oversight

Federal Downsizing: Buyouts at the Farm Service Agency

Published by the Government Accountability Office on 1997-07-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Committee on
                 Agriculture, Nutrition, and Forestry
                 U.S. Senate


July 1997
                 FEDERAL
                 DOWNSIZING
                 Buyouts at the Farm
                 Service Agency




GAO/GGD-97-133
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             General Government Division

             B-275640

             July 23, 1997

             The Honorable Richard Lugar
             Chairman, Committee on Agriculture, Nutrition, and Forestry
             United States Senate

             Dear Mr. Chairman:

             This letter responds to your request that we review voluntary separation
             incentives or “buyouts” at the U.S. Department of Agriculture Farm
             Service Agency (FSA). Specifically you asked us to (1) determine if FSA’s
             fiscal year 1997 buyout program was planned in accordance with legal
             requirements, (2) determine if the decision to grant buyouts was based on
             a well-supported cost and savings analysis, and (3) describe the results of
             the fiscal year 1997 buyouts, including the impact of buyouts and
             downsizing on the agency’s operations.


             FSA, an agency of the U.S. Department of Agriculture (USDA), administers
Background   farm commodity and conservation programs for farmers and makes farm
             loans. With over 17,000 employees, FSA maintains its headquarters in
             Washington, D.C., and operates offices in each state and in most counties.
             FSA is the lead agency for administering payments to the farmers who
             receive federal agricultural assistance.

             Each state director oversees the operation of county field offices through
             district directors, who generally supervise operations in 6 to 10 counties.
             Employees in county offices can be either federal or nonfederal.
             Nonfederal employees are county employees who are governed by
             separate FSA personnel regulations and are subject to county supervision.
             Their pay and benefits, including retirement benefits, are provided by the
             federal government and are generally the same as those federal employees
             receive. A key difference in personnel regulations is that nonfederal
             employees, unlike their federal counterparts, cannot displace other
             employees under a reduction-in-force (RIF). Prior to a 1994 reorganization
             creating FSA, these nonfederal employees managed farm commodity
             programs for the Agricultural Stabilization and Conservation Service.
             Under the reorganization, these nonfederal employees joined the FSA
             organization.

             Work in the county offices includes direct services to farmers and
             producers; administering loans on commodity programs; administering
             disaster assistance programs; managing direct and guaranteed farm loan



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                   programs to help farmers who are temporarily unable to obtain private,
                   commercial credit; and administering a conservation program that
                   encourages farmers or producers to plant grass or trees instead of crops
                   on highly erodible and environmentally sensitive lands. The County
                   Executive Director, a nonfederal employee, is selected by a committee of
                   local farmers.

                   The Federal Agriculture Improvement and Reform Act of 1996 (P.L.
                   104-127) provided fundamental changes to the way farm programs are
                   administered. This act removed the link between income support
                   payments, production levels, and farm prices. Farmers receiving federal
                   support for agriculture can now operate with fewer federal controls over
                   which crops to plant and how much acreage to put into production.

                   As part of its continuing streamlining and downsizing efforts, USDA was
                   authorized in its fiscal year 1997 appropriations to offer voluntary
                   separation incentive payments over a 4-year period to assist those
                   agencies within the Department that were targeted for workforce
                   reductions.1 These payments, commonly referred to as buyouts, were
                   authorized for employees serving under a permanent appointment for a
                   continuous period of at least 3 years. The law established the amount of
                   the fiscal year 1997 payments as the lesser of the employee’s severance
                   pay entitlement or an amount up to $25,000, as determined by the agency
                   head. The maximum buyout amount authorized by the law is reduced by
                   $5,000 each year until fiscal year 2000, the final year of the authority, when
                   the maximum amount is $10,000.


                   Faced with a need to reduce its staff by 1,339 positions (7.6 percent)
Results in Brief   during fiscal year 1997, FSA designed its buyout program to help it reach its
                   downsizing goals while minimizing the need for RIFs. FSA included all
                   required legal provisions in its buyout program. These included a strategic
                   plan for using buyouts that identified the types of positions that were to be
                   eliminated by organizational unit, location, broad occupational groups and
                   grade levels; the number and amounts of buyout payments anticipated;
                   and how the mission areas would be affected by elimination of the
                   positions and functions.

                   Although not required to do so by legislation, USDA completed a cost and
                   savings comparison of buyouts and RIFs for FSA prior to the fiscal year 1997

                   1
                    The buyouts were authorized by the Agriculture, Rural Development, Food and Drug Administration,
                   and Related Agencies Appropriations Act of 1997 (P.L. 104-180).



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buyouts at the request of the Chairman, Senate Committee on Agriculture,
Nutrition, and Forestry. Actual buyout and RIF costs from fiscal year 1997
were not yet available at the time of our study. Although the USDA analysis
showed that buyouts held an economic advantage over RIFs, estimates for
the RIF costs of relocation and unemployment compensation were not well
supported and appeared to be higher than appropriate for FSA based on
comments from FSA personnel and on our prior work on the costs and
savings of buyouts and RIFs. Although these estimates appeared to be high,
they did not invalidate USDA’s conclusion that buyouts should generate
more net savings than RIFs over a 5-year period.2

However, separating retirement-eligible employees who could not be
reassigned through RIFs in offices that were closing or scheduled to close
may have generated more savings than granting them buyouts. Since
employees eligible for a retirement annuity cannot receive severance pay
under a RIF, a significant cost element would have been avoided by
separating an employee under a RIF rather than a buyout. However, RIFs
can often cause noneconomic impacts that must also be considered. These
include lower productivity and morale, increased work in processing RIFs
and in handling appeals of RIF decisions, and disruptions in the efficient
operation of the workplace. Nevertheless, an economic analysis of RIFs in
those situations where offices are closing can be an important part of the
decision as to which separation strategy to pursue. USDA officials told us
they had analyzed the relative cost and savings of buyouts and RIFs across
the agency but had not considered applying the economic analysis to
employees in offices that are closing.

As of the end of April, FSA reported that 926 employees have been
separated with buyouts in fiscal year 1997, and 329 employees have been
separated under RIFs. The total separations of 1,255 compared to a planned
separation of 1,339 employees. Of the 926 buyout-takers, 57 percent were
eligible for regular retirement, and an additional 33 percent were eligible
for early retirement. The number of federal employees receiving buyouts
met FSA’s expectations; however, 697 buyouts were granted to nonfederal
county employees compared to 875 planned nonfederal buyouts. Agency
officials explained that the shortfall in nonfederal buyouts was created
because some overstaffed county offices did not receive a sufficient
number of applications.




2
Federal Downsizing: The Costs and Savings of Buyouts Versus Reductions-in-Force GAO/GGD-96-63,
May 14, 1996).



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              FSA officials reported they generally used the buyout authority in those
              areas of the agency where declining workloads and budgets dictated
              staffing reductions. However, officials at headquarters and in the Kansas
              City Management Office (KCMO) reported that they experienced the loss of
              expertise in the administrative and information technology areas when
              employees separated with buyouts. Although these employees worked in
              positions within the broad administrative occupational area targeted in the
              strategic plan, agency officials said that in hindsight, better targeting of
              buyouts would have excluded these employees from buyout eligibility,
              thus avoiding the loss of needed expertise.

              FSA officials indicated the use of buyouts helped them meet downsizing
              goals while reducing the need for RIFs. Although they cited cases where
              they lost employees with valuable expertise to buyouts, they reported they
              were generally able to mitigate this loss through increased training, longer
              work hours for the remaining employees, and increased use of contract
              services.

              FSA officials expressed some strong concerns about future workforce
              reductions. They told us that an additional reduction of 2,850 staff years
              over the next 2 fiscal years, called for in the President’s fiscal year 1998
              budget, could seriously affect the agency’s ability to meet its mission and
              maintain high customer service levels. Further, although agency officials
              indicated they intend to use the buyout authority in fiscal year 1998 to
              facilitate the required workforce reductions, they told us that buyouts may
              not be as effective in avoiding RIFs because the lower buyout amount
              ($20,000) and fewer retirement-eligible employees may generate fewer
              buyout-takers than needed. We did not examine the validity of these
              concerns for this report. However, as part of our ongoing work, we are
              examining the impacts of projected FSA workloads on the agency’s
              operations and staffing levels.


              To determine if FSA’s fiscal year 1997 buyouts were planned in accordance
Scope and     with legal and regulatory requirements, we compared FSA’s buyout plans
Methodology   with requirements identified in the authorizing legislation. These
              requirements included a strategic plan that identified the positions and
              functions to be eliminated by organizational unit, location, occupational
              category, and grade levels; the number and amounts of buyout payments
              anticipated; and a description of how the mission areas would be affected
              by elimination of the positions and functions. We interviewed key agency




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human resource and budget personnel to determine how the buyouts were
planned.

To determine if the decision to grant buyouts was based on a
well-supported cost and savings analysis, we analyzed USDA’s cost and
savings analysis of FSA buyouts and RIFs, comparing it to our prior work
that identified the type of cost and savings data needed to analyze the
economics of buyouts. We interviewed USDA and FSA human resource
management and budget personnel to obtain their rationale for the
estimates, and we interviewed FSA program personnel to determine their
perceptions about the appropriateness of the estimates.

To describe the results of the fiscal year 1997 buyouts, we collected and
analyzed demographic data on buyout-takers from the agency’s human
resource managers, compared original expectations with results, and
interviewed agency officials in those areas where the greatest number of
buyouts took place. These included the state directors in the five states
with the most buyouts and managers in KCMO and at those headquarters
units that had the most buyouts.3 In addition, we interviewed
representatives of four employee associations and two unions to obtain
additional information on the results of the fiscal year 1997 buyout
program. We did not independently verify agency officials’ statements
about the impact of downsizing on service delivery nor about how
successful agency efforts such as outsourcing mitigated the loss of
expertise created by downsizing.

Our work was performed in Washington, D.C., and Denver, Colorado,
between October 1996 and May 1997, in accordance with generally
accepted government auditing standards.

We provided the Secretary of Agriculture and the Administrator of the
Farm Service Agency with a draft of this report for their comments on
May 30, 1997. USDA’s written comments are summarized and evaluated at
the end of this letter and are presented in full in appendix II.




3
 The five states included Illinois, Iowa, Minnesota, North Carolina, and Texas. These states, along with
the Kansas City Management Office, and the offices of the Deputy Administrator for Management at
headquarters, accounted for over one-third of the total 926 buyouts granted.



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                     FSA’s plan for using buyouts addressed all elements required by P.L.
Buyout Program       104-180, which authorized buyouts at USDA. The law required USDA to
Planned in           submit a strategic plan to the House and Senate Committees on
Accordance With      Appropriations, the Senate Committee on Governmental Affairs, and the
                     House Committee on Government Reform and Oversight that showed the
Legal Requirements   intended use of buyouts and a proposed organizational chart for the
                     agency once the buyouts have been completed. The law required the plan
                     to include:

                     (1)the positions or functions to be reduced or eliminated, identified by
                     organizational unit, geographic location, occupational category, and grade
                     level;

                     (2)the number and amounts of voluntary separation incentive payments to
                     be offered; and

                     (3)a description of how the agency will operate without the eliminated
                     positions and functions.

                     According to FSA’s strategic plan, 1,108 buyouts were to be directed to
                     positions within broad occupational groups at headquarters, in KCMO, the
                     Kansas City Commodity Office (KCCO), the Aerial Photography Field Office
                     in Salt Lake City, and in state offices. Buyouts were to be targeted at
                     headquarters to higher graded employees who were eligible for regular or
                     early retirement. At KCMO, KCCO, and the Aerial Photography Office,
                     buyouts were generally to be targeted to positions within the broad
                     occupational groups of personnel, general administration and clerical,
                     accounting/budgeting, legal, business and industry, and education.
                     Buyouts were authorized for all series and grades of federal positions in
                     the state offices. Nonfederal employees in the counties could apply for
                     buyouts, but buyouts granted were targeted to those counties considered
                     to be overstaffed relative to their workloads. It was also anticipated that
                     almost all buyouts (99 percent) would go to retirement-eligible federal and
                     nonfederal employees.

                     In the field areas where the staffing reductions were being driven by
                     workload, the plan stated that adjustments in staffing would be made to
                     accommodate shortages and to conduct rightsizing where needed.4 The
                     plan further stated that program delivery and support would be adjusted



                     4
                      Rightsizing occurs when personnel reductions made in overstaffed units are offset by employees hired
                     in units that are understaffed.



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                      on the basis of fiscal year 1997 appropriation levels to ensure the
                      maintenance of customer service expectations.

                      FSA did not anticipate any changes to the agency’s mission areas or
                      organizational structure as a result of the buyouts. A proposed
                      organizational chart approved on November 26, 1996, was submitted to the
                      cognizant congressional committees.


                      Although not required to do so by legislation, USDA, in November 1996,
USDA’s Economic       completed a cost and savings comparison of buyouts and RIFs in the FSA
Analysis of Buyouts   and Rural Development mission areas over a 5-year period in response to a
and RIFs Was Not      request from the Chairman, Senate Committee on Agriculture, Nutrition,
                      and Forestry. The analysis for FSA concluded that if buyouts were granted
Well Supported and    to employees in all 1,339 positions targeted for elimination, the first year’s
Was Not Applied to    net savings would be almost $3 million; separating the same number of
                      employees through RIFs would result in a net cost of $13 million. The
Separations Created   analysis also concluded that after 5 years, the net savings from buyouts
by Office Closures    would be almost $243 million; the net savings from RIFs would be
                      $191 million.

                      USDA’s analysis of the relative costs and savings of buyouts and RIFs in FSA
                      appears to have overstated per capita RIF costs in two areas. USDA officials
                      told us they based their RIF cost estimates on actual costs from a small RIF
                      in the Forest Service in 1993, and they said that they realize the estimates
                      may not be accurate for FSA. Actual cost and savings data from the fiscal
                      year 1997 buyouts and RIFs were not available for our analysis at the time
                      of our study. Appendix I includes a comparison of USDA’s buyout and RIF
                      cost estimates for the year of separation with the cost estimates we used
                      in our previous work on the costs and savings of buyouts and RIFs.

                      RIF costs typically include unemployment compensation payments;
                      outplacement costs and, if the employee is not eligible for an annuity,
                      severance pay; and refunds of retirement contributions. Other costs such
                      as processing costs or appeals costs could be included if they represent
                      additional costs, such as the hiring of an employee to manage a RIF or the
                      hiring of a lawyer to handle RIF appeals. Costs can be incurred for other
                      employees not separated but nevertheless affected by the RIF. These
                      include retraining and relocation costs. Buyout costs generally include the
                      cost of the incentive (up to $25,000) and the additional agency payment to
                      the retirement fund (15 percent of final salary) required by authorizing
                      legislation.



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The two RIF cost elements appearing high in the USDA analysis of FSA RIFs
were relocation and unemployment compensation costs. The USDA analysis
included an estimate of $30,000 for relocation costs per RIF for employees
affected by each RIF action. However, in our 1996 report, we estimated
relocation costs at $3,500 per RIF based on a 1993 Congressional Budget
Office study of RIF costs. In addition, FSA officials told us that very few
relocations would occur as a result of RIFs in FSA, since nonfederal
employees cannot compete for positions in other county offices in a RIF
situation.

USDA used an estimate of $13,200 per RIF for unemployment costs incurred
for each person separated by the RIF. However, according to the
Department of Labor (DOL) data we used in our prior report, the average
1994 recipient of unemployment compensation received $3,233. This
varied from a low of $1,632 in Mississippi to a high of $6,341 in
Pennsylvania. In addition, DOL data showed that only about 60 percent of
those individuals unemployed actually filed initial claims. USDA officials
could not explain why the costs from the 1993 Forest Service RIF were
substantially higher than the costs documented in the 1994 DOL data.

Although these estimates for RIF costs appear to have been overstated, it is
likely that buyouts would still generate greater net savings than RIFs over a
5-year period. If the estimates for relocation costs and unemployment
compensation were adjusted on the basis of the estimates we used in our
previous work, the revised comparison would show RIFs as generating
greater savings in the year of separation. However, because RIFs generally
separate lower graded employees, the higher savings in salaries and
benefits of buyout-takers would result in buyouts generating greater
savings than RIFs in the second and subsequent years of the analysis.

Although buyouts are generally the more economical choice, RIFs could
generate greater net savings in specific situations where the positions of
retirement-eligible employees are targeted for elimination in offices that
are closing or scheduled to close. If positions are to be eliminated in an
office that is closing and the employees cannot relocate to another
location, the agency has various options available for separating the
employees. It can grant buyouts to all employees desiring voluntary
separations and issue RIF notices to those not desiring buyouts, issue RIF
notices to all employees, or offer buyouts only to those employees not
eligible to retire and RIF notices to retirement-eligible employees. Whatever
approach the agency takes can be based on noneconomic factors as well
as costs and savings estimates. These noneconomic factors, such as lower



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productivity and morale, increased work in handling appeals of RIF
decisions, and disruptions in workplace operations, can weigh heavily in
the decision as to which option to pursue. Nevertheless, an economic
analysis of RIFs is an important part of this decision.

In our prior work, we found that separating retirement-eligible employees
who cannot displace other employees through RIFs can generate greater
net savings than granting them buyouts.5 Retirement-eligible employees
cannot receive severance pay in a RIF. Since this pay could amount to as
much as a year’s salary, depending on age and years of service, a
significant cost could be avoided by separating an employee under a RIF
rather than a buyout. Of nonfederal FSA employees separating with
buyouts in fiscal year 1997, 90 percent were eligible for a retirement
annuity.

We found that 14 retirement-eligible nonfederal employees received
buyouts in 13 county offices that were closing or scheduled to close. In
addition, FSA data show that 19 federal district directors who were
stationed in the states and received buyouts were eligible for retirement.
We were not able to determine which, if any, of these federal employees
were stationed in county offices that were closing. However, if they were
precluded from displacing other employees, RIF separations could have
generated greater savings than buyouts. USDA officials told us they had
analyzed the relative cost and savings of buyouts and RIFs across the
agency, but they had not considered applying the economic analysis to
those situations where offices were closing. Such an analysis may be an
important part of decisions as to which separation strategies to use in the
next 2 years. Fiscal year 1998 budget documents project the closure of an
additional 500 county offices by the end of fiscal year 1999.




5
 Under federal RIF procedures, an employee whose position is targeted for elimination can, if
qualified, displace another federal employees who is in a lower tenure group (appointment category)
or who has less service. These processes, often called “bumping” and “retreating,” do not apply to
FSA’s nonfederal employees.



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                                          As shown in table 1, the total number of FSA reductions in fiscal year 1997
Buyout Results                            has been slightly less than planned. According to FSA officials, the
Generally Met                             combination of a hiring freeze and higher than normal attrition allowed the
Expectations, but FSA                     agency to reduce the size of the total reduction it needed to take. Although
                                          the number of nonfederal employee buyouts in the counties fell slightly
Officials Noted Some                      short of FSA’s expectations, the number of RIFs was higher than expected.
Buyouts Resulted in                       An agency official estimated that about 10 percent of the 304 agency RIFs
                                          were rightsizing RIFs, where the separation of an employee through a RIF in
the Loss of Needed                        an overstaffed unit was made so that an understaffed unit could hire a new
Expertise                                 employee. FSA officials said that the number of buyout applications
                                          received from nonfederal employees in some offices scheduled for
                                          downsizing was somewhat below the number needed at these locations.
                                          Although agency officials reported they were able to avoid some RIFs by
                                          asking nonfederal employees in overstaffed offices to relocate, this was
                                          not always successful.

Table 1: FSA FY 1997 Separations
                                                                                            Nonfederal (county
                                                                 Federal employees             employees)                     Totals
                                                                 Planned         Actual     Planned         Actual     Planned         Actual
                                          Buyouts                      233          229            875         697        1,108          926
                                                                                        a
                                          RIFs                           0           25            231         304            231        329
                                          Total                        233          254        1,106         1,001        1,339         1,255
                                          separations
                                          a
                                           Includes 9 full-time permanent employees in the states and 16 temporary/term employees in the
                                          KCMO.

                                          Source: FSA buyout plan, FSA statistics on buyouts and RIFs as of April 30, 1997.



                                          As shown in table 2 below, most of the buyouts went to employees who
                                          were eligible for either regular or early retirement.


Table 2: FSA FY 1997 Buyouts by Retirement Eligibility
                          Regular                      Early
                       retirement    Percent     retirement         Percent      Resignations            Percent       Totals       Percent
Federal employees             113          49               89            39                  27             12           229            100
Nonfederal                    411          59             220             32                  66             10           697            100
  employees
Totals                        524          57             309             33                  93             10           926            100
                                          Source: FSA statistics on FY 1997 buyouts and GAO calculations.




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FSA officials considered buyouts as a useful management tool in helping
them reach agency downsizing goals while reducing the need for RIFs. The
agency generally used buyouts in areas of declining workloads and where
budgets dictated staffing reductions. Buyouts were excluded for certain
positions in the farm credit area, since staffing was already at minimum
levels considered essential for meeting customer service expectations.
Although most FSA employees could apply for buyouts, some states and
organizational units offered buyouts to all applicants; others screened
applications, offering buyouts only to employees from units or offices
determined to be overstaffed.

Because the buyout program relied on voluntary separation decisions, FSA
officials said they could not directly control who would apply for a buyout.
However, they stated that they were generally able to manage the
distribution of buyouts so that the number of RIFs would be minimized. For
example, they said one of their options under the buyout program was to
grant a buyout in an office that was not overstaffed, refill the position with
an employee relocated from an overstaffed office, and count the position
reduction in the overstaffed office as the required offset to the buyout.

Although agency officials and representatives of employee associations
and unions stated they generally believed the buyout program was well
implemented, some cited examples where employees separating with
buyouts created the loss of critical expertise. State program officials cited
some loss of expertise at the state and county levels through buyout
separations, but they indicated they have instituted aggressive training
programs to enable remaining staff to complete the required work.

Officials at headquarters and KCMO reported the buyouts granted to federal
employees in the administrative and information technology areas resulted
in the loss of valuable expertise and, as one official stated, a “brain drain.”
Although these employees worked in occupational groups targeted in the
strategic plan, agency officials at headquarters and in Kansas City said that
in hindsight, it would have been better to exclude employees in these
positions from receiving buyouts. They said that better targeting of
buyouts could have prevented this situation from taking place.

To compensate for the departure of buyout-takers, FSA officials reported
they have increased training of the remaining staff. Officials at KCMO have
also increased the use of contract services, primarily in the information
technology services area, to mitigate the effect of the loss of employees
through buyouts.



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              State officials we contacted reported they have generally been able to
              maintain high levels of customer satisfaction during this downsizing
              period and have received very few complaints from farmers and
              producers, but they also said they are already operating at staffing levels
              below what their workload levels would suggest. As a result, they said
              many employees are working longer hours to ensure customer service
              levels are maintained.

              Fiscal year 1998 budget documents indicate that FSA may need to close or
              consolidate at least 500 more county offices by the end of fiscal year 1999,
              with additional staff reductions of 2,850 staff years. FSA officials indicated
              they are planning to use buyouts as a management tool for separations in
              fiscal year 1998, as authorized by P.L. 104-180, to assist in these future
              downsizing efforts. However, they expressed serious concerns about the
              impact of future downsizing on their ability to meet their mission. They
              said the workload reductions are not dropping as fast as the budgets for
              staffing, and as a result they will likely not be able to meet their customers’
              service needs in the future. Further, they told us that buyouts may not be
              as effective in avoiding RIFs in the future, because the lower buyout
              amount ($20,000) and fewer retirement-eligible employees may result in
              fewer buyout-takers than needed. We did not examine the validity of these
              concerns for this report. However, as part of our ongoing work, we are
              examining the impacts of projected FSA workloads on the agency’s
              operations and staffing levels.


              FSA’s fiscal year 1997 buyout program included all the required legal
Conclusions   provisions and was beneficial in helping the agency manage its downsizing
              efforts. The legislation authorizing FSA’s buyouts did not require that
              decisions to grant buyouts be based on a cost and savings comparison
              with RIFs. Although USDA completed such an analysis covering FSA, it
              included estimates for two RIF cost elements that appear to be higher than
              what might be expected in an FSA RIF. Actual costs experienced were not
              available at the time of our study. If these cost estimates were revised,
              buyouts would still generally hold an economic advantage over RIFs.
              Nevertheless, analyzing buyouts and RIFs in situations where offices are
              closing could have yielded different results, especially in offices where
              retirement-eligible employees were working. Although noneconomic
              considerations of RIFs can weigh heavily in the decision on which
              separation strategy to pursue, the economics of separating employees
              through buyouts versus RIFs in offices that are closing can be an important
              element in the decisionmaking process. Since the President’s fiscal year



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                      1998 budget indicates an additional 500 county offices might be closed by
                      the end of fiscal year 1999, the potential exists that greater savings could
                      be realized through RIF separations in these offices than through buyouts.

                      FSA officials reported that some buyouts granted to employees in the
                      administrative and information technology areas resulted in the loss of
                      needed skills and expertise. A more selective use of buyouts could have
                      alleviated some of the adverse operational impacts noted, such as the loss
                      of expertise and critical skills.


                      We recommend the Secretary, U.S. Department of Agriculture, ensure that
Recommendations to    a well-supported cost and savings analysis of buyouts and RIFs is part of
the Secretary, USDA   any future decision to offer buyouts to FSA employees. The analysis should
                      show the economic advantage of either buyouts or RIFs for the agency as a
                      whole and for those situations where employees might be separated in
                      offices that are closing.

                      In addition, we recommend that the Secretary direct the FSA Administrator,
                      in planning any future buyouts, to ensure that positions or occupational
                      series where the loss of experienced personnel may adversely affect the
                      agency’s operations be excluded from buyout offers. The Administrator
                      should ensure that buyouts are linked to areas where workloads are
                      anticipated to decline, or to areas where separations will assist the agency
                      in meeting organizational workforce goals, rather than offered broadly
                      across occupational groups.


                      USDA’s Acting Under Secretary for Farm and Foreign Agricultural Services
Agency Comments       provided written comments on a draft of this report. These comments and
and Our Evaluation    our responses to certain of the specific comments are contained in
                      appendix II.

                      USDA  generally agreed with our report and its recommendations. In
                      particular, USDA agreed that a well-supported cost and savings analysis of
                      buyouts and RIFs should be part of any future plan. In doing future
                      analyses, USDA said that it would review and revise as appropriate its
                      estimates of relocation and unemployment compensation costs associated
                      with RIFs. However, USDA cautioned that it may be difficult to estimate
                      unemployment costs accurately given variation in state laws. Specifically
                      in regard to addressing in the cost analyses the economic advantage of
                      buyouts or RIFs in offices that are closing, USDA said that it would attempt



                      Page 13                                       GAO/GGD-97-133 Federal Downsizing
B-275640




to do so. However, USDA observed that the extent of any further
downsizing and office closures is uncertain, and, therefore, estimates must
be tentative. Finally, USDA also agreed that future buyouts should be done
in a way that minimizes adverse effects on its ability to conduct its
operations.

We believe USDA’s commitment to doing well-supported cost and savings
analyses will better ensure that the full savings potential of buyouts or
other employee separation strategies will be realized consistent with other
USDA objectives. We also recognize that estimating specific cost
components, like unemployment costs, can be challenging and that budget
uncertainties can complicate the task of determining how best to conduct
further downsizing and office closures. We believe that a well-supported
cost and savings analysis that takes the full range of options into account
can help USDA select buyout and other separation strategies that achieve
savings while minimizing adverse effects on mission-related operations.

USDA also offered various suggestions to improve the clarity or accuracy of
the report. We incorporated these changes in the report where
appropriate.


As agreed with your office, unless you announce the contents of this
report earlier, we plan no further distribution until 5 days after its issue
date. At that time, we will send copies to the Ranking Minority Member of
the Senate Committee on Agriculture, Nutrition, and Forestry; the
Chairman and Ranking Minority Member of the Subcommittee on Civil
Service, House Committee on Government Reform and Oversight; the
Chairman and Ranking Minority Member of the Senate Committee on
Governmental Affairs; the Secretary of Agriculture; and the Administrator,
Farm Service Agency. We will make copies available to others on request.




Page 14                                      GAO/GGD-97-133 Federal Downsizing
B-275640




The major contributors to this report are listed in appendix III. If you have
any questions about the report, please call me on (202) 512-9039 or
Assistant Director Steve Wozny on (202) 512-5767.

Sincerely yours,




Michael Brostek
Associate Director,
Federal Management and
  Workforce Issues




Page 15                                       GAO/GGD-97-133 Federal Downsizing
Contents



Letter                                                                                            1


Appendix I                                                                                       18

Comparison of
USDA’s First-Year
Buyout and RIF Cost
Estimates for FSA
With Cost Estimates
Used in 1996 GAO
Report
Appendix II                                                                                      19

Comments From the
U.S. Department of
Agriculture
Appendix III                                                                                     23

Major Contributors to
This Report
Tables                  Table 1: FSA FY 1997 Separations                                         10
                        Table 2: FSA FY 1997 Buyouts by Retirement Eligibility                   10




                        Abbreviations

                        DOL        Department of Labor
                        FSA        Farm Service Agency
                        KCCO       Kansas City Commodity Office
                        KCMO       Kansas City Management Office
                        RIF        reduction-in-force
                        USDA       United States Department of Agriculture


                        Page 16                                    GAO/GGD-97-133 Federal Downsizing
Page 17   GAO/GGD-97-133 Federal Downsizing
Appendix I

Comparison of USDA’s First-Year Buyout
and RIF Cost Estimates for FSA With Cost
Estimates Used in 1996 GAO Report

                                                       Cost per buyout                                            Cost per RIF
Cost element                 USDA estimate          GAO estimate                                       USDA estimate         GAO estimate
Buyout amount                $25,000                regular retirement            $24,501a
                                                    early retirement              $24,802a
                                                    resignation                   $14,031a
Payment to retirement fund   15 percent of          15 percent of
                             final salary           final salary
Unemployment                                                                                                    $13,200                  $1,222
compensation payments
Outplacement                                                                                                     $7,456                  $7,456
Retraining                                                                                                       $1,900                  $1,900
             b
Relocation                                                                                                      $30,000                  $3,500
Severance pay                                                                                                    $9,527c                 $6,182d
Refund of retirement                                                                                      (not included)                 $6,085
contributions
                                             a
                                              Actual buyout amounts will vary based on age and years of service. GAO figures shown are
                                             based on actual governmentwide demographic data for buyout-takers.
                                             b
                                              USDA estimate based on costs from a small 1993 Forest Service RIF; GAO estimate based on a
                                             1993 Congressional Budget Office study of average relocation costs in the Department of
                                             Defense.
                                             c
                                             Average severance pay of both federal and nonfederal employees in previous agency RIFs.
                                             d
                                              Based on average governmentwide demographic data for non-retirement-eligible employees
                                             separated by a RIF from FY 1993 through the first half of FY 1995.




                                             Page 18                                                  GAO/GGD-97-133 Federal Downsizing
Appendix II

Comments From the U.S. Department of
Agriculture




See comment 1.




Now on pp. 7 and 8.




                      Page 19   GAO/GGD-97-133 Federal Downsizing
                      Appendix II
                      Comments From the U.S. Department of
                      Agriculture




Modified text
See p. 1.




Now on p. 3.
See comment 2.




Now on p. 8.


Now on pp. 7 and 8.
See comment 3.




                      Page 20                                GAO/GGD-97-133 Federal Downsizing
                Appendix II
                Comments From the U.S. Department of
                Agriculture




Now on p. 11.
See comment 4




                Page 21                                GAO/GGD-97-133 Federal Downsizing
               Appendix II
               Comments From the U.S. Department of
               Agriculture




               1. USDA said that FSA had prepared analyses that were reviewed by USDA,
GAO Comments   the Office of Management and Budget, and various congressional staff.
               These analyses were said to include cost and savings based on many
               variables, but not including relocation and unemployment cost elements.
               We had suggested in the draft report that the relocation and
               unemployment cost elements in the USDA cost and savings analyses were
               inappropriately high. The FSA estimates to which USDA refers were
               conducted in the spring of 1997, after the buyout round was virtually
               completed. The cost and savings analyses we analyzed for our report were
               those done by USDA at the Department level in November 1996. These are
               the analyses that supported FSA’s buyout decisions. We clarified in the
               report that the analyses we analyzed were those done by the Department.

               2. USDA said that our statement that “separating employees through RIFs in
               offices that were closing or scheduled to close may have generated more
               savings than granting buyouts, especially in those offices where
               retirement-eligible employees worked” was only partially true. USDA said
               our statement was partially true because only the positions of the County
               Executive Director and at most one subordinate position are eliminated in
               county offices that are closing, since much of the work and most of the
               subordinate employees usually move to a neighboring county office. We
               have clarified the report to show that additional savings may be realized
               when separating through RIFs retirement-eligible employees whose
               positions are eliminated in offices that are closing. Buyouts may remain
               the best option from a cost and savings standpoint for those excess
               subordinate employees who are not retirement eligible and who would
               receive severance pay under a RIF separation.

               3. The report has been revised to state that nonfederal employees compete
               only within their county offices in a RIF situation.

               4. The report has been clarified to distinguish between buyout applications
               and actual buyout offers made to employees.




               Page 22                                     GAO/GGD-97-133 Federal Downsizing
Appendix III

Major Contributors to This Report


                        Steven J. Wozny, Assistant Director
General Government      Robert Goldenkoff, Senior Evaluator
Division, Washington,
D.C.
                        Thomas R. Kingham, Evaluator-in-Charge
Denver Office




(410085)                Page 23                                  GAO/GGD-97-133 Federal Downsizing
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