to the whole effort and to what the President and Vice President
are trying to achieve.



72

I will let Dave explain what some of these countries have done
with their political appointees interfacing with civil servants, be-
cause it is a new approach in government.

Mr. Mathiasen. In Australia, and the United Kingdom, and New
Zealand, they try to develop a clear division of authority between
policy setting, which belongs to the political leadership, and policy
execution, which is delegated more to the career civil servants.

In addition to that, there is an interesting observation by an
Australian colleague from their finance ministry about the tremen-
dous incentives their senior civil servants have in the form of both
more authority and much more responsibility.

Of course, administrative expenses or the running costs, as they
call them, are not the big budget items in Australia any more than
they are in the United States.

He made the point that when senior managers and middle man-
agers are held responsible for their own operations, they get much
tougher on the other levels of government and on the private con-
tractors. They experience a change in behavior, the culture
changes. They sort of say "I am given an increased amount of au-
thority and responsibility on contracting and hiring and firing, but
lam also cutting my staff by 20 percent."

Managers begin to look at the other levels of government or at
the other third parties that actually spend a lot of money in a very
different light and they become tougher and more sensitive to effi-
ciencies further down the line.

Another innovation is that senior managers agree to contracts
based on performance measures for their agency. They operate
under a 5-year contract which is then reviewed after 3 years and
then is subject to renewal. It is taken very seriously. It is not just
a pro forma matter, under which after 5 years you automatically
get your contract renewed. I think that also is clearly a change in
behavior.

In Australia they have had an interesting innovation on how
they manage their administrative expenses. They permit the man-
agers to borrow money firom the next year and to carry money over
from the previous year so they can take care of lumpy problems,
such as buying a computer. But they do that in the context of
agreed-upon productivity reduction every year in the overall budget
level.

They trade flexibility for an agreement to cut back every year
through productivity gains.

Mr. BowsHER. The senior civil servant in this situation is on a
5-year contract and if the political leadership does not feel that per-
son is achieving these goals, he or she can then ask somebody else
to take that role.

My counterpart

Mr. Clinger. That is a very good incentive.

Mr, BowsHER. It is a little more like the private sector.

My counterpart fi'om New Zealand was here charging that it was
these management changes that woke up the New Zealand Grovem-
ment to the need for good cost information. They even became in-
terested in accrual accounting because they did not want phony
dollars being presented to them, because it could really affect how



73

they looked on their 5-year contract against a performance meas-
urement.

We are seeing in other countries real progress, which brings
about a change in their cultures and gets to some of the issues that
you are bringing up, Mr. dinger.

Mr. Clinger. Thank you very much.

Mr. CoNYERS. Mr. Craig Thomas.

Mr. Thomas. Thank vou, Mr. Chairman.

First of all, I am enmusiastic about this bill and am a cosponsor.
I certainly hope that we can make some efficiency changes. We
don't want to let it distract from the notion that there is probably
too much government and we are doing things we don't need to do
and to do it efficiently is not something we need to make it grow.

Mr. BowsHER. I would hope as part of this "reinventing govern-
ment" effort that we would look at areas that we do not need to
do and look at programs we do not need any more.

Mr. Thomas. It would be a great idea — we tend to measure pro-
grams by how much money we put into them rather than by what
they accomplish. I know that it is difficult to do that. As an exam-
ple, I saw the Forest Service spend years and years making a for-
est plan locally and then we line item their budget and there may
not be any relationship between the budget and the plan they have
broken their backs to produce.

Mr. BowsHER. I think you have put forth an excellent example
of what often happens because of the way we run our government.
People finally do put together such plans and then the budget proc-
ess does not line up with them at all.

Mr. Thomas. A great deal of the activity of course is in the regu-
latory area. This not only is expensive to the government, but to
those who represent it.

It seems to me there needs to be a regulation there — whether or
not the regulation is consistent with the statute, whether or not we
are doing it efficiently, and whether or not the regulation is produc-
ing the result it was desigfned to produce.

Do you see this applying to EPA and others in terms of the regu-
latory process?

Mr. BowsHER. I do. We have overlapping and duplicative regula-
tions in banking that does not get the job done nearly as well as
is done in other countries with a much smaller effort. I think we
ought to rethink all oversight as part of this process.

Mr. Thomas. I think the regulatory burden dampens the econ-
omy. We were talking about overtime the other day instead of cre-
ating new jobs — one of the reasons we have not created new jobs
is that is the alternative.

Thank you.

Mr. CoNYERS. We are very much happy to have had this discus-
sion between all of us. It is very helpful.

Let me ask you, are you implying or am I extracting in the larger
discussion that we really need a new budgeting system?

Mr. BowsHER. I have always been one for redoing the budgeting
system in the Federal Grovemment. I came into this government in
1967 at the Pentagon and saw how we got consumed by that proc-
ess. I was surprised when you adopted it in 1974 as the congres-



74

sional process. You have authorizing, appropriations, the congres-
sional budget process, and now Gramm-Rudman,

I think you nave too much process. In other words, no organiza-
tion could handle the amount of process that is in the Federal Grov-
ernment's budget process today. The budget process is long overdue
to be streamlined and made more efficient. And as Congressman
Thomas pointed out, the budget process needs to be more in sync
with the program plans and the performance measurements that
we need and placed^on a longer term basis.

Ratcheting up and down every year is tough to live with if you
are trying to rim something.

Mr. CoNYERS. Do you have studies that would further advise us,
or do we have to hire somebody?

Mr. BowsHER. We have done studies in the past and would be
pleased to bring over some of the work we have done.

Mr. CoNYERS. You mentioned Agriculture, how it could stand a
streamlining, that there were new people that will argue to the
contrary. Is that being undertaken?

Mr. BowsHER. We did a big management review of the Agri-
culture Department and Secretary of Agriculture Madigan started
with that.

The new Secretary, Mike Espy, has looked at it and I hope he
will go forward with some of that streamlining. We do not know yet
what his position will be on it.

Mr. CoNYERS. Thank you so much.

Mr. BowsHER. Thank you, Mr. Chairman.

Mr. CoNYERS. We are now pleased to have the comptroller from
the State of Texas, John Sharp, here. We invite him to come for-
ward. He is a former State representative, a State senator, Texas
Railroad Commission leader, now State comptroller and now work-
ing with the Vice President — as a matter of fact, we met over in
the White House a couple of weeks ago where the enthusiasm with
reference to your work in Texas led you to international attention,
then of course, to the Government Operations Committee.

Mr. Sharp. Thank you.

Mr. CoNYERS. We are delighted to have you here.

Please, if you have any reflections about the conversations that
have gone on, we would invite your comments as well.

STATEMENT OF JOHN SHARP, COMPTROLLER OF PUBLIC
ACCOUNTS, STATE OF TEXAS

Mr. Sharp. Thank you, Mr. Chairman and members for giving
me the opportunity to be here.

I am John Sharp, the chief financial officer of the State of Texas,
an elected position.

I have submitted for the record a much longer statement than I
will give today. I would like to summarize what I have been asked
to talk about, the President and Vice President's National Perform-
ance Review.

The President has asked me to serve as a special advisor to the
National Performance Review now getting started under the Vice
President, which is being modeled alter the Texas Performance Re-
view. The Texas review probably was very much like the work that
this staff did.



75

From what I have seen of your committee's work, it is incredible
work, $3 10 biUion over 5 years. I think that is indicative of what
we tried to do in Texas.

The difference between what we did in Texas and what had been
done before by others was that this time the process was open to
the pubHc and we used public employees to come up with the num-
bers. In the past, what had happened in State government is every-
one went on a slash-and-bum mission. Frankly, any of us could
come up with $200 or $300 billion of cuts that won't pass.

We found probably what your staff has found and what the GAO
and 0MB have found — we did good common sense work, but we
put it before the public. That is what the National Performance Re-
view is going to do imder the Vice President. It is going to do good
work, draw on the work this committee did, GAO did, 0MB did,
the work that a lot of people have done over the last 10 years, but
has been put on the shelf.

That work is going to be taken off the shelf and put in a strong
spotlight. When the public sees it, they will not tolerate what is
going on in this government any more than they did what was
going on in State governments,

I would suggest in hstening to comments that you find a way to
force a vote on it. We were able to do it in Texas because we have
a balanced budget amendment and because Governor Richards
called for special legislation. We talked about it for 30 days and the
members had to be for some of it to balance the budget and go back
home.

The comptroller general mentioned fast-track legislation and I
would highly commend that to you. Some way or another you have
to get the work that this committee did, the work that is going to
be added by the National Performance Review, to a vote, up or
down, without amendments. I am sure it is different here, but we
found in Texas that everybody was for cutting spending, except the
spending in their legislative districts.

It is kind of like everybody wanted to go to heaven, but nobody
wanted to die to get tiiere. There was a bipartisan agreement on
that.

I have been asked about the difference between Republicans and
Democrats when it comes to spending tax dollars. The difference is
that both of us spend every dime in the Treasury and the Repub-
licans feel bad about it. We couldn't find any difference between
the two. You have to come up with a good, efficient work plan,
which will be the easiest part.

Some of my staff are working with the Vice President's staff on
a work plan and they are going to use, from what we have been
told, all of the work that has feen done by various groups. Then
they are going to have an advocate and I think the Vice President
himself will be strong about selling the package, and about educat-
ing the public on what is wrong with government. The key thing
to remember in our experience was not to go with a slash-and-burn
mix to abolish agencies for the hell of it just to have a bunch of
numbers out there.

We tried to find out how you maintain the same level of service
and spend less money doing it. We found the government had for-
gotten who the customers were. That is the essence of manage-



76

ment, knowing who your customers are and what your customers
want.

I would urge you to find a way to force a vote, to make sure that
a vote happens up or down much Hke base closing or fast track,
to make sure that it is voted on. Otherwise I think you run the risk
of another excellent report that doesn't get adopted.

[The prepared statement of Mr. Sharp follows:]



77



The Honorable JOHN Sharp,

Texas Comptroller of Public Accounts,

testifying before the U.S. House of Representatives

Subcommittee on Legislation & National Security,

Washington, D.C.
March 23, 1993



78



HOUSE SUBCMTC ON LEGISIATION & NATIONAL SECURITY, Washington, DC. March 23, 1993

Mr. Chairman and members of the Subcommittee: Thank you for the opportunity to
appear before you this morning, and to offer whatever insights I can toward your efforts
to deal with performance measures in the federal government.

My name is John Sharp. I'm the elected chief financial officer of the state of Texas — the
Comptroller of Public Accounts. As you know, the President has asked me to serve as
special advisor to the National Performance Review, which is now getting started under
the direction of the Vice-President.

But if you want to know the truth, Mr. Chairman, the best way to fix any government that
has been destroyed by top-down management is to turn the place upside down and
shake it, then shovel out the garbage by the truckload. Every assumption about
government and its operations must be questioned, and the answers have to be —
f ra nk ly — revolutionary.

The process should begin with a basic premise: If this government didn't exist, and we
were starting all over again, how would we do it? I doubt any of us would design a system
that costs so much to give so little to so many.

Two years ago, we faced a similar situation in Texas. Lawmakers had arrived in Austin to
face a serious dilemma. On the one hand, they saw the prospect of a nearly $6 billion
shortfall. And on the one hand, the prospect of a personal income tax, which is about as
popular in Texas as fire ants at a church picnic.

The first bill that passed that session was Senate Bill 1, whose primary purpose was to
reduce state agency budgets by 1 percent, with the savings to be deposited in a reserve
fund.

But the last paragraph of that bill was particularly interesting. It authorized performance
audits of all state agencies, a task that the Legislature put into our hands and gave us all of
four months to complete.

The bill also stipulated that anyone could be appointed as an auditor. That allowed us to
bring together 104 people from throughout state government and the private sector to
examine the details of how state government works.



79



HOUSE SUBCMTE. ON LEGISIATION & NATIONAL SECURITY, Washington, D.C.. March 23, 1993

We told them to avoid the politics of issues. "If it makes sense," we said, "recommend
it. Don't worry about who you might offend."

State leaders hoped we might be able to find about $200 million in savings. We found
that much the first week. The next week, we found $200 million more.

The next thing we did was set up a toll-free hotline so that Texans — and particularly state
employees — could call in anonymously with their money-saving tips. Frankly, I thought
the hotline was just a public relations gimmick. To my surprise, we received more than
4,000 calls in the first 20 days, about 90 percent of which came from mid- and lower-level
state employees, who struggle day-in and day-out with the Texas bureaucracy.

These people had been disgusted for years with the way top-down managers were
running their particular agencies, and they had countless ideas about how to provide
their customers with better service. The problem was, nobody had ever asked them
before. We asked. And Vice-President Gore's National Performance Review should,
too — immediately.

In the end, we published Breaking the Mold, which contained nearly 1,000 specific
recommendations to save more than $4.2 billion. The Legislature passed about $2.4
billion, thereby winding up with a $1.5 billion tax bill instead of a $6 billion tax bill.

This year, we've published our second round of recommendations, affectionately known
in Texas as Jaws II. Our new report, Against the Grain, contains more than 460
proposals and a total savings of $4.5 billion, of which the Legislature has already passed
about $3 billion with more than two months left to go in the regular session.

And that, Mr. Chairman, is the essence of the Texas Performance Review.

Now, the Lone Star State is a unique place. But in one respea, it's just like every other
state in the nation: Everybody is for cutting spending, except in their own districts. It's
like the old saying: "Everybody wants to go to Heaven, but no one wants to die." We
learned that right off the bat in this process.

We also learned some other important things about government. We learned that
budget-cutting is the hardest thing to do and that raising taxes is the second- hardest



80



HOUSE SUBCMTE. ON LEGISLATION & NATIONAL SECURTTY, Washington, DC, March 23. 1993

thing to do — which is why raising taxes happens so much more often than reducing the
budget.

We also learned the difference between government and business when forced to cut
back. When businesses do it, they try to make sure their customers never notice. If a
bank lays off a teller, for example, they send someone else up front to work the counter.
If they have to let a secretary go, they make sure their customers aren't inconvenienced.

Government rarely works that way. Government makes sure the taxpayers feel their
cuts real good and real hard, so that we will all call our congressman, our senator, our
state representative or city councilmember and demand more money for the programs
they cut. They'll close the Washington Monument on a holiday so we'll demand more
money for the Parks Service. They'll close summer school classes at major universities —
as they did back in Texas — and say to those students: "This wouldn't have happened if
the Legislature had given us more money." And at the very same meeting when the
university big-wigs decided to suspend summer classes, they voted to buy a $2.3 million
airplane so the regents could fly around in comfort.

And when we looked at human resources, we found that there were 14 major state
agencies and 22 smaller bureaucratic offices, providing health and human services
through 303 different programs. That's fine if you happen to have a child with a single
disability, and you can make a single trip to the deaf commission, for example, or to the
blind commission.

But what happens if you are a working mother who is single, and you have a child with
seven different disabilities? What happens is, you learn right away that the government is
going to run you through seven different agencies every month. Pretty soon, you won't
even have time to go to work, because it will he a full-time job just to get your child the
help that he or she needs.

So we recommended a vast consolidation of all of those agencies and offices into just
one — a simple concept. And in the future, that single, working mother will be able to
walk into one office, and the person in that office will say: "We're going to take care of
the needs of this child." Period. That's high-quality, low-cost service for those who foot
the bUl.



81



HOUSE SUBCMTE. ON LEGISLATION & NATIONAL SECURITY. Washington, DC. March 23, 1993

Which brings me to the most important point in all of this. We went about our Texas
Perfonnance Review quietly. We didn't talk about our ideas until we were ready to
release them. The auditors themselves worked on a secured floor that required a special
ID for access, and each of them saw only the single section of the report he or she was
working on. And when we were ready, we released our findings and our
recommendations all at once.

Our opponents — the lobbyists and entrenched bureaucrats — never had the time to
marshall all of their forces against us. They tried mightily. But, frankly, there weren't
enough lobbyists to go around.

Youi see, in Texas we have what we call the Cockroach form of government. The special
interests and high-dollar lobbyists do alright in our state kitchen at night. They have the
run of things, and they get nice and fat. But when we turn the lights on, they scatter into
the comers. And at the risk of being an ungrateful guest, Mr. Chairman, the Cockroach
form of government is alive and well in this town, too.

Firully, the difference between the Texas Performance Review and other such projects is
that our work didn't just get shoved up on a dusty bookshelf somewhere. Texas was in a
crisis situation. The press knew it, and they wouldn't let anyone else forget it Bubba
may not have known exactly what was in our reports, but he knew they proposed deep
structural changes in a state government that had long since lost touch with his daily
needs.

Mr. Chairman, no one believes they're getting what they should deserve from their
government And they're right

My grandmother had it all figured out when I was just a kid. "If your outflow is greater
than your income," she used to say, "your upkeep will be your downfall." If that
wisdom was good enough for my grandmother, it ought to be good enough for the
federal government.

The government is strapped for cash. But many of its policies and programs are
bankrupt, too. They're locked into a two-pronged approach to every new challenge:
cut services or raise taxes. But all too often, service cuts are random, slashing away at
muscle as well as fat. The fact is, government waste is rarely isolated in a single program.
It's marbled throughout the whole structure.

5



82



HOUSE SUBCMTE. ON LEGISLATION & NATIONAL SECURTTY, Washington, DC. March 23. 1993

We've been called to arms by a crisis situation, forced into adopting more and more
measures to streamline our operations. And I feel confident that we are well on our way
toward reinventing our state government in Texas. Today, 1 think it's reasonable to
describe what is happening in Washington as a "crisis," too.

But it can also be a unique opportunity. This is your chance to find all of those people
who have found all of those ways to make all of that money from the government. I'm
not talking about cutting services or firing dedicated employees who want to do a good
job if the system would only let them. I'm talking about tracking down the leaches and
lobbyists — and simply cutting them out of the process.

The kind of massive change we are bringing about in Texas started only after we woke up
one day and realized that we were facing the biggest challenge in our history. Mr.
Chairman, this is a time of "either/or" choices for the nation, too.

You can rehash all the old ideas and do a little minor tinkering with the existing order. Or
you can seize this opportunity to redesign the federal government and find a better way
of doing business for the people of this country.

I'll be happy to answer any questions.



83

Mr. CoNYERS. Are you referring to the Vice President's commis-
sion; the final report that he put out should be voted on by the
Congress?

Mr. Sharp. Yes, sir.

Mr. CoNYERS. You live dangerously, don't you? We are putting a
lot on the Vice President here. As I remember it, in the White
House, we said that we are going through every agency, every de-
partment, every bureau, item by item, and look at whether we need
it and maike recommendations on it.

You are going to be working on this with the commission?

Mr. Sharp. Yes, sir.

Mr. CoNYERS. Now, as big as the Texas government is, with all
due respect, we are talking about the Federal (Government now. Do
you think 6 months is long enough to do that?

Mr. Sharp. When we were told to do ours in 4 months, we
thought they were crazy. At the end of 4 months, we came to the
conclusion tnat we couldn't have done it any better if we had had
IV2 or 2 years.

What we discovered — and I suspect you will discover the same
thing here — ^is that an awfiil lot of veiy good work has already been
done. It is a question of packaging tnat work into a product that
works.

You have some good work here already produced by your staff—
the first thing we did when we began tne process was read all of
the Sunset Commission auditors' reports and all the other reports