What is the White House Proposing for Civil Service Reform?

The White House has released its 2019 budget proposal and it includes a number of changes that would dramatically reshape the federal workforce and how federal workers are compensated. Following are the highlights of the workforce proposals (minus some fluff and a few tables). I have added some headings (in bold) to make it easier to find the specific proposals. Readers can skim through the headings to find the subjects that are of interest to them. In the next few days I will add much more analysis, including where I think they got it right, where they got it wrong, and some very glaring omissions. For now, here is what they are proposing. Everything but the headings and links to referenced documents comes directly from the White House document. If you are looking for the agency budget numbers, Federal News Radio has an excellent piece that covers the details. 

While pursuing a series of proposals to overhaul Federal compensation and benefits, the Administration also intends to partner with Congress to cull statutory and regulatory rules that have over time created an increasingly incomprehensible and unmanageable civil service system. The Administration will propose changes in hiring and dismissal procedures to empower Federal managers with greater flexibility. Agency managers will be encouraged to restore management prerogatives that have been ceded to Federal labor unions and create a new partnership with these entities that maintains the primacy of each Agency’s obligation to efficiently and effectively accomplish its public mission.

Reliance on the National Academy of Public Administration’s No Time to Wait report

“No Time to Wait,” a clarion call to civil service reform, was issued last year by the National Academy of Public Administration. That report questioned whether a “one- size fits all” Federal personnel system is necessary or even effective. The Government Accountability Office regularly includes human capital management on its semiannual High-Risk list of pressing problems facing the Federal Government. The inadequacies of the civil service are chronicled in scores of books and articles. The consensus is that the status quo is unacceptable, and an underlying cause of an array of Government failures rooted in an inability to recruit and manage people.

Federal Employees are overcompensated, mostly in the area of benefits, and with the overcompensation focused more in the lower grades

A Congressional Budget Office (CBO) report issued in April 2017 found that, based on observable characteristics, Federal employees on average received a combined 17 percent higher wage and benefits package than the private sector average over the 2011-2015 period. The disparity is overwhelmingly on the benefits side: CBO found that Federal employees receive on average 47 percent higher benefits and 3 percent higher wages than counterparts in the private sector. These gaps result from disproportionately high Federal compensation paid to individuals with a bachelor’s degree or less; Federal employees with professional degrees are actually undercompensated relative to private sector peers, in CBO’s analysis.

The generous benefits package offered by the Federal Government includes a defined benefit annuity plan and retiree health care benefits – both are increasingly rare in the private sector. The Federal defined benefit plan, according to CBO, is the single greatest factor contributing to the disparity in total compensation between the and private sector workforce. To better align with the private sector, the budget reduces Federal personnel compensation costs, primarily the annuity portion.

Changes to retirement plans, including moving to a high-5 annuity calculation and reducing or eliminating COLAs

The Budget carries forward several FY 2018 Budget proposals, including: increasing employee payments to the Federal Employee Retirement System (FERS) defined benefit plan, so that employees and their employing agency pay an equal share of the employee’s annuity cost; and reducing or eliminating cost of living adjustments for existing and future retirees. Increased employee annuity contributions would be phased in at a rate of one percent per year. Also carried forward from the 2018 Budget are proposals to base annuity calculations on employees’ “High-5” salary years instead of their “High-3” salary years (a common private sector practice), and the elimination of the FERS Special Retirement Supplement for those employees who retire before their Social Security eligibility age.

Modify the G fund to reduce costs and study the idea of a defined contribution-only annuity benefit

This Budget further proposes to modify the “G” fund, an investment vehicle available only through the Thrift Savings Plan (TSP), the defined contribution plan for Federal employees. G fund investors benefit from receiving a medium-term Treasury Bond rate of return on what is essentially a short-term security. The Budget would instead base the G-fund yield on a short-term T-bill rate. The TSP, one of the largest defined contribution plans in the world, is popular among Federal employees, who appreciate having a pre-tax investment vehicle with low administrative costs and employer matching contributions. The TSP is also taxpayer-friendly, since the program has no unfunded liabilities. In contrast, the Civil Service Retirement and Disability Fund, the Federal defined benefit programs’ trust fund, operates like Social Security; it has large, unfunded liabilities backed only by Government IOUs. The TSP is a particularly attractive benefit to young, mobile workers not intending to make a career of Federal service. The Budget, therefore, funds a study to explore the potential benefits, including the recruitment benefit, of creating a defined-contribution only annuity benefit for new Federal workers, and those desiring to transfer out of the existing hybrid system.

Combine sick and annual leave, reduce the number of days, and add a short term disability plan
Federal employee sick and annual leave benefits are also disproportionate to the private sector. All Federal employees receive 10 paid holidays and up to 13 sick days annually, as well as 13 to 26 vacation days, depending on tenure. This Budget proposes to transition the existing civilian leave system to a model that has worked well in the private sector, which is to grant employees maximum flexibility by combining all leave into one paid time off category. This would reduce total leave days, while adding a short term disability insurance policy to protect employees who experience a serious medical situation.

Pay freeze for 2019, slow the frequency of step increases, and increase performance-based pay

Across the board pay increases have long-term fixed costs, yet fail to address existing pay disparities, or target mission critical recruitment and retention goals. The Administration therefore proposes a pay freeze for Federal civilian employees for 2019. This Administration believes in pay for performance. The existing Federal salary structure rewards longevity over performance. This is most evident in the tenure-based “step-increase” promotions that white- collar workers receive on a fixed, periodic schedule without regard to whether they are performing at an exceptional level or merely passable (they are granted 99.7 percent of the time). The Budget proposes to slow the frequency of these step increases, while increasing performance-based pay for workers in mission-critical areas.

$50 million fund to spur innovation in hiring, retention and reskilling

Separately, the Budget proposes $50 million for a centrally-managed fund to finance innovative approaches to meeting critical recruitment, retention and reskilling needs across the Government. The President’s Management Council would designate a board of Federal officials to manage the fund, which would review and select from among agency and cross-agency proposals to pilot innovative and cost-effective ways to strengthen the workforce, to meet future workforce challenges, and to evaluate the impacts in a manner that best informs future policies.

Fixing Hiring and Employee Relations

Federal jobs can take more than a year to fill. The job announcements remain a confusing cipher to applicants. The hiring process – which includes at least 14 steps – is cumbersome and frustrating for Federal hiring managers. As the nature of work changes, the Federal Government requires more term employees. Many individuals are interested in public service but not seeking a career in the civil service. Existing Federal hiring rules make term hiring as difficult as hiring a permanent employee.

Another major hindrance to timely hiring is a massive security investigation inventory. The Administration inherited a significant and growing inventory of background investigations for Federal employment and security clearances. The inventory grew from a steady-state of about 190,000 cases in August 2014 to more than 722,000 by August of last year. It currently stands at more than 706,000. The inventory creates dramatic delays in the hiring process across Government, especially those agencies in need of personnel with a security clearance. Beyond the immediate problem, fundamental reform of the background investigation process is necessary, to both increase efficiency and reduce costs.

Federal Agencies face challenges in effectively implementing information technology (IT) workforce planning and defining cybersecurity staffing needs. Execution of the National Initiative for Cybersecurity Education coding structure is expected to identify critical cyber needs by the end of 2018. IT and cybersecurity recruitment and retention initiatives will continue to focus on mitigation of critical skill gaps and retaining current IT and cybersecurity talent. The Government will experiment in finding new ways to hire the necessary cyber workforce.

As agencies implement new technology and processes, the Administration will invest in reskilling the workforce to meet current needs. Employees who perform transactional work that is phased out can shift to working more directly with customers or on more complex and strategic issues. Current employees can shift from legacy positions into emerging fields in which the Government faces shortages, including data analysis, cybersecurity and other IT disciplines.

Modernize the SES

Another area of focus is the Senior Executive Service (SES), the roughly 7,000 high-ranking Federal managers who hold many of the most responsible career positions in the Government. SES members are disproportionately retirement-eligible. The Administration is continuing efforts to modernize policies and practices governing the SES, including creating a more robust and effective SES succession pipeline, which could include more recruitment outreach into the private sector.

Better personnel record keeping

Many new Federal employees still have paper copies of onboarding documents printed and stored. Employees who move between agencies need to have personnel data, such as basic identifiers or health benefits elections manually re-entered. Electronic personnel files contain scanned copies of old documents, as opposed to being truly digital and interoperable between agencies. The Administration, however, is creating a single electronic identifier for employees that follows them throughout their career and will enable agencies to advance their use of data-driven human resources decisions.

At the end of their careers, a long-standing backlog in Federal retirement claims processing remains an inconvenience to Federal retirees. Paper personnel files on individual employees are maintained in a facility housed in a Pennsylvania mine with 28,000 filing cabinets. Retirement claims may require manual intervention or labor-intensive calculations.

Overhaul labor-management relations

Federal employer-employee relations activities currently consume considerable management time and taxpayer resources, and may negatively impact efficiency, effectiveness, cost of operations, and employee accountability and performance. About 60 percent of Federal employees belong to a union. Federal statute defines the parameters of collective bargaining, which are different than those in the private sector and State or local governments. Federal employees are not allowed to strike and unions must represent all eligible employees regardless of paid membership. Fewer items are negotiable than in the private sector. Yet, collective bargaining contracts can have a significant impact on agency performance, workplace productivity, and employee satisfaction. The Administration sees an opportunity for progress on this front and intends to overhaul labor-management relations. On September 29, 2017, Executive Order 13812 rescinded the requirement for labor-management forums. Agencies were further instructed to remove any internal policies, programs, or guidelines related to existing forums.

Long-term Workforce Planning and Strategies

All agencies are responsible for being good stewards of taxpayer funds. To that end, in M-17-22, “Comprehensive Plan for Reforming the Federal Government and Reducing the Federal Civilian Workforce,” the Office of Management and Budget (OMB) required agencies to create short and long term workforce plans to right-size their workforces in keeping with the agency’s current mission. The agency plans were used to develop long-term workforce strategies, including the staffing levels proposed in the 2019 Budget.

Agencies will continue to examine their workforces to determine what jobs they need to accomplish their mission, taking into account the impact of technological investments that automate transactional processes, artificial intelligence that can streamline the byzantine compliance and regulatory processes, online and telephone chat-bots to improve customer service, and other such tools that may reduce agency personnel needs. Currently, many professionals are performing tasks that the private sector dispatches via technology tools such as “bots” and artificial intelligence. A Deloitte study used BLS data to show that Federal agencies spend millions of hours performing tasks like documenting and recording paperwork, evaluating information to determine compliance, monitoring resources, and responding to routine questions. The study estimated that VA spent more than 150 million hours on documenting and recording information. It found that Department of Homeland Security (DHS) could save 800,000 hours annually by increasing automation of compliance with standards.

Increased use of shared services

Agencies for too long have devoted too many positions to low-value work. Several agencies are already using shared-service models for mission-support positions, which can also reduce their need for full-time employees. Fewer staff positions may also be needed due to changes in Federal procurement, real estate utilization and administrative processes.

Further reductions in some agencies, growth in others

Due to the initial hiring freeze and subsequent efforts, non-security agencies (i.e. USDA, DOI, Treasury, Housing & Urban Development, and Environmental Protection Agency) conducted substantial decreases to the size of their workforce. The 2019 Budget details further proposed reductions in specific agencies. Estimated employment levels for 2019 are higher than the 2017 actual FTE levels and an increase from the 2018 estimates, all of which are slightly less than 2.1 million civilian employees. The Federal workforce increased only modestly in 2017, from 2,057,300 to 2,062,100. From 2018 to 2019, increases occur in 7 of the 24 Chief Financial Officers Act agencies, primarily in security-related agencies (DOD, VA, and particularly DHS), as well as Commerce as it prepares for the 2020 Census, which requires a large influx of short-term staff. Table 7-4 shows actual 2017 total Federal employment and estimated totals for 2018 and 2019, including the Uniformed Military, Postal Service, Judicial and Legislative branches.

Maximizing Employee Performance

One of the Administration’s first priorities was to address poor performers and conduct violators. In lifting the January 23, 2017 hiring freeze, the Administration chose to focus on improving the quality of the current workforce. OMB required all agencies to submit plans to address employee performance. The Administration recognizes that the vast majority of employees uphold their Oath of Office and work diligently. A percentage, however, are simply unable or unwilling to perform at acceptable levels. Their peers in the Federal workforce recognize this issue. Every year, the vast majority of Federal workers surveyed disagree with the statement that, “in my work, steps are taken to deal with a poor performer who cannot or will not improve.”

The requirements to successfully remove an employee for misconduct or poor performance are onerous (see Chart 7-6). Employees have a variety of avenues to appeal and challenge actions. Agencies may settle cases to avoid the expense of litigation, regardless of the strength and documentation of a manager’s case. Settling can avoid the prospect of an even more costly decision by an arbitrator unaccountable to taxpayers. Federal managers are reluctant to expend the energy necessary to go through the process of dismissing the worst performers and conduct violators. In some cases, the most immediate victims of employee misconduct are fellow employees, who may file claims themselves that they are being harassed, hazed, or threatened by their colleague.

Each year, fewer than one in 200 Federal employees is fired. In contrast, more than 99 percent of employees are rated as fully successful or higher in their evaluations. The failure of Federal performance management systems to adequately differentiate the performance of individuals extends up to the SES cadre, where the modal rating is “exceeds expectations,” and at many agencies it is “outstanding.” This sort of grade inflation does little to help managers reward high performers or otherwise make necessary distinctions to inform decisions concerning the workforce. This is yet another area where the Federal workforce could benefit from adopting some private sector norms.

The Federal workforce also contains untold numbers of selfless civil servants who perform their jobs in a manner that honors and uplifts their fellow citizens. They are part of the fabric that makes this Nation great. We need reforms that recognize and reward such individuals, and free them from unnecessary red tape so that they can more efficiently and effectively support the mission of Government.

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