The Cutting Edge

he fiscal 1996 spending cycle has left many agencies wounded and bleeding by the side of the road. Like travelers caught and slowly chopped to fit the Greek villain Procrustes' iron bed, agencies have been set upon by Congress and cut bit by bit to fit Republicans' unyielding vision of smaller government. Erratic and reduced appropriations and drastic deficit-cutting plans seem to be achieving, slice by slice, many of the cutbacks Republicans set out last year to accomplish with a single blow of the downsizing sword.

On Valentine's Day 1995, first-term Republicans aimed their weapons at the hearts of the Energy, Commerce, Education and Housing and Urban Development departments and vowed deep cuts across other agencies. But by year's end, all of the Cabinet departments were still standing. Battered in the polls and blamed for repeated federal shutdowns, Republicans retreated to a strategy of death by a thousand short-term spending bills.

The result has been a chaos of furloughs and layoffs, hasty termination of programs and projects, and constant refiguring of spending plans. Executives are shelving long-range initiatives, unsure which programs will survive. Managers are letting productivity goals slip to focus instead on consoling and exhorting demoralized and angry employees.

Budget officials have been forced to tear up their plans as continuing resolutions come and go-one at 90 percent of last year's amount, the next at 75 percent; one fully funding a handful of programs for the year, the next wiping out others.

Meanwhile, the competition to devise a seven-year balanced-budget plan has opened the door to even more drastic government reshaping as politicians seek to avoid politically costly cuts in entitlement spending.

Funding at levels lower than last year might have seemed better than no funding at all for agencies and programs slated for extinction, but even they were desperate for final 1996 spending levels, if only to end the suffering of employees facing the prospect of layoffs. Budget officials and executives in departments targeted for big cuts in unsigned appropriations sought certainty so they could clean up their books and make rational staff and program reductions.

In late January, Congress and the President opened the door to widespread furloughs and layoffs when they agreed on the ninth continuing resolution of fiscal 1996. The measure funds nine Cabinet departments and more than a dozen smaller agencies through March 15. Unlike previous resolutions, it allows agencies to furlough employees in order to stay within reduced funding levels.

In fact, programs are required to furlough staff for at least one day per pay period before seeking additional funding to continue operations. Officials are permitted to furlough as often as they wish to prepare for future cuts. They may also lay off employees, and are in fact under considerable pressure to do so as soon as possible so fewer will be needed. Countering that early this year, however, was the fear of furloughing too long and laying off too many only to see President Clinton and Congress reach a budget deal that brought more money than expected.

Under the continuing resolution, the Labor, Health and Human Services, Education and Interior departments were funded at the lesser of House- or Senate-passed levels. Programs that had been slated for severe cuts or outright elimination were capped at 1995 spending levels. The Commerce, State, Justice, Veterans Affairs and Housing and Urban Development departments were funded at the levels provided in appropriations bills passed by Congress but vetoed by the President. Programs that had been eliminated in the vetoed measures, including the national service corps, Commerce's Advanced Technology Program and Justice's Cops on the Beat effort, were capped at 75 percent of 1995 levels.

The continuing resolution also eliminated 10 arts and education programs worth $60 million and took a swipe at the travel practices of Energy Secretary Hazel O'Leary and Commerce chief Ron Brown. It limits travel by Cabinet members, except the secretaries of State and Defense, the CIA director and the U.N. ambassador.

Some agencies were not affected by the continuing resolution because their appropriations had already been enacted and signed by the President. But managers and executives at these agencies had their own problems. They started the fiscal year carving travel and training spending, banning new hiring and planning or conducting furloughs in the hope of forestalling layoffs by year's end.

In short, while the Republicans' grand reach may have eluded their grasp for 1996, they succeeded in changing the terms of debate in ways likely to profoundly affect the shape and size of government.

"The battle has shifted to their terms," says Donald Kettl, professor of political science and public affairs at the University of Wisconsin at Madison. "It's not whether to balance the budget, but when. It's not whether to reform welfare, but how. It's not whether to have block grants, but what kind."

Ominous Convergence

The battle over how much to cut taxes and entitlements that has raged for the last year has obscured an ominous convergence: Both the Republican and Clinton proposals include devastating reductions in discretionary spending, the funds Congress appropriates to agencies. Even if 1996 ends without a budget compromise, the funding pot for agencies is guaranteed to shrink more and faster than ever.

Since 1990, when President Bush and Congress hammered out a deficit-cutting deal after marathon budget talks at Andrews Air Force Base in Washington, discretionary spending has been capped at predetermined levels. Subsequent budget measures extended the caps through 1998. Both Clinton and the GOP have proposed extending the caps still further-and adding other reductions. The budget bill passed by congressional Republicans Nov. 20 and vetoed by Clinton Dec. 6 sought to whack away $408 billion in discretionary spending over seven years. Clinton's seven-year plan of mid-January would have slashed such spending by $297 billion. By 2002, the two plans would have converged at approximately $515 billion in discretionary spending, vastly less than needed to keep up with inflation.

Republicans would have begun taking big cuts immediately, as witnessed by the 1996 appropriations they passed but couldn't get enacted. The President's discretionary numbers follow a flat path well below inflation until the end of a second Clinton term. The President would then leave to his successor the savage cuts in the final few years.

"It is true a large percentage of the savings come in the last couple years," says Larry Haas, a spokesman at the Office of Management and Budget. "That's not undoable. The question is whether you prepare for it or not.

"If in the first years we have serious discussion and debate over what government should and should not be doing, you could phase in policies that sort out what the federal government once did and what it will do in the future," Haas says.

But earlier this year the Administration would not reveal exactly how the massive savings it was proposing would be accomplished. "It's far off and we don't know what an enacted stream of savings would look like," says Haas.

Budget watchers suspect Clinton is banking on some discretionary wriggle room in the out years. "Democrats are saying they will fight the issue in the future," says Brookings Institution budget scholar Allen Schick. But the intransigent politics of this year's budget may have left little room for maneuvering, he adds.

Until now, domestic agencies have been spared the full pain of discretionary reductions by political and budget space created by the end of the Cold War. Defense has taken the brunt of discretionary cuts. For example, about 80 percent of the Clinton Administration's federal job cuts have come from the Defense civilian ranks.

But the need to screw down discretionary spending caps further comes just as the Pentagon's spending slack is running out. Politicians have shown little inclination to impose more Defense cuts. In fact, the Republican Congress has begun restoring military funding over Clinton's faint objections. He declared that the Defense appropriation measure contained "excessive spending," but allowed it to pass into law unsigned. Nevertheless, both the GOP and Clinton proposed defense spending of $1.9 trillion over seven years, with slight increases in the last three to four years. The fencing off of defense money leaves domestic agencies to bear an even bigger portion of discretionary cutbacks during the coming budget seasons of long knives.

"In the future, you're going to see much more non-defense attrition. It won't be dramatic at first, more like a cheese slicer powered by an Energizer battery," says Schick.

Bloodied Budgets

This year's slicing is well under way at many agencies. Lights remain lit at the Energy Department, for example, but the agency will be powered down by funding cuts and its own five-year strategic realignment plan. The department's $15.4 billion 1996 budget is $200 million below the 1995 level and $1.2 billion less than the Administration requested.

Appropriators ordered a 15 percent staffing cut and gave the agency $72 million less than it sought in departmental administration funds. As a result, in mid-February, approximately 2,700 employees in jobs paid from the administration account were scheduled to begin taking a furlough day each month for a total of eight days apiece. The furloughs come on top of a hiring freeze, overtime reductions, elimination of cash awards and bonuses, expanded use of buyouts, and layoffs of temporary workers.

The Commerce Department escaped huge cuts late last year when President Clinton vetoed a funding measure that would have taken a 20 percent to 25 percent bite from the agency's $4.6 billion 1996 request. But Commerce's funding dwindled steadily under the series of continuing resolutions passed since the fiscal year began. The first provided money at 90 percent of the 1995 level, later resolutions provided 75 percent.

"Some people read it as a vote of confidence that not only did we survive dismembering but a number of programs were funded," says Alan Balutis, budget planning and organization director at Commerce. "At least now we can have a discussion of priorities as opposed to the mindless restructuring and spinning off of agencies."

Nevertheless, Balutis predicts layoffs could hit 550 to 700 people when funding dust settles, even with a hiring freeze and drastic travel and training cuts.

What's worse, successive temporary funding measures this year could further squeeze the agency. "Do not expect Republicans to make targeted appropriations for Ron Brown's Commerce Department or Hazel O'Leary's Energy Department," said House Majority Whip Tom DeLay, R-Texas, as legislators began work on the current continuing resolution.

Moves to dismantle Commerce and continued threats like DeLay's shook the agencies that reside under the Commerce umbrella. The Minority Business Development Administration, targeted for elimination, scraped along at just more than half of last year's funding. The agency's director, Joan Parrot-Fonseca, fears legislators' zeal to disband Commerce will overtake her program's effort to remake itself as a job creation center collaborating with large firms to help small, minority-owned businesses. "I feel we should be in collaboration with other entities," she says. "We shouldn't have stand-alone centers. We're going into communities to see what they need instead of taking a one-size-fits-all approach. We want to change the mindset of the folks who work here and in Congress that this is a giveaway program," she adds.

The latest continuing resolution left another Commerce agency, the U.S. Travel and Tourism Administration (USTTA), without enough funding to survive until March 15. Commerce officials planned to lay off most of the agency's 100 staffers while moving some of its functions to the International Trade Administration.

Ironically, while legislators were trying to kill USTTA late last year, the agency's overseas offices were working to win back tour operators soured on America by government shutdowns. USTTA had hoped to get just enough funding to handle promotion of this summer's Olympic Games in Atlanta, after which the agency planned to become a public-private partnership. Apparently, others will carry the torch for Atlanta abroad.

The Waiting Game

The Education and Labor departments, early Republican targets for death or dismemberment, would have been hit hard by appropriators, but their spending bill never even made it out of the Senate. The bill funding the two departments plus the Health and Human Services Department was stalled by Democrats' threat to filibuster a provision overturning President Clinton's March 1995 directive barring large federal contractors from permanently replacing workers who strike. So, until March 15, those departments operate at the House or Senate level, whichever is less, except for programs slated to end or be cut severely, which are capped at 75 percent of 1995 amounts.

At the Social Security Administration, which is covered by the Labor-HHS measure, funding is the same as in 1995-about $400 million less than the agency requested.

The lower funding means SSA will reduce its overtime from a yearly average of 3,500 work years to 500 work years in 1996, says spokesman Phil Gambino. Without funding relief, the backlog of 1.2 million disability claims could grow by 200,000.

"We have cases that are 120 days old waiting for a case officer. A year ago the wait was 30 days," explains Theresa Novack, GS-13 module manager in the agency's service center in Richmond, Calif.

SSA has forbidden nonessential travel, called off employee performance awards and frozen automation improvements, such as replacing field office computers. Those measures will prevent furloughs and layoffs, at least until the latest funding measure runs out in mid-March, Gambino says.

Novak is working to alleviate bitter feelings left among her staff of 60 by 20 days of working without promise of pay during the second partial government shutdown that stretched into early January. Shutdown-stalled record keeping meant some employees waited weeks to be paid for hours worked before the 20-day closure, she says.

"I had people who couldn't get to work because they couldn't pay for day care. A lot of our clerical employees are single mothers," Novak says. "It's really hard to get up in front of 60 people and tell them you don't know when they're getting paid."

While employees exempted from furlough during the shutdowns made sure Social Security checks got out, took care of ailing veterans, protected America's borders or guarded prisoners at federal penitentiaries, 1,800 staffers at the Interior Department's Bureau of Mines worked without pay to put themselves out of their jobs.

The first continuing resolution gave the 85-year-old minerals and materials research agency 90 days to shut down, with the death sentence to be enacted Jan. 8. But then shutdowns and subsequent temporary funding bills intervened, delaying layoffs of 1,200 employees to Jan. 22 and then to Feb. 22. Agency officials put off layoffs fearing language differences in the funding measures would leave the personnel actions legally assailable. Missing and incomplete language in continuing resolutions also prevented transfers of some of the agency's work to the Energy Department.

"It was the ultimate Chinese water torture," says Dave Brown, external affairs director for strategic planning at the bureau.

The bureau's scientists and technical experts generally have long years of government service and are vested in the Civil Service Retirement System. Few want to leave government, but the combination of the short time frame for closure, the winter holidays, and partial shutdowns made finding civil service posts for them difficult, says Brown. Finding private-sector work wasn't easy, either, according to Jeanne Campbell, senior project manager with Vantage Human Resource Services, a placement firm the bureau hired.

"You may have a reputation in your field, but the private sector is hiring people with more advanced degrees," she notes.

Linda Morgan, head of the Transportation Department's new Surface Transportation Board, seconds Campbell's observations. Morgan presided over the demise of the Interstate Commerce Commission, eliminated Dec. 31, and says many of the people she laid off still are unemployed, especially professionals with 15 or more years of service.

"The ones with more general skills, support personnel with a lower General Schedule level are having an easier time," says Morgan. "Attorneys are having a [hard] time finding work."

Restricted Regulators

At Labor's Occupational Safety and Health Administration, continuing resolutions meant funding about 16 percent lower than last year's level. But the agency's employees actually consider themselves lucky, since the House-passed bill would have slashed enforcement.

OSHA followed the usual coping strategies: freezing hiring; halting bonuses, cash awards and new contracts; holding off on furniture purchases, office moves and the like. OSHA also limited travel, though that presented special problems for agency inspectors. Now when they find evidence of problems related to a workplace safety complaint, inspectors are loath to expand the investigation for fear of running up their per diem costs, says spokeswoman Cheryl Byrne.

In mid-January, White House spokesman Mike McCurry sharply rebuked Republican appropriators who threatened to weaken OSHA's enforcement ability via continuing resolution.

"If they want to repeal the Occupational Safety and Health Act, or if they want to take away the legitimate rights of workers expressed through the National Labor Relations Board, they have to go back and win that type of legislation and pass it," he said.

Appropriators sought to remake other regulators via their funding bills. The attempt to cut Environmental Protection Agency funds 20 percent and alter the way it gets toxic waste sites cleaned earned Clinton's veto Dec. 18 and his vow not to accept a balanced budget without guarantees for environmental protection.

EPA executives, meanwhile, wrestled with the effects of month-to-month funding uncertainty. Promotions and hiring have been frozen since last July.

"It's playing out very badly," says Marylouise Uhlig, director of program management operations at EPA's Office of Prevention, Pesticides and Toxic Substances. Workers at the agency's Washington headquarters were furloughed Dec. 18 and didn't return until Jan. 16, kept home by snow for several days after the shutdown ended.

"The euphoria lasted 15 to 20 minutes. They were glad to see each other, glad to be back at work. Then in half an hour the real depression set in," Uhlig says.

Many employees went job hunting during the shutdown, Uhlig says, and some of her staff received offers. "If you have a young person who has been here less than five years and they come in and say they have a job offer, how can you tell them not to take it?" she asks.

"It's been nothing but budget drills, contract drills, personnel drills. That's not what scientists, lawyers and others came into government to do. How do you get people's feeling of self-esteem back when what they've spent their life working on is deemed not of value?"

In late January, EPA Administrator Carol Browner told Senators agency cutbacks and are robbing EPA of its core staff. "As a result of the uncertainty, the cutbacks, the bright, young, dedicated people that are so important to our work are leaving," she told an appropriations subcommittee. "The average age of the people leaving the agency since July is 34 years old. The lifeblood of the agency is drained. They cannot endure the uncertainty."

Dying Departments

When old hands and new employees are driven out, agencies lose cutting-edge expertise and institutional wisdom. Funded just enough to survive but not to succeed, organizations wither.

Some observers predict that's just how the "era of big government," cited in President Clinton's State of the Union address, will end. Not hacked away in huge hunks, a Cabinet department at a time, but bled to death by indiscriminate, unplanned incisions. The danger is that agencies won't completely fail at their missions, but will sink into irredeemable mediocrity, says Ronald Sanders, director of the Center for Advanced Public Management at Syracuse University's Maxwell School of Citizenship and Public Affairs and former Defense Department civilian personnel chief.

If Congress and Clinton agree on significant cuts, they should give agency managers better carving tools, Sanders says. Buyouts, he argues, should be reinstated. Legislators should allow the hiring of more contingent workers so staffing could expand and retract to absorb repeated budget shocks like those of this year. If not, Sanders says, a steady stream of agencies will head to Capitol Hill seeking special dispensations for retirement and resignation incentives, contracting authority and other help.

Former ICC chief Morgan says closing the commission taught her that "if we're really going to get serious about downsizing, we've got to figure out a way to create incentives to help people out the door. What I found out in our situation was that where you're realigning functions, moving functions, there's a lot of personnel action going on. We had to do that in less than four weeks. If they try to do that with the Department of Commerce, it will be a nightmare."

Human resource officials across the government say employee morale is not recovering from the year's shutdowns and funding insecurities, and increasing the pace of downsizing will only make things worse. As layoffs and furloughs continue, backlogs will mount, inspections will be cut short, payments will be late.

Federal executives know change is coming and many are reengineering their operations as fast as they can. But no one now in government ever lived through a stop-go, on-off funding cycle like this year's. As retrenchment overtakes reinvention and streamlining, privatization and devolution will be achieved by default, not by design. And there is no blueprint for the kind of massive governmental disassembling foretold in budget-balancing proposals.

Politicians may succeed in dismantling government one continuing resolution at a time, but "what's left isn't going to be managed very well and that further erodes public confidence in it," Sanders says. The death spiral will continue, he warns, as incompetent government sours public opinion and politicians feed and respond to that sentiment by cutting deeper into agencies' muscle and bone.