Tangible budget cuts require more than political maneuvering

Tangible budget cuts require more than political maneuvering

President Trump’s budget plan honored his campaign pledge to provide more funding for defense, veterans, border walls, law enforcement, and infrastructure. Cuts to health and social services were made to offset these spending increases. Still, the plan added a projected $7.5 trillion to the federal debt over the next decade. 

Reshaping the budget along party lines makes “political hay,” but does little to reduce the size of federal government. Substantial tax cuts require significant spending reductions that will not be reversed when a different party comes into office. Such changes must be system-wide, applied equally across all branches of government.

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Contrary to normal building-cutting approaches, systemic cuts are not based upon eliminating programs; they’re driven by cuts in payroll expenditures that result in fewer employees, generate internal change, and produce cost savings.

 

Downsizing through attrition

Using attrition as a way to make systemic changes works best when it’s applied to large budgetary units. It is not positioned-based. It does not depend upon employee terminations or firings nor does it use such jargon such as “position freezes.” Rather, it is compensation based.

On the average, public entities have an annual attrition rate of approximately 15 percent — the proportion of positions that become vacant through the normal means — retirement, departures, etc. Placing department/unit budget lines from these positions into one centralized pool creates enormous flexibility. Rather than returning these dollars to their source, a portion is held centrally and deleted from the overall budget.

Making attrition work

Working as an administrator in higher education for over thirty years, I found that making use of attrition was the most effective way of downsizing. Not only were we able to reduce expenditures, but in each case we were able to bring about significant organizational change. Best of all, it’s a simple process that avoids the trauma often associated with budget reductions.

Each time we reduced the overall compensation amount in each division by five percent, setting the compensation line at 95 percent of the previous year. Divisions were given complete freedom on how to use their personnel dollars (including 10 percent remaining from vacant positions). At the beginning of the fifth year, each division’s personnel budget had been reduced by 20 percent.

The organizational change created through the incremental use of attrition proved to be even more important. Initially, there was the typical grousing and complaints. Following the second round of 95 percent personnel budgets, supervisors started to get the message. They began eliminating redundant functions, consolidating positions and planning for the next year.

Interestingly, in each case near the beginning of the third round of reductions, supervisors began bragging about improvements in efficiency. Deadwood staff left in droves. By the end of the fourth year a new culture was in place — a sense of pride permeated.

In sharing these results with other professionals, there was a consensus that 20 to 25 percent personnel reductions could be made in any public institutions without impacting the quality of work.

Applications to the federal government

Staggering reductions are possible when applying the same (five percent compensations cuts over four years) to the federal government. The numbers speak for themselves.

Reduction of federal personnel spending in Washington, D.C.: There are roughly 425,000 federal employees in the DC metro area receiving an average annual compensation of $150,000 (2015 data). On average, a five percent cost savings-reduction would lower annual compensation costs by roughly $3.18 billion per year with an annual four-year savings of over $12.7 billion.

Reduction of federal personnel spending in Washington, D.C.: Applying the same assumptions to the approximately one million federally related employees (including military, postal service or contractors for DOD, NSA, CIA, DIA, etc.) in the DC metro area would save roughly $30 billion annually, forever.

Reduction of federal personnel spending in the nation: There are approximately 2,100,000 federal employees (2015) across the nation with an average compensation of $123,000. Repeating the assumptions for all federal employees would result in an annual budget reduction in the fifth year of over $50 billion. That’s a trillion dollar savings over a twenty-year period with no employee terminations or program cuts.

While the cost savings are overwhelming, reducing the size of the federal government without cutting services would have a far greater impact on the American public. It’s a win-win situation.

Les Cochran served as the president of Youngstown State University.