What the Smartest Man in Washington Doesn't Understand. And Why it Will Hurt You.
DeParle, Jason
What the Smartest Man in Washington Doesn't Understand. And Why it Will Hurt You. While OMB fiddles with numbers, Washington burns. by Jason DeParle The piles of briefing materials that crossed...
...A combination of focusing on the federal budget and sticking to the president's ideology kept the agency from detecting and defusing our biggest economic disaster since the Great Depression...
...investigative lawyers another—both have experience in peeling back appearances to find out what's really happening...
...Only after OMB has answered the bigger questions about what's working and why, can it address the ones that now obsess its numbers-oriented staff, such as "What does it cost...
...Stubbing, you may discount our estimates by a third...
...Between 1980 and 1987, the flow chart on the M-side was reconfigured six times, and each change brought predictions of an outbreak of government efficiency...
...No one's going to say 'the building's on fire.' You'll get in trouble for that," is how one former budget examiner describes the average inspector general report...
...And OMB performed about as well as it did in the movie...
...and "Can we afford it...
...What it wanted was more people to process claims...
...Problems with the co-insurance program...
...That may have been the first major mistake of his presidency...
...And what happened as a result...
...It's incredible that a secret base could have been constructed without our hearing about it sir," Lieman's aide murmurs in the film—but, as anyone familiar with the federal government knows, it's not incredible at all...
...Speaking of the co-insurance program, one HUD official wrote in 1984, "This is the most fraud-prone system ever spawned by HUD...
...Perhaps the most instructive look of all at OMB's lack of interest "in merely what happens" comes from the collapse of HUD, whose cost to the taxpayer is large, but whose perversion of mission and contribution to human suffering is even larger...
...Alarm bells finally started ringing at OMB...
...The budget bureau's longtime failure to take effective action on the problem invites the suspicion that there may be bureaucratic pride involved...
...The ideal OMB examiner would have not only the ability to coax the facts but the mind to understand their meaning, to transform facts into conclusions...
...OMB's second handicap is the average examiner's background...
...Tom Lantos: "In retrospect, Ms...
...If the rest of the government, including the rest of the government's watchdogs, truly felt the president's eyes and ears upon it, there'd be more people too frightened or ashamed to give us the boondoggles we've come to expect...
...In so doing, Darman could have secured a reputation for himself as not only smart but wise...
...You just ask 'What the hell is going on?'" Stubbing says...
...Now let's run those figures a few more times, assuming unemployment at 5 percent, 5.5 percent, and 6 percent...
...Pierce, in an unusually responsible move, wrote OMB in 1983 to say that he could not provide reasonable assurance...
...The point is that OMB is supposed to know what the IRS needs and what it's doing with the money it's getting, not be the victim of a shell game...
...Stockman threw himself into constant negotiations with Congress, and, in so doing, he kept his examiners furiously busy working up data for the debate...
...Darman's held jobs at the Commerce Department, Treasury, Justice, State, Defense, and what used to be Health, Education, and Welfare...
...Hale: "I don't remember having significant dialogue with the inspector general or his people...
...One critic is the GAO, which in May issued a report politely titled, "Revised Approach Could Improve OMB's Effectiveness...
...Both were more likely to know the cost of toilet paper in the Pentagon's men's room than whether the military's latest supergadget would fly...
...The only problem was, the admiral had listed the need not for 240 destroyers but for 360, which shows how much can be learned with just one well-placed question...
...While the M-side has ideologues deregulating in the dark, the B-side has technocrats playing with make-believe numbers...
...he didn't speak in numbers, so OMB couldn't understand...
...His aide says, "Yes, sir, I'll call Bill Condon in the Bureau of Budget—right now," rightly assuming that if anyone should have the details, he should...
...And, at some stage in policy planning, the answers are important to know...
...in the words of one, there's "not much that he's done that would suggest a change...
...While GAO, which is about 10 times larger than OMB, has made slight improvements in recent years, OMB has gone from bad to worse...
...Jesus, after a while you had no idea what it all meant," Stubbing says...
...It turns out, as The Wall Street Journal recently reported, that the department was working on no such thing...
...He didn't give any paper," explained one official...
...Though you wouldn't want such examiners monitoring the agencies they plan to return to, of course...
...But neither ever approximated its potential as a government watchdog...
...many believed he was in the pocket of the industry...
...Congress yawned and did nothing...
...The problem is that this has become OMB's main function—and it tells you nothing about whether anyone's actually being trained for a job...
...They have I.Q...
...The most obvious pitfall of this system is the chance of being completely blindsided...
...OMB officials say they ignored Gray because they considered him incompetent, if not unbalanced...
...The signal was the product of the 1982 Federal Manager's Financial Integrity Act, which requires the government's department heads to report to Congress and the president once a year whether they have "reasonable assurance" that their internal controls and accounting systems are in order...
...Not at all...
...Richard Darman ought to win an award for the trick he unveiled this spring: As Alan Murray reported in The Wall Street Journal, by taking the S&L bailout off-budget, the administration made the $166 billion loss look like a $14 billion savings in deposit insurance...
...if some of the bureaucracy's best staff rotated in, even on a temporary basis, OMB could keep itself stocked with people who are not only smart but also savvy in the tricks of the trade...
...Republic endures...
...Nor do the public policy schools that most young budget examiners attend stress the kind of investigative skills that OMB needs, emphasizing quantitative skills instead...
...In 1984 and 1985, Pierce again wrote to say that reasonable assurance was beyond HUD's grasp...
...There was nothing inherently wrong with a smaller HUD, and one that relies more extensively on private contractors...
...Three audits, beginning in August 1987, reported that HUD couldn't account for millions owed to it by escrow agents and that the delays alone were costing the agency up to $16 million a year in interest...
...Congress may pass a new mine safety bill and the president may sign it, sending a warm glow through a Washington that feels satisfied it has done its duty toward the miners...
...This is the time of year when the Park Service buys electric blankets for the rangers in the Everglades—anything to dump the dough...
...Ed Gray, then the chairman of the Bank Board, was issuing warnings about the state of the thrifts as early as fall, 1983...
...who previously oversaw HUD and the S&Ls, now works at the Justice Department as an assistant attorney general for legislative affairs...
...McGrath was later detailed to OMB himself, where he was in charge of receiving the Financial Integrity Act reports from across the government...
...Investigative journalists offer one potential pool of talent...
...There is something to be said for this view, but not very much...
...Hardly anyone describes it without resorting to phrases like "cream of the crop," which in some sense it is...
...It's also possible that it didn't need them at all but saw a chance for more money and took it...
...This was the year when the IRS, at its Philadelphia office alone, lost track of $300 million in withholding tax payments, wiped out the records of 10,000 taxpayers, and dumped other returns in the trash can...
...Generals, cabinet officers, and agency heads are supposed to keep him in the know...
...Showing a talent for saying the right things at the right times, Darman recently told Glenn that OMB needs to "help reduce the problems that failures of collective oversight, including its own, may have produced...
...It's the president's watchdog, after all, and the keeper of his purse...
...points on every other person in government," says a former OMB supervisor...
...Basically you just put them in a book...
...Under Stockman, however, there was no off-season...
...A southern California country club qualifies for a subsidy...
...As one former examiner explains, "Instead of getting to the heart of a program, you're asking, 'Should we have them take a one-andonehalf percent cut...
...When it looks at, say, the Department of Energy, it should be asking questions like these: How many different nuclear weapons plants do we need...
...Clearly, OMB needs to cast a wider recruiting net...
...In describing the problems of inexperience, Ursula Gillis, a candid former examiner, tells a story about a time she was snookered by the IRS, an agency that knew how to get what it wanted...
...Of course, it's possible that the IRS really needed the processors and was simply playing the necessary game to get them...
...That's right: Fraudulent escrow agents...
...Like "Here's how this program should be changed...
...But to serve as the president's eyes and ears, OMB needs to go beyond numbers to program analysis—it needs to know what programs are working, what programs aren't, and why...
...Instead, OMB has segregated its M and B functions and set each side to work furiously at tasks that bear little relation to the real needs of government...
...But ask a miner how many of these folks he's seen down there...
...I got a couple of calls saying, 'Why are you all still saying you don't have reasonable assurance?' There was clearly pressure on the agency to say we did have reasonable assurance...
...The thrifts were suddenly attracting depositors in droves, so the fund, supervised by the Federal Home Loan Bank Board, was swollen...
...Stubbing, who left in 1981, wasn't the only one at the office to question the sense of these name-thatnumber exercises...
...Of course, even with three times its current staff, OMB couldn't visit every government program every year...
...What's missing is action...
...Stubbing captures the mood of the time in a story he tells partly in admiration for Stockman's intellect and partly in exasperation at the pointlessness of it all...
...took charge of OMB's national security division and put it to sleep...
...He started pressuring OMB to provide him the authority to hire more bank examiners...
...still, at least the expectation of monitoring the program was there, and some examiners took advantage of it...
...And it doesn't take a genius when these guys are taking billion-dollar hits and they have a six-billion-dollar fund....At the time we found out it was a ten to fifteen billion-dollar problem, and we thought, 'My God, this is a budget buster.'" By the summer of 1985, the White House and the Treasury department were both aware of the size of the problem...
...Rather than urging great expansions of the programs that work, and termination of those that don't, OMB tinkers on the margins...
...For a final sense of how well most of the government controls its watchdogs, consider the principle of Dare to Fail Great—minor screwups may bring you trouble from the budget office, but the agency that founders on a sufficiently large scale gains the advantage...
...A modern-day parallel is the teacher's college methodology course devoid of subject content...
...It's used its powers of regulatory review to create a bureaucratic bottleneck that makes it more difficult than ever to issue safety regulations...
...Or the press...
...The best we get from watchdogs these days are post-mortem analyses— i.e., the press's too-little, too-late autopsy of the S&L scandal—rather than up-front reporting that could head the problems off...
...This is particularly true in areas involving safety...
...It's true that some government regulations are dumb and dispensable—OMB has delighted in pointing to examples like an education department rule that prohibits school dress codes from distinguishing between boys and girls—but on the whole the federal government does too little to regulate, not too much...
...Given the obvious answer to that question, one might have expected OMB, the president's "eyes and ears," to have carefully tracked the rapidly changing industry in the early 1980s...
...While Washington has so far escaped a coup, in recent months it has been hit with the equivalent in bureaucratic bombshells: a $166 billion explosion called the S&L crisis, a $130 billion breakdown in our nuclear weapons plants, and a fairy tale of greed and neglect at HUD, whose bill—$10 billion or so—is smaller than its sordidness...
...For those of us stuck not with film presidencies but with real ones, an obvious question arises: If OMB is so smart, why is the government so screwed up...
...As Gillis says, "If you've never worked in government before, it's hard to sort out the bullshit from what's real...
...The controversial project was eventually killed...
...This required Stubbing's group of 40 analysts to make agonizingly complex calculations...
...For a look at OMB's role in the S&L crisis, see page 28...
...In the meantime, HUD's greater use of private contractors set the stage for two of the subsequent breakdowns: 1) HUD increased its reliance on private escrow agents like Marilyn Harrell, who handled the sales of foreclosed properties, but frequently failed to forward the funds...
...Perhaps the most instructive scene of Seven Days in May comes just after the president learns of the planned mutiny...
...A second old-time bureaucratic trick is the fourthquarter spending spree—the rush of each agency to dump excess funds before the fiscal year's end, lest it show a surplus and suggest that it's overfunded...
...A host of get-thegovernmentoff-the-people's-back conservatives pocket huge fees for lobbying the agency...
...Why, then, is it that HUD coups, and S&L coups, and weapons-plant coups, and any number of other bureaucratic bungles are catching us unaware...
...hence government managers would need no particular grounding in the substance of actual programs, only an expertise in principles of efficiency...
...But the longer the bailout was postponed, the pricier it got: at least $166 billion, by the latest reckoning...
...But poor Condon may be the most authentic Washington figure Hollywood has produced: he doesn't have a clue...
...Going to Hale At a congressional hearing in July, the following exchange took place: Rep...
...But if you thought the government official charged with overseeing billions of dollars in taxpayers' money was dumb, crazy, or corrupt, wouldn't that make you want to keep an eye on his books...
...Stubbing nodded dutifully and took notes...
...OMB's caution, he says, stems both from the historic clout of the defense secretary and the mystique of military expertise...
...There's certainly an important watchdog role for OMB to play in regard to regulation...
...Adams clearly pointed out a problem...
...They were interested in cutting...
...The total cost to the government is now estimated at about $20 million...
...to the extent that an agency's bloated budget was one approved by OMB, an examiner's crackdown reflects badly on himself...
...To comply, the astonished services had to pull out long-dormant wish lists...
...But two lessons emerge from Stubbing's experience: 1) OMB has the responsibility to single out the bad programs and call them to the president's attention...
...About 30 percent of OMB's defense analysts, including Stubbing, left in the first 21 months...
...But virtually no one on the M-side has been charged with getting out of the Executive Office Building to discover what needs less regulation and what needs more...
...But even if the reports were simply filed away, one might think that McGrath, once he arrived at OMB, would have taken the opportunity to share his knowledge of HUD's problems—to lean over and say, "Pssst...
...Stubbing, you have it...
...If government oversight (or the lack thereof) has a human face, that of children in tenements is it...
...OMB was busying itself pushing for budget cuts and greater privatization of HUD functions, both of which it achieved...
...Were HUD's now-familiar story to be entered in some watchdog casebook, it'd be ridiculed as parody...
...The subsequent billions wasted on weapons that don't work are vivid illustrations indeed of what happens when government keeps its watchdog chained...
...But while he offered the right diagnosis, he gave the wrong prescription...
...Adams later testified before Congress, in an account that Hale confirmed, that she found his report "premature, unjustified, and unfair," and she resisted his suggestions for tighter controls over the program...
...But these best of the best have a few problems...
...Where the ploys are Remember, the agencies that deal with OMB are full of bureaucratic ploys, old and new...
...And what kind of visits were they...
...The S&Ls became a budget problem at the end of 1984...
...in at least one case it worked to suppress them...
...It vowed to modernize cash management...
...One, there just aren't enough of them...
...It's the kind of institutional memory you'd hope would get passed down...
...They weren't interested in correcting," says Charles Dempsey, who served as HUD's inspector general until 1985...
...With inflation...
...For a sampling of the tone, consider the March 31, 1987 report, in which Paul Adams, Dempsey's successor as inspector general, explained that HUD could save $844 million just by refinancing a loan program at more favorable interest rates...
...The average budget examiner will know the conventional wisdom about his program and be up to date with major news accounts or journal articles...
...2) HUD turned to private companies to screen applicants for a co-insurance program, in which HUD bore 80 percent of the financial risk...
...Clark has to dash around the Texas desert, sweet talk a hooker, and escape from the plotters' prison, but in the end he gets the job done...
...To follow the story, first consider the signals ignored and then the one suppressed...
...The scene that could have truly shot fear into the hearts of GS-15s, and new life into the government, was this: The new budget director, at his confirmation hearings, declares his intention to become the Oversight Czar...
...No," says McGrath...
...Of course the congressional committees could always do it...
...Imagine: A cabinet secretary (Sam Pierce) sleeps through his eight-year tenure, keeping 10-to-4 hours at his multi-billion dollar agency and watching soap operas...
...An Environmental Protection Agency regulation on radioactive waste sat on an OMB desk for so long, the EPA staff held a birthday party for it...
...I, again, having come from a background of budget, much more than managing co-insurance, but having some very capable people, I know there was extensive conversation, because we developed the response back to the inspector general, agreeing with some of his findings, disagreeing with some of his findings...
...But the IRS subsequently shifted the money away from enforcement and back into processing...
...The journey from bad to worse started in 1981 with the arrival of David Stockman, who not only ditched the agency's most important function but had the capital applauding his intelligence while he did it...
...In actuality, that move cost taxpayers an extra $5 billion since it made the bailout bonds more expensive...
...And the $2 billion savings disappeared...
...how many coup plots get reported through the networks of conventional wisdom...
...After all, these objectives were part of the philosophy on which Ronald Reagan had campaigned and won...
...Stockman, who in early 1981 had deferred to Defense Secretary Caspar Weinberger on defense spending, later tried to fight him—mobilizing Stubbing & Co...
...What it does need to do is to establish a reputation for surprise visits and thorough ones...
...Dick's slick tricks Chances are that on June 10, 1921, as he signed the Budget and Accounting Act, Warren Harding had no idea how much good he might be doing the world...
...A conservative defense expert named William Schneider Jr...
...With a few exceptions— like Stubbing and the opposition to the B-1 bomber—the budget examiners had a long history of deference toward the military...
...over Labor Day weekend—but by then it was too late...
...His mission in life was to cut us off, and he did," Stubbing says...
...Tuesday, another set at 2 p.m, and another set that evening after Stockman returned from giving a dinner speech in Philadelphia...
...But you have lots of turnover...
...During that year, the fund began disbursing enormous chunks of money to bail out thrifts that were failing as their loans went sour...
...OMB went one step further and said, "Hey, shut up over there...
...Every six months, the inspector general would forward his delicate warnings to OMB, where they were promptly filed and forgotten...
...Research assistance was provided by John Heilernann, Andrea W. Hoopes, and Ralph Whittum...
...The law created not only BoB/OMB but blessed it with an institutional twin—the GAO...
...Imagine how much sorrow we could save with a small investment in expanding OMB's staff enough to get the Gillises in the field...
...For a third source of talent, OMB should look to the federal government itself...
...Incredibly enough, OMB's failure to head off the defense outrages of the early Reagan administration—of which the $433 claw hammer is a minor but apt symbol—weren't inadvertent but were the product of design...
...Gray never came up with rigorous enough analysis...
...OMB's reluctance to address the crisis came partly from its dread of "budget busters": the faster thrifts were closed, the faster money would disappear from the thrift fund, and the faster the federal budget deficit would grow...
...Since all deposits up to $100,000 were fully insured by the federal government, who could lose...
...Before the hearing ended, Lantos asked Hale a revealing, if not terribly difficult, question...
...Are others needed that are not yet on the books...
...It warned, "Examiners feel that they are manipulating numbers in the abstract and progressively losing sight of what lies behind them...
...But the tough call," he said, "comes, after you've done all that, in deciding whether the thing they want to do is worthwhile...
...All OMB had to do to catch on was read the reports and translate: "This means fire...
...When Stubbing pointed out the discrepancy, the admiral shot back: "Mr...
...As the political scientist Richard Neustadt told John Kennedy during the 1960 transition, OMB (then called the Bureau of the Budget) is "the nearest thing to institutional eyes and ears and memory...
...The whole division was tied up in mindless numbing detail...
...Enter "Robin HUD" (Marilyn Louise Harrell), who steals more than $5 million before anyone notices...
...Beyond that, it should be asking: Which regulations are needed and which should be abolished...
...And since many leave after three or four years, by the time they get that sense, they're gone...
...This has been the contribution of today's OMB—finding ways to make an S&L debacle seem like a budget-booster, instead of finding ways to prevent it...
...Here OMB's failure isn't so much one of knowledge but one of action...
...But OMB had an obligation to keep the president posted on the policies' effects— which it's now painfully obvious that it failed to do...
...But they're typically supervised by others with similar backgrounds...
...And you're back to numerical analysis...
...But rather than play discerner and enforcer, OMB has played spoiler...
...Filling the vacuum is the best-connected barmaid in Georgetown (Debbie Dean), who takes control of the department and doles out contracts for questionable projects to her pals...
...That is, she keeps Congress posted on the Justice Department's progress on the HUD investigation...
...which will be available to you...
...It blew our minds," he said...
...Within HUD, he expressed this view to the Assistant Secretary for Housing, Janet Hale...
...New Mission Cited for OMB," the Post headline could have read—maybe even, "In Unusual Hire, Darman taps Hersh as Deputy...
...But it's close...
...At that point my focus wasn't on the department...
...The admiral delivered a two-hour lecture, explaining in elaborate detail why each carrier group needed this many destroyers, each submarine group needed that many destroyers, and so on, down the fleet— "and there, Mr...
...Beyond asking HUD to change its wording, did OMB ever follow up to make sure the weaknesses described in the reports were being addressed...
...Finding the answer may require quite a sophisticated use of mathematical models...
...As a former defense budget analyst explained to Szanton, "When [the services] say 'military judgment,' the curtain just comes down...
...There's a kicker to this story of OMB as the watchdog that wasn't...
...Or are they sending radioactive waste into the Georgia groundwater...
...It vowed to reduce paperwork...
...It's about as far-fetched as the coup plot in Seven Days in May...
...Reform '88 vowed to upgrade software...
...The agencies had the potential to grow up as Washington's baddest brothers—the Leon and Michael Spinks of the capital— knocking out programs that were irrelevant or ineffective...
...In seeking greater efficiency through "privatization," the agency hands its programs over to private companies who leave the government saddled with $5 billion worth of loan liabilities...
...This isn't quite as bad as if Sy Hersh said his proudest moment in journalism was catching a typo in Henry Kissinger's memoirs...
...This means fire...
...The administration recently bumped a military pay day from one fiscal year to another, for a "savings" of $4 billion...
...having the experience to guard against it in practice is something else...
...As it turned out, the best HUD could muster in 1986, even after the phone calls, was a statement that it had qualified reasonable assurance—within "limits"— which has remained its policy to the present...
...When thrifts began losing depositors in the late 1970s, Congress changed the rules governing S&Ls to try to keep the institutions alive...
...By the time you know what's going on, you're out the door...
...In fact, it could have taught him the most important presidential lesson he could learn...
...Most come young, with little, if any, experience in government, meaning they have little sense of the way the bureaucracy actually works...
...It took the FDA another three years to get the regulation adopted, and 3,000 more children contracted the disease in the interim...
...taxpayers knew the IRS couldn't audit everyone, but the agency's random and tough audits were enough to keep most people honest...
...He'll know the administration's general ideology (i.e., "deregulate") and his supervisor's opinions...
...Implementation is merely what happens...
...If you're from OMB, they don't like you to be uncontrolled," says Gillis...
...In the pre-Stockman years, OMB spent only part of its time actually working up the president's budget, which it then presented to Congress and let the legislative committees take their course...
...Remember, among the things that "merely happened" during HUD's demise is that, as James Watt and Carla Hills grew rich, the homeless population swelled and more children of poverty were consigned to shelters and tenements...
...When he requested more staff from Connie Homer, then a top official at OMB, he says she replied, "The policy of the administration is to have fewer examiners, not more...
...As Peter Szanton, an associate OMB director during the Carter years, has written, "OMB imposes far less discipline on the DOD budget...
...Though more than 120 people have died in grain elevator explosions in the past dozen years, the Occupational Safety and Health Administration has been fighting OMB for seven years to get stricter regulations on the elevators...
...As it turns out, the same OMB supervisors who have responsibility for HUD also oversee the S&Ls—a performance that must have set some kind of oversight record for Most Billions Missed...
...A second problem with the M-side's Reform '88 busywork was that hardly anyone on the Bside— where the sustained contact with government agencies takes place—understood it...
...Longtime OMB employees say the pressures for numbers production are as intense as ever...
...It's the budget examiners who are really in the center of the action, and it is through them that the failures of OMB become most apparent...
...Defenseless While the underlying weaknesses of OMB remain constant—its lust for numbers, its lack of on-site investigation— the actual circumstances of its failures vary by case and therefore invite individual scrutiny...
...Why, come on over, Mr...
...Christopher Shays: "Did you have significant discussions with the inspector general...
...This is deregulation...
...Bad programs can, and often do, have strong sponsors behind them...
...If anything, the agency's existence as a numbers factory has taken on an extra edge of irony: Darman now presides over an agency obsessed with finding clever (and typically illusory) budget cuts made necessary by the tax cuts that his earlier cleverness as a White House strategist helped sell...
...Knowing that OMB wouldn't approve the request, the IRS instead asked for $400 million to hire not processors but auditors, presenting a study that showed the auditors would collect an extra $2.4 billion— for a net savings of $2 billion...
...Eyes and Ears to a president...
...The words "independent program analysis" may not be on many Washingtonians' lips, but if anyone could put them there—and explain how they could help rescue the government—it's Darman...
...The absence of a military revolt notwithstanding, you can bet that Bush, like Lieman, presides over a government in which any number of major and minor disasters are ticking along undetected...
...It took the Postal Service "off budget" and saved another $1.7 billion...
...and asked Stubbing to meet him back at the office at 7 a.m...
...But, like most other examiners, Gillis says she got out to visit programs just a week or two a year...
...What it ought to be doing is going out into factories and mines, checking to make sure that vital regulations are being enforced...
...The same distance from what's really happening is evident in the M-side's Office of Information and Regulatory Affairs, the division charged with reviewing the federal government's regulatory activity...
...Now, after working up the numbers to present the president's budget, and reworking them repeatedly for congressional negotiations, OMB has to play with them some more to meet the deficit target...
...With the appointment of Richard Darman as budget director, OMB has recently had a special chance to transform itself into the kind of agency it should be...
...He calls on his oldest (though drunken) friend, Senator Ray Clark, for the treacherous mission...
...Judging another person's character and decisions are difficult for me," Hale said...
...James Bennet...
...The ploy, as it turns out, was an old one...
...They delivered one set of figures at 10 a.m...
...One former budget examiner said her proudest moment at OMB came when she ran a regression analysis to disprove a security agency's claim that excessive overtime was leading to higher attrition— all well and good, but the regression analysis revealed nothing about how well the agency was providing security...
...As Gillis explains it, the scale of the disaster, which prompted nationwide headlines and a congressional investigation, worked to the agency's advantage...
...So by OMB standards, this time bomb was a roaring success—proof of the value of deregulation...
...Although OMB never conducted program evaluation as much as it should have, there was a time when its analysts came closer than they do today...
...The key thing to remember is that with OMB keeping the world safe from aspirin warning labels, there's no one left in government to ensure that those regulations that do get on the books get enforced...
...To get them, OMB needs an abundance of investigative talent—an army of Sy Hershes...
...If you had a chance to go through them, you'd go through them," he says...
...Janet Hale's current job...
...In 1986, another followed: "I am convinced that financial problems of national importance are inevitable unless something is done...
...With only 200 examiners for the entire government, some have up to $5 billion in budget responsibility...
...Target is a key work here—the act doesn't require that the deficit actually be reduced, just that the numbers be manipulated to give that appearance...
...What's more, guess what problems he said he was having...
...Projections of future spare parts costs...
...As Richard Stubbing's career shows, it helps to have been around...
...and 2) the agency can best perform this role not by just looking at numbers but by looking at programs and questioning the people involved...
...If government managers knew that OMB could drop in at any time—and that if it did, it would discover the truth about their program—bureaucrats might learn to fear screw-ups the way taxpayers used to fear cheating...
...to improve the situation...
...The word comes not through the extensive bureaucratic channels that are supposed to keep the president posted but by way of a lone colonel who happens to stumble across the plot...
...Rosier scenario While the inspector general's reports gave OMB one set of reasons to start worrying about HUD, a second series of reports provided another...
...In other words, here was Pierce, breaking from the soap operas to raise his hand and mumble the equivalent of "Well, now that you mention it, we're not quite sure where all these billions of dollars are going...
...According to Gray, OMB was blinded by the reigning ideology...
...instead, OMB has actually shrunk by about 12 percent in the past eight years...
...Even Senator Ernest Hollings, one of the law's sponsor's, now calls it "pure sham...
...Better just to waste the money...
...The IRS's disastrous 1985 tax season is a case in point...
...A GAO survey of budget examiners found a whopping 10 percent willing to say the support of the M-side was of any use in their actual dealings with agencies...
...But who's making sure the Mine Safety Administration is enforcing the law...
...Perfect SATs, says Darman, whose virtues don't include modesty...
...In the off-season, budget examiners were expected to keep tabs on the latest developments in their agencies...
...on] defense planning...
...The past decade has seen no shortage of M-side initiatives...
...But it doesn't need to...
...Just six months after the contract was awarded, Stubbing discovered the company's cost overruns had doubled the price...
...Everyone's covering their ass...
...In retrospect, they seem pitifully faint—but OMB should have known that's the way most inspectors general work and should have been extra vigilant as a result...
...Understanding the principle in theory is easy...
...Actually, this understates the case: OMB didn't just ignore the danger signs...
...This proved a costlier mistake: the government's liability for the defaults that resulted now stands at about $1 billion...
...Don't assume someone else knows the answer...
...But while oversight failures are widespread, OMB's mission is special...
...And all the better, if the investigators have had some government experience and know the bureaucratic cons—Sy Hersh after he's worked as a GS-9...
...As one OMB supervisor put it, "At OMB, it [the developing thrift crisis] didn't seem like such a problem, because we were dealing with the federal budget...
...But no one did anything about it for two years, during which the bailout cost was growing by a billion and half dollars a month...
...Of course, just because OMB discovers a bad program, there's no guarantee it will die—Stubbing was an early (and prescient) critic of the B-1 bomber, upon which Congress and several presidents subsequently lavished $28 billion, only to see a test flight downed by a flock of birds...
...If the IRS then said it needed more money, no budget examiner would want to risk becoming the next season's scapegoat by denying the request...
...Startling as that news was, its effect was blunted by the added soporific, "We have developed recommendations which the department is working on to accomplish this refinancing...
...If so, what can we do to fix them...
...Unfortunately, the new rules allowed—in fact, encouraged— bank executives to gamble other people's money on reckless loans...
...the building's on fire...
...Since OMB spends much more time scrubbing budgets than scouting programs, decisions about "whether the thing they want to do is worthwhile" get made in twilight at best, and often in complete darkness...
...On the M-side, it has spent part of its time futzing with minor reforms like paperwork reduction and part of its time waging an ideological war on regulation...
...Since the fund backing S&L deposits was essentially self-financing, it turned up on the federal budget only when it was running a surplus or a deficit...
...the president apologizes, "but if there were anyone else I could trust...
...He joined the Budget Bureau as an analyst in 1962 after serving as a junior naval officer in the 1950s...
...Today, OMB hardly does this kind of asking at all...
...Szanton argues that the historic failure of OMB to mind the defense store is an illustration of the larger truth that "most White House agencies...
...Rep...
...The main difference between the film and reality is that reality hasn't been fortunate enough to have a happy ending...
...The 1980 Republican platform went so far as to demand the throttling of defense analysts like Stubbing, denouncing the "ill-informed, capricious intrusions of the Office of Management and Budget...
...OMB sets them to work with endless computations about the federal budget...
...They're cautioned about what to say and what not to say...
...She's a top official at OMB, with oversight of a quarter of the federal budget—the quarter that includes both HUD and the S&Ls...
...The woman she replaced, Carol Crawford...
...I was too naive," Gillis says...
...Gray began tentatively, but quickly became strident...
...Things like the past spare parts costs...
...That year, a task force of the agency's civil servants issued an internal report on the effect of the new pressures...
...Are they working...
...The bottom line is you don't," says Gillis...
...During another sixties field trip that shows the value of getting out of the office, Stubbing visited the North American Corporation, a subcontractor for the Navy's F-111 bomber...
...As he repeated in his semi-annual report: ". . . appraisals were unsupported, properties were overvalued, and HUD's insurance risks increased...
...Which richly qualifies her for her current job as a top member of the president's hear-no-evil, see-noevil team of watchdogs...
...That is, when the budget examiner suggests that the Park Service may have to face a 10 percent cut, the Service is likely to respond that this will result in closing down the Washington Monument—the kind of move that will be sure to generate angry letters and congressional intervention...
...After 10 months, there's no meaningful sign of OMB change, no indication that it will play a more meaningful oversight role in the future than it has in the past...
...Should it make its way into the White House theater anytime soon, Bush would do well to ask himself these questions: Why wasn't the president getting a steady stream of information all along, as the plot was developing...
...Boning up for a negotiation on defense, Stockman had his defense analysts work Labor Day weekend— all day Saturday, all day Sunday, all day Monday, and on into the night...
...A less obvious, but similarly debilitating, consequence of the examiners' twilight zone is the process of government by increment...
...Weinberger had won...
...Or the GAO...
...The point is, it's a time-consuming sham...
...Her proudest moment...
...Stockman bid him good night at 1 a.m...
...We went back and broke the word that this was out of control...
...But there were signs that the industry was in trouble...
...This can be done through all kinds of dodges...
...by Jason DeParle The piles of briefing materials that crossed George Bush's transition desk probably didn't contain a 1964 Burt Lancaster film called Seven Days in May...
...Jack McGrath, the HUD official who filed the reports, says officials on the M-side of OMB pressured the agency to file a rosier scenario...
...That was not a budget problem—it was a massive American economic problem, but we didn't see it that way at the time...
...In film or in fact, the president shouldn't have to rely on drunken old senators to save the day...
...Another former budget examiner, Bruce Johnson, said he felt particularly adept at "scrubbing budgets" for excess cost—that is, knowing an agency's size, he could compute how much money it should spend on salaries, benefits, travel, rent, phone, contracts, and so on...
...Another critic is Senator John Glenn, whose committee has been holding hearings on the poor performance of government watchdogs...
...Among the more tested bureaucratic tricks is one that budget examiners call The Washington Monument Game: when an agency is threatened with a budget cut, it'll be sure to propose suspending its most important or popular functions first...
...In 118 minutes, the film could have taught him more about government than any volume of Heritage Foundation reports and CIA cables...
...Chairman, I think Mr...
...Picture the typical face-off: a wily Interior Department official with 20 years of bureaucratic survival skills behind him versus a smart but green budget examiner, who is terribly overworked...
...And his OMB colleagues didn't ask...
...And why, once he stumbled upon it, could he trust only a personal friend to tell him the truth...
...While the odds of a contemporary coup may be slight, the film's instructive potential remains great...
...On the few occasions when Darman has had to face criticisms of OMB's oversight failures, he's done so in ways that reflect no deep understanding of the problem, and no resolve to change it...
...Nothing like that happened...
...Which would you rather pay for-400 more budget examiners, or the S&L bailout...
...I don't like sending you...
...The project's first problem was its forest-for-thetrees quality...
...Phrased differently, the agency needs to knit its "M" functions (management) with its "B" functions (budget)—for without knowing whether a program is needed or works, how can a budget office determine a proper level of funding...
...It's quite a responsibility, and it's no surprise that OMB enjoys a position of almost unparalleled prestige in the government...
...Estimate the savings three different times, assuming inflation at 4 percent, 6 percent, and 8 percent...
...But if you haven't done the kind of deep investigation that allows you to understand the agency, how do you, eyes and ears to the president, watchdog of watchdogs, happen to know whether the IRS actually needs more employees, or just needs to make better use of the ones it has...
...Richard Stubbing's experience is instructive, both of the type of people OMB should hire and the type of work they should do...
...This was the principle that the IRS itself put to work back in the old days...
...But McGrath says he never discussed the agency's problems...
...In the case of the two disasters in question—the escrow agents and the co-insurance program— Adams posted similar clues...
...About .02168 percent of an S&L crisis...
...In other words, taking these factors into account, he guesses...
...Adams right...
...In 1985, when Paul Adams, the inspector general, conducted his first audit of the co-insurance program, he found $36 million in inflated appraisals on $120 million worth of property and warned that the program, which, remember, would ultimately cost us $1 billion, was in trouble...
...He added that he agreed with the call for "better integration of management and budget functions...
...Officials then at OMB say that faith in deregulation didn't cause them to hold down the number of examiners: "We were under orders from Ronald Reagan to decrease the staff of the federal government, so if anyone wanted many more staff they would have to make a very good case...
...The same goes for most of the organization's staff...
...OMB isn't the only government watchdog asleep on the job...
...Though joined at birth, they were physically separated by Pennsylvania Avenue, with the GAO reporting to Congress and BoB to the executive branch...
...The grandest plan was called "Reform '88," a long-term project unveiled in 1982 and touted as "one of the most comprehensive and ambitious efforts to improve management ever undertaken...
...As HUD was on the verge of catching fire, a few bureaucratic alarms were sounded...
...The fact that he was one of only three of the 17 agency heads to do so might have provided OMB with notice that all wasn't well at HUD...
...It didn't, because of the fundamental tenet of the OMB philosophy: Problems do not exist unless they increase the federal budget deficit this year...
...Szanton sees this reticence contributing to a list of military ills, including the interservice rivalries that proceed unchecked, constant cost overruns, and the military's bedazzlement by high tech...
...Perhaps even more important than his brains is his experience...
...The failure to detect and prevent billion-dollar screw-ups is shared by the agencies themselves, inspectors general, congressional oversight committees, and the General Accounting Office (see John Heilemann, page 38)—not to mention the press, which perversely continues to dispatch its brightest stars to glamor beats like the White House, where they spend their days shouting questions at the president's helicopter instead of digging into the realities of the president's programs...
...In '84, they ran the numbers and plotted them out," said one staffer involved in following the Bank Board during those years...
...the bad loans being made at the same time had not yet begun to fall through...
...The administration made good on its pledge...
...To gauge how well the press generally understands the agency, consider that in 1982, with OMB's defense analysts under wraps, The New York Times published an OMB primer that explained these are the people "who question the need for new weapons systems...
...After all, it doesn't take much quantitative analysis to know that a California country club is not a low-income project...
...And just as teachers learn to teach best when teaching a particular subject, the government will manage best when its efficiency experts are actually engaged with a program...
...In the case of the co-insurance program, the inspector general's warnings dated back to 1985—and with no hedging qualification...
...It has groused about this for many years, but when the trade publication Industry Week followed up in 1985, it found OMB wasn't even tracking the fourth-quarter expenditures, never mind restraining them...
...Coal miner's auditor To understand further the ineffectiveness of today's OMB, it's important to understand its structure— the artificial division of the M from the B. The intellectual roots of this separation date back to the first part of the century, with the rise of the scientific management movement...
...OMB budget examiners spend most of their time answering questions like these: "What would be the potential savings if we changed the means test from $10,000 to $8,000...
...The film opens with ominous news: President Jordan Lieman has just discovered that the Joint Chiefs of Staff are plotting a coup...
...Two of its recent directors—first David Stockman and now Richard Darman—were said to be the smartest people in Washington...
...The scrub team The M-side of OMB has traditionally enjoyed a stepchild status in relation to the B-side, and the past decade has been no exception...
...Even taking at face value Wright's figure of $36 million saved, what do you have...
...To really do its job, OMB should be about three times larger...
...than it does on domestic budgets...
...Darman wants to bolster the Mside when the right solution is to abolish it—OMB isn't going to improve the government unless its budget experts and its management experts are the same and they get out of the office to look at what's really happening...
...And more...
...OMB sports a building full of numbersmen— grand totalers adding up the digits, with adding machines whirring and slide rules flying...
...If It's Not on the Budget This Year, It Doesn't Exist OMB caught on to the collapse of our savings and loan industry too late, then did too little for too long...
...Deregulating in the dark The problem is that the agency employs the wrong kinds of people and has them do the wrong kinds of things...
...Without inflation...
...It's now just-one more initiative on the trash heap of OMB history...
...And if budget examiners had been out talking to HUD officials, the warning could have come even sooner...
...He's the "most brilliant intellect" in government, says Newsweek...
...Most billions missed The irony of this surgical strike against OMB's defense analysts is that they were never an overly vigilant group in the first place...
...Never mind that the report went on to say that, "HUD has recently implemented measures...
...Early in his OMB tenure, Stubbing called the Pentagon to ask how the Navy had decided it needed 240 destroyers in the fleet...
...Answers to these kinds of questions don't come easily and don't emerge from the numbers alone...
...The threat is defused, and the Jason DeParle is an editor of The Washington Monthly...
...The president needs to know more, and he needs to know it quickly, but where can he turn...
...Reality faded further in 1985, when the GrammRudman-Hollings Act began requiring the budget to meet an annual deficit reduction target...
...In his congressional testimony last month, Darman conceded that Reform '88 had flopped and that the budget examiners weren't sufficiently involved...
...What seems most odd about the battle for examiners is that Gray's frantic requests didn't trigger some interest at OMB in conditions at the thrifts...
...OMB is not known for arriving unannounced...
...Hale: "In retrospect, Mr...
...Rather than scream "the building is on fire," they will remark, alongside some comment about the excessive number of staples purchased last year, that "signs of combustion were evident in several hallways"— and be certain to add that corrective anticombustion action is being taken by the agency...
...There in the early days was Deputy Director Joseph Wright, posing for The Washington Post before a garbage pail and announcing that the administration had eliminated 1,998 unnecessary publications...
...Stubbing," an admiral suggested, and Stubbing, elated at his high-level access, paid the Pentagon a visit...
...When the Food and Drug Administration tried to place warning labels on aspirin bottles, telling parents that giving aspirin to children with chicken pox or flu can cause a sometimes fatal disease called Reye's Syndrome, OMB held a private meeting with the aspirin industry—then told the FDA to withdraw the regulation...
...In truth, more examiners spent the off-season relaxing than investigating...
...And, within his bureaucratic army, one sentinel in particular should make certain that the president has the information he needs: the Office of Management and Budget...
...And both, in fact, are supremely smart men...
...Did she, in retrospect, think that Deborah Gore Dean—the HUD scandal's leading lady—had possessed the "experience, training, judgment" and qualifications to run the agency...
...There's probably no one in Washington, and certainly no one in the government, who should know more about which programs work, and which don't, and how to find out...
...When most government auditors discover a problem, they couch it in terms that are least likely to arouse the bureaucracy's enmity...
...In the meantime the administration just picked a number out of the air—a large one, as it happened: a $32.6 billion increase—and told the military to find a way to spend it...
...Top HUD officials resisted the plan, for fear the savings would get plowed back into the mortgage-subsidy program, which it was trying to eliminate...
...have little time for implementation...
...Its theorists argued that there were certain universal management truths that applied no matter what was being managed...
...Had Gillis been quizzing IRS executives the way Stubbing quizzed admirals and defense contractors, chances are she would have picked up on the difference between the agency's real needs and its old games...
...Hale, was Mr...
...Since even these inexperienced examiners do have the advantage of smarts on their side, with the right kind of supervision, they could still do okay...
...This signal wasn't just ignored, it was altered...
...The only way for OMB really to guard against the bureaucracy's survival schemes is to get out and see programs in action...
...While there's nothing wrong with numbers analysis as one tool of program evaluation, there's plenty wrong when it becomes the main tool, as it has at OMB...
...Stubbing remembers Stockman asking for the cost of every airplane the military was scheduled to purchase in the next year...
...Rather than perform the program analysis that asks, "Is this job-training program needed, and does it work...
...I guess I assumed they weren't unknown," he says...
Vol. 21 • November 1989 • No. 10
