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Jacob J. Lew - April 7, 2000

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April 7, 2000

Mr. Chairman, Members of the Subcommittee, I am pleased to be here this morning to discuss the role of the Office of Management and Budget (OMB) in improving management practices in the Federal Government. Sally Katzen is here with me today. She is a Counselor to the Director, and is the President's nominee for Deputy Director for Management.

We welcome this oversight hearing because we too place importance on improving management throughout the Federal government. I would like to thank the Subcommittee for its continued interest in this issue. This Subcommittee has been a leader in providing Federal managers with the tools and incentives to perform effectively and with accountability. In recent years, this has led to the adoption of the Government Performance and Results Act, Federal Financial Management Improvement Act, Information Technology Management Reform ("Clinger-Cohen") Act, Government Paperwork Elimination Act, Federal Acquisition Streamlining Act, and Federal Activities Inventory Reform Act.

The role of the Office of Management and Budget

As stated in OMB's Annual Performance Plan, OMB assists the President by reviewing agency proposals and programs on a variety of topics from budgets to regulations; assuring that they are consistent with relevant statutes and Presidential objectives; providing analysis and advice on a variety of subjects; and developing government-wide policies for the effective and efficient operations of the Executive Branch. Although housed within the Executive Office of the President, the majority of OMB's 518 staff are career employees who provide "institutional memory" and the most objective analysis possible for the President.

OMB operates in a fast-paced environment, dealing with a variety of complex issues on a daily basis. It has the lead role within the Executive Branch for maintaining Federal fiscal discipline, allocating scarce resources, and promoting program efficiency. OMB provides leadership and assistance in financial management, procurement, information collection and dissemination, and other government-wide management functions. These responsibilities are carried out working cooperatively with the Congress and congressional agencies such as the Congressional Budget Office and the General Accounting Office.

How We're Organized

OMB is composed of five resource management offices (RMOs)(1) organized by agency and program area, three statutory offices(2) with functional management responsibilities, and seven offices(3) that provide OMB-wide support. These offices work together to assist the President in developing fiscal policies and creating an environment for effective management of Federal programs.

The RMOs play a pivotal role in the development and execution of Federal fiscal policies and provide ongoing policy and management guidance to Federal agencies. RMOs are organized by policy subject matter and agency. Staff are experts in their program and policy areas and are responsible for the analysis, evaluation, and implementation of policy options as well as the implementation of government-wide management initiatives.

The Budget Review Divisions analyze trends in and the consequences of aggregate budget policy. They provide strategic and technical support for budget decision-making and negotiations, and they monitor Congressional action on spending legislation. In addition, these offices provide technical expertise in budget concepts and execution.

The Legislative Reference Division coordinates articulation of the Administration's position on all legislation. This office coordinates the review and clearance of the Administration's legislative proposals, testimony, and statements on bills progressing through Congress. This responsibility frequently requires resolution of conflicting agency views on legislation or policy positions.

The three statutory offices play an important role in the work of OMB. The Office of Federal Financial Management (OFFM) develops and provides direction on the implementation of financial management policies and systems and coordinates activities of the agency Inspectors General and Chief Financial Officers. This includes activities ranging from financial reports and systems to debt and grants program management. The Office of Federal Procurement Policy (OFPP) leads efforts to improve Federal procurement law, policies, and practices that affect the full range of Federal acquisitions, including major systems, products, services and construction. The Office of Information and Regulatory Affairs (OIRA) oversees the Federal regulatory, information collection and dissemination processes, and Government statistical policies and practices. OIRA reviews agency proposals for new or revised Federal regulations and information requirements, and develops policies to improve regulatory and paperwork processes and information management. OFFM, OIRA and OFPP staff serve as consultants to program examiners in the RMOs and participate on teams reviewing significant issues, such as reviews of financial statements and major information technology investments.

While each unit has its own focus, OMB prepares its products, meets its deadlines, and fulfills its responsibilities because of continuing collaboration among its offices and divisions. On a day-to-day basis, OMB operates as a collegial organization in which OMB-wide and statutory offices collaborate with the RMOs to support OMB's ongoing agency relationships. For example, desk officers in OIRA work closely with the RMOs on regulatory and information issues. With respect to regulations, OIRA tends to focus more on the economic and societal consequences of the regulation, assessing the full impact of each proposal, with particular emphasis on the benefits and costs of alternative approaches; the RMOs give particular attention to programmatic and fiscal implications. OFFM specialists in financial management, accounting, and systems work closely with each agency's financial management staff to monitor progress and plans for improving financial management; RMO staff who have extensive agency relationships and budget responsibility participate in these sessions. Together, OFFM and RMO staff review agency audit financial statements, and oversee the work of agency Chief Financial Officers and Inspectors General and agency preparation of annual audits as well as the agency budget submissions that affect financial systems. Likewise, OFPP's procurement policy specialists work closely with RMO staff and agencies to implement acquisition reforms to advance better business management of Federal acquisitions to support agency missions.

Our Traditional Responsibilities

Given its comprehensive and objective view of the government's strategic interests and program priorities, OMB has a hand in the development and resolution of budget, policy, legislative, regulatory, information, procurement, and management issues on behalf of the President. This places OMB in the middle of complex and sensitive distributional policymaking and tradeoffs necessary to develop and maintain coherence and consistency with the President's priorities and program.

OMB has the lead role in the Executive branch in maintaining aggregate fiscal discipline, proposing allocations and reallocations of resources to particular sectors and programs based on Presidential policy, and promoting the efficient delivery of services. This is a continuing process of interaction and adjustment with and between the departments and agencies. The entire budget formulation process, with its instructions, hearings, reviews, budget drafting, and justifications, drives much of the development and coordination of policy. OMB examines efficiency and effectiveness in order to improve programs; allocates resources in accord with Presidential priorities; and presents the President's program.

OMB performs these same functions in financial management, procurement, information collection and dissemination and other government-wide management functions of the Executive Branch. While doing so, OMB also provides leadership and serves as a catalyst for interagency groups such as the President's Management Council (consisting of the Chief Operating Officers of all Federal Departments and the largest agencies), the National Partnership Council (including representatives of Federal employee unions and Federal managers and supervisors; the Federal Mediation and Conciliation Service, the Federal Labor Relations Authority, the Office of Personnel Management, DOD, and the Department of Labor), the Chief Financial Officers Council, the Chief Information Officers Council, the President's Council on Integrity and Efficiency (comprising the major agencies' Inspectors General), the Procurement Executives Council and the Budget Officers' Advisory Council (BOAC). Through these groups, OMB draws together operational, financial, procurement, integrity, labor relations, and systems technology experts from across the government to establish government-wide goals in their areas of expertise and marshal the resources within individual agencies to improve government performance.

Meeting our growing workload

Despite staffing levels that have decreased by almost 10 percent since 1993, OMB continues to carry out its traditional responsibilities and the new responsibilities Congress has placed on it. The Government Performance and Results Act, Federal Financial Management Improvement Act, Information Technology Management Reform ("Clinger-Cohen") Act, Government Paperwork Elimination Act, Federal Acquisition Streamlining Act, and Federal Activities Inventory Reform Act all require a significant investment of staff resources. More recent requirements, ranging from the "Stevens Report" on the costs and benefits of regulations to the report on climate change, also impose new workloads. Congress also has imposed a number of new grant management responsibilities on OMB, including revising Circular A-110 to open access to research data, preparing an inventory of all Federal grants, and fulfilling the provisions of the Grants Management Simplification Act. A complete list of the laws that have increased OMB workload since 1993 is attached to my testimony.

For FY 2001, I have asked our Appropriations Subcommittees for increased resources for additional OMB personnel. The request seeks an increase of $613,000 to fund nine new FTEs to oversee the numerous management initiatives required under current law, analyze key budgetary and economic areas, and assist in preparing the Federal Budget and the many reports required of OMB. As we approach the end of this Administration, it is an appropriate time to ensure that the next administration has the resources at OMB necessary to perform at the level of excellence that OMB has established. My request would provide those resources.

Our Management Role

There is no textbook definition of "good agency management." OMB embraces a broad-based concept of management that encompasses the roles and responsibilities of the whole organization. OMB is responsible for maximizing the extent to which Executive Branch agencies carry out effectively and efficiently all tasks related to excellence in agency administration, and for maximizing the quality of agency design, development, implementation, evaluation, and continuous improvement (including where necessary, termination or replacement) of agency programs and policies, consistent with the policies of the President.

Some people think of "management" solely in terms of a series of administrative management functions, present in virtually every agency, that are the essentials of organizational operations, without regard to what that organization's missions or functions may be. These functions include procurement, accounting, personnel management, space management, financial management, regulatory strategy, and the like. Doing them very well rarely garners attention; failing to do them well can destroy program and policy effectiveness as certainly as bad policy decisions or inadequate program implementation.

OMB has offices and divisions that exercise government-wide leadership on key aspects of agency administrative management: procurement (OFPP); financial systems and audit (OFFM); regulatory policy and paperwork management, information collection and dissemination, information technology policy and statistical policy (OIRA); legislative development and legislative reports and testimony processes (LRD);and budget formulation and budget execution processes (BRD). OMB shares responsibilities for leadership on some functions with other agencies, such as: financial management and budget execution shared by OFFM and BRD with Treasury; space management and building construction policy shared with GSA; personnel policy shared with OPM.

In our view, management includes not only administrative management functions but also program and policy management. It encompasses leadership and oversight of how agencies devise, obtain enactment of, implement, manage, evaluate, and then, if necessary, modify the statutory programs and policies for which they are responsible, consistent with the policies of the incumbent Administration.

Program and policy management is often profoundly influenced by changes in Administrations. It is not uncommon for OMB to work closely with an agency to obtain enactment of and implement a given policy, and then after a change in Administration, work just as hard with successor agency management to implement a different policy. This is the consequence of being accountable first and foremost to the President.

This responsibility in no way affects OMB's attention to agency strategic planning, goal setting, performance measurement, evaluation, data collection, or policy research. These functions are aspects of good government regardless of the program policies of the Administration in office. They are essential inputs to the policy and program direction advice OMB provides. But they do not dictate the form of final Presidential policy. The RMOs have the lead OMB responsibility for program policy and budget development for the agencies they cover, and for integrating into those responsibilities attention to how well the agency is managing statutory and Administration policy.

Government Performance and Results Act

As you know, OMB played an early and important role in the initial development and design of GPRA. In one sense, what the Act requires is not new. We have always asked for, and used, performance information in budgeting decisions. In our roles as stewards of the efficient use of resources, both OMB and Congress have always sought to know what results programs actually produce. GPRA gives us a statutory framework for expanding the use of performance information into the decision-making process.

The review of the GPRA strategic and annual plans by OMB staff is a good example of how budget and management are intrinsically interwoven and interdependent. RMO staff review the agency plans and reports, and provide comments. The RMO staff are especially well equipped to do so, because these are the same staff that work with the agencies on their annual budget submissions so they were keenly aware of operations at the agencies. Strategic goals and performance measures are thus not some sort of abstract or independent exercise; rather, they exist and have meaning only in the context of real programs.

The FY 2001 budget process provides other examples of how OMB has increased its use of performance information in its review of agency budget requests. In June of last year, I wrote to agency heads that I expected them to focus attention in their FY 2001 submissions on the extent to which current programs are achieving the results intended, and new program initiatives are structured to provide for clear definition of results and mechanisms for accountability for achieving them. Subsequently, in developing the President's FY 2001 Budget, OMB included relevant performance information for every major budget issue presented during our Director's Review.

Priority Management Objectives

Implementing GPRA is a top management objective. For the last two years, the Administration has tackled the Government's biggest management challenges by designating them priority management objectives (PMOs) and working with the agencies throughout the year to make real change. Last year, for example, the Administration's first and foremost management objective was to resolve the Year 2000 (Y2K) computer problem. Y2K posed the single largest technology management challenge in history. It also is the best evidence of how budget and management are effectively interwoven at OMB. We are proud that the federal Government's transition through the date change was remarkably trouble-free.

Another PMO last year was Improving management of the decennial census. The Bureau of the Census in the Department of Commerce ensured that the necessary support structure -- which includes opening data capture centers, regional census offices, and local census offices, printing forms, establishing a telephone questionnaire assistance program, printing language assistance guides, and recruiting and training temporary census workers -- was established and tested, and is ready for operation.

This year's list of PMOs includes twenty-four agency-specific and government-wide management issues. In addition to implementing GPRA, let me give you several examples:

  • Improve financial management information. Working with OMB and Federal agencies, the Department of the Treasury issued timely government-wide audited consolidated financial statements for the third year in a row. These statements were issued as part of the FY 1999 Financial Report of the United States Government. We also made substantial progress in agency financial statements: 19 of 24 were on time (compared with 15 on time last year) and, although two agencies slid back, 7 agencies improved to a qualified or to a "clean" opinion. So far, 13 of 24 received "clean" opinions -- last year at this time we had 8 -- double the number of clean opinions received in 1996 and in sharp contrast to 1993 when most agencies did not issue financial statements. We expect the two remaining financial statements soon, and we're hopeful that those will also be "clean."
  • Modernize student aid delivery. The Department of Education's performance-based organization (PBO) has made significant progress in modernizing the delivery of student aid benefits. In order to align operations with its three primary goals (improved customer satisfaction, reduced costs and increased employee satisfaction), the PBO has reorganized into three customer oriented channels (students, schools and financial partners). Based on an assessment of customer needs, the PBO is utilizing new technologies to expand electronic access to benefits and revising program oversight practices to reduce burden on participants. In order to reduce costs and improve services, the new organization has developed a detailed modernization blueprint that defines an efficient information infrastructure. Implementation of key elements of this plan are currently underway. Additionally, the organization has reformed contracting practices to capitalize on performance based incentives. Finally, the PBO is investing in its employees through training and better information technologies to ensure that cost and customer goals will be achieved.
  • Reengineer the naturalization process and reducing the citizenship application backlog. The Department of Justice's Immigration and Naturalization Service is redesigning its naturalization process to streamline and automate operations, while simultaneously reducing a backlog of more than 1.8 million applications for citizenship. In 1999, INS completed over 1.2 million applications, and reduced the backlog by more than 500,000 applications. INS reduced the average processing time between application and naturalization of qualified candidates from 27 months in 1998 to 12 months in 1999. In FY 2000, INS' goal is to reduce processing time further - to 6 to 9 months for qualified applicants - and maintain this processing standard in the future.


OMB's strength is its unique system-wide and government-wide perspective: its staff draws on experience in many areas of government to challenge the thinking of other agencies, which often cannot see beyond their own programs. None of the major policy issues with which a modern president must deal fit into the confines of a single department. Revitalizing the economy, designing a national health care system, controlling drugs, protecting the environment, reforming education, restructuring welfare, or creating jobs: each of these issue-areas and dozens of others require coordinated analysis and action across many executive branch agencies.

In the real world, resource allocation and management are fundamentally interdependent. Given the complex systems that are necessary to address public problems, we must operate with considerations of management and budget together, not apart. This reflects the realization that these two sets of concerns are in fact intertwined in actual operation. And as we continue to work with the agencies to better integrate performance information into budget and resource allocations, the twin concerns of management and budget are likely to become even more intertwined over time.

I believe OMB continues to serve this Administration and the American people extremely well. Mr. Chairman, that concludes my statement. I would be happy to answer any questions.


Laws that have increased OMB workload since 1993

  • Government Performance and Results Act (PL 103-62)
  • Federal Acquisition Streamlining Act (PL 103-355)
  • Government Management and Reform Act (PL 103-356)
  • Evaluation of DC report (PL 103-373)
  • Unfunded Mandates Reform Act (PL 104-4)
  • Paperwork Reduction Act (PL 104-13)
  • Federal Acquisition Reform Act (PL 104-106, Division D)
  • Information Technology Management Reform Act (Div. E, PL 104-106)
  • Regulatory Flexibility Act Amendments (Title II D, PL 104-121)
  • Congressional Review of Agency Rulemaking (Title II E, PL 104-121)
  • National Technology Transfer and Advancement Act (PL 104-113)
  • Single Audit Amendment Act (PL 104-156)
  • Federal Financial Management Improvement Act (Title VIII, PL 104-208
  • Fiscal Year FY 1998 Defense Authorization Act (PL 105-85)
  • Government Paperwork Elimination Act (Title XVII, PL 105-277)
  • Federal Activities Inventory Reform Act (PL 105-270)
  • Submission of an Accounting Statement and Report to Congress on the Costs and Benefits of Federal Rules and Paperwork Treasury/General Government (PL 106-58)
  • Counterterrorism & Antiterrorism (PL 105-85, Sec. 1051)
  • A report on total Federal expenditure of all official international travel during the previous fiscal year (Omnibus Consolidated & Emergency Supplemental Appropriations Act)
  • A report providing a final accounting of the finances and operations of international agencies abolished under Division G of the Act (Omnibus Consolidated & Emergency Supplemental Appropriations Act)
  • Grants Management Simplification Act (PL 106-107)
  • Submission to Congress of an inventory of Federal grant programs (Treasury/General Government Appropriations, PL 106-58)
  • An accounting of climate change programs in the FY 2001 Budget (Consolidated Appropriation Act, PL 106-113)
  • Designation of OMB to Chair the National Commission on Use of Offsets in Defense Trade, and submit a report to Congress (Section 1247(d) of FY 2000-01 Foreign Relations Authorization Act; PL 106-113)

1. The RMOs are National Security and International Affairs; General Government and Finance; Natural Resources, Energy and Science; Health/Personnel; and Education, Income, Maintenance and Labor.

2. The statutory offices are the Office of Federal Financial Management, Office of Information and Regulatory Affairs, and Office of Federal Procurement Policy.

3. The OMB-wide offices are Administration, Budget Review, Communications, Economic Policy, General Counsel, Legislative Affairs, and Legislative Reference.

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