employers. However, its community development assistance funds did
not necessarily go to those communities most affected by
downsizing or those with the highest unemployment. For fiscal
years 1994 through 1998, DOE obligated and spent about $1.033
billion on benefits for the contractor workers and communities
affected by its downsizing. About $853 million was spent on worker
assistance and the rest on community assistance. About $460
million of the $1.033 billion was provided by DOE's Office of
Worker and Community Transition and the remainder by other DOE
programs, such as defense and environment. At the end of fiscal
year 1998, DOE had a carryover balance of $72 million, including
$10 million in unobligated funds and $62 million in funds that
were obligated but not yet spent.

Most of the contractor workers separated during fiscal years 1997
and 1998 received benefits under DOE's workforce restructuring
program. While DOE generally offered its separated contractor
employees a large range of benefits, the value of the benefits
varied widely, primarily because of the differences in the
benefits packages among sites and in the employees' length of
service and base pay. These benefit packages are reasonably
consistent with the types of benefits offered by public and
private employers. However, the benefit formulas in some of DOE's
workforce restructuring plans, such as those determining voluntary
separation benefits and extended medical coverage, potentially
allow more generous benefits than those offered for federal
civilian employees.

DOE's community assistance criteria, which focus on the merits of
individual projects and not on a community's relative economic
need, do

GAO/RCED-99-135 DOE Workforce Reduction Page 2

B-282320

not necessarily result in the most assistance going to the
communities most affected by its downsizing or with the highest
unemployment. For example, for fiscal years 1995 through 1998, the
communities surrounding DOE's Richland, Washington, facility had
more than twice the unemployment rate and nearly twice the DOE job
loss of those surrounding the Rocky Flats, Colorado, facility; but
Richland received $18 million, or 25 percent less than the $24
million that Rocky Flats received. Had DOE used the unemployment
and job lost criteria 2 used by the Department of Commerce's
Economic Development Administration to evaluate the request for
community assistance, Rocky Flats would have been ineligible for
funding, given the strength of its employment. In addition, five
of the eight DOE sites that received community assistance would
have been ineligible under these criteria at the time of the
funding decisions. Furthermore, because most DOE assistance went
to communities with relatively strong economies, the extent to
which DOE's assistance aided in creating or retaining jobs is not
clear.

This report makes a recommendation to improve the criteria that
DOE uses in allocating assistance funds among communities.

Background To carry out its mission, DOE relies on contractors for
the management, operation, maintenance, and support of its
facilities. Since the end of the

Cold War, DOE's employees' skill requirements have shifted because
the mission at its defense nuclear facilities has expanded from
focusing primarily on weapons production to also focusing on
cleanup and environmental restoration. In addition, DOE facilities
have had to reduce their workforce in response to overall cuts in
the federal budget. At the end of fiscal year 1998, total
employment by contractors at both DOE defense and nondefense
facilities was estimated at about 103,000, down from a high of
nearly 149,000 since the beginning of fiscal year 1993. DOE plans
to reduce its contractor workforce by another 4,000 employees by
the end of fiscal year 2000, leaving it with 99,000 contractor
employees.

Section 3161 of the National Defense Authorization Act for Fiscal
Year 1993 requires DOE to develop a plan for restructuring the
workforce for a defense nuclear facility when there is a
determination that a change in the workforce is necessary. These
plans are to be developed in consultation with the appropriate
national and local stakeholders, including labor,

2 The Economic Development Administration, which helps communities
to deal with the negative effects of job loss, has threshold
criteria that are based on the economic needs of the community.

GAO/RCED-99-135 DOE Workforce Reduction Page 3

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government, education, and community groups. The act stipulates,
among other things, that

 changes in the workforce should be accomplished to minimize
social and economic impacts and, when possible, should be
accomplished through the use of retraining, early retirement,
attrition, and other options to minimize layoffs;  employees
should, to the extent practicable, be retrained for work in

environmental restoration and waste management activities, and if
they are terminated, should be given preference in rehiring; and
DOE should provide relocation assistance to transferred employees
and

should assist terminated employees in obtaining appropriate
retraining, education, and reemployment.

While the act refers only to defense nuclear facilities, the
Secretary of Energy determined that, in the interest of fairness,
the workforce restructuring planning process would be applied at
both defense nuclear facilities and nondefense facilities. DOE's
Office of Worker and Community Transition is responsible for
coordinating restructuring efforts, reviewing and approving
workforce restructuring plans, and reporting on the status of the
plans.

DOE Has Spent Over $1 Billion on Its Downsizing Efforts

For fiscal years 1994 through 1998, DOE obligated and spent about
$1.033 billion to provide benefits to contractor workers and
communities affected by its downsizing efforts. At the end of
fiscal year 1998, DOE had not used all workforce restructuring
funds, resulting in a carryover balance of $72 million. These
funds included $10 million that was unobligated and $62 million
that was obligated but not yet spent (called uncosted balances).
The Office of Worker and Community Transition and other DOE
programs each provided about half the total funding. Combined,
these programs spent about $853 million on worker assistance, and
the remaining $179 million went to community assistance.

Of the $1.033 billion spent on worker and community assistance,
about $460 million was provided by the Office of Worker and
Community Transition. 3 Roughly two- thirds ($ 311 million) of the
$460 million funded assistance to separated DOE contractor
employees. More than $227 million, or 73 percent, of the $311
million was spent on one- time separation payments and early
retirement incentives.

3 The $460 million includes expenditures the Office of Worker and
Community Transition classified as administrative.

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The remaining third ($ 148 million) assisted local community
transition activities, such as new business development. Over the
years, the amount of funds available for community assistance has
grown. In fiscal year 1994, this assistance accounted for only 6
percent of the funds spent by the Office of Worker and Community
Transition. However, by fiscal year 1998, this assistance had
grown to 68 percent of funds the Office spent. Meanwhile, overall
appropriations for this Office have been declining, from a high of
$200 million in fiscal year 1994 to $61 million in fiscal year
1998. 4

At the same time, most of the uncosted balances are attributed to
community assistance. Of the $62 million in uncosted balances at
the end of fiscal year 1998, almost $51 million was for community
assistance. Over half of these balances are for communities
surrounding two facilities$ 14 million at Oak Ridge and $13
million at Savannah River.

The remaining $573 million came from other DOE programs, such as
defense and environmental management. According to the Office of
Worker and Community Transition, about $542 million of this amount
was spent on worker benefits, and the remaining $31 million was
spent on community assistance.

Benefits Went to Most Separated Workers and Contained Similar
Types of Benefits Provided in Public and Private Plans

DOE provided separation benefits to about 88 percent of the 5,469
defense facility contractor employees separated during fiscal
years 1997 and 1998. 5 While DOE generally offered these employees
a wide range of benefits, the value of the benefits varied because
of differences in benefit packages among the sites and in the
employees' length of service and base pay. DOE offered its
separated contractor workers severance packages that were
relatively consistent with the types of public and private sector
benefits we analyzed. Although, we did not compare the value of
the benefits offered to DOE contractor employees with all of the
benefits offered by the other public and private employers we
reviewed, the benefit forumulas in some DOE workforce
restructuring plans potentially allow more generous benefits than
those offered for federal civilian employees.

4 The Office of Worker and Community Transition received an
appropriation of $28.2 million in fiscal year 1999 and has
requested a $30 million appropriation for fiscal year 2000. 5
Apps. I and II provide information on the lengths of service for
defense contractor employees hired before and after the end of the
Cold War who (1) received separation benefits during fiscal years
1997 and 1998 and (2) remained as DOE contractor employees.

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Benefits Were Provided to Most Separated Employees

While the 1993 act focused benefits on defense facilities, DOE
provided separation benefits to most of its separated contractor
employees. Of the 5,469 contractor workers separated during fiscal
years 1997 and 1998, 4,788 received separation benefits. According
to DOE, the remaining 681 workers had relatively low seniority and
were not eligible for benefits. DOE decided that in the interest
of fairness, similar benefits should also apply to contractor
workers separated at nondefense facilities. According to our
analysis of 10 defense facility workforce restructuring plans for
fiscal years 1997 and 1998, almost all plans offered the same
types of benefits. While DOE guidance has been updated
periodically, the criteria for separation benefits were derived
primarily from the fiscal year 1993 legislation.

DOE's criteria require that workforce restructuring plans for each
facility minimize impacts for all workers and recognize a special
responsibility to Cold War workers. One of these criteria is to
minimize layoffs through early retirement incentives, voluntary
separations, and retraining. However, if layoffs are to occur, the
restructuring plans are to provide for adequate notification and
funding for education, relocation, and outplacement assistance.
DOE criteria were not prescriptive and gave field offices
substantial autonomy to determine benefit levels. These plans had
to be approved by the Secretary of Energy.

For fiscal years 1997 and 1998, we found that the 10 plans we
reviewed offered the same types of benefits. Separation benefits
were provided under three types of programs: enhanced retirement,
voluntary separation, and involuntary separation. Enhanced
retirement provided for full retirement benefits with fewer years
of eligibility or service. One plan had provisions that enhanced
workers' eligibility by adding 3 years to both their age and years
of service. Nine plans had some type of separation payment based
on length of service and base pay for those employees voluntarily
or involuntarily separated. All plans also included extended
medical benefits, 6 which require the contractor to pay its full
share of a separated employee's medical insurance payments for the
first year after separation and half the contribution during the
second year. In all plans, educational assistance was available,
usually for up to 4 years after separation. All of the plans
included outplacement assistance, some of which consisted of
resume- writing workshops, job bulletin boards, and employment
search strategies many provided by an outside contractor. A hiring
preference for involuntarily separated workers at other DOE

6 Of the 10 plans, 7 provided extended medical coverage to both
voluntarily and involuntarily separated workers, and 3 plans
offered coverage to voluntarily separated workers.

GAO/RCED-99-135 DOE Workforce Reduction Page 6

B-282320

contractors' work sites was provided for in 8 of the 10
restructuring plans. The other two plans did not offer rehiring
preference because they did not call for involuntarily separating
any contractor workers. Eight plans included relocation
assistance.

The Value of Benefits Varied Widely

While DOE generally offered its separated contractor employees the
same types of benefits, the value of these benefits varied because
of the differences in the packages among sites and employees'
length of service and base pay (which reflects employee job and
skill level). For example, in fiscal year 1997, the restructuring
plan for the Portsmouth Gaseous Diffusion Plant in Ohio (which
covered facilities in both Portsmouth and Paducah, Kentucky) based
voluntary separation pay on years of service, with a limit of
$25,000 per worker. Lawrence Livermore National Laboratory in
California based its voluntary separation pay on years of service,
with employees receiving 2 weeks' pay for each year of service,
subject to a limit of 52 weeks. With the 52- week limit on
separation payments, Lawrence Livermore's average voluntary
separation payment of $43,939 exceeded Portsmouth's cap of
$25,000.

Table 1 identifies the lowest and highest average benefit amount
offered separated contractor workers at defense nuclear sites for
fiscal year 1998. For example, the lowest average voluntary
separation benefit was $5,523 (at the Fernald facility in Ohio)
and the highest was $64,907 (at Sandia National Laboratory in New
Mexico). The table also identifies the number of separated workers
receiving benefits among DOE's defense facilities and the average
cost of these benefits. For example, 748 employees at eight sites
received voluntary separation payments that averaged $23,659 per
worker.

GAO/RCED-99-135 DOE Workforce Reduction Page 7

B-282320

Table 1: Range of Average Benefit Costs at Defense Nuclear
Facilities, Fiscal Year 1998 Type of benefit Lowest average cost

per separated worker Highest average cost per separated worker
Number of workers

receiving benefits Average cost of

benefits provided per worker

Enhanced retirement a $31,999 $49,507 14 $33,250 Voluntary
separation $5,523 $64,907 748 $23,853 Involuntary separation
$2,097 $67,252 699 $10,685 Extended medical coverage $979 $6,657
1,501 $3,154 Relocation assistance $1,583 $3,577 19 $2,052
Educational assistance $793 $2,781 1,644 $1,662 Outplacement
assistance $106 $2,754 3,213 $603

a Enhanced retirement benefits generally provided full annuity
with fewer years of eligibility or service. The cost figures for
the enhanced retirement benefit represent incentive payments
provided to workers who retired early.

Source: GAO's analysis of DOE's data.

DOE Generally Offered Types of Benefits That Were Similar to Those
of Other Plans

DOE generally offered its separated contractor workers benefits
that were similar to those offered in public and private sector
severance packages such as education assistance and preference in
rehiring. However, some of DOE's voluntary separation benefits
were greater than those offered federal employees. For example,
the formula for extended medical coverage and the provisions for
relocation assistance offered by DOE were more generous than the
benefits offered to separated federal civilian employees.

Table 2 shows the types of benefits generally offered and compares
these generic benefits with the benefits offered in DOE's
workforce restructuring plans, the plans offered by DOE
contractors in the absence of DOE's plans, and the plans offered
by the military, the federal government to its civilian employees,
DOD contractors, and 25 other public and private sector
organizations, including DOE- provided information on a survey of
private company benefits.

GAO/RCED-99-135 DOE Workforce Reduction Page 8

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Table 2: DOE Benefits Compared With Other Public and Private
Sector Severance Packages Offered From 1993 Through 1998

Type of benefit Workforce

restructuring plans DOE contractors Federal military Federal
civilian DOD contractors

Public and private organizations

Early and enhanced retirement benefit

One plan adds 3 years to age and/ or eligibility to allow for
early retirement, plus separation payment

Two contractors conducted early retirements prior to workforce
restructuring plans

Officers may retire early with 15- 20 years service with reduction
in annuity

May be eligible to retire early at specified age/ service
combinations with a reduction in annuity, plus separation payment

Two companies offered early retirement programs; other studies
show contractors offered early retirements

Seventeen offered early retirement; 10 with additional incentives;
9 with reduced annuities

Voluntary separation benefit Lump sum

payment, 1- 2 weeks per year of service, some with limits of up to
40.5 to 52 weeks of base pay

One contractor conducted voluntary separations prior to workforce
restructuring plans

Based on years of service (6- 20 years) paid over twice the years
the years of service

Lump sum payment based on years of service; $25,000 maximum

DOE provided two examples where benefits averaged $63,000 and
$74,000

Fourteen offered payments, often more than federal government

Involuntary separation benefit Lump sum

payment, generally about 1 week a year of service, some with
limits of up to 26 weeks of base pay

Lump sum payment, 1 week a year of service, no maximum; some
hourly employees get no payments

May receive separation pay if between 6- 20 years service; based
on years of active service and base pay

Payments at same interval as salary; based on years of service up
to one- year's salary

Five offered payments in 1997; seven in 1998

Private survey states that 82% of companies offer involuntary
separation benefits

Extended medical coverage a Employer pays its

full contribution for first year, about 50% the second, and no
contribution for subsequent years (not all plans)

DOE directed in 1992 that employers pay the full contribution for
first year about 50% the second, and no contribution for the third
year

Both voluntary and involuntary receive extended medical and dental
benefits

Non- retirees may retain temporary coverage under current plan at
worker's expense; b retirees may be eligible to retain current
medical plan with same contribution

Four combinations offered extended medical benefits in 1997

Four packages offered extension of medical and/ or insurance
benefits

Educational assistance c All plans include

about $2,000 to $2,500 a year, for about 1- 4 years

In fiscal years 1991 and 1992, educational assistance was provided
to some facilities

Involuntarily separated workers eligible for Montgomery GI Bill
funds

No additional benefits identified Two

combinations offered educational assistance in 1997

Four packages offered tuition reimbursement; 23 packages offered
some job training

(continued)

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Type of benefit Workforce

restructuring plans DOE contractors Federal military Federal
civilian DOD contractors

Public and private organizations

Relocation assistance All plans

reimburse from $2,000-$ 5,000, some up to 1 year after separation
(under certain conditions)

In fiscal years 1991 and 1992, relocation assistance was provided
to some facilities

Travel and transportation allowances for involuntary separations

May be offered to DOD civilian employees hired by private sector
firms

None identified Twenty- three packages offered relocation
assistance to workers separated involuntarily

Outplacement assistance All plans

provided, included access to jobs bulletin board and assistance
offices with staff and resources

Outplacement assistance available for all employees

Employment assistance offered Employees are

eligible to receive career transition assistance

Four combinations provided outplacement assistance in 1997

Twenty- three packages offered outplacement assistance to workers
separated involuntarily

Rehiring preference Involuntarily separated workers meeting
eligibility requirements get hiring preference at all DOE
contractor facilities

Collective bargaining agreements require rehiring preference for
separated workers

Priority affiliation with the National Guard and Reserves for
involuntary separation

Employees are eligible for reemployment priority

None identified Some had rehiring preferences

Other benefits Three plans specifically offer employee counseling
services

All employees offered counseling services

Continued use of military housing and dependents schools; excess
leave and temporary duty for involuntary separations

Ability to convert to individual life insurance and to enroll in
employee assistance programs

GAO survey of non- federal employers (which included DOD and some
contractors) found use of job and family counseling and other
benefits

Twenty- three out of 25 employers offered employee and job
counseling or other benefits

a Under the Consolidated Omnibus Budget Reconciliation Act of
1985, separated employees may retain their health insurance at a
rate equal to the full premium for group insurance plus an
administrative surcharge.

b Benefit limited to 18 months if separated by other than
retirement. Worker must also pay full cost and an administrative
fee. c Benefits under the Job Training Partnership Act, as
amended, are available to separated workers.

We did not compare the value of the benefits offered to DOE
contractor employees with all of the other benefit packages
offered by the public and

GAO/RCED-99-135 DOE Workforce Reduction Page 10

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private employers we considered. However, table 2 shows that
formulas in DOE's workforce restructuring plans allow for
potentially more generous benefits than offered in some of the
other benefit plans highlighted in the table. For example, we
noted that some of DOE's workforce restructuring benefits had
formulas that could provide more benefits than the amount
separated federal civilian employees could expect to receive. Some
of DOE's benefit formulas would allow for larger severance
payments than do federal civilian packages. Voluntarily separated
federal civilian employees received a one- time severance payment
of 1 week of annual salary per year for up to 10 years' service
and 2 weeks of salary per year for more than 10 years' service;
with an adjustment for age. This benefit was paid out in a lump
sum and was capped at $25,000. In contrast, while half of the DOE
defense workforce restructuring plans we reviewed for fiscal years
1997 and 1998 had caps based on weeks of pay, these caps could
exceed $25,000, depending on a contractor worker's base pay and
years of service. As a result, seven workers who received
voluntary separation payments at one DOE defense facility averaged
$64,907 each in fiscal year 1998. Furthermore, 65 percent of the
748 employees voluntarily separated during fiscal year 1998
received an average separation payment of over $25,000.

Among the DOE plans we reviewed, one plan offered enhanced
retirement benefits that added years to a contractor worker's age
and eligibility to allow for early retirement without penalty and
with a cash payment. While federal workers could retire early and
receive a separation payment, they were not given added years of
age or eligibility and their annuity amount was reduced.

In addition, the formula for extended medical coverage and the
provisions for relocation assistance offered by DOE were more
generous than the benefits offered to separated federal civilian
employees. For extended medical coverage for eligible contractor
workers, DOE pays the full employer cost for the first year of
separation and about half of that cost in the second year. 7
Separated federal workers who are eligible and wish to retain
extended medical coverage must pay the full cost, plus an
administrative fee, for the coverage upon separation.

7 Of the 10 plans, 7 provided extended medical coverage to both
voluntarily and involuntarily separated workers, and 3 plans
offered coverage to voluntarily separated workers.

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DOE's Criteria Do Not Ensure That Most Assistance Goes to the
Communites Most Affected by Downsizing or Those With the Highest
Unemployment

The use of DOE's criteria does not result in the most assistance
going to the communities most affected by DOE's downsizing or
those with the highest rate of unemployment. Several communities
with low unemployment rates and comparatively fewer DOE job losses
received more funds than did communities that had higher rates of
unemployment and lost more DOE jobs. Unlike DOE's criteria, the
criteria used by the Department of Commerce's Economic Development
Administration (EDA) include specific provisions for determining
the distribution of economic assistance on the basis of local
unemployment and job loss. In applying EDA's criteria to the eight
communities that received DOE assistance, 8 we found that only
four would have received funds at the time of the decision.
Furthermore, because most DOE assistance went to communities with
relatively strong economies, the extent to which DOE's assistance
aided in the creation or retention of jobs is not clear.

Neediest Communities Have Not Received the Most Benefits

DOE's criteria does not result in the most assistance going to the
communities most affected by the Department's downsizing. DOE's
community assistance guidance has evolved since the program's
inception in 1993. DOE's February 1997 Policy and Planning
Guidance for Community Transition Activities refined the
Department's criteria for evaluating all project and program
funding requests in community transition plans. 9 DOE requires
communities requesting funds to submit plans describing the impact
of the Department's downsizing. These plans may be based upon
community needs and may incorporate an analysis of the socio-
economic strengths, weaknesses, opportunities, and threats. In
developing their plans, communities are asked to identify the
primary and secondary economic impacts likely to result from DOE's
downsizing. Communities are instructed to use local information
sources to establish a baseline of primary impacts and project
factors, such as net job loss, changes in unemployment, loss of
wages and disposable income, and business closings. In addition,
communities should identify secondary impacts, such as decreases
in tax revenues and property values.

Although DOE requires communities to develop plans that include
economic impact, DOE focuses its review on the merits of a plan's

8 In addition to these eight communities, the communities
surrounding the Fernald and Idaho sites received assistance.
However, they were not included in this analysis. The communities
surrounding the Fernald site were not included because Secretarial
decisions justifying assistance are only required for funding over
$1 million. The communities surrounding the Idaho site were not
included because they are not within a standard metropolitan
statistical area.

9 This revision responded in part to findings contained in our
report entitled Energy Downsizing: Criteria for Community
Assistance Needed (GAO/RCED-96-36, Dec. 27, 1995).

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individual projects, not on a community's relative economic need.
DOE uses a number of written criteria to evaluate individual
projects. These include the project's ability to create at least
one job for each $10,000 to $25,000 received and to provide jobs
for separated DOE workers, induce investment or growth in the
production of goods and services, and reduce the community's
dependency on DOE. In addition to DOE's written guidance, the
Director of the Office of Worker and Community Transition told us
that DOE formally uses four criteria prior to submitting a
recommendation to the Secretary: (1) economic distress measured by
unemployment and the loss of income; (2) job loss relative to the
size of the community affected as a measure of economic dependence
on DOE; (3) the diversity of employment within a community and the
impact of job loss on the economic base; and (4) the overall size
of the workforce reduction. However, while the Director said that
these are formal criteria, they are not published in the
Department's guidance nor are the communities evaluated against
these four criteria in the memorandums sent to the Secretary for
funding approval.

After completing its review, DOE submits a community's plan to EDA
for its independent review. Under the National Defense
Authorization Act of 1998, EDA is required to review and approve
DOE's community plans. However, rather than using its own
criteria, EDA evaluates the community plans using DOE's criteria,
set out in DOE's February 1997 guidance.

Table 3 shows the relative disparity between DOE's assistance to
the affected communities and communities' unemployment rates or
job losses. For example, the communities surrounding Rocky Flats
had an average unemployment rate of 3.3 percent for fiscal years
1995 through 1998, lost 2,922 contractor jobs, and received about
$25 million in DOE assistance. In contrast, the communities
surrounding Richland had more than twice the unemployment rate and
nearly twice the job loss of Rocky Flats during this same time but
received only about $18.5 million in community assistance.

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Table 3: Comparison of Allocated Community Assistance Funds,
Fiscal Years 1995 Through 1998

Location Unemployment rate a Number of

separations Allocated Community

assistance allocated per

job lost

Fernald 3.95 434 $ 411,921 $ 949 Idaho b 1,392 20,325,000 14,601
Kansas City 4.00 373 c c Lawrence Livermore 5.89 525 c c

Los Alamos 4.55 1,229 10,665,160 8,678 Mound 4.13 398 4,100,000
10,302 Nevada 4.94 2,564 12,320,000 4,805 Oak Ridge 4.17 2,832
16,800,000 5,932 Pantex 3.79 342 c c Pinellas 3.86 812 7,154,700
8,811 Portsmouth b 246 5,000,000 20,325 Richland 7.92 5,964
18,475,382 3,098 Rocky Flats 3.33 2,922 24,835,624 8,500 Savannah
River 6.23 4,734 40,525,625 8,561

Total 24,521 $160,613,412 $ 6,486

Note: To compare job creation in nearby communities with the job
creation and retention associated with the DOE- approved community
organizations, we used statistical areas that included counties
similar to the affected counties identified by these
organizations.

a The average unemployment rate nationwide during this period was
5.19 percent. b DOE facilitates in these parts of Idaho and Ohio
do not have standard metropolitan statistical areas. c Did not
apply for funds.

Source: GAO's analysis of DOE's and the Department of Labor's
information.

Some Community Assistance Would Have Been Ineligible Under Other
Criteria

Applying EDA's job loss and unemployment criteria to DOE's
community assistance funding decisions for fiscal years 1995
through 1998, we found that some communities that received
assistance under DOE's criteria would not be eligible under EDA's
criteria. EDA which helps communities recover from the effects of
job losses has threshold criteria for its economic assistance that
are based on job loss and unemployment. Under EDA's regulations in
effect during this period, communities in a standard metropolitan
statistical area suffering from sudden and severe economic
distress were eligible for EDA's assistance if, among other
things, they met

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one of the following tests: (1) the area's unemployment rate was
equal to or less than the national average and 1 percent of the
employed population, or 8,000 jobs, were lost or (2) the area's
unemployment rate was greater than the national average and .5
percent of the employed population, or 4,000 jobs, were lost.
While EDA's internal guidance further stated that employees
subject to DOE downsizing were eligible for assistance, this
provision was not a legal requirement until February 1999. 10
Using EDA's criteria to assess DOE's funding decisions for the
eight communities that received assistance for the fiscal year
1995 through 1998 period and where comparable data were available,
we found that nine of the 21 decisions (some communities had more
than one funding decision), representing four of the eight
communities, did not meet these criteria. Appendix IV shows this
analysis.

These nine decisions provided about $51 million to five
communities surrounding the Mound, Pinellas, Nevada 11 , Oak
Ridge, and Rocky Flats facilities. The remaining 12 decisions
provided about $57 million to the four other communities
surrounding the Los Alamos, Nevada, Richland, and Savannah River
facilities. In the Secretarial decision memorandums we reviewed,
DOE justified awarding some of its funds on the basis of economic
conditions at the county level and impacts on the economic
diversity of the communities surrounding a facility, rather than
on the standard metropolitan statistical areas. However, these
criteria are not in DOE's written guidance.

The Effect of DOE's Assistance Is Uncertain Because of a Strong
Economy

Since 1993, jobs in the national economy have grown rapidly,
bringing unemployment rates to their lowest levels in decades.
Because of the strong national and local economies, DOE's
contribution to job growth was uncertain in communities that
received its assistance. For example, table 3 shows that six of
the eight communities (excluding communities surrounding the
Fernald and Idaho facilities) that received community assistance
had a local unemployment rate lower than the national average of
5.19 percent for the 1995 through 1998 period. As discussed in
appendix

10 In response to the Economic Development Administration Reform
Act of 1998, EDA revised its regulations. After Feb. 11, 1999, the
criteria are no longer limited to an event- related job loss but
include per capita income, prevailing unemployment, and other
factors. Specifically, an area meets the criteria if it has (1) 80
percent or less of the national average per capita income, (2) an
unemployment rate of at least 1 percent greater than the national
average, or (3) a special need. Special need criteria include,
among other things, economies that are injured by Department of
Energy defense- related funding reductions.

11 DOE made three community assistance funding decisions for its
Nevada facility during the fiscal year 1995 through 1998 time
period. Our analysis shows that two of these decisions would not
have met EDA's criteria, while one would have met the criteria.

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III, defining DOE's contribution to community job creation is
difficult because job creation measurements have not
differentiated between jobs that DOE created, those created by
other assistance, or those created by the economy as a whole.

While determining DOE's contribution to overall job growth is
difficult, comparing the number of jobs created in the local
communities with the ones DOE reports it has created or retained
provides a rough measure of DOE's impact. In doing this
comparison, we found that DOE's contribution had a relatively
small impact on the growth of jobs in three of the six communities
surrounding nuclear defense facilities for which we had comparable
data. For the six sites for which comparable data on local job
creation were available, DOE was responsible for about 1.8 percent
of the total jobs created. For example, although the overall
economy in the Denver area surrounding the Rocky Flats facility
created 170,367 jobs, DOE's contribution to that growth was 1,191
jobs, or .7 percent. However, in Richland, DOE's contribution
appears to be more significant. At this location, DOE contributed
to about 36.1 percent of the job growth. Table 4 compares the
increase in the number of jobs created in local economies with the
number of jobs that were created or retained by DOE's community
assistance program.

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Table 4: Comparison of Increase in Employment in Local Economy to
DOE Job Creation and Retention, Fiscal Years 1994 Through 1997
Location

Increase in employment in local

economy a Jobs DOE helped to create or retain b

Percentage of DOE- created jobs

in local economy

Los Alamos 2,360 570 24.2 Nevada 151,075 1,645 1.1 Oak Ridge
13,485 2,901 21.5 Pinellas 113,529 1,323 1.2 Richland 2,108 762
36.1 Rocky Flats 170,367 1,191 .7

Total 452,924 8,392 1.9

Note: To compare the increase in employment in nearby communities
with the job creation and retention associated with the DOE-
approved community organizations, we used Office of Management and
Budget Bulletin 98- 06 to identify statistical areas and counties
for comparison with the affected counties identified by these
organizations. For Idaho Falls, Mound, Fernald, and Savannah
River, it was difficult to identify similar counties; therefore we
did not provide a comparison. For Lawrence Livermore National
Laboratory, Kansas City Plant, and Pantex Plant, there were no DOE
community organizations.

a Information on jobs created in the local economies was provided
by the Bureau of Labor Statistics. We calculated local job
creation for fiscal years 1994 through 1997 by subtracting the
number of persons employed as of Sept. 30, 1993, from the number
of persons employed as of Sept. 30, 1997.

b The DOE data on job creation and retention was obtained from a
report entitled Study on the Effects of the Department of Energy's
Work Force Restructuring and Community Transition Plans and
Programs (Germantown, Md.: Booz, Allen & Hamilton, Inc., Sept. 30,
1998). Because the DOE data identify jobs created and retained,
while the Bureau of Labor Statistics data identify only job
creation, the data are not directly comparable.

While DOE estimated that it helped to create or retain 8,392 jobs
in the communities surrounding the sites listed in table 4, it is
difficult to directly link DOE's community assistance to job
creation and retention. To illustrate this point, the Director of
DOE's Office of Worker and Community Transition mentioned the
difficulty in showing a direct relationship to job creation at the
Bridgestone/ Firestone, Inc. plant near Savannah River.
Bridgestone/ Firestone, Inc. is investing $435 million in a new
tire facility that will eventually employ 800 workers. The company
received assistance from DOE as well as from other government
sources; however, without a strong national economy, it might not
have expanded its tire production.

Conclusions DOE's criteria for assessing community assistance
requests focus on the merits of individual projects and not on a
community's relative economic

need. This focus has resulted in some communities with relatively
lower job losses or unemployment rates receiving more financial
assistance than

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those with higher job losses or unemployment rates. The most
effective and efficient use of federal resources would be to
provide relatively more funding to those communities that have a
greater need. Need- based criteria exist for DOE to use in
developing an allocation formula that targets needs to these
communities, such as that used by the Department of Commerce's
Economic Development Administration. Furthermore, if DOE believes
that other factors, such as diversity of employment within a
community, more accurately reflect the economic impact of DOE
restructuring, then it needs to identify these factors in its
criteria. In addition, DOE should demonstrate that these other
factors document the best allocation of community assistance
resources to those with the greatest economic need.

Recommendation In order to target financial assistance to those
communities that need it the most, we recommend that the Secretary
of Energy revise the

Department's criteria for administering community assistance so
that aid is more focused on economic need. One way of doing this
would be to develop community financial assistance criteria
similar to those used by the Economic Development Administration
in its existing guidance. These could include such factors as a
community's unemployment rate and the impact of federal job loss
on the local economy.

Agency Comments We sent a draft of this report to the Department
of Energy for its review and comment. The Department stated that
the draft report inaccurately

portrayed its worker and community transition program because it
contained numerous factual errors and inappropriate comparisons.

First, the Department questioned our recommendation because it
believes that the criteria it uses for providing community
transition assistance are consistent with the statutory direction
provided by the Congress and the regulations developed by the
Department of Commerce. Furthermore, the Department said that it
does consider economic need in awarding community assistance
grants. We are not disputing the criteria's conformance with
statute or regulation. However, we believe that these criteria
could be improved. While approval memorandums for individual
projects discuss some of the affected communities' economic
conditions, DOE's written criteria do not. For example, DOE's
March 18, 1998, memorandum allocating $4.5 million for fiscal year
1998 for assistance to communities surrounding the Department's
Portsmouth facility, found that a four- county area surrounding
the facility experienced unemployment

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rates double the state's average and that one in four people in
this area lived in poverty. If DOE believes such county- level
economic factors are important, then it needs to make these
factors part of its written criteria for allocating community
assistance. DOE should also demonstrate that these factors
document the best allocation of community assistance resources to
those with the greatest economic need. Therefore, we believe that
DOE's criteria could be improved by explicitly describing the
economic factors it will consider in determining relative need
when allocating funds among affected communities.

Second, the Department said that the benefits it provides to
separating contractor employees were consistent with the practices
of other private and public organizations and are comparable in
value. On the basis of additional information provided by DOE, we
revised our report to show that the types of benefits offered were
reasonably consistent with the practices of other private and
public organizations. We did not compare the value of the benefits
offered to DOE contractor employees with all the other benefit
packages offered by the public and private employers we reviewed.
However, some of the formulas in DOE's workforce restructuring
plans, such as those determining voluntary separation benefits and
extended medical coverage, potentially allow for more generous
benefits than offered in some of the other benefit plans we
describe in the table.

DOE's comments and our evaluation of them are provided in appendix
V. Scope and Methodology

To determine the amount of funds DOE has obligated and expended in
support of its worker and community assistance program for fiscal
years 1994 through 1998, we reviewed budget records and talked to
officials in DOE's Office of Worker and Community Transition and
the Office of the Chief Financial Officer.

To determine who received benefits during fiscal year 1997 and
1998 and to compare the types of benefits with the benefit
packages of other federal and private organizations, we reviewed
program criteria and reports from the Office of Worker and
Community Transition, federal laws, and Office of Personnel
Management publications governing federal civilian and military
benefits. In addition, we reviewed DOE's workforce restructuring
plans for nuclear defense facilities for fiscal years 1997 and
1998, GAO and DOE Inspector General reports, the National Defense
Authorization Act of 1993, and other relevant legislation. We also
discussed with DOE officials the benefits provided under their
restructuring efforts. However, we did

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not attempt to compare the value of DOE's benefits with the value
of the benefits provided by other federal and private
organizations.

To examine the results of DOE's criteria for determining which
communities should receive assistance, we interviewed officials in
DOE and the Department of Commerce's Economic Development
Administration. We also reviewed DOE's policy, operating
guidelines, and documentation of the approval process; the
interagency agreement between DOE and Commerce; and individual
communities' transition plans. We obtained economic information
from an online database containing Department of Labor and
Department of Commerce statistics. We used these statistics in
conjunction with the statistics provided in DOE's Office of Worker
and Community Transition annual reports for fiscal years 1993
through 1998.

To describe the contractor workforce in terms of length of service
for Cold War workers and non- Cold War workers, we used data that
the Office of Worker and Community Transition requested from its
contractors' databases. This information identified those
individuals who were separated during fiscal years 1997 and 1998
and those currently employed at defense facilities.

To analyze the extent to which the methodology used in a 1998
consultant study can be relied upon to evaluate the number of jobs
DOE created or retained through its worker and community
assistance program, we reviewed the study and the consultant's
supporting workpapers. We also interviewed the consultant's
investigators.

We did not independently verify the data provided by DOE, its
contractors, or DOE's consultant. The consultant verified a sample
of DOE's job creation data. Data on community assistance and job
creation and retention are contained in DOE's annual reports to
the Congress on its workforce restructuring activities. We used
Department of Labor data, which is commonly used, to estimate job
growth in surrounding communities. We conducted this work in
accordance with generally accepted government accounting standards
from January 1999 through April 1999.

As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
for 30 days after the date of this letter. At that time, we will
send copies of this report to Senator Ted Stevens, Chairman, and
Senator Daniel Inouye, Ranking

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Minority Member, Subcommittee on Defense, Senate Committee on
Appropriations; and Representative Jerry Lewis, Chairman, and
Representative John Murtha, Ranking Minority Member, Subcommittee
on Defense, House Committee on Appropriations. We will also make
copies available to others on request.

If you or your staff have any questions about this report, please
call me at (202) 512- 3841. Major contributors to this report were
Jeffrey Heil, Tim Minelli, Robert Antonio, Greg Hanna, Kendall
Pelling, and Sandy Joseph.

Susan D. Kladiva Associate Director, Energy,

Resources, and Science Issues

GAO/RCED-99-135 DOE Workforce Reduction Page 21

Contents Letter 1 Appendix I Length of Service of Workers
Separated at DOE Defense Facilities, Fiscal Years 1997 and 1998

24 Appendix II Length of Service of Remaining Work Force at DOE
Defense Facilities, Fiscal Year 1998

27 Appendix III Consultant's Study Estimated the Number of Jobs
DOE Helped to Create and Retain

28

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Contents

Appendix IV Application of Economic Development Adminstration
Criteria to DOE Funding Decisions, Fiscal Years 1995 Through 1998

30 Appendix V Comments From the Department of Energy

31 GAO's Comments 39

Tables Table 1: Range of Average Benefit Costs at Defense Nuclear
Facilities, Fiscal Year 1998

8 Table 2: DOE Benefits Compared With Other Public and Private

Sector Severance Packages Offered From 1993 Through 1998 9

Table 3: Comparison of Allocated Community Assistance Funds,
Fiscal Years 1995 Through 1998

14 Table 4: Comparison of Increase in Employment in Local

Economy to DOE Job Creation and Retention, Fiscal Years 1994
Through 1997

17 Table I. 1: Separations at Defense Sites, Fiscal Years 1997 and

1998 24

Table II. 1: Length of Service of Remaining Work Force at DOE
Defense Facilities, Fiscal Year 1998

27 Figures Figure I. 1: Length of Service for Cold War and Non-
Cold War

Workers, Fiscal Years 1997 and 1998 25

Figure I. 2: Composition of Separations at Defense Sites, Fiscal
Years 1995 and 1998

26

Abbreviations

DOE Department of Energy EDA Economic Development Administration

GAO/RCED-99-135 DOE Workforce Reduction Page 23

Appendix I Length of Service of Workers Separated at DOE Defense
Facilities, Fiscal Years 1997 and 1998

As table I. 1 shows, the Department of Energy (DOE) separated
5,469 defense nuclear workers during fiscal years 1997 and 1998,
with Cold War workers those workers hired on or before September
27, 1991 accounting for 4,094 of the separations and non- Cold War
workers those hired after September 27, 1991 accounting for 1,375
separations. For all separated workers, the overall average length
of service was 8.6 years. Cold War workers averaged 14.6 years of
service overall, ranging from an average of 8 to 26.5 years among
the 13 sites. Non- Cold War workers averaged 2 years of service
overall, ranging from an average of 1.1 to 4.9 years among the
sites. The percentage of Cold War workers separated at individual
sites ranged from 100 percent to 33 percent.

Table I. 1: Separations at Defense Sites, Fiscal Years 1997 and
1998 All workers Cold War workers Non- Cold War workers Site Total

separations Number separated Average years

of service Percent of total separations Number

separated Average

years of service

Percent of total separations

Idaho 0 0 0 0 0 0 0 Kansas City 373 363 25.8 97 10 2.3 3 Lawrence
253 219 17.3 87 34 3.7 13 Los Alamos 2 2 16.0 100 0 0.0 0 Nevada
545 282 11.2 52 263 1.1 48 Oak Ridge 1516 1307 20.2 86 209 4.3 14
Ohio (Fernald) 3 1 8.0 33 2 2.0 67 Ohio (Mound) 174 162 17.7 93 12
3.4 7 Pantex 342 268 24.6 78 74 3.3 22 Richland 882 423 13.5 48
459 3.4 52 Rocky Flats 455 327 13.0 72 128 3.0 28 Sandia 375 352
26.5 94 23 4.9 6 Savannah River 549 388 9.1 71 161 4.5 29

Total/ average 5,469 4,094 14.6 75 1,375 2.0 25

Source: DOE's Office of Worker and Community Transition.

DOE data show that contractor employees who were voluntarily
separated had more years of service than those who were separated
involuntarily in fiscal years 1997 and 1998. The Cold War workers
who voluntarily separated had an average of 18 years of
employment. The Cold War workers who were involuntarily separated
had 10.5 years of employment.

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Appendix I Length of Service of Workers Separated at DOE Defense
Facilities, Fiscal Years 1997 and 1998

Overall, the non- Cold War workers separated averaged 2 years of
employment. Non- Cold War workers who voluntarily separated
averaged 3.4 years of employment, while those who were
involuntarily separated averaged only 1.7 years of employment.
Figure I. 1 shows the lengths of service for these groups of
workers.

Figure I. 1: Length of Service for Cold War and Non- Cold War
Workers, Fiscal Years 1997 and 1998

Source: DOE's Office of Worker and Community Transition.

Figure I. 2 shows that the number of involuntary separations has
been increasing as a percentage of all separations. Between fiscal
year 1995, when most of the restructuring actions took place, and
fiscal year 1998, the percentage of involuntary separations
increased from 27 percent to 56 percent. DOE reported that because
the number of older, eligible individuals in the workforce has
decreased, there is a trend toward a greater use of involuntary
separations.

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Appendix I Length of Service of Workers Separated at DOE Defense
Facilities, Fiscal Years 1997 and 1998

Figure I. 2: Composition of Separations at Defense Sites, Fiscal
Years 1995 and 1998

Note: Top figure shows 1995 separations and lower figure shows
1998 separations. Source: DOE's Office of Worker and Community
Transition.

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Appendix II Length of Service of Remaining Work Force at DOE
Defense Facilities, Fiscal Year 1998

In table II. 1, DOE data show that the remaining 76,010 defense
nuclear workers reflect roughly the same percentage of Cold War
and non- Cold War workers as the recently separated workforce. The
overall average length of service is 14 years, 16.7 years for Cold
War workers and 4.4 years for non- Cold War workers. Individual
site averages ranged from 12.6 to 20.2 years for Cold War workers
and from 2.1 to 5 years for non- Cold War workers. At individual
sites, the percentage of Cold War workers ranged from 33 percent
to 91.3 percent.

Table II. 1: Length of Service of Remaining Work Force at DOE
Defense Facilities, Fiscal Year 1998 All remaining workers Cold
War workers Non- Cold War workers

Site Number Average

years of service Number

Average years of

service Percent of total workers Number

Average years of

service Percent of total workers

Idaho 5,743 13.0 4,679 15.0 81 1,064 4.0 19 Kansas City 3,256 18.7
2,972 20.2 91 284 2.8 9 Lawrence Livermore 6,608 15.8 5,566 18.0
84 1,042 4.0 16

Los Alamos 7,009 13.4 4,916 17.3 70 2,093 4.2 30 Nevada 2,515 12.4
1,795 16.5 71 720 2.1 29 Oak Ridge 12,367 17.1 10,695 19.0 86
1,672 4.6 14 Ohio (Fernald) 1,977 6.6 653 12.6 33 1,324 3.7 67
Ohio (Mound) 667 16.5 579 18.4 87 88 3.8 13 Pantex 2,856 12.8
1,718 18.5 60 1,138 4.2 40 Richland 9,309 11.1 6,203 14.9 67 3,106
3.6 33 Rocky Flats 3,120 12.1 2,452 14.5 79 668 3.4 21 Sandia
7,501 15.4 5,880 18.3 78 1,621 5.0 22 Savannah River 13,082 12.9
11,258 14.3 86 1,824 4.4 14

Total/ average 76,010 14.0 59,366 16.7 78 16,644 4.4 22

Source: DOE's Office of Worker and Community Transition.

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Appendix III Consultant's Study Estimated the Number of Jobs DOE
Helped to Create and Retain

Under the National Defense Authorization Act for Fiscal Year 1998,
12 the Secretary of Energy was required to have an independent
auditing firm study the effects of DOE's workforce restructuring
plans. Booz- Allen & Hamilton, Inc., which was awarded the
contract, issued its report on September 30, 1998. While the
study's methodology reasonably estimates the number of jobs that
DOE was helping to create or retain, it is difficult to know the
extent to which DOE should receive full credit for these jobs
because the consultant was not asked to (1) measure the impact of
other assistance in creating or retaining jobs or (2) analyze the
extent to which a strong economy helped to produce these jobs. 13
The consultant's report, Study of the Effects of the Department of
Energy's Work Force Restructuring and Community Transition Plans
and Programs, was based upon the consultant's visits to affected
DOE sites, related communities, and their new businesses. The
consultant verified and/ or estimated that about 22,000 jobs were
created or retained in those communities.

The act required that the study include an analysis of the number
of jobs created by any employee retraining, education, and
reemployment assistance and any community impact assistance
provided in each workforce restructuring plan. However, the
consultant used the category job retention because DOE collected
information for jobs retained and one of the objectives of the act
that originally authorized the worker transition program was, to
the extent practicable, to retain workers in other jobs at the
site to avoid layoffs. DOE defined created jobs as those that did
not previously exist and retained jobs as those that held the
existing work force in place and provided substitute employment
for at- risk or displaced workers within a defined geographic
area. The consultant's report concluded that DOE had a positive
impact on mitigating the social and economic impacts of the DOE
transition by helping to create or retain more than 22,000 jobs.

Consultant's Methodology Reasonably Estimates the Number of Jobs
Created or Retained

The consultant used a reasonable methodology to determine that
jobs were created or retained in the communities that received DOE
assistance. The consultant employed several approaches in its
evaluation. It validated DOE's reported job creation and retention
figures by surveying DOE field offices and community reuse
organizations to collect data on business development and job
creation. It visited the Oak Ridge, Mound, and

12 Section 3153 of Public Law 105- 85 included the requirement for
the study. 13 DOE defines job creation as the act of creating jobs
that did not previously exist in a defined marketplace and defines
job retention as holding in place the existing work force and
providing substitute employment for at- risk or displaced workers
within a defined geographic area.

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Appendix III Consultant's Study Estimated the Number of Jobs DOE
Helped to Create and Retain

Richland facilities and about 60 businesses receiving DOE
assistance. It also conducted telephone interviews with all DOE
sites participating in the program. Furthermore, it reviewed DOE
and the communities' methodologies for determining created and
retained jobs

Scope of the Consultant's Job Creation and Retention Analysis
Limited

While this methodology provides reasonable results for the jobs
created or retained, the consultant's scope of work did not
include an analysis of (1) the impact of other assistance in
creating or retaining jobs and (2) the extent to which the strong
economy helped to produce these jobs.

First, the methodology did not include the impact of other
assistance. Both the consultant and DOE acknowledged the
difficulty in estimating job creation and retention for specific
programs. Therefore, the consultant and DOE both used the
qualifier that the Department's program was helping to create or
retain these jobs. The Director of DOE's Office of Worker and
Community Transition told us that it is difficult to directly link
program stimulus to job creation and retention. To illustrate this
point, Bridgestone/ Firestone, Inc. is investing $435 million in a
new tire facility that will eventually employ 800 workers near
Savannah River. South Carolina, Aiken County, the Department of
Commerce, and DOE are also contributing funding for infrastructure
development in support of this facility. In this case, DOE, along
with three other government entities, each helped to create these
jobs.

Second, another difficulty is separating DOE's contribution to job
creation from the effects of a strong economy. Since 1993, jobs in
the national economy grew rapidly, bringing unemployment rates to
their lowest levels in decades. While Bridgestone/ Firestone, Inc.
received government assistance, the company may not have been
looking to expand its tire production capacity without a strong
national economy in which to sell its tires. Furthermore, the
local economy can be a significant factor in creating jobs. As
discussed earlier in the report, table 4 shows the relatively
small impact DOE had on job creation in some communities.

GAO/RCED-99-135 DOE Workforce Reduction Page 29

Appendix IV Application of Economic Development Adminstration
Criteria to DOE Funding Decisions, Fiscal Years 1995 Through 1998

Decision place Date of decision

Regional unemployment rate

for 2 years leading up to decision date

National unemployment rate for 2 years

leading up to decision date

Number of DOE separations for

3- year period surrounding decision date a

Average number of

people employed for 2

years up to decision date in metropolitan

statistical area Met overall EDA eligibility?

Mound 10/ 21/ 94 5.37 6.72 824 443,005 No Richland 11/ 1/ 94 7.36
6.66 5,082 84,800 Yes Richland 4/ 16/ 96 7.47 5.72 5,557 86,844
Yes Richland 1/ 20/ 98 8.35 5.17 882 85,706 Yes Pinellas 12/ 20/
94 5.93 6.58 766 997,404 No Pinellas 4/ 15/ 96 4.64 5.72 812
1,039,430 No Pinellas 7/ 11/ 97 4.15 5.50 621 1,063,758 No Nevada
2/ 22/ 95 6.86 6.43 2,919 518,514 Yes Nevada 3/ 25/ 96 5.82 5.75
2,451 555,462 No Nevada 1/ 20/ 98 4.80 5.17 545 617,700 No Los
Alamos 11/ 17/ 95 3.48 5.93 1,210 70,677 Yes Los Alamos 11/ 9/ 95
3.48 5.93 1,210 70,677 Yes Los Alamos 5/ 13/ 96 3.92 5.68 1,210
70,518 Yes Oak Ridge 5/ 9/ 97 4.38 5.44 2,286 326,147 No Oak Ridge
4/ 3/ 98 4.26 5.06 1,516 325,050 No Rocky Flats 7/ 2/ 97 3.61 5.38
1,418 1,023,731 No Savannah River 4/ 23/ 96 6.40 5.72 4,953
189,093 Yes Savannah River 5/ 22/ 97 6.77 5.44 1,659 188,058 Yes
Savannah River 12/ 2/ 97 6.54 5.21 975 189,210 Yes Savannah River
8/ 20/ 98 6.07 4.88 975 191,155 Yes Savannah River 9/ 29/ 98 6.00
4.86 975 191,433 Yes

a Represents the separations for a 3- year period before, during,
and after, the decision date. Separations for some decisions in
fiscal year 1995 may be overstated because DOE reports separation
numbers for fiscal years 1993 and 1994 together. Separations for
decisions made in fiscal year 1998 may be understated because
potential separations for fiscal year 1999 were not included.

Source: GAO Analysis of EDA criteria, and DOE's Office of Worker
and Community Transition's and Department of Labor's statistics.

GAO/RCED-99-135 DOE Workforce Reduction Page 30

Appendix V Comments From the Department of Energy

Note: GAO comments supplementing those in the report text appear
at the end of this appendix.

GAO/RCED-99-135 DOE Workforce Reduction Page 31

Appendix V Comments From the Department of Energy

See comment 1. See comment 2.

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Appendix V Comments From the Department of Energy

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Appendix V Comments From the Department of Energy

See comment 3. See comment 4.

GAO/RCED-99-135 DOE Workforce Reduction Page 34

Appendix V Comments From the Department of Energy

See comment 5.

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Appendix V Comments From the Department of Energy

See comment 6. See comment 7.

See comment 8.

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Appendix V Comments From the Department of Energy

See comment 9.

GAO/RCED-99-135 DOE Workforce Reduction Page 37

Appendix V Comments From the Department of Energy

GAO/RCED-99-135 DOE Workforce Reduction Page 38

Appendix V Comments From the Department of Energy

GAO's Comments Our comments on DOE's two main assertions are
summarized in the body of the report. In its comments, DOE
asserted the following:

 The report draft did not accurately portray the Department's
Worker and Community Transition Program and contained numerous
factual errors that, along with inappropriate comparisons, raises
basic questions about the validity of the recommendation and major
findings.  The Department's criteria are consistent with statutory
direction and

Department of Commerce regulations, and the benefits provided to
separated employees were consistent with the practices of other
private and public organizations.

In this appendix, we address each of the comments made in the
attachment to DOE's letter. In addition, DOE provided us with
additional detailed comments that elaborated on the points made in
the attachment to its formal response. We used this supplemental
material where appropriate to revise our report.

1. DOE challenges our recommendation for four reasons. First, the
Department commented that its criteria for awarding community
financial assistance are consistent with the congressionally
mandated criteria of the Economic Development Administration
Reform Act of 1998 and ensure that aid is focused on economic
need. The act makes communities affected by DOE's defense- related
reductions eligible for the Economic Development Administration's
(EDA) assistance, regardless of the local unemployment rate, or
the per capita income in the affected communities. The Department
commented that its criteria are consistent with the act, but it
appears that DOE's claim to consistency is based on a provision of
the act that allows communities affected by DOE's defense- related
funding reductions to qualify for assistance. However, the act was
not effective until February 11, 1999. Furthermore, DOE's guidance
does not have any economic threshold criteria for determining
affected communities' need. Most other communities that suffer
economic hardships not caused by defense- related funding
reductions are required to meet economic threshold criteria, such
as an unemployment rate above the national average.

Second, DOE commented that EDA must approve each community
proposal before funding is provided and that economic need
criteria are a key factor in its approval process. While EDA
assesses the economic condition of the DOE community applying for
assistance, the degree of, or relative, economic need is not a
criteria in determining funding levels. We noted in

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Appendix V Comments From the Department of Energy

our draft report that DOE submits the community plans to EDA for
independent review and approval. However, EDA reviews the
community plans using DOE's criteria for reviewing projects and
programs, set out in DOE's Policy and Planning Guidance for
Community Transition Activities. These criteria address projected
job creation from the project, the amount of local participation
in the project, and the ability of the project to become self-
sufficient, not whether the communities requesting assistance meet
threshold economic need.

Third, DOE notes that its Policy and Planning Guidance for
Community Transition Activities contains explicit criteria for
ensuring that economic assistance is provided to communities
suffering economic hardship. Furthermore, DOE added that each
Secretarial decision memorandum approving community assistance
formally addresses the economic need fulfilled by the funding to
be provided. As we noted in our draft report, DOE's criteria focus
on the merits of the community's individual projects, such as
projected job creation, and not on the community's relative
economic need. Our analysis shows that communities differ in their
degree of economic strength, and DOE's criteria for determining
community assistance funding do not result in the most assistance
going to the communities most in need. We do note that several
Secretarial decision memorandums included a general discussion of
economic conditions, including job losses, and loss of economic
diversity. For example, the June 1997 decision for Rocky Flats
stated, Although unemployment in Colorado is comparatively low,
new jobs are being created primarily in retail and service
industries, not the high- wage manufacturing and engineering
sectors. Wage growth is not keeping pace. However, none of the
memorandums we reviewed considered threshold criteria or relative
economic need.

Fourth, DOE notes that a 1998 independent audit found, The
principal criteria for providing assistance to DOE sites and
adjacent communities was degree of need, driven by how many
workers were impacted by the transition. On the basis of our
review of Secretarial memorandums, we concur that the primary
consideration for determining assistance was that workers were
separated. However, our analysis shows that there was no
correlation between the actual number of workers separated and the
amount of assistance provided to communities.

2. DOE reports in its table 1 that each community it provided with
community assistance met at least one economic threshold criterion
established by the Congress for such assistance. We disagree with
DOE's

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Appendix V Comments From the Department of Energy

response on several points. First, DOE's table 1 uses criteria
that did not exist at the time the Department made its funding
decisions. These congressionally- mandated criteria, which
included the DOE special need criterion, were not effective until
February 11, 1999. However, our analysis applies economic
threshold criteria, such as those used by EDA, to show funding
decisions based on relative economic need. We used the
administration's economic threshold criteria that were in
existence during fiscal years 1995 through 1998, when the bulk of
DOE's community assistance money was allocated. When we applied
these criteria, the communities surrounding the Los Alamos,
Richland, Savannah River, and Nevada facilities (one the three
decisions for the Nevada facility) met EDA's criteria for economic
need.

Second, DOE's analysis misapplies EDA's economic threshold
criteria in two ways. DOE's comments applied EDA's 1999 criteria
to individual counties around their Los Alamos and Oak Ridge
facilities. If the facility is located within a standard
metropolitan statistical area, then that area should be used to
determine eligibility. As noted in the report, EDA uses standard
metropolitan statistical area data when determining funding
eligibility for communities located in these statistical areas. By
using the larger standard metropolitan statistical areas as
provided for in EDA's guidance, our analysis is more likely to
reflect the total impact of separating workers in the communities
surrounding those facilities. If DOE believes that the county-
level analysis more accurately reflects the economic impact of its
restructuring than does the use of metropolitan statistical areas,
then it may want to consider using counties' economic strength in
its community assistance allocation criteria.

Additionally, DOE's comments use the unemployment rate only for
the year in which the majority of the workforce restructuring
occurred at each DOE facility and compares it with the average
national unemployment rate for that year. This provides a
comparison for only one year out of the six that community
assistance programs have been in existence. As shown in appendix
IV, if economic and DOE restructuring information are compared
against the appropriate administration criteria for each funding
decision made since the beginning of fiscal year 1995 (soon after
the Office of Worker and Community Transition was created), only
four sites (Richland, Los Alamos and Savannah River, and one
allocation decision for the Nevada facility) would have been
eligible for funds.

3. According to DOE's comments, our table showing funding
allocations to communities for the period 1995 through 1998
contained a basic factual

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Appendix V Comments From the Department of Energy

error by including funds that were spent since the beginning of
the program. The data contained in table 3 of our draft report
were derived from community assistance allocation figures
contained in the Office of Worker and Community Transition's
annual reports. Since the receipt of DOE's comments, the Office
provided us with figures for the 1995- 98 period. Table 3 has been
revised accordingly but still shows that communities with
relatively low unemployment rates generally received more funds
per worker than those with higher rates of unemployment.

According to DOE, using data for comparable periods (1995 through
1998) yields starkly different results for total community
assistance funding and funding per job lost. Even with the revised
allocation figures, we disagree with DOE for two reasons. First,
to support its assertion, DOE commented that its table shows that
communities generally received between $5,000 and $10,000 per
employee separated. However, DOE's table shows a wide disparity in
the range of community assistance per job lost ranging from $949
to $14,601. Importantly, DOE's table does not show the allocation
amounts with the communities' unemployment rates. For example, the
communities surrounding the Mound facility had an overall
unemployment rate of 4.13 percent for the 1995- 98 period and
received $10,302 in community assistance per separated worker. In
contrast, while the communities surrounding the Richland facility,
which had an unemployment rate of 7.92 percent, received only
$3,098 per separated worker. Even among communities with
comparatively low unemployment rates, our revised table 3 shows
that there is a wide range of community assistance allocations.
For example, the communities surrounding the Oak Ridge and Rocky
Flats facilities had aggregate unemployment rates of 4.17 percent
and 3.33 percent, respectively, and separated roughly the same
number of workers 2,832 and 2,922 respectively. However, the
communities surrounding Oak Ridge received $5,932 per separated
worker versus $8,500 per separated worker for communities around
the Rocky Flats facility.

Finally, DOE states that Richland received less funding because
its downsizing started later than in other communities. The fact
that some facilities started their restructuring earlier than
others may help explain some of the disparity in the allocation of
community assistance funds. Nevertheless, because of the criteria
DOE uses in providing community assistance, the disparity in the
allocation of funds is not likely to be made up over time. In
addition, the Secretary's memorandums approving community
assistance allocations generally do not describe the

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Appendix V Comments From the Department of Energy

communities' economic conditions nor do they discuss threshold or
relative economic need in the decisions to fund community
development.

4. DOE asserted that our comparison of the assistance provided to
Richland and Oak Ridge was inaccurate for two reasons incorrect
allocation and unemployment data. First, as discussed under
comment 3, we incorporated DOE's community assistance figures.
Even though Richland received more community funding than Oak
Ridge, it received less per worker separated Richland received
$3,098 per job lost 14 and Oak Ridge received $5,932 per job lost.
Second, DOE challenged our analysis of these two facilities by
using a single county's (Roane) unemployment data for its Oak
Ridge facility. As discussed in our second comment, this is a
misapplication of EDA's criteria. Following EDA's criteria, we
used the standard metropolitan statistical area for our analysis.
Using the unemployment rate for the standard metropolitan
statistical area surrounding Oak Ridge, rather than the
unemployment rate for Roane County, results in an unemployment
rate for Oak Ridge of 4.2 percent instead of 7.3 percent.
Furthermore, DOE's May 9,1997, Secretarial memorandum justifying
$10 million in community assistance does not even discuss Roane
County. However, as discussed in comment 2, if DOE believes that
the county- level analysis more accurately reflects the economic
impact of DOE's restructuring than does the use of the standard
metropolitan statistical area, then it should include this factor
in its community assistance criteria.

5. DOE states that we inaccurately reflect how it assists workers
displaced by defense- related reductions. It cites the
consultant's study that shows DOE's program helped create more
than 22,000 jobs. Like the consultant's study, our draft report
concurred that DOE helped to create and retain these jobs.
However, the consultant's study did not provide information on the
extent to which DOE should receive credit for the jobs created and
retained. We noted in the draft report that the DOE data contain
jobs created and retained, while the local employment data we used
from the Bureau of Labor Statistics include only jobs created.
Therefore, our analysis is likely to overstate the impact of DOE's
job creation efforts in any given area. Furthermore, the
consultant's study did not measure the impact of other assistance
in creating or retaining jobs, or analyze the extent to which a
strong economy helped to produce these jobs. We maintain that
DOE's contribution had a relatively small impact on the

14 Table 2 in DOE's comments shows that Richland separated 5,694
workers for the period 1995 to 1998, and the community received
$3,245 for each job lost. However, the Office of Worker and
Community Transition's Annual Report shows that Richland separated
5,964 workers which DOE subsequently confirmed as the correct
number.

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Appendix V Comments From the Department of Energy

overall growth of jobs in three of the six communities surrounding
nuclear defense facilities for which we had comparable data.
However, for three other communities, our draft shows that DOE
contributed significantly to job growth.

6. DOE commented that our draft report incorrectly characterized
enhanced retirement offerings. DOE provided us with additional
information comparing its enhanced retirement offerings with those
of other organizations, and we have revised the report
accordingly. However, the formula for extended medical coverage
and the provisions for relocation assistance offered by DOE were
more generous than the benefits offered to separated federal
civilian employees. For extended medical coverage for eligible
contractor workers, DOE pays the full employer cost for the first
year of separation and about half of that cost in the second year.
15 Separated federal workers who are eligible and wish to retain
extended medical coverage must pay the full cost, plus an
administrative fee, for the coverage upon separation.

DOE also commented that 17 of the 25 public and private sector
employers identified in our 1995 report offered enhanced
retirement. DOE's interpretation is not exact. The report states
that 17 of the 25 organizations offered early retirement programs
and at least 10 of these programs offered some incentive for early
retirement. The incentives generally gave employees credit for a
specified number of years of service and/ or a specified number of
years added to their age; however, nine organizations also imposed
penalties on the annuities of early retirees.

7. DOE said that the draft report is factually incorrect
concerning involuntary separation benefits. DOE provided us with
additional information on involuntary separation benefits offered
at other organizations, and we revised our draft accordingly.

8. DOE contends that its management contractors offered extended
medical benefits before the enactment of the worker and community
transition program. The Office of Worker and Community Transition
has since provided us with information supplementing its official
comments indicating that a medical benefits program for displaced
workers was approved by the Secretary of Energy on July 29, 1992.
According to DOE's comments, these benefits are limited to
contractor- separated employees

15 Of the 10 plans, 7 provided extended medical coverage to both
voluntarily and involuntarily separated workers, and 3 plans
offered coverage to voluntarily separated workers.

GAO/RCED-99-135 DOE Workforce Reduction Page 44

Appendix V Comments From the Department of Energy

who cannot obtain coverage through an employer or spouse. We have
revised our report accordingly.

DOE also commented that our draft report did not include the wide
range of additional benefit categories offered by other
organizations. Based on DOE's comments we revised table 2 that
compared DOE benefits with other public and private sector
severance packages offered from fiscal years 1993 through 1998.
The revised table provides more detail of the benefits that were
offered by the number of organizations that we identified.
However, the benefit formulas in some of DOE's workforce
restructuring plans, such as those determining voluntary
separation benefits and extended medical coverage, potentially
allow more generous benefits than those offered for federal
civilian employees.

9. DOE's comment focuses on the overgeneralization of the data
presented in table 2 of our draft report. This table compared DOE
benefits with other public and private sector severance packages
offered from fiscal years 1993 through 1998. DOE asserted that,
overall, the frequency with which DOE contractors offered classes
of benefits has not been substantially different than the
frequency offered by other employers captured by private surveys.
We agree and revised this table, as noted in comment 8.

Finally, DOE commented that only a limited number of its sites
offered some benefits. However, we note that DOE did not count
benefits offered to its workforce when fewer than 10 individuals,
or 1 percent of the separated workers, received benefits.
Furthermore, DOE stated that because of qualification
requirements, a large number of separated DOE workers were not
provided with certain benefits, even when offered at a site. While
these qualifications may preclude some separated workers from
receiving a specific benefit, the benefit was still offered at a
specific site.

(141276) GAO/RCED-99-135 DOE Workforce Reduction Page 45

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