CORPORATE STRUCTURES FOR GOVERNMENT

FUNCTIONS

TUESDAY, JUNE 6, 1995

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC. The subcommittee met, pursuant to notice, at 2 p.m., in room 2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Flanagan, Davis, Tate, and Scarborough.

Staff present: J. Russell George, staff director; Mark Brasher, professional staff member; Andrew G. Richardson, clerk; David McMillen, and Matt Pinkus, minority professional staff.

Mr. HORN. A quorum being present, the Subcommittee on Government Management, Information, and Technology will come to order.

This afternoon we are holding the fifth of nine hearings on making government work. In this session we will examine three different corporate structures to assist agencies of the Federal Government in providing services more efficiently. We recognize that no single structure will be best and even necessarily good for every Federal mission and organization that we have. It is possible in some cases that none of these corporate forms will fit as well as the current structures.

With us today are experts on governmental and private and public corporate organizations with extensive management credentials in both environments. Former Secretary of Defense and White House chief of staff and current chief executive officer of the General Instrument Corp., Donald Rumsfeld, will lead off with a broad overview of public and private reorganization issues.

The second panel will be focused on the reorganization of the General Services Administration represented by its administrator, Roger Johnson, who has had extensive private corporate experience as well as distinguished public service.

Panel three will feature the Bonneville Power Administration and the Forrestal Corp. as two representative corporations whose goal is to increase efficiency in Government.

The final panel will discuss an administration proposal for an air traffic control corporation. Mr. Harold Seidman, a fellow of the National Academy of Public Administration, will summarize the three

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organizational types and describe how they can assist agencies to increase efficiency.

Gentlemen, we thank you all for joining us. We look forward to your testimony, and, if I might, I would like to ask the first witness, who knows the tradition, to stand and take the oath, which is the tradition on this committee. We will put in immediately after the introduction your full statement.

We limit members to summarizing essentially to 5 minutes. We might stretch it a little with you and Mr. Johnson, but we want to leave plenty of time for questions, and it will all come out, I think, in the questioning.

So if you will stand, Mr. Rumsfeld, raise your right hand. [Witness sworn.]

Mr. HORN. Thank you, and please be seated.

Now let me ask before we begin if there are any opening statements by the vice chairman, Mr. Flanagan, the gentleman from Illinois.

Mr. MICHAEL FLANAGAN. Thank you, sir. Thank you, Chairman Horn, and all the witnesses that are here to enlighten us today on the topic of merging corporate structures and Government functions.

This is not a new idea or a cure-all solution to the problem of Government waste, this is just common sense. We are fortunate that we do not have to recreate the wheel and that there are preexisting corporate structures that Government functions can adopt and utilize.

The House Budget Resolution contains proposals to eliminate the Federal Supply Service and the Information Technology Service. These bureaucracies are designed to save the taxpayer money. The question is, do they cost more money than they save? While the FSS may save the Government money by acquiring automobiles in large quantities at volume discounts, is this not something that each agency can do on its own when purchasing automobiles? Further, do the track records of these agencies justify their existence? The General Services Administration has noticed concern about the ITS to the point that it has called for a time-out in some of its services. Once again, these are services that Government should continue supporting.

I also look forward to hearing the advantages of creating government corporations that could provide us with necessary services such as electricity and air traffic control while at the same time help us reach energy efficient requirements outlined in previously passed legislation by offering options to Government facilities. We have an obligation to deliver what has worked to the taxpayers of this country, and these are essential steps on the path to that suc

cess.

Thank you, Mr. Chairman.

[The prepared statements of Hon. Michael Flanagan, Hon. Cardiss Collins, and Hon. Carolyn B. Maloney follow:]

PREPARED STATEMENT OF HON. Michael Flanagan, a RepreSENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS

Thank you Chairman Horn and all the witnesses that are here to enlighten us today on the topic of merging corporate structures and government functions. This is not a new idea or a cure-all solution to the problem of government waste-this

is just common sense. We are fortunate that we do not have to recreate the wheel and that there are pre-existing corporate structures that government functions can adopt and utilize.

The House budget resolution contains proposals to eliminate the Federal Supply Service (FSS) and the Information Technology Service (ITS). These bureaucracies are designed to save the taxpayer money. The question is do they cost more money than they save. While the FSS may save the government money by acquiring automobiles in large quantities at volume discounts, is this not something that each agency can do on it's own when purchasing automobiles? Further, do the track record of these agencies justify their existence? The General Services Administration has noted concern about the ITS to the point that it has called for a "time out" in some of it's services. Once again, are these services that the government should continue supporting?

I also look forward to hearing the advantages of creating government corporations that could provide us with necessary services such as electricity and air traffic control while at the same time help us reach energy efficiency requirements outlined in previously passed legislation by offering options to government facilities. We have an obligation to deliver what works to the taxpayers of this country and these are essential steps on the path to success.

PREPARED STATEMENT OF HON. CARDISS COLLINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Thank you Mr. Chairman for putting together this series of hearings on the National Performance Review. This is a particularly important hearing because it illustrates one of the problems in the rhetoric we use to talk about reinventing government. Everyone talks about making government work more like a business, and each has a different understanding of what that means.

We are all for making the government more efficient and cost less, but all too often those who would "reinvent" our government by setting up a corporation to do the work are too much like those home repair scams that work door to door. We discover after the scam artist has left town that the roof still leaks. Similarly, these reinvention specialists leave us with a function that is no more efficient, doesn't cost any less, and is outside of the government's control.

Setting up a government corporation or restructuring an agency to look like a corporation doesn't bring market forces to bear on the function. Corporations in the private sector make profits, and if they don't, the shareholders either sell their stock for fire the managers. Government corporations don't have the same incentives as private corporations, and consequently won't act like private corporations.

Too often, talk about setting up a corporate structure for government functions is doublespeak for cutting wages, firing employees, and circumventing procurement rules. I think it is all well and good to ask if a corporate structure is appropriate to a particular government function, but we must also ask what will happen to the employees in this transition. Will their wages and benefits be cut? Will their agencies be "downsized", the corporate euphemism for eliminating jobs?

Reinvention at the expense of the workers will not improve services. Instead there will be a demoralized work force which doesn't perform well. As Mr. Krasner pointed out in his testimony, it is not in our best interest to have Air Traffic Controllers or airplane mechanics who have thousands of lives in their hands every day make mistakes because of low morale.

I am particularly interested in the restructuring going on at the General Services Administration. I welcome Mr. Johnson who will testify before us a bit later today. As I said in my letter to Mr. Johnson last February, I believe that GSA has performed an essential and effective service as a central administration agency for our Federal Government. GSA is responsible for many functions that are basic to government business-telecommunications, computer purchasing, and building management to mention just three. If GSA is unable to carry out those functions, the whole government suffers, and ultimately so does the American public.

The question is whether and how GSA can maintain responsibility for its statutory functions while at the same time propose massive cuts in personnel.

Similarly, I am concerned about the morale of those employees who are being challenged by the Administration to be more efficient, while at the same time the Congress works to cut their benefits.

I have seen the pendulum swing from building Federal buildings to leasing and back again. Throughout that period, GSA has provided the leadership necessary to deal with shifting policy priorities. If reinvention-whether it be by corporate structuring or some other scheme-causes us to lose that leadership we have made a ter

rible mistake. The one certainty in all of this is that if we destroy the morale of government employees, reinvention will fail.

PREPARED STATEMENT OF HON. CAROLYN B. MALONEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK

Thank you Mr. Chairman. I am pleased with the continuation of these hearings and I look forward to today's testimony.

We have heard a lot about making government more like business. But we also hear a lot about stopping the government from competing with business. The President's circular A-76 makes it quite clear that the government should not compete with business.

These are two sides of the same coin. Discussions about how the government should not compete with business are really discussions about what are and what are not government functions. When we talk about corporate structures, we are talking about how the government goes about doing what it should do. It is important not to get these two things confused.

Unfortunately, the use of the term "corporate structure" is sufficiently vague to lose almost all meaning. Today's testimony illustrates this point. We have three witnesses—all talking about corporate structure-describing three very different approaches to how the government should do business. Those differences are important because some proposals cross the line from talking about how the government should work to talking about whether or not the activity is a government function. At one end of the spectrum is the reorganization at GSA. Here we are discussing reorienting the way in which GSA does business. At the other end of the spectrum is the proposal for the Forrestal Corporation, which would be a private company performing a function that was formerly done within the government. We need to ask very different questions about these two cases.

GSA has been in the forefront of reinventing government, and its reorganization along business-line functions makes sense. But GSA is quite different from other agencies. Leasing and maintaining buildings, acquiring telecommunications services and computers, and managing fleets of vehicles are all functions which can readily be compared with the private sector. It is more difficult to understand how this would help the Department of Health and Human Services or Veterans Affairs. The Forrestal Corporation seems to be about how the procurement system works. If there are problems with the procurement system, we should fix them, not create ways of going around it.

I am particularly pleased that you have invited the National Air Traffic Controllers Association and the Professional Airways Systems Specialists to testify. All too often in this process we hear from the Administration, and not from those most affected by reinvention-the employees. It would be interesting to learn if the employees at GSA are as sanguine about GSA's reorganization as Mr. Johnson is.

I am also curious about how often the Administration has looked into Employee Stock Ownership Programs. This is an excellent way to turn what is now a government activity into a corporate one, and give ownership to the employees. I hope the witnesses today will pay attention to this option as they comment on reinventing government.

Again, Mr. Chairman, thank you for putting this hearing together. And, thank you and your staff for choosing this excellent panel of witnesses.

Mr. HORN. Thank you.

The gentleman from Virginia.

Mr. DAVIS. Yes. No statement at this time, but it is a pleasure to have the Honorable Don Rumsfeld here today.

I look forward to hearing you, Mr. Secretary.

Thank you.

Mr. HORN. I might say before Mr. Rumsfeld begins that we all know that he was a very distinguished Member of Congress prior to his rise in the executive branch to almost the highest position and certainly the most complex as Secretary of Defense and his splendid record in the private sector.

So it is a pleasure to have you with us.

STATEMENT OF DONALD H. RUMSFELD, FORMER SECRETARY OF DEFENSE

Mr. RUMSFELD. Thank you very much, Mr. Chairman. I'm pleased to be here.

I suppose having spent 20 years in the Federal Government with some 20 years in the private sector I do have a somewhat unusual perspective. I must say that when I served on the House Government Operations Committee many, many years ago back in the 1960's, the task we had to oversee the Federal Government was a much simpler one than today, and I recognize that. I can recall the collective gasp that took place when the Lyndon Baines Johnson administration had the first Federal budget of $100 billion, I mean the budget, not the deficit, and it wasn't that many years ago.

I've taken a very broad interpretation of the phrase "corporate structures for Government" to include not just simply formal structures or organizations but also approaches, techniques, and the like. It seems to me that to discuss particular organizational arrangements generally is not anywhere near as useful as discussing them with respect to specific activities. I say that because it seems to me that the first place one must start is to decide what activities Government ought to conduct, rather than how they ought to be conducted. Certainly in business that is the first task. It is to determine what businesses to be in and then to focus on those and divest those assets that are secondary to those activities. My view is that it would be highly desirable for U.S. Government to do the same thing. Tinkering with structures and organizations for activities that more properly belong with the individual, private organizations or State and local governments, is misplaced effort.

It seems to me that first one must address the more fundamental question. The Federal Government ought not to continue programs that are obsolete, that have failed, or that can be better performed by other institutions; and, second, the Federal Government should only do those things that have a high national priority, not things that can be best handled by other levels of Government.

Back in the sixties when I was in Congress, it was a different world. Because of the civil rights problems, the Federal Government ended up involving itself in a host of activities because there was reasonable certainty that those activities would not be conducted at the State or local level in a nondiscriminatory manner. And so it was understandable that non-Federal activities were embraced by the Federal Government, and the regrettable thing is that that has not been readdressed really in any organized way, since the advent of so many pieces of civil rights legislation.

In any event, only after addressing the more basic questions one ought to move to considerations of specific structures, in my view. I mention in my testimony one comment about the fact that there used to be a dairy for the Naval Academy, and every time someone talked about selling the dairy, why, everyone explained that it was terribly important to have a captive milk supply for the midshipmen. It is kind of amusing in this day and age to think about it, but in fact it was a serious debate that took place back in those days. As a disinterested observer I can say that there are many things today that strike me as equally humorous, or unfortunate, as the case might be.