Federal Downsizing:

Effective Buyout Practices and Their Use in FY 1997

GGD-97-124: Published: Jun 30, 1997. Publicly Released: Jul 16, 1997.

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Pursuant to a congressional request, GAO reviewed the management and results of agencies' buyout programs authorized by P.L. 104-208, focusing on: (1) practices that GAO believes are associated with effective use of buyouts; (2) the extent to which Office of Management and Budget (OMB) requirements and Office of Personnel Management (OPM) guidance for implementing buyouts under P.L. 104-208 incorporated these practices; and (3) whether selected agencies' buyout programs were better planned and implemented than was generally the case governmentwide during the first non-Department of Defense (DOD) buyout program.

GAO noted that: (1) on the basis of GAO's prior studies of buyout programs at DOD and non-DOD agencies, other organizations' studies of downsizing, and GAO's review of proposed and enacted buyout legislation, GAO identified 13 practices that it believes are associated with effective buyout usage; (2) taken together, the practices can help agencies use buyouts as a tool as they manage their downsizing efforts and engineer desired changes to their workforces; (3) ten of the 13 practices were generally reflected in OMB's October 1996 bulletin to agency heads on how to implement the buyouts and/or OPM's December 1996 buyout guidelines; (4) based on the justifications for, and the result of, selected agencies' buyout programs, it appears that the six agencies' buyout programs were better planned and implemented than was generally the case among non-DOD agencies in 1994 and 1995; (5) among the problems GAO reported on during that buyout window was the granting of buyouts across the board rather than prioritizing them to achieve specific organizational goals; (6) in granting a total of 5,948 buyouts as of late spring 1997, the 6 agencies generally linked buyouts to achieving specific organizational objectives and implemented their buyout programs in ways that tended to increase savings; (7) moreover, as required by OMB, agencies provided estimates of the savings anticipated from the buyouts (thus ensuring that money would in fact be saved, but not necessarily that buyouts offered more savings than other potential separation strategies); (8) also, per OPM's guidelines, in all but one instance agencies reported that they limited the duration of their buyout programs to a short window early in the fiscal year to increase savings; (9) nevertheless, had OMB required agencies to include in their strategic plans the three practices associated with effective buyout usage that were not included in statutory, OMB, and OPM requirements and guidance for implementing the buyout authority, agencies may have further increased their savings; (10) these practices included: (a) prior to downsizing, ensuring that actions planned to maintain productivity and service levels do not cost more than the savings generated by reducing the workforce; (b) performing an economic analysis showing whether buyouts would generate more net savings than other separation strategies; and (c) giving priority for buyouts to employees not eligible for regular retirement; and (11) as Congress and the President negotiate further steps to balance the budget, the potential savings from reducing the workforce may continue to be considered.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: According to OMB, there is no new buyout authority and none is expected. Agencies seeking buyouts are doing so under the existing buyout authority and are not submitting new strategic plans. Consequently, OMB believes no action is required.

    Recommendation: To achieve the full potential savings from buyouts consistent with other organizational objectives, the Director, OMB, should require agencies to include in any future requests for buyouts information comparing the estimated costs and savings of buyouts versus other separation strategies, such as RIFs, for the separation year and a reasonable number of subsequent years for which accurate assumptions and estimates can be made. Agencies should include in their comparisons the anticipated costs and savings of steps planned to maintain productivity and service levels, such as contracting out, if they are expected to be significant. If RIFs are shown to save more money than buyouts but agencies choose to use buyouts, then OMB should require agencies to justify their use of buyouts by indicating the noneconomic factors the agency considered that made buyouts more advantageous than a RIF.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Not Implemented

    Comments: Although OMB generally agrees with GAO's recommendation, there has been no new buyout authority under which to implement it. According to OMB, there is no new buyout authority and none is expected. Consequently, OMB believes no action is required.

    Recommendation: To achieve the full potential savings from buyouts consistent with other organizational objectives, the Director, OMB, should require agencies to consider giving buyout priority to those employees wishing to resign or take early retirement, and if such priority is not given, provide an analysis showing why it is advantageous to allow retirement-eligible employees to have equal access to buyouts.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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