Federal Downsizing: The Status of Agencies' Workforce Reduction Efforts
(Testimony, 05/23/96, GAO/T-GGD-96-124).

GAO discussed the government's progress in downsizing its workforce and
use of employee buyouts. GAO noted that: (1) executive branch full-time
equivalent (FTE) positions could decrease to 1.88 million during fiscal
year (FY) 1999 under mandated ceilings; (2) as of September 30, 1995,
the Department of Defense (DOD) paid 71 percent of the more than 112,500
governmentwide buyouts; (3) the actual FY 1995 FTE level was 73,100
positions below the FY 1995 ceiling; (4) the FY 1997 budget calls for
nearly 53,000 fewer FTE positions; (5) employee buyouts have helped
limit reductions-in-force (RIF) to 6 percent of personnel cuts; (6)
agencies have used buyouts more to meet required downsizing goals than
to meet the administration's restructuring goals; (7) management control
positions of DOD agencies have decreased to under 12 percent, but other
designated positions have increased; (8) 70 percent of buyouts between
FY 1993 and FY 1995 were paid to employees who took regular or early
retirement; (9) retirements decreased 20 percent from FY 1991 through FY
1992, but increased 35 percent after buyout authorization; (10) the FY
1999 workforce goal could probably be met through normal attrition, but
budget cuts may force some agencies to rely on other strategies to
reduce their workforces below their goals; and (11) in general, buyouts
generate up to 50 percent more in net savings over 5 years than RIF
because higher-graded employees retreat to lower-graded positions during
RIF.

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

 REPORTNUM:  T-GGD-96-124
     TITLE:  Federal Downsizing: The Status of Agencies' Workforce 
             Reduction Efforts
      DATE:  05/23/96
   SUBJECT:  Federal downsizing
             Employee buyouts
             Reductions in force
             Personnel management
             Federal employees
             Cost control
             Federal employee retirement programs
             Attrition rates
             Federal agency reorganization
IDENTIFIER:  OPM Central Personnel Data File
             Civil Service Retirement System
             Federal Employees Retirement System
             
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Cover
================================================================ COVER


Before the Subcommittee on Civil Service,
Committee on Government Reform and Oversight
House of Representatives

For Release on Delivery
Expected at
9:00 a.m.  EDT
Thursday
May 23, 1996

FEDERAL DOWNSIZING - THE STATUS OF
AGENCIES' WORKFORCE REDUCTION
EFFORTS

Statement of
Timothy P.  Bowling, Associate Director,
Federal Management and Workforce Issues,
General Government Division

GAO/T-GGD-96-124

GAO/GGD-96-124T


(410044)


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


FEDERAL DOWNSIZING:  THE STATUS OF
AGENCIES' WORKFORCE REDUCTION
EFFORTS
====================================================== Chapter SUMMARY

To downsize the federal workforce, the Federal Workforce
Restructuring Act of 1994 (P.L.  103-226) placed annual ceilings on
executive branch full-time equivalent (FTE) positions for fiscal
years 1994 through 1999.  These ceilings would result in downsizing
of the federal workforce from 2.08 million FTE positions during
fiscal year 1994 to 1.88 million FTE positions during fiscal year
1999.  The act also allowed non-Department of Defense (DOD) agencies
to pay buyouts to employees of as much as $25,000 between March 1994
and March 1995 to help achieve these workforce reduction goals.  DOD
has buyout authority through fiscal year 1999 under separate
legislation.  According to data from the Office of Personnel
Management, more than 112,500 buyouts had been paid governmentwide as
of September 30, 1995.  Through fiscal year 1995, the federal
workforce had downsized ahead of the timetable called for by the act,
and the administration anticipates being 62,500 FTE positions below
the ceiling mandated by the act for the end of fiscal year 1996. 

DOD has absorbed most of the workforce reductions.  Nearly 75 percent
of the workforce reductions came from DOD in fiscal year 1994, and 56
percent came from DOD in fiscal year 1995.  The President's fiscal
year 1997 budget anticipates that all of the workforce reductions
will come from DOD because non-DOD agencies are expected to
experience a net increase in FTE positions. 

The administration, through the National Performance Review (NPR),
called on agencies to restructure their workforces by directing their
downsizing toward specific "management control" positions including
budget, procurement, and personnel positions, as well as managers and
supervisors.  These management control positions have been barely
reduced as a proportion of the workforce as a whole, and at some
agencies they have increased. 

Demographically, the largest share of the buyouts were paid to
employees who took regular or early retirements.  Governmentwide, the
buyouts enabled agencies to downsize without disproportionately
affecting women and minorities. 

GAO's estimates show that in terms of absolute numbers--and given
historical quit rates--the Workforce Restructuring Act's fiscal year
1999 final FTE ceiling could probably be met governmentwide through
an attrition rate as low as 1.5 percent per year in fiscal years 1996
through 1999.  At that rate, executive branch agencies in total would
be sufficiently below the fiscal year 1999 target to allow for the
hiring of nearly 28,000 new full-time employees.  However, as some
agencies may be required to downsize considerably more than others,
buyouts or reductions-in-force (RIF) may be necessary at certain
agencies. 

When GAO compared the costs and savings of buyouts and RIFs, the
analysis showed that over the 5-year period following separation,
buyouts can generate up to 50 percent more in net savings than RIFs
if the RIF involves bumping and retreating and the RIFed employees
are not eligible for retirement. 


FEDERAL DOWNSIZING:  THE STATUS OF
AGENCIES' WORKFORCE REDUCTION
EFFORTS
==================================================== Chapter STATEMENT

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss the progress being made in
downsizing the federal workforce and agencies' use of buyouts.  As
agreed with your office, our statement includes information on

  -- the results to date of federal downsizing efforts,

  -- whether agencies' use of buyouts reflected the administration's
     workforce restructuring goals as articulated by the National
     Performance Review (NPR),

  -- the demographic results of the buyouts,

  -- the extent to which we estimate that the statutorily mandated
     workforce reduction goals could be met through attrition, and

  -- the cost and savings implications of buyouts versus
     reductions-in-force (RIF). 

We obtained information on the results of federal downsizing
activities by analyzing workforce data contained in the Office of
Personnel Management's (OPM) Central Personnel Data File (CPDF) for
fiscal year 1992 through November of fiscal year 1996, and by
reviewing workforce trends presented in the President's fiscal year
1997 federal budget.  Our analysis of whether agencies' use of
buyouts reflected NPR's workforce restructuring goals was based on
our review of applicable Office of Management and Budget (OMB)
guidance to agencies and CPDF workforce data.  Our examination of the
demographic results of the buyouts was based on CPDF data as well. 
Our estimate of the extent to which mandated workforce reduction
goals can be achieved by attrition was based on workforce trends data
contained in the President's fiscal year 1997 federal budget.  The
costs and savings of buyouts and RIFs were analyzed using past
studies by us, the Congressional Budget Office, and other federal
agencies; contacts with agency officials; and demographic data from
the CPDF.  A more detailed analysis of the circumstances under which
buyouts or RIFs offer greater potential savings is contained in the
report we prepared for this Subcommittee that was released today.\1


--------------------
\1 Federal Downsizing:  The Costs and Savings of Buyouts Versus
Reductions-in-Force (GAO/GGD-96-63, May 14, 1996). 


   THE RESULTS TO DATE OF FEDERAL
   DOWNSIZING EFFORTS
-------------------------------------------------- Chapter STATEMENT:1

The Federal Workforce Restructuring Act of 1994 (P.L.  103-226)
placed annual ceilings on executive branch full-time equivalent (FTE)
positions from fiscal years 1994 through 1999.\2 If implemented as
intended, these ceilings will result in downsizing the federal
workforce from 2.08 million FTE positions during fiscal year 1994 to
1.88 million FTE positions during fiscal year 1999. 

To help accomplish this downsizing, the act allowed non-Department of
Defense (DOD) executive branch agencies to pay buyouts to employees
who agreed to resign, retire, or take voluntary early retirement by
March 31, 1995, unless extended by the head of the agency, but no
later than March 31, 1997.  DOD, though subject to the act's
governmentwide FTE ceilings, has the authority, under earlier
legislation, to offer buyouts through September 30, 1999.  For both
DOD and non-DOD agencies, the buyout payment was the lesser of
$25,000 or an employee's severance pay entitlement.\3 According to
OPM data, as of September 30, 1995, more than 112,500 buyouts had
been paid governmentwide.  DOD was responsible for about 71 percent
of these buyouts. 


--------------------
\2 According to OMB guidance, an FTE or work year generally includes
260 compensable days or 2,080 hours.  These hours include
straight-time hours only and exclude overtime and holiday hours. 

\3 Severance pay is calculated on the basis of one week's basic
salary at the time of separation for each year of creditable service
for the first 10 years, and two weeks' basic salary for each year of
service thereafter.  An age adjustment allowance is also included for
employees over 40 years old.  The total severance pay an employee is
eligible to receive is limited to one year's pay at the rate they
received at the time of separation. 


      FEDERAL DOWNSIZING IS
      PROCEEDING AHEAD OF
      SCHEDULE, WITH MOST
      REDUCTIONS COMING FROM DOD
------------------------------------------------ Chapter STATEMENT:1.1

The federal workforce is being reduced at a faster pace than was
called for by the Workforce Restructuring Act.  As shown in table 1,
the act mandated a ceiling of 2,043,300 FTE positions for fiscal year
1995.  This would have resulted in a reduction of 95,500 FTE
positions (4.5 percent) from the actual fiscal year 1993 level.  In
reality, the actual fiscal year 1995 FTE level was 1,970,200, a
reduction of 168,600 FTE positions (7.9 percent) from the fiscal year
1993 level.  By the end of fiscal year 1997, the administration's
budget calls for the federal workforce to be nearly 53,000 FTE
positions below the ceiling called for by the act for that period. 



                                Table 1
                
                  Workforce Reductions Are Proceeding
                           Ahead of Schedule


                           1993        1994     1995     1996     1997
-------------------------  -------  -------  -------  -------  -------
FTE ceiling mandated by    Not      2,084,6  2,043,3  2,003,3  1,963,3
 act                        applic       00       00       00       00
                            able
Actual executive branch    2,138,8  2,052,7  1,970,2  1,940,8  1,910,5
 civilian FTE positions     00           00       00     00\a     00\a
FTEs below ceiling         Not       31,900   73,100  62,500\  52,800\
                            applic                          a        a
                            able
----------------------------------------------------------------------
Note:  FTEs are rounded to the nearest hundred. 

\a Estimated. 

Source:  Workforce Restructuring Act of 1994 and the President's
fiscal year 1997 budget. 

Although the workforce reductions occurred governmentwide, they were
not evenly distributed among agencies.  Indeed, most of the
downsizing took place at DOD.  As shown in table 2, DOD absorbed
nearly three-quarters of the FTE reductions in fiscal year 1994 and
over half of the governmentwide reductions in fiscal year 1995. 



                                Table 2
                
                DOD Has Accounted For the Largest Share
                        of Workforce Reductions

                                      DOD share of    Non-DOD share of
                                         total FTE               total
Fiscal year                             reductions      FTE reductions
----------------------------------  --------------  ------------------
1994                                         73.7%               26.3%
1995                                          56.4                43.6
1996 (est.)                                   74.1                25.9
1997 (est.)                                  100.0                 0.0
----------------------------------------------------------------------
Source:  GAO calculations based on the President's fiscal year 1997
budget. 

In fiscal year 1997, DOD is expected to absorb all of the FTE
reductions made that year while the non-DOD workforce is expected to
increase by a net total of 0.2 percent, according to the President's
fiscal year 1997 budget. 


      BUYOUTS HELPED MINIMIZE THE
      NEED FOR RIFS
------------------------------------------------ Chapter STATEMENT:1.2

Although federal employment levels have declined steadily in recent
years, the workforce has been reduced with comparatively few RIFs, in
part because of the buyouts.  Had it not been for the buyout
authority, it is likely that more agencies would have RIFed a larger
number of employees to meet federal downsizing goals. 

From September 30, 1994, through March 1995, the on-board executive
branch civilian workforce dropped from 2,164,727 employees to
2,032,440 employees, a reduction of 6 percent.  CPDF data show that
of the 132,287 reductions in on-board personnel that took place
during this time period, 48 percent involved buyouts and 6 percent
came from RIFs.  The remaining 46 percent involved separations
without buyouts or the basis for separation was not identified in the
CPDF. 


   AGENCIES USED BUYOUTS MORE TO
   MEET ACT'S DOWNSIZING
   OBJECTIVES THAN
   ADMINISTRATION'S RESTRUCTURING
   GOALS
-------------------------------------------------- Chapter STATEMENT:2

The administration, through NPR, recommended that agencies direct
their workforce reductions at specific "management control" positions
that the administration said added little value to serving taxpayers. 
Such positions included those held by (1) managers and supervisors
and (2) employees in headquarters, personnel, budget, procurement,
and accounting occupations.  By fiscal year 1999, the administration
called on agencies to increase managers' and supervisors' span of
control over other employees from a ratio of 1:7 to 1:15, and to cut
management control positions by half. 

In our draft report on agencies' use of buyouts that we are preparing
for this Subcommittee, we present preliminary data showing that, as a
proportion of the workforce as a whole, the management control
positions designated for reduction by NPR were barely reduced since
the end of fiscal year 1992 (the year before buyouts began at DOD);
in some agencies they have increased.  As shown in table 3, although
the percentage of supervisors at DOD agencies dipped from 12.7
percent of the workforce to 11.9 percent, (1 supervisor for every 6.9
employees to 1 supervisor for every 7.4 employees), all but one of
the other designated management control positions increased somewhat. 
Acquisition positions showed no change.  Non-DOD agencies came only
slightly closer to meeting the NPR goals.  The percentage of
supervisors in the non-DOD workforce went from 12.5 percent to 11.6
percent (1 supervisor for every 7 employees to 1 supervisor for every
7.6 employees).  Personnel and headquarters staff also decreased as a
proportion of the non-DOD workforce, while the remaining categories
showed no proportional reduction or slight increases. 



                                Table 3
                
                NPR Positions Recommended for Reduction
                   as a Proportion of the Workforce,
                     September 1992 and March 1995

                                           Percentage of
                           Percentage of     DOD/non-DOD
                             DOD/non-DOD    workforce at    Net change
NPR management control      workforce FY    end of first    FY 1992 to
position                            1992    half FY 1995          1995
------------------------  --------------  --------------  ------------
Defense agencies
----------------------------------------------------------------------
Personnel                           1.5%            1.6%         +0.1%
Budget                               1.2             1.3          +0.1
Accounting/                          2.4             2.6          +0.2
 auditing
Acquisition                          4.9             4.9             0
Headquarters staff                   6.6             7.4          +0.8
Supervisors                         12.7            11.9          -0.8

Non-Defense agencies
----------------------------------------------------------------------
Personnel                           1.7%            1.6%         -0.1%
Budget                               0.4             0.4             0
Accounting/                          2.4             2.5          +0.1
 auditing
Acquisition                          2.0             2.0             0
Headquarters staff                  14.6            14.2          -0.4
Supervisors                         12.5            11.6          -0.9
----------------------------------------------------------------------
Note:  Workforce totals for the end of fiscal year 1992 were 960,317
(DOD); 1,231,229 (non-DOD).  Workforce totals for the end of the
first half of fiscal year 1995 were 846,479 (DOD); 1,185,961
(non-DOD). 

Source:  GAO calculations based on OPM's CPDF database. 


   THE DEMOGRAPHIC RESULTS OF
   BUYOUTS
-------------------------------------------------- Chapter STATEMENT:3

Of the 82,771 buyouts made governmentwide between fiscal year 1993
and the first half of fiscal year 1995, when we could identify the
type of separation, 40 percent of the buyouts were paid to employees
who took regular retirement, while about 30 percent were paid to
employees who took early retirement.  Without directly surveying
employees, it is difficult to determine whether buyouts influenced
them to leave federal service earlier or later than they would have
otherwise.  However, CPDF data shows that separations for employees
covered by the Civil Service Retirement System and the Federal
Employees Retirement System dropped by 20 percent from the end of
fiscal year 1991 through fiscal year 1992, when Congress was
considering buyout legislation.  Separations then rose by 35 percent
in fiscal year 1994, when both DOD and non-DOD agencies had buyout
authority.  Although some of the drop in separations may have been
due to economic conditions at the time, it is likely that some
employees delayed their separations so that they could receive a
buyout. 

Although it was not an explicit goal of the buyout legislation, the
buyouts appeared to have helped agencies downsize without adversely
affecting workforce diversity.  Indeed, of the nearly 83,000
employees who were paid buyouts from fiscal year 1993 through March
31, 1995, 52 percent were white males.  Consequently, the percentage
of women in the workforce increased from 43.4 percent at the end of
fiscal year 1992 to 44.6 percent by March 31, 1995.  Likewise, during
that same time period, the percentage of minorities went from 27.9
percent to 28.9 percent of the workforce. 


   GOVERNMENTWIDE DOWNSIZING GOALS
   PROBABLY COULD BE MET THROUGH
   ATTRITION GIVEN HISTORICAL QUIT
   RATES
-------------------------------------------------- Chapter STATEMENT:4

As noted earlier, total governmentwide FTE levels to date are well
below the annual ceilings mandated by the Workforce Restructuring
Act.  Our estimates indicate that the act's final fiscal year 1999
target for FTE ceilings could probably be met in total through an
attrition rate as low as 1.5 percent and still allow for some limited
hiring.  As shown in figure 1, the administration's 1997 budget calls
for reducing the federal workforce from 1.97 million FTE positions at
the end of fiscal year 1995 to an estimated 1.91 million FTE
positions by the end of fiscal year 1997.  At that rate of
reduction--about 1.5 percent per year--executive branch civilian
agencies could meet the fiscal year 1999 FTE ceiling called for by
the act while still hiring nearly 28,000 new full-time employees. 

Although federal attrition varies from year to year because of such
factors as the state of the economy, the availability of separation
incentives, and employees' personal considerations, federal attrition
has typically run considerably higher than 1.5 percent.  For example,
in fiscal years 1982 through 1992 (the year before buyouts began at
DOD), CPDF data shows that the average annual quit rate was about 8
percent.\4

   Figure 1:  Total Governmentwide
   Workforce Reduction Goals Could
   Probably Be Met Through
   Attrition

   (See figure in printed
   edition.)

Source:  GAO estimates based on the President's fiscal year 1997
budget. 

Experience has shown that some agencies may need to pare down their
workforces more than others as budgets are reduced, programs are
dropped, and/or missions are changed.  In such circumstances, some
agencies may not be able to meet workforce reduction goals through
attrition, and other downsizing strategies, such as buyouts or RIFs,
may be necessary. 

An example of this situation is the accelerated downsizing that the
National Aeronautics and Space Administration (NASA) has been
contemplating because of budget cutbacks.  NASA's proposal would
reduce its headquarters staff from its current level of 1,430
positions to between 650 and 700 positions by October 1997.  This
would eliminate about 400 more positions than NASA's current
downsizing goal, and would do so 3 years earlier.  If it were to
reduce at this pace, NASA has said that it would anticipate that RIFs
would be necessary.  Although this downsizing proposal may or may not
be implemented, it illustrates the potential magnitude of workforce
reductions being considered at some individual agencies. 


--------------------
\4 As defined by OPM, quits include voluntary resignations by
employees or separations by an agency if an employee declines a new
assignment; abandons a position; joins the military; or fails to
return from a military furlough. 


   BUYOUTS GENERALLY OFFER GREATER
   SAVINGS THAN RIFS
-------------------------------------------------- Chapter STATEMENT:5

If an agency is unable to meet its workforce reduction goals through
attrition alone, which downsizing strategy--buyouts or
RIFs--generates greater savings?  Our study of the costs and savings
of buyouts versus RIFs concludes that, over a 5-year period, buyouts
would generally result in more savings to taxpayers than RIFs.\5 This
is because buyouts usually result in the separation of employees with
higher salaries and benefits than those who are separated through
RIFs.  Because of the rights of higher graded employees to "bump" or
"retreat" to lower-graded positions during a RIF, employees separated
through RIFs are frequently not those who were in the positions
originally targeted for elimination.\6

We found that buyouts could generate up to 50 percent more in net
savings than RIFs over the 5-year period following separation. 
However, these results would change if bumping and retreating did not
occur in a RIF and the separated employees were eligible for
retirement.  In these cases, RIFs could generate up to 12 percent
more in savings over the 5-year period than buyouts.  Finally, if the
employees were separated without bumping and retreating and were not
retirement-eligible, the cost of severance pay for the RIFed
employees would result in buyouts generating up to 10 percent more in
net savings than RIFs over the 5-year period. 

These net savings projections are based on the assumption that
positions vacated by separating employees would not be refilled by
government or contractor personnel.  Projected savings would be
reduced if this occurred. 


--------------------
\5 GAO/GGD-96-63. 

\6 "Bumping" means displacing an employee in the same competitive
area who is in a lower-tenure group (type of appointment category). 
Although the employee who displaces another employee through bumping
must be qualified for the position, it may be a position that he or
she has never held.  "Retreating" means displacing an employee in the
same competitive area who has less service within the same tenure
group.  The position into which the employee is retreating must be
the same or an identical position the employee held in the past on a
permanent basis. 


------------------------------------------------ Chapter STATEMENT:5.1

In summary, the downsizing of the federal workforce is proceeding
ahead of the schedule called for by the Workforce Restructuring Act. 
At the same time, the administration, through NPR, called on agencies
to restructure their workforces by reducing management control
positions.  These positions have not been reduced as a proportion of
the workforce as called for by NPR. 

With regard to future workforce reductions, our analysis showed that
in terms of absolute numbers--and given historical quit rates--the
remaining annual FTE employment ceilings called for by the Workforce
Restructuring Act probably could be achieved governmentwide through
attrition.  Nevertheless, some agencies may be required to downsize
more than others.  In such situations, buyouts or RIFs may be
necessary.  In comparing the costs and savings of buyouts and RIFs,
our analysis showed that buyouts offered greater savings than RIFs,
except when RIFed employees do not bump and retreat and are eligible
to retire. 

This concludes my prepared statement.  I would be pleased to answer
any questions you or Members of the Subcommittee may have. 


*** End of document. ***