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GOVERNMENT PERFORMANCE AND RESULTS ACT
TUESDAY, JULY 29, 1997
U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.
The committee met, pursuant to notice, at 10:14 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.
Present: Chairman Leach; Representatives Roukema, Campbell, Lucas, Weldon, Sessions, Redmond, LaFalce, Vento, C. Maloney of New York, and Hinchey .
Chairman LEACH. The hearing will come to order.
First, I would like to welcome a new Member of the committee, Bill Redmond, who represents New Mexico's Third Congressional District. Prior to coming to Congress, he served as a minister of the Santa Fe Christian Church, he was active in an enormous number of youth and family activities in his area, and he has been assigned to three standing committees of the Congress, not only this committee, but also the National Security Committee and the Veterans Affairs Committee. Bill, you are extremely welcome to your first hearing.
It is my understanding that several new Members on the Democratic side have also been appointed to the committee, and they will be introduced as time goes on, but we welcome you, Bill.
Today, the Committee on Banking and Financial Services convenes its first hearing to review the strategic plans being drafted by Federal bank regulatory agencies under the Government Performance and Results Act.
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While strategic planning draws a chuckle when mocked in the popular ''Dilbert'' comic strip, it has the potential, if taken seriously, to be an effective tool for Congress to measure each agency's performance in meeting the public need for which it was created. In the private sector, strategic planning and results management are the tested tools of successful enterprises. Many State and local governments have also begun to use this form of organization management and accountability.
Over the last several weeks, the committee has had the opportunity to review the current draft plans of the banking agencies—the Fed, OCC, FDIC and NCUA—and to meet with agency officials to discuss their content. The plans we will review today will, for the most part, include the required mission statements, goals, strategies, links to annual goals, external factors and evaluations. You can simply tick them off the list.
But, that would not necessarily meet the spirit of the law. As succinctly noted in the executive summary of a recent GAO report, the Results Act ''seeks to shift the focus of Federal management and decisionmaking away from a preoccupation with the activities that are undertaken to a focus in the results of those activities, as reflected in citizens' lives.''
Perhaps the toughest challenge, we are discovering, is the ability of agencies to successfully identify and implement results-oriented goals, rather than output-oriented goals and to tackle the task of measuring agency performance. Such an approach requires agencies to break out of a business-as-usual mold and do some original, creative thinking; to ask whether the way they have grown accustomed to doing business is good enough; to do some serious research and forecasting as to public needs over the next 5 years; to learn to measure what is really important, and not simply what is easiest to measure, and to find an effective way to communicate to the general public the bottom line; which is what each agency is doing for the public good.
Obviously, as the law itself recognized in asking agencies to describe ''external factors'' in their plans, there can be many extenuating circumstances. I am sure some Members of Congress will ask whether a Federal Government agency can, or should, be held accountable for a public result, when much that affects an outcome is beyond an agency's control. Yet agencies have been created for a specified public purpose and if they are not held accountable to a large measure of the public good, someone is certain to question their continued existence or suggest changes to their mission as provided in statute.
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The task of identifying appropriate measurable goals in the long-term strategic plans before us today is a difficult challenge for the agencies. How they meet this challenge will become more clear when annual performance plans are submitted for fiscal year 1999 next February. It is clear in the OMB guidance to agencies on this point, that annual goals and indicators should ''be expressed in an objective and quantifiable manner,'' unless OMB approves otherwise, and have a numerical target level or other measurable value. Only then will it be possible to judge whether agency goals are actually achieved.
Of particular interest to the Banking Committee should be whether the agency goals comport with missions as provided by statute. While it is one thing to put on paper certain goals which may or may not appear to follow an agency's statutory framework, it is quite another to look at the actions of an agency and how they relate to the appropriate mission of the agency. In this regard, the Chair may want to review some recent agency activities in relation to the existing statutory framework for bank regulatory agencies.
To present specific agency plans, we have appearing before us today representatives of each banking agency: the Vice Chair of the Federal Reserve, Alice Rivlin; the FDIC Acting Chairman, Andrew Hove; Vice Chairman of NCUA, Shirlee Bowne; OCC Comptroller, Eugene Ludwig; and OTS Director, Nicolas Retsinas.
On our second panel, we will have Thomas McCool, an economist and Associate Director of GAO, and last, but not least, we are pleased to have two private sector witnesses with expensive——
[Laughter.]
With expensive and extensive experience in the Federal Government and in the field of strategic planning and performance measurement, Gerald R. Riso and C. Morgan Kinghorn.
At this time, I would like to turn to John LaFalce for an opening statement. I welcome Mr. LaFalce.
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Mr. LAFALCE. Thank you very much, Mr. Chairman.
GPRA requires agencies to set goals, to measure performance, to report to the President and the Congress on results after consultation with interested parties. The Act focuses on program performance and results, outcomes. How are specified goals accomplished, rather than on traditional measures of program activity, such as staffing and funding levels.
The 5-year strategic plans are supposed to include, among other requirements, outcome-related goals and objectives, an explanation of how the goals and objectives are to be achieved, a description of how performance goals relate to these general goals and objectives and a description of program evaluations.
Today, we seek to see if each financial institution regulatory agency has set forth the ways it will evaluate and measure its implementation of the strategic plan. It is my hope that these plans are complete, reasonable and in full compliance with the law's mandate. However, GAO's testimony, as well as that of other witnesses, sets forth deficiencies and inadequacies.
I remain open-minded, but it is incumbent on the agencies to submit complete strategic plans with specific objectives and specific measures to evaluate achievements.
I would also like to hear from the agencies on how each of them has consulted with the Congress and also solicited and considered the views and suggestions of those organizations potentially affected by these strategic plans as required by the Results Act. It would also be helpful for us to learn the views expressed by those organizations during agency consultations with them.
One of the stated purposes of this law is to improve Congressional decisionmaking by providing more information on how statutory objectives are achieved by every agency and on the relative effectiveness and efficiency of Federal programs and spending. GAO recently highlighted four basic questions that each agency should answer.
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What really is our basic mission? What are our goals and how will we achieve them? How can we measure our performance in achieving our goals and our mission? And how will we use that information to make improvements?
I am anxious to hear your perspectives on these issues. I commend Chairman Leach for calling this hearing. I look forward to your testimony.
I thank the Chair.
Chairman LEACH. Thank you, John.
Mrs. Roukema.
Mrs. ROUKEMA. Thank you, Mr. Chairman. I won't make a long opening statement.
I think you, Mr. Chairman, and certainly the Ranking Member have more than adequately outlined the imperative need for this particular hearing today and I don't think I can top the slip of the tongue, Mr. Chairman, of ''expensive'' and ''extensive.'' I guess that says a lot and I am in agreement with that.
But, I do want to say that it is important that we have this hearing, especially since we are intent on modernizing the financial services industry. As we enter this so-called ''brave new world'' of financial modernization, I think it is critical that the goals of these agencies are commensurate—and the structure of these agencies are commensurate—with the new regulatory requirements that financial modernization will place on them. I will not go into that in any more detail.
These members of the panel are going to enlighten us particularly, and I am sure the questioning will bring out a lot. But, I do want make the point that the timeliness is also important in terms of the fact that my subcommittee—and this is somewhat by way of an announcement, my subcommittee, on September 24, is scheduled to have hearings that will look beyond the strategic plans that the agencies have submitted and will focus on the broader issues as to whether the agencies are adequately examining insured depository institutions and whether they have the sophistication and regulatory apparatus to accurately assess the risks that these institutions are going to be subjected to, not only in today's world, but under the modernization proposals. We expect this to be a very positive and constructive action, so that we can look forward to the future and will not in any way interfere with the ongoing aspects of financial modernization.
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I want to thank you, Mr. Chairman. I think many of us look back on what happened in the S&L debacle. Part of that was a lack of diligence in the examination department and the supervision system and therefore, I think we have to learn from what history did and look forward, so that history will not repeat itself, and today is a good start on that.
Thank you, Mr. Chairman.
Chairman LEACH. Thank you, Marge.
Mr. Vento.
Mr. VENTO. Thank you, Mr. Chairman. I don't have a prepared statement, but I would say I think it is highly appropriate to have an oversight hearing on the GPRA, the latest in an effort to try and rationalize and set in place a framework for the agencies, departments and other regulators that in fact are attempting to articulate their mission. This new law, of course, often starts with a lot of publicity and a lot of attention and I suspect that they will learn that a lot of effort on the part of the agencies and boards and departments that are attempting to implement it, at least the knowledge that I have of those, some that were working on it in different agencies and departments, a lot of effort goes into it.
Then finally, as our interest wanes, the goals and objectives, the continuity that is necessary to accomplish it seems to atrophy. It is easier at this particular point, I suppose, or somewhat easier, but I think we find the task of oversight difficult and hopefully this framework will provide the foundation so that we can continue to build upon it, find out what works and be serious about it. I think that, as I have stated, these work when we can pay attention to them.
I think there isn't any substitute, frankly, for the Congressional role that we have in terms of pushing the oversight role. I know from experience where it has happened, whether it has been with this framework or some other, there isn't any substitute.
We need to move away from the crisis-type of activity and action that characterizes the Federal Government. Not that we won't have unexpected events that we have to respond to, but hopefully, we won't lose the road map that should be articulated by the agencies, departments and others for their mission and, insofar as we pay attention to it and fund those needs and let it guide us in our policy and actions, I think that will be the most positive reinforcement.
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So, I look forward to this and to the hard work ahead in terms of trying to continue to focus on this, rather than pass other redundant-type measures which are contradictory to it in the end. So hopefully, we can serve to keep the focus.
I know that the aim here, and read some of the issues in terms of how it gets a lot less interesting and a lot more work as we go down the road, but hopefully we will continue to work on this and let the agencies and departments know that we are serious about it, and we will use it as a major benchmark for our oversight.
I thank you, Mr. Chairman.
Chairman LEACH. Thank you, Mr. Vento.
First, Mr. Lucas, would you?
Mr. Sessions, do you have an opening statement?
Mr. SESSIONS. Mr. Chairman, thank you.
I am particularly interested in what is going to be said today, because I am interested in things being measurable, and people understanding the reason why we have gotten into this discussion about results is for us to know what a mission statement is supposed to be. I believe, from what I have heard, you have gotten close to that, but things need to be measurable for people to understand why they are doing whatever is within their mission statement or their results should be.
And, second, about how people will be incented to do their work. In other words, what is going to be measured, what are they going to be appraised on? And so, I just want you to know that, in particular, today that is what I will be very interested in hearing from you.
You may not know it, but the Majority leader has formed a new caucus that is called the ''Results Caucus,'' and I am Chairman of that caucus, and it is our job to look at the performance of agencies, inasmuch as the GAO is concerned. So, I want to welcome each of you here this morning with the knowledge that what in particular I am going to be looking at is that things are measurable. Things can be looked at in a performance evaluative measurement and that you look at things long-term in terms of what makes sense for the organization.
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So, thank you for being here. Mr. Chairman, thank you for the time.
Chairman LEACH. Thank you, Mr. Sessions.
Mr. Maloney.
Our new Member, Mr. Redmond. Would you care to make an opening statement?
Mr. REDMOND. Why not.
Chairman LEACH. Mr. Redmond.
Mr. REDMOND. I want to thank the Chairman for the warm welcome, and I will make this very brief.
I used to be an archery instructor for the Boy Scouts of America, and the boys would get their bows and arrows and go out to the archery range, and they used to just fire the arrows in any direction, and they had a lot of fun. But, that really didn't help them develop the skills for hitting that nice, big, orange-golden circle in the middle of the target. I think that this is exciting that we can participate in defining that target for our Government. We can have a lot of fun and shoot a lot of arrows in the air and not accomplish a whole lot. So I think this is very important, that we are strategically defining what our target is. The process is open, and once we come to the consensus on what that target is, I am just glad I could be a part of the team trying to make that bull's-eye for us.
Thank you.
Chairman LEACH. Thank you. That is an interesting analogy. I am hopeful none of you have bows and arrows.
[Laughter.]
Chairman LEACH. In any regard, this is a difficult panel on protocol and if there is no objection, we will just begin from left to right, if that is all right with Members? So, we will begin with Ms. Rivlin.
Before beginning, the Chair wants to issue an apology. I am on a State Department authorization conference, and my major issue in foreign affairs, which relates to the U.N., happens to be under discussion today. So, I may have to leave at some point and I apologize to all of you.
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Ms. Rivlin.
STATEMENT OF HON. ALICE M. RIVLIN, VICE CHAIR, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM
Ms. RIVLIN. Thank you very much, Mr. Chairman. I am very pleased to be here to discuss the efforts that we are making at the Federal Reserve to measure and improve our performance in the spirit of the Government Performance and Results Act. I am personally a long-term supporter of the Results Act. I worked with the Congress on it before it was enacted, and I worked hard when I was at the Office of Management and Budget on its implementation.
Strictly speaking, the lawyers tell me the Fed is not covered by the Act, because we don't spend appropriated funds. We are, however, eager to participate in the processes that the Act sets forth. Indeed, the Fed is making major new efforts to plan further ahead, to use its resources more effectively, and to coordinate activities more explicitly across the Federal Reserve System. We believe this fits in very well with the Results Act.
The Fed has a very broad mission. As set forth briefly in our mission statement, it is to ''foster stability, integrity and efficiency of the Nation's financial and payments systems so as to promote optimal macroeconomic performance.'' That is a very large order. It involves at least three kinds of policy: monetary policy; policy to improve the safety and soundness of the banking system—a responsibility which we share with the other regulators on this panel—and oversight of the payments and settlement system, including acting as fiscal agent for the U.S. Government.
That means we conduct varied activities. Besides examining banks, which is again, an activity we share with the other regulatory agencies, we set short-term interest rates, we process checks, we perform the net settlement function for the whole financial system and undertake numerous other activities.
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The Federal Reserve has a unique structure. There is nothing else like it. The Board of Governors is at the center of the organization, but has relatively small resources. About 1,700 people work at the board, out of about 25,000 across the system. Most of the activity and resources, and substantial managerial autonomy, reside at the regional bank level.
The regional structure of the Federal Reserve is one of its great strengths. The 12 regional banks are tied in closely to their regional economies and they bring that expertise to the solution of national problems. But the regional structure does present a dilemma for planning. It is important, on the one hand, to preserve the regional autonomy but, on the other, for the board to work together with the banks to rationalize the allocation of resources across regions and functions.
I am relatively new to the Fed, but I think we have made quite a lot of progress in recent years in this direction. It has meant considerable consolidation of functions across the system, which has been mandated by the rapidity with which the technology is changing. For example, we have consolidated Federal Reserve Automation Services, which include our mainframes and serve as the backbone of the communications and payments systems.
One result of the systems decentralization has been, historically, a very decentralized planning process. In 1995, a new effort was made to coordinate the planning that was going on across the system and to provide a consistent framework for planning at the banks, at the board and with respect to the cross-cutting functions. A system-wide committee developed a strategic planning framework which was very much in the spirit of the Results Act. It sets forth the mission of the Federal Reserve, its values, its goals and objectives, key assumptions and the external and internal factors that could affect its achievement. The framework serves as the basis for the document that has been submitted to this committee, and is an umbrella under which strategic planning efforts are proceeding very energetically at the individual regional banks and also at the board.
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I am heavily involved, at the moment, in a new planning and budgeting process for the board itself, which is a small, but important piece of the resources. We are attempting to move to a longer planning horizon, and intend to do a 4-year plan with a 2-year budget. This is something I have wanted to do for years, and we will do it this year starting in January for the Federal Reserve. The effort includes a new process of decisionmaking in which the board has set up a board committee to look at resource tradeoffs across mission areas.
We are also engaged in a major study of the payments system, which represents a strategic planning effort of a most fundamental sort. Payments technology is changing very rapidly and the banking system itself is consolidating and changing rapidly. It is an anomaly that the United States has an intensely paper-based payment system. It works efficiently, but this is the moment to take a look at the whole payments system, how it is evolving and the role of the Federal Reserve in it. We are doing that now.
We have been looking at alternative scenarios, quite drastic ones, from the Federal Reserve getting out of the payments system, to the Federal Reserve playing a stronger role in leading toward an electronic system. I look forward to sharing the results of that study with the committee.
We have had an enormous amount of stakeholder input by holding forums all around the country to see what the participants in the payments system think. We are in the process of assessing possible options.
Finally, a word on performance measures. These are extremely important, as several Members have pointed out, but also hard. The Federal Reserve, like other agencies, has done better on performance measures in some areas than in others. In payments services, where we actually compete in a market and have a bottom line, we have over the years had benchmarks and have been able to compare the efficiency of producing payment services across banks. But we are now engaged in an intensive new effort to reevaluate those measures.
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In supervision, we have also had a variety of measures of the efficiency of the examination process, but we are making a major new effort as the examination process becomes more automated, and as we shift the focus to identifying the major risk factors and trying to make the examination process more focused on actual risk.
In summary, the Results Act provides an opportunity to improve the management and effectiveness of Federal agencies. It won't be an instant success, but the Federal Reserve is prepared to work very hard to improve our processes. We look forward to feedback from this committee and to sharing our efforts with the committee.
Chairman LEACH. I thank you, Ms. Rivlin.
Mr. Ludwig.
STATEMENT OF HON. EUGENE A. LUDWIG, COMPTROLLER, OFFICE OF THE COMPTROLLER OF THE CURRENCY
Mr. LUDWIG. Mr. Chairman, Members of the committee, I appreciate this opportunity to discuss the OCC's strategic plan with this committee in accordance with the Government Performance and Results Act. I am a strong believer in the importance of strategic planning, and I look forward to your comments on our plan, which provides direction for the OCC over the next 5 years.
I have a written statement I would like to submit for the record.
Chairman LEACH. Without objection. And without objection, all statements will be submitted fully into the record.
Mr. LUDWIG. Since the OCC was established in 1863, we have had one overriding mission: to charter, regulate and supervise national banks to ensure a safe, sound and competitive national banking system that supports the citizens, communities and economy of the United States. Over the years, however, banking has undergone fundamental changes, changes that are accelerating today and are generating new challenges to the long-term health of the industry. In this environment, sound strategic planning is essential to ensure the OCC will be able to carry out its mission.
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For that reason, early in my term, we developed four goals, or pillars, to provide a broad vision for carrying out the OCC's mission in this period of dynamic change. Those goals, which are the centerpiece for our strategic plan are the following:
First, to ensure bank safety and soundness to support a strong national economy.
Second, to foster competition by allowing banks to offer new products and services to their customers as long as banks have the expertise to manage the risks effectively and to provide the necessary consumer protections.
Third, to improve the efficiency of bank supervision and reduce burden by streamlining supervisory procedures and regulations.
And, fourth, to assure fair access to financial services for all Americans by enforcing CRA and fair lending laws, and encouraging national bank involvement in community development activities.
To ensure safety and soundness, the OCC has made substantial changes in the substance and process of how it supervises banks. Our supervision by risk program is improving our ability to identify and address potential problems by focusing on risk levels and trends at an institution and on the bank's risk management systems and internal controls.
In addition, as banking and the risks in banking continue to evolve, we are working to ensure our organization has the appropriate structure and employees with the necessary skills to keep pace with these changes. We created the Deputy Comptroller for Risk Evaluation, integrated sophisticated financial modeling into the supervision process through the expansion of our economics department, and created the National Credit Committee in 1995 to address our concerns about erosion in credit underwriting standards. The OCC has also played a leading role in developing greater cooperation and coordination among banking regulators, both domestically and internationally, to identify and manage systemwide risks.
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Our goal of fostering competition is premised on the notion that consumers and businesses are best served by a vigorous free market, subject only to the constraints needed to ensure safe and sound banking practices, fair access to credit, and appropriate consumer protections. Allowing banks to develop more and better financial services and products to meet the needs of businesses and consumers—as long as those products are permissible under current law and are consistent with safe and sound banking practices—is critical to the industry's long-term health. And it provides bank customers with the benefits of increased access and lower prices that derive from increased competition.
The OCC has also taken steps to improve our own efficiency and reduce regulatory burden. Under our Regulatory Review Program, we have reviewed all OCC rules and eliminated provisions that did not contribute significantly to the goals of bank supervision.
I am particularly proud of our efforts to advance the goal of fair access to banking services for all Americans. Working with the other bank regulators, we revised our CRA regulations to emphasize performance over process. We have encouraged national bank involvement in community development activities and eliminated regulatory impediments to bank participation in these activities, and we have stepped up our enforcement of CRA and fair lending laws.
Within the general framework of the four pillars in our strategic plan, the OCC has established seven specific objectives for 1997 to focus our efforts on particular programs and policies and provide a basis for allocating resources.
First, we are continuing to build on our supervision by risk program, which contributes to bank safety and soundness and improves the efficiency of bank supervision.
Second, we are continuing our focus on improving access to financial services. Under this objective, OCC resources are being used to implement the revised CRA, improve our enforcement of fair lending laws, and encourage national bank involvement in community development activities. In addition, we have launched a new project to understand the impediments that limit access to banking services for low-income Americans without a banking relationship.
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Third, we are analyzing electronic money and banking issues to identify areas where OCC actions may be necessary. Our primary objectives in this area are to ensure the financial integrity of electronic money issuers, protect consumers, and deter financial crimes.
Fourth, we are working to redesign effectiveness measures for OCC programs, processes and projects. This effort relates directly to one of the fundamental objectives of the Results Act: to be able to measure the performance of the agency in carrying out its mission.
Our fifth objective is to further develop technology to support our workforce. We are continuing the development of our examiner view automated examinations system, and we have been working to perfect our automated supervision support systems to improve efficiency and reduce regulatory burden.
Sixth, we are devoting considerable effort to enhancing our workforce skills, abilities and resources. We are moving toward a smaller, more highly-skilled workforce that can more effectively supervise the banking industry of the future. To this end, the OCC has begun a process to identify future knowledge needs, compare those needs to the current knowledge levels of employees, identify gaps and recommend actions to fill those gaps.
The last of the seven objectives is to improve internal communications. Under this objective, we will continue to institutionalize a coordinated and integrated communications process within the OCC, including enhancement of internal electronic communication.
In developing our strategic goals and objectives, we have actively involved employees throughout the OCC at every level in the organization. We have also paid particular attention to communicating and consulting with members of the banking industry, trade groups, consumers, and public interest organizations, as well as communicating with Members of Congress and their staffs. Only in this way, I believe, can we develop a strategic plan that takes into account and balances the interests of all OCC constituencies.
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Mr. Chairman, as I said at the opening of my statement, effective long-term strategic planning is essential for the success of any agency such as ours, which is charged with supervising an industry undergoing fundamental change. I am fully committed to making long-term strategic planning an integral part of the management process at the OCC under the Results Act. I will be pleased to answer any questions the committee may have. Thank you very much.
Mr. LUCAS [presiding]. Thank you, Comptroller.
Mr. Retsinas.
STATEMENT OF HON. NICOLAS P. RETSINAS, DIRECTOR, OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF THE TREASURY
Mr. RETSINAS. Thank you and thank you for this opportunity to talk about the Government Performance and Results Act and not only to be explicit about what we at the Office of Thrift Supervision do, but more specifically, to talk about what the intended results of those efforts are.
As the custodians and protectors of insured deposits we, the banking agencies, have a special fiduciary responsibility not only to depositors, but to taxpayers. The Results Act will assist us, and I really do mean all of us, in this responsibility by helping to assure consistent regulatory focus by the Federal banking agencies. Our planning efforts at OTS have, and will continue to take place in an era of change. Notwithstanding the thrift industry's current very strong financial position, it is at a crossroads. Uncertainty exists on several fronts. Competition from a wide array of financial service providers continues to mount and the very existence of the Federal thrift charter is being debated by this committee. Perhaps even more significantly, advances in technology, driven for example by the biennial doubling of microprocessor productivity, are changing both how thrifts conduct their existing business operations as well as how they plan for new business opportunities.
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Of course, underlying any planning scenario is the state of the Nation's economy. The robust economic growth of recent years has brought an unusually long series of profitable quarterly returns to thrift institutions. But we must be ready to accurately assess the health of the industry under whatever economic scenarios unfold.
In fact, the OTS must be ready to adjust its operations and procedures to respond to each of these sources of uncertainty. If Congress determines that the agency should be consolidated with another regulator, we must be prepared to do so. On the other hand, if financial modernization legislation is not enacted, we must be prepared to appropriately supervise and contend with the impact of new and emerging business strategies that thrift institutions and their affiliates will craft.
With this as a backdrop and with the overriding purpose of the agency being to preserve and maintain a safe and sound financial system, our mission statement has evolved to embrace the following two concepts: One, to effectively and efficiently supervise thrift institutions to maintain the safety and soundness and viability of the industry; and, two, to support the industry's efforts to address housing and other community credit and financial service needs.
These two simple statements of intent are the foundation of our five major goals for the next 5 years. These goals translate into 14 specific objectives, with 16 separate performance measures of our efforts to achieve those objectives. Due to time constraints today, I will not address all of these in my oral testimony, but they are included in my written testimony submitted for the record. I would, however, like to state our five major goals to provide a picture of where we are focusing our attention.
One: maintain and enhance our risk-focused differential and proactive supervision of thrift institutions. In other words, focus our examination and supervisory attention to where it needs to be focused.
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Two: improve credit availability by encouraging safe and sound lending in areas of greatest needs. In other words, promote community lending that safely, efficiently and effectively responds to diverse market needs.
Three: enhance the competitiveness of the thrift industry to ensure its safety and soundness. In other words, to do what we can to facilitate strong, well-capitalized institutions.
Four: conduct operations as efficiently as possible to keep regulatory burdens on the thrift system at the minimum necessary level. In other words, continue to look for areas to reduce the regulatory burden.
And, fifth and finally: to provide exceptional customer service. In other words, not only to maintain Government accountability for the industry as a whole, but be responsive to the unique needs and requirements of individual institutions.
Mr. Chairman, let me note that OTS, along with essentially everyone else at this table, participates in the Government Performance and Results Act Banking Regulatory Agencies Working Group. In other words, we are at this together, because we need to be. We have all agreed to share information, reconcile inconsistencies in our plans and have all affirmed that the plans will emphasize the common interest in maintaining safe and sound depository institutions.
Let me conclude to be available for questions, Mr. Chairman. But, in a way, the process of strategic long-term planning resembles how we conduct the safety and soundness examination of our regulated institutions. An examination, of course, assesses an institution's past and current condition, but it also looks at an institution's operations going forward. It should assess the future needs and demands of the institution and understand ways in which management can adapt policies and objectives to meet that future. So, too, must our strategic planning be cognizant of the past and present, but vigilant about the future.
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Thank you for this opportunity. I look forward to answering any questions you may have.
Mr. LUCAS. Thank you, Director.
Vice Chairman Bowne.
STATEMENT OF SHIRLEE P. BOWNE, VICE CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION
Ms. BOWNE. Good morning, Chairman and Members of the committee. I, too, appreciate the opportunity to appear before you today to outline the National Credit Union Administration's position on the Results Act and demonstrate the importance of the Act to our agency. The NCUA Board fully supports the Results Act and its goals of boosting the confidence the American people have in their Government.
One of the most important factors we considered in developing the performance-based strategic plan was NCUA's mission as set forth in the Federal Credit Union Act which reads, in part, ''To establish a Federal credit union system, to establish a further market for securities of the United States and to make more available to people of small means credit for provident purposes through a national system of cooperative credit, thereby helping to stabilize the credit structure of the United States.'' We have examined that and we believe that that mission is still timely today.
We also considered the agency's future goals and objectives, the effectiveness of the current examination and supervision program, the existing agency resources, the health of credit unions and the external factors such as the economy, technology and the legal challenge to NCUA's interpretation of the common bond field of membership.
We have developed six strategic goals with corresponding objectives to achieve those goals. Evaluation measures have also been assigned to gauge the outcome of each objective. Those are fully outlined in our strategic plan and then they are again outlined in the written statement that has been given to you today, so I won't go into those one by one.
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We are currently soliciting comments from Congress and other interested parties, and our stakeholders, as well as working with the interagency financial regulator group on cost-cutting issues. Once all the comments are received, they will be reviewed and, where appropriate, incorporated into our strategic plan. We are urging our stakeholders to take part in this and to give us their comments.
Our plan will be completed and delivered to Congress by the mandated date of September 30, 1997. We know that traditional risk management programs will need to adjust to an electronic environment. We know that, just as credit unions need to keep abreast of new technology, so does NCUA, and we know that we will require additional staff, training and equipment in order to do that. So, for that purpose, the planning and budgeting, NCUA's strategic plan has considered those factors as well as the possible economic changes that credit unions might encounter.
Having now served 6 years at NCUA, I personally view this exercise as a positive activity for our agency. Although we have formulated long-range plans in the past, this product, because it directly engages the attention of Congress and our stakeholders, enforces a discipline on the agency to consider how decisions and actions conform to the plan and, if they do not, a burden on us to recognize that we owe our stakeholders an explanation for why we have deviated from a plan that we developed.
In addition, it gives all our stakeholders, especially credit unions who fund our agency, a set of guidelines for rating our effectiveness and our efficiency. Also, on another note, the NCUA board was structured to have a new member roughly every 2 years. This plan should especially be helpful to a future board member in providing a comprehensive overview of what the agency format is for handling agency responsibilities and should provide for a quick study.
It may be, Mr. Chairman, that some of my interest in the Results Act has to do with the fact that I am coming to the end of my term at NCUA. I am about to be back in the private sector. And I think that I quite like the idea of having a structured means by which I can gauge how effective Government is treating me at that point, so I appreciate this on another level.
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In summary, federally-insured credit unions have performed extraordinarily well through the 1980's and the 1990's. We believe they will continue to prosper into the next century. We intend to continue our record of never coming to Congress for assistance to deal with either a systemic failure or the need for a short-term financial buttressing of our insurance fund.
I thank you for your attention and I will be pleased to respond to any questions.
Mr. LUCAS. Thank you, Vice Chairman.
Acting Chairman Hove.
STATEMENT OF ANDREW C. HOVE, JR., ACTING CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. HOVE. Thank you very much, Mr. Chairman and Members of the committee. I thank you for the opportunity to discuss the efforts of the Federal Deposit Insurance Corporation to implement the Government Performance and Results Act of 1993. The FDIC strongly supports this Act.
The Results Act applies the principles of sound business management to the Federal Government. These principles include setting goals through long-range strategic and annual operating plans, measuring outcomes or results of operations, and comparing operating results to planned performance.
I came to Government from the private sector, where, as a manager for more than 30 years, I witnessed these principles in action and I used them myself. They make organizations more effective and efficient.
Even before the Results Act went into effect, the FDIC followed business management principles and we are proud of our planning accomplishments. Recently, we have slightly modified the formatting of our planning and performance measurement initiatives to meet the requirements of the Results Act.
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The FDIC has drafted a Corporate Strategic Plan and an Annual Performance Plan. We have also developed a performance reporting process that captures our progress in meeting the goals and the objectives in both the Strategic Plan and the Performance Plan.
My written testimony covers each of these areas in detail, as well as the FDIC's efforts to consult with Congress and with our stakeholders, such as insured depository institutions, the public and others, regarding our strategic plan. I submit that written testimony for the record and today I will briefly touch on several of its highlights.
In the mid 1980's, the FDIC developed a quarterly status report, reviewing corporate performance in key areas such as the timeliness and cost of performing bank examinations. Beginning in 1990, the FDIC required each division and office in the corporation to compile a business plan in conjunction with their budget request. Each business plan included goals and measurable objectives. Divisions and offices were required to report quarterly on the performance of these objectives.
In 1992, we began developing a strategic planning process. Following the banking crisis of the late 1980's and the early 1990's, we undertook a comprehensive planning effort to review our mission. One of the results of this process was our placing a greater emphasis on evaluating, monitoring and addressing risks in the banking system. Our strategic plan, which was approved by the board in 1995, incorporated this new focus and produced a number of key initiatives in the corporation.
In 1996, the FDIC established its first annual performance plan, originally referred to as the corporate business plan at the FDIC, which sets out the steps to achieve the goals and objectives of the strategic plan.
In 1997, we began a quarterly reporting and review process whereby the chairman and senior FDIC management discuss and evaluate the performance results relative to the annual performance plan. Our efforts to comply with the Results Act incorporate these and other earlier initiatives. The final version of our strategic plan in the 1998 annual performance plan will be submitted to the Office of Management and Budget and the Congress by September 30, in accordance with the Results Act.
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Since 1995, implementation of the strategic plan has resulted in cost savings throughout the FDIC, and those savings are projected to continue. For example, in the corporate downsizing effort, a key strategic initiative over the past 2 years, was accomplished largely through two buyout programs which are projected to result in a net savings of $133.1 million.
In conclusion, I am pleased to report that the FDIC is not only well positioned to meet the requirements of the Results Act, but has been implementing strategic planning and performance measurement well in advance of the statutory time table. The FDIC believes that our planning and budgeting processes have significantly strengthened the management and the operations of the corporation, in addition to providing a substantial cost savings. The only programs we fund at the FDIC are those that are contained in the strategic plan and the annual performance plan. We look forward to continuing to achieve such results over the next several years.
Mr. Chairman, that concludes my testimony. I would be happy to respond to any questions.
Mr. LUCAS. Thank you, Mr. Chairman.
I believe now at this point we will turn to questions from the committee.
Mr. LaFalce.
Mr. LAFALCE. Ms. Rivlin, my first question would be for you.
I think the official position of the Fed is that they are not covered by the Act, but that doesn't make too much difference whether they are covered or not, because they do precisely what the Act called for anyway and are glad to do it, would do it whether the law existed or not.
I am pleased at part of it, but I am a bit troubled by the initial position that the Fed might not be covered, so I looked at the definition of ''agency'' under the law. It would seem to me that the FDIC is covered. Section 306(f) states that the term ''agency'' means an ''Executive agency defined under Section 105, but does not include the CIA, the GAO, the Panama Canal Commission, the U.S. Postal Service and the Postal Rate Commission.''
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Title V of USC 105 defines an ''Executive agency'' as an ''Executive department, a Government corporation and an independent establishment''; and Title V, USC 104 defines an ''independent establishment'' as one ''in the Executive Branch which is not an Executive department, military department, Government corporation or part thereof or part of an independent establishment.''
This all-encompassing coverage suggests to me that the Federal Reserve as an independent establishment is covered and that coverage is not predicated on whether an agency is an appropriated one, that all Government entities are covered. I understand that the Fed takes a different position. I am wondering if it is permissible for me to receive a legal memorandum prepared by the Fed on this question so that I might submit my questions perhaps to the GAO to seek their counsel on it, because my own present legal judgment is that the Fed is covered.
Ms. RIVLIN. Certainly, Mr. LaFalce, you are one up on me, because you are a lawyer and I am not.
Mr. LAFALCE. Well, I am a lawyer, but I don't know if I am one up on you.
Ms. RIVLIN. I think our general counsel would be delighted to set this forth in a memorandum.
There is, as you probably know, a long history of discussion of what the Fed is covered by and what it is not. In this case, it involves reading not only the Government Performance Results Act itself, but also the Federal Reserve Act. So we would be happy to provide you with a legal opinion.
But, as I said, I don't think it matters, because we want to participate in this Act anyway.
Mr. LAFALCE. There are a lot of times when the President thinks it is unconstitutional to consult with the Congress pursuant to a law, but does it anyway. I was just wondering if this is one of those instances?
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A couple of questions now. First of all, I assume you have had opportunity to either read the draft of GAO's testimony or their actual testimony. Is my assumption correct? OK, so that you are in a position then to understand the deficiencies that they have cited perhaps with respect to your agency. To the extent that you have not been able to comment on those in your opening statements would you please comment now with point, counterpoint with respect to GAO's testimony?
Who would like to start?
Dr. Rivlin, you seem anxious.
Ms. RIVLIN. No, I am not especially anxious.
We did not get a chance to really more than glance at what the GAO is saying and would very much like to have the opportunity to look at it more carefully and to respond. We want to give it the benefit of serious thought.
Mr. LAFALCE. Mr. Ludwig.
Mr. LUDWIG. We are sort of in the same boat. I understand that we got the testimony this morning and we will be pleased to respond to it.
Mr. LAFALCE. Mr. Retsinas.
Mr. RETSINAS. I did get a chance to see an early draft and I can make a couple of comments. I am not sure it reflects the final report and testimony so, with that qualification, I will comment on the report. I think in a couple areas, the GAO may have been looking at an earlier version and I will give a couple of examples in a second. In other cases, I thought their critique was fair and helpful.
As I recall the draft, there was some question about whether the strategic planning, not only of our agency, but my colleagues here, was done in consultation and coordination. In fact, the answer is, yes. There has been, as a matter of fact, a working group formed since the Springtime that has been working on a number of specific issues. Perhaps they may not have been aware of that group. Again, I saw an earlier draft.
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There was another question having to do with the relationship of the strategic plan to the annual performance plan. In our discussions with GAO it is very clear both the intent of the law and our intent. Of course, the annual performance plan will provide a method to measure progress toward making the strategic plan.
The last comment I would make, again, that I thought was helpful, that we need to reflect on is once we have concluded the consultative process on the strategic plan, including this hearing and the ongoing meetings with staff and the effected parties, we need to create a stronger bridge to the ongoing, not only operations, but budgeting divisions of the Office of Thrift Supervision. It is probably a little premature to do that until we have finished the conclusion of the strategic plan, but I thought that point was well taken and one we intend to follow.
Ms. BOWNE. We have just received this since we arrived here. A quick look at it looks as though we are missing one component. We will look at that and get that in if we are. The rest seem to be some fine tuning that we need to do and we will certainly do that as quickly as possible.
Mr. LAFALCE. OK. Mr. Hove.
Mr. HOVE. We received a copy of this this morning and I just had a chance to very briefly review it. One of the concerns they have had is that we are more mission-oriented than results-oriented. In other words, output-oriented more than results-oriented—but it is very difficult to measure the results of an examination.
You can do an examination, but oftentimes the results of that examination are not evident for some time later. We will review GAO's report in detail and if you have further questions, we would be very happy to respond to them.
Mr. LAFALCE. I think it might be a good idea if we left the record open at this point for any written comments the agencies might wish to make and it would be my hope that the posture would not be a defensive posture, but really a cooperative posture. They have raised some good points and maybe we might be able to do the following, in fact will do the following, in fact that is the spirit of the law.
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Mr. LUCAS. Without objection, the record will remain open for such response.
Mr. LAFALCE. If I may suggest, you might want to do the same with respect to Mr. Riso's testimony, to the extent you haven't reviewed it and I would assume now that you haven't. To the extent that he makes comments that you think are worthy of consideration and adoption.
Now, let me ask you this. Is this law good? Is it creating more paperwork than good result or is the fact that this law is there requiring you to say what is our reason for existence, is it helpful to have it?
Mr. LUDWIG. I will take a whack at that question. We have engaged in strategic planning as an agency since 1981 and we have aggressively been at it since I took office.
Having said that, I think that the Results Act does add something. It adds in a variety of different areas. One example where it has been very helpful is in creating a meaningful distinction between output measures and outcome measures, with emphasis on outcome measures.
It has caused us to go back and rethink how we focus on outcomes. Understanding that one is living in an environment where there are a variety of different impacts that can affect an outcome you may not be able to control, such as the overall economy.
Mr. LAFALCE. It would be easier if your mission were to make money?
[Laughter.]
Mr. LUDWIG. That's right. That's exactly right.
Having said that, as a result of the Results Act, we have said to ourselves, ''Look, we should not take the existing data and information at face value, but we should think out of the box.'' We have utilized some private consultants and are developing what we call a ''balanced scorecard.'' This is a process for looking at outcomes that Mobil and Sears have been using with some success that has a four-part analysis of outcomes, and ask, ''Are you achieving those outcomes?'' That has been very helpful. I think it will be helpful to the agency, and is an example of where the Results Act has had some genuine positive benefit.
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Mr. LAFALCE. One example that I try to use in the Small Business Committee is very often awards will be given to banks, because they make X number of SBA loans and perhaps we should give awards to those banks who make the loans without the Government guarantees, so that is not necessarily the best criterion to use.
Anybody else want to comment on that fundamental threshold question? Yes, Mr. Retsinas and Mr. Hove.
Mr. RETSINAS. Just briefly, I would agree with my colleague. On the one hand, it codifies a process already underway and, in candor, in the short-term, there probably is more paper produced. I think the real value of the Results Act lies in the consistency of terms and in the language used, so we can better assess the direction we are all headed. I think that framework will be very helpful to all of us.
Mr. LAFALCE. I would think that if I were a secretary of HUD or of any agency, I could use this Act to call a meeting and say, ''Hey, we have to ask who we are and what we are and why we exist.'' You know, we ought to do that, because it is good Government and good management, but because, also, the law requires it.
Mr. RETSINAS. Absolutely, we are all here because the American people expect, appropriately, results. The clearer we are about what those intended results are, and the clearer we are on how we measure that, then we all will be the beneficiaries.
Mr. LUCAS. Thank you, Mr. LaFalce.
Mr. Sessions.
Mr. SESSIONS. Thank you. I have just several questions.
Ms. Rivlin, I found the dialogue very interesting about whether you truly do fall under the Act or not and I was looking for your plan in here.
You had mentioned going to a 4-year planning process, but a 2-year budgeting process and it is that sort of information that would be in here that the Congress, if we took time to read it, would recognize that that's in your best interest to do and it would allow us that opportunity to approach the issue. So I would just say to you that that is the sort of thing that if you did produce this, I am sure the Pentagon would say the same thing probably if they do theirs. So thank you.
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I notice that as I go across a lot of these plans that the ''Y2K'' issue comes up, that's the year 2000 issue. I am very hopeful that each and every one of your strategic plans will enumerate in more specificity of the near-term problems. Now perhaps you just want to put it in one little summary and then have a document, but I am very hopeful that as we are wrestling with this in Congress and this committee and also in the Science Committee and also in the Judiciary Committee, that we get a better handle, I think, about not only objectives, but measurements and outcomes, what was just talked about, output versus outcome, to where we feel like you are prepared there, so that's just a comment.
As it relates to the Office of Thrift Supervision, and I want to be very careful here that I am not picking on you, because perhaps yours is the most detailed of any one of these——
Mr. RETSINAS. That will teach us.
[Laughter.]
Mr. SESSIONS. Beatings will continue until morale improves, right?
Mr. RETSINAS. Or else, right?
[Laughter.]
Mr. SESSIONS. Or else.
But, no, I want to pat you on the back at the time I say this, so please take it in the spirit in which I mean it, not in which you will take it, probably. Page 39.
Mr. RETSINAS. Page 39, OK.
Mr. SESSIONS. Heck, I hadn't seen these before I walked in either, so I don't know that my analysis is going to be as in-depth. But, if I look at any one of these objectives and then the measurement, can you go through any one of those that you choose on that page? Does that really, that measurement, is that what you are after? Because it is insight that you are dividing, but does that tell your people what the objective really is, the objective?
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For instance, and I know part of what we are doing here is to share this information. If I go to the NCUA's information on page 8, they talked about what they had reduced. And I am not trying to get you off, Mr. Retsinas, because I want to keep the question to you. But they talked about how they reduced their operating fees, that they—you know, exactly what their results were that they were proud of. Isn't this what your measurement and your objective should be, more to the tune of whether it is good or bad or reduced? Maybe some adjectives thrown in there?
Mr. RETSINAS. Perhaps, but objectives have to be viewed in the context of goals. If I could talk a little bit again about the goals?
The goals are relatively straightforward. How do we ensure that the thrift industry is safe and sound? And the reason we want them to be safe and sound is so they can address certain important goals that we have as a country, to promote residential lending, home finance, and to promote community-based lending, so that is what we are trying to achieve.
What we have identified here are a number of objectives that would enable us as a regulator to achieve that goal. This first one that you have outlined as an example is maintain and enhance our risk-focused and proactive approach. During my opening comments, I tried to put that in plainer English which means, let's focus our attention on where we ought to focus it, not necessarily on everything.
For example, a moment ago you talked about the import of compliance and being aware of the year 2000. Well, as you can see here, as a sub-objective of this, we have a special focus in the strategic plan on examining institutions and finding out to what extent they are compliant, and giving them checklists to determine it. It seems to me that is a building block to the overall goal.
The point I would make is that it is really not as much as a strategic plan for OTS, the Office of Thrift Supervision, in isolation; it is a strategic plan for the goals of OTS, which is really a different kind of approach, but one I think is a valuable one, an important one.
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Mr. SESSIONS. I am going to choose one of these, just purely hypothetical, but it is what is on the sheet.
Objective: Enhance industry awareness of the potential impact of the year 2000 roll-over on computer systems. That is the objective, to enhance the industry awareness. Measurement: Number of thrift institutions informed of the year 2000 systems conversion issues divided by the total number of thrift institutions regulated by OTS.
So what that is going to do is provide you with a figure, 50 percent, we can just take one, so would that measurement of 50 percent, or 90 percent, would that tell you that you are doing your job, because you really got to a high percentage? Is that what I should draw?
Mr. RETSINAS. If you did, that conclusion would be somewhat incomplete. If thrift institutions are informed and by informing them we then, because the next objective here is to monitor how they are complying——
Mr. SESSIONS. You're right.
Mr. RETSINAS.——Then our task as regulators is to monitor that compliance and ensure they are compliant.
If you think about it, it is almost like a ladder. The first rung of the ladder is information and as examiners, if all goes well, they will perform. The second rung is the more intensive scrutiny in monitoring and the third rung is the action taken to require compliance. We are always better served when people are on that first rung, but we need to make sure the other rungs are in place. So these are, in a sense, rungs of the ladder on that year 2000 compliance.
Mr. SESSIONS. Lastly, just an observation. It appears as though—which I like, spending 16 years in the private sector myself, it appears as though you are trying to think ahead and tell your organization what data you want to start getting and what information they need to start being prepared for, and I think that is strategic and I think that is tactical. And I like a strategic and tactical plan, whether you call it that or not, so I very much appreciate that.
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I know we are going to have several runs at this, but that completes my first round.
Mr. LUCAS. Thank you, Mr. Sessions.
Mr. Vento.
Mr. VENTO. Thank you, Mr. Chairman.
As we go through, I suppose many of those who are complying with this law, I appreciate the good-faith effort by the agencies, departments and independent groups, and I won't get into a discussion on the Federal Reserve Board, you know. I appreciate the cooperation. I think it is good and I think the question is whether or not this thing has any legs, you know, whether or not. And I appreciate the fact there is an effort to try, I assume, in most instances, to coordinate this with already what you do in terms of planning and the reference to the annual plan in here where GAO points out some have not tied together.
But, it is a question of whether it is another MBO and whether or not, in 5 years, Dick Armey will be around to find out what happened or anybody else that uses it. But, if it is just going to be a paper exercise, then I think it gets to be just one more requirement in Congress.
My question is, how does this fit together with what you already do and, for instance, with your relationship with Congress? We call most of you at least before the Appropriations Committee and other committees and does this have significant relevance to what the expectations are?
Mr. Ludwig, I guess, would be appropriate, because obviously the Fed doesn't appear before them.
Mr. LUDWIG. Congressman Vento, I think that it is a burden/benefit balance. I do not think we are really going to know fully the answer to that for a couple of years, in terms of ''are we getting the bang for the buck?'' out of the statute.
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I am hopeful, as I mentioned before, if handled correctly—and this hearing is a good example—this process will be taken seriously. We can do a better job of thinking through what outcomes we want to achieve and having our employees think in terms of why we are doing these tasks, can we do them more efficiently, can we serve the American people better?
I thought Director Retsinas said it exactly right, I could not have said it better myself. We are here for the American people and this gives us a chance to question what results they have a right to expect under this statute and can we do it? And that focus has some virtue.
Whether it is worth the burden at the end of the day, I think it is going to take several years to determine, but I am hopeful.
Mr. VENTO. Well, if any of you want to add anything to that and I assume you more or less agree with it.
Mr. Hove.
Mr. HOVE. Mr. Vento, let me respond. We have started this process. In fact, we really started this process in 1992 before the Act was in place. If you think about the FDIC in 1992, it was significantly different than it is today. In 1992, we were having 120 bank failures and today we have none. So we have changed the focus of the organization dramatically.
Through our strategic planning process, we have changed a lot of the functions within the FDIC. For example, we created what we call a Division of Insurance, which is to look at regional economies and see what is happening in those regional economies since we have changed the focus from trying to solve bank failures into trying to prevent them or minimize them as much as we can.
We have also created other organizations. We are downsizing in response to the fewer assets that we have coming in, the fewer resolutions that we have. So, the strategic plan has helped us to change this focus and do it in an orderly manner and also to bring it into the budgeting process.
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If something is not in the strategic plan, it does not get budgeted. So it has put a lot of discipline in our budgeting process.
Mr. VENTO. That gives me a chance to make an observation. I think the 5-year issue, I think it's exactly right. Start out with good intention and these goals and in 5 years we come back and look at where we're at.
I get concerned in terms of whether some of these are measurable. I don't look at the OTS mission as informing financial institutions about the year 2000 computer phenomenon. I think that is a general issue and I don't know how much you should be held responsible for that and if we put it in here and it doesn't happen, there's a problem.
As an example, Vice Chairman Bowne. I had it pointed out to me that you put in here that you thought you had to keep all CAMEL ratings 4- and 5- to 2.5-percent. I was just wondering, the economy—given what it is, how are you going to manage that? I mean, obviously, you have to deal with safety and soundness, but is that a good goal? I mean, that is what you get into when you start numerically measuring things.
Ms. BOWNE. That was a goal, and we looked at what we had been able to do with what we had. We certainly recognized as we went through this process, as I think we wrote into our plan, that economic conditions and changes will affect that goal. But as we now stand, what we have been able to accomplish and what we think is achievable within the credit union community as it exists now—including very small credit unions and other things going on—we belived that was achievable. But we recognized that as an aim, and that will change as conditions change and as economic conditions change.
Mr. VENTO. I think the concern I have, if I might just interrupt, is that some will look at this goal and say, well, that was your goal. They don't look at all the additional information and qualifiers.
Ms. BOWNE. Let me assure you that I had exactly the same reaction you did, Congressman, when I looked at that and I went back to our staff and asked, ''How are we going to look at this?'' And we were looking at past trends and what we thought, as I said, was achievable today.
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I would like to respond to the first part of your question——
Mr. VENTO. Let me ask another question, because I am about to run out of time, and if there is time if he permits further time.
But, I think the other issue that the Results Act requires agencies consult with Congress. I guess to do that, I saw that OTS litany of how often you have been up here. And the other is, of course, the input of others. And that gets into employees. I see some reference to that in here, but I wonder how broad-based that is, especially as you start down this road? The regulated, certainly, in terms of the sphere of concern we have here, and consumers.
You know, I wonder whether or not, if you are not in for the takeoff, how you are going to be in for the landing and I just wonder, I look at this as limited in terms of nature, but if this is going to be the guiding act in terms of embracing it, or is it going to be compartmentalized over here and just, you know, ''We will keep these folks on the Hill happy''?
But, I am interested, and I am glad Mr. Sessions is here, and I am learning about his role in this new caucus, because I think we need to look at whether this works, in other words, whether this law needs to be changed, how it should be restructured so that it can facilitate those goals if you want to make it work. I think 5 years is somewhat unrealistic in the sense that there is so much change, especially given the nature of what we are having here.
Mr. Hove talked about the fact that under the law changes that he goes up and down based on the number of failed institutions based on what they do in disposal of assets and resolutions. But that is not unexpected. I mean, that is to be expected. You can assume that you won't have those in the next 5 years and have 2.5 as a goal. But, I think that there are going to be unexpected things. So, I am interested in the overlap. I am interested in whether the laws that you have that govern you actually fit with the needs there. We don't think that is the case today. Most of us think that you are off as regulators extrapolating and trying to make due, but that the laws need to be changed.
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Mr. Chairman, my time has expired.
Mr. LUCAS. Thank you, Mr. Vento.
Mr. Redmond.
Mr. REDMOND. Let me make this very quick. I have another meeting I have to run to.
Mr. Retsinas, I want to thank you very much for your last goal. I think it is a very admirable goal in regard to minimizing regulation. And once we know how to do that, you and I will go into business. We will distill that and put it in the drinking water.
Mr. RETSINAS. Fair enough.
Mr. REDMOND. Number one, I would like to ask you which regulation, in your estimation, needs to be reinvented? And, number two, which regulation most needs to be eliminated? And just very short, no explanation, just identify them for me, please.
Mr. RETSINAS. We have been doing that. The process of regulatory relief has been an ongoing process certainly over time and over the last couple of years has really been a focus. We have taken steps, for example, to streamline our application process, which tended to be somewhat burdensome.
We have looked at some of our conversion procedures and I would say the one, to answer simply, since your question was simply, the one that we are focusing our attention on, let me give you the generic subject. We are still thinking how to address electronic banking. How do we create the appropriate environment that sets the rules fairly and clearly, but do not become a burden or impediment to the evolving role of electronic banking and financial services?
Mr. REDMOND. OK, and then as far as the regulation to be eliminated? Is there one regulation that should be eliminated?
Mr. RETSINAS. There could be ones related to that. I mean those that we have already been able to identify, we have already eliminated. But clearly, it is an ongoing process, because it is a dynamic world. Just because we as regulators and you, as Members of Congress, are sitting here today doesn't mean the world has stopped. Tomorrow there may be a different answer and the day after tomorrow there may be a different answer.
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But the ones we have identified that need to be eliminated, we have focused on. I believe it's important to remember it is an ongoing and dynamic review.
Mr. REDMOND. Thank you.
Mr. LUCAS. Thank you, Mr. Redmond.
Mr. Hinchey.
Mr. HINCHEY. Thank you, Mr. Chairman.
I just have one question that I would like to direct to Vice Chair Rivlin.
In your testimony you mentioned the recent study of the payments system of the committee of two governors and two Federal Reserve Bank presidents. I would just like to direct your attention to some broader issues of the way the Federal Reserve operates and ask you to make available to the committee some reports, which I think will shed some light on the internal operations of the Federal Reserve.
An investigation of Federal Reserve operations under the direction of the Ranking Member of the committee, Mr. Gonzalez, and myself reveals a number of potential problems in Federal Reserve operations and they are detailed in reports entitled Financial Examination Reports by the Board of Governors, Division of Reserve Bank Operations and Payment Systems.
For example, one problem reported in an examination report of the St. Louis Federal Reserve Bank by the board examiners was the existence of unsecured interest-free bridge loans to employees who are relocated. These loans were made on the value of their former residences. Some of these bridge loans were made without any appraisal, merely on the word of the employees themselves.
I think that this raises some questions that, of course, I wouldn't expect to be answered today. But among those questions are these: What is the policy on these bridge loans throughout the Federal Reserve System?; how many bridge loans are currently outstanding at this time?; what is their duration, and what is their value?
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There are also numerous other problems which will be brought to the attention of the Fed officials which are documented in these examination reports and, of course, the Fed will be given ample time to reply to these questions, but I think that these are questions that really need some close and careful analysis by the committee, particularly in the context of this present inquiry.
The whole purpose of the Results Act is to make Federal agencies more accountable to their stated mission and to the public. Because these reports relate to the way the Fed does business, I think it would be very helpful to the committee if we had an opportunity to look at them for all of the banks, not just the St. Louis bank, which has been under examination, but for all of the banks across the country. I would appreciate it very much if these reports could be made available to the committee as soon as possible.
Ms. RIVLIN. We will look into it, Mr. Hinchey, and get back to you.
Mr. HINCHEY. Thank you very much.
Mr. LUCAS. Thank you, Mr. Hinchey.
Now I guess it is my opportunity to ask a few questions.
By custom of this institution, it may well be 20 years before I have the privilege of sitting in this chair again.
[Laughter.]
Mr. LUCAS. Let's hope if that should ever come about that the committee won't be quite as full as it is right now.
Ms. Rivlin, coming from a district in Oklahoma whose business is agriculture; it's energy; it's small business. I suppose my question is provincial in a sense, but in the mid- to late 1980's, we had a very difficult time in agriculture and energy, and one that we are just now recovering from.
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Literally as I passed through the airport this past weekend in Oklahoma City, the headline on one of the papers was the lowest unemployment rate in 13 years, so we have worked our way back out.
I think this might be a good point to ask something along the following lines: Certainly, one of the concerns of any public official is in the role that we are in here is to prepare for a financial crisis of some type or of any type, and having lived through that in most recent memory, could you tell me where in the Fed's plan, it lays out their goals and strategies for handling such a contingency?
Ms. RIVLIN. The contingency being that the economy is not as good as it is now and we are back in a situation of more failing banks and——
Mr. LUCAS. More difficult times and sometimes things change rapidly and it is always a good time, in good times, to discuss those alternatives.
Ms. RIVLIN. Absolutely.
The possibility that the good times may not last forever is certainly something that we take into account in all contexts. If you are talking about the payments system, clearly we have been looking at that in the context of this study. We have been looking at the payments system as it is functioning now and as it functioned during the period when, particularly in Texas and Oklahoma, there were many banks under pressure. We are very much focused on how you have a payments system that works under all circumstances.
The same is true of bank examination and other areas in which we have to focus. Right now, I think one could say, no banks are failing, what's the problem? But all of us, as regulators, have got to focus on what would be happening to the banking industry if the economy were less favorable and how we cope with it.
Mr. LUCAS. And how we cope with it, exactly. And to that end, Mr. Hove, a question for you. Your folks, being in the field examining those financial institutions on a day-to-day basis, can you tell me the goals of this strategic review? How are those goals and objectives, how are they communicated to the managers, the people on down the chain of command who actually implement your policy? Could you expand on that for a moment, please?
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Mr. HOVE. Sure, I would be glad to.
When we developed our strategic plan, we developed it really from the bottom up. We solicited input from employees all throughout the country. The field offices as well as regional offices and the Washington office. So we have had much input from employees. We get input back on a regular basis on monthly reports that are sent back from the field offices to the regional offices, to Washington. It is compiled and reported back to our operating committee on a quarterly basis so we get the input back as to how are they doing on their goals, and how are they doing on the objectives that we set for them on a regular basis.
Mr. LUCAS. I guess my next question following up on that would be, in the plan, are the measures set aside that would provide the necessary authority, and I guess resources, to achieve those goals at that level?
Mr. HOVE. Yes, they are. We clearly give our managers the authority and the responsibility and hold them to that responsibility again by their quarterly reviews and annual performance reviews to make sure that they have the responsibility and have the authority to complete their jobs.
Mr. LUCAS. To shift gears one more time and to go to Vice Chairman Bowne. Not only do I have the privilege of representing a rural area in Oklahoma and south Oklahoma City, but I also have a very economically-challenged area that I represent in northeast Oklahoma City.
Providing financial services to low-income individuals in those kind of areas, of course, is one of the goals of your organization. Could you explain to me, I guess, how you identify and serve and retain credit union service in those areas to those low-income designated people as it is kind of generally outlined in this plan?
Ms. BOWNE. We look to encourage, through regulation, through deregulation if possible, and through our community development office, to look at those areas and to encourage service to those members. We are currently in a situation, as you know, where some of our efforts are curtailed because of the court case that is against us.
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One of the very strong pieces of the IRPS 94.1 that we implemented in order to do exactly that was to allow for large, successful, well-run credit unions to take in members from a community not contiguous, or that didn't exactly fit their membership, if indeed, that area was low-income and did not have sufficient financial services. That was working very well for expanding services to exactly the type areas that you are talking about—the under-served. It did it in a way that allowed credit unions to continue their mission also, and because this was done by well-run credit unions—credit unions that already had their focus—they could go into the area and give immediate services, an array of services.
That is much more beneficial, I think, to the area you described than attempting to start a credit union, because it takes a long time to develop a credit union and then develop the services that are actually needed, especially where other services had been curtailed. That is one of the ways we have addressed needed services.
Obviously, we are looking at—if we lose the suit and we can't continue—at what alternatives we could develop within the framework that we will then have to work within. I am meeting with a group at the end of this week from the credit union community to explore some of these ideas and brainstorm for other solutions. In addition to that, we have a field of membership task force that is looking at other possibilities.
We also obviously work through community development, which is a big part of what we do and one that we take a great deal of pride in. Those generally tend to get to fewer people, just because of the size of the credit unions, but we are trying to work from all those angles.
Mr. LUCAS. Thank you.
And with that, I would just simply like to say that I appreciate the challenge that all of you face in the time and in the series of industries where things are in such a rapid state of change, trying to project out in the future what should be done or could be done would appear to be a very complicated task in the least.
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If there are any other Members, and obviously there are not at this moment, who would actually wish to ask additional questions of the panel?
[No response.]
Mr. LUCAS. Seeing none, the Chair wishes to thank the first panel for their testimony and participation at today's hearing.
At this time, the committee will hear from our second panel which consists of Thomas McCool, an Economist and Associate Director at the General Accounting Office. Sir.
STATEMENT OF THOMAS J. McCOOL, ECONOMIST/ASSOCIATE DIRECTOR, GENERAL ACCOUNTING OFFICE
Mr. MCCOOL. Mr. Chairman, I would like to submit my full written statement for the record. I have a shorter oral statement.
Mr. LUCAS. Without objection.
Mr. MCCOOL. Mr. Chairman, I am pleased to be here today to help the committee in its review of the draft strategic plans of the five Federal regulators of depository institutions. These consultations are a step in implementing the Government Performance and Results Act of 1993, GPRA or the Results Act, in the parlance, whose purpose is to reduce the cost and improve the performance of the Federal Government.
Mr. Chairman, you asked that we provide analyses and observations about the agencies' draft strategic plans, including the strengths and weaknesses of each plan, the extent to which the agencies are experiencing particular challenges that face regulatory agencies and their attempts to measure performance, any suggestions we might have for improvements in these draft plans before they are finalized and submitted to Congress in September.
The Results Act seeks to shift the focus of Federal management and decisionmaking from a preoccupation with the number of tasks completed or services provided to a more direct consideration of the results of programs. That is, the real differences those tasks or services make in citizens' lives. As a starting point, the Results Act requires Executive agencies to complete, no later than September 30 of this year, strategic plans in which they define their missions, establish results-oriented goals and identify the strategies they will use to achieve those goals for the period of 1997 through 2002.
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Beginning with fiscal year 1999, Executive agencies are then to use their strategic plans to prepare annual performance plans. These performance plans are to include annual goals linked to the activities displayed in budget presentations as well as the indicators the industries will use to measure performance against the results-oriented goals. Agencies are subsequently to report each year on the extent to which those goals were met, provide an explanation if the goals were not met and present the actions needed to meet any unmet goals.
The Results Act requires agencies to consult with Congress and solicit the input of others as they develop the strategic plans. These congressional consultations provide an important opportunity for Congress and the Executive Branch to work together to ensure that agencies' missions are focused and that goals are results-oriented and clearly established.
Now, to get to our analysis of the plans. On the basis of our review of the draft plans, we found that each plan contained most of the components required by the Results Act. If you look at the chart we have over on my right, your left, you will see that according to our analysis, three of the draft plans had all six components and two draft plans had five of the six components and, in fact, even the two that did not have one of the components did have the substance of that component somewhere else in the plan, it just wasn't labeled properly and wasn't set off in a particular way.
In terms of the more substantive aspects of the plan, in general the draft plans reflected the statutory authorities and responsibilities of the Federal regulators with respect to the institutions and matters within their jurisdictions. Now, our analysis of the individual plan components show that the draft plans had mission statements that broadly defined the purposes of the agencies and goals and objectives that were appropriate to the agencies' mission and at least somewhat results-oriented.
The content of the other components varied across agencies. For example, some agencies had useful discussions of approaches and strategies to achieve the goals and objectives while others could have benefited from more discussion of their resources needed to achieve those goals and objectives.
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Each agency discussed key external factors, but only one discussed how those factors would effect the achievement of its goals, and none of the plans discussed how the external factors would be addressed.
In general, two sections were most in need of improvement. Each agency could strengthen its section on the relationship between strategic and annual goals by explicitly discussing the link between those two types of goals. Also, each agency could improve its section on how program evaluations were used.
Due to the complex set of factors that determined regulatory outcomes, measuring the impact of a regulatory agency's programs will be a difficult challenge going forward. However, the use of program evaluations both to derive results-oriented goals and to measure the extent those goals were achieved is a key part of the process.
Now, in terms of these challenges, especially the ones faced by regulatory agencies, I would just like to say that particular problems for regulators of depository institutions, include the complexity of interactions between what they do and the overall state of the economy as we have discussed a few times in the previous panel and a lack of control over outcomes along with the fact that results are often realized only over long timeframes.
For example, in focusing on the safety and soundness of a depository institution, any measure such as average capital to risk-based assets as a ratio, the number of failed institutions or the percentage of failed institutions would be largely determined by overall economic conditions, rather than any particular regulatory intervention strategy.
Finally, approaches that could effectively disentangle regulatory intervention from the myriad of other forces influencing outcomes represents a difficult challenge for all of these agencies as they pursue results-oriented measurement. Long time lags between actions and possible results could also be an issue for regulators of depository institutions.
Mr. Chairman, one of the most difficult challenges facing these agencies as implementation of the Results Act proceeds will be separating out the program's impact on the agencies' objectives and the impact of external factors that are often outside the program or agency's control. Although developing performance measures or evaluating program impact is difficult in these situations, it is important that agencies make efforts toward that end.
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Most of the agencies whose draft plans we reviewed have research capability, in some cases, a substantial research staff. Such analytical resources provide a potential source for both researching and developing innovative methods for measuring results. Any new methods or research approaches developed by one agency could also be useful to others, because at least in the area of supervision and regulation, there are many similarities in the activities undertaken by these agencies.
Mr. Chairman, this concludes my prepared statement. I would be pleased to respond to any questions you or other Members of the committee may have if there are any other Members of the committee.
Mr. LUCAS. Thank you, Mr. McCool. There are a number of things going on today, with the Justice's passing and a number of other issues that have come to a boil.
Mr. MCCOOL. I know that.
Mr. LUCAS. In a general sense, if you wouldn't mind for me, please, in comparison with other governmental agency strategic plans, how do the banking agencies rank in a top, middle, bottom——
Mr. MCCOOL. That is sort of difficult for me to do, because I have focused—and our group has focused—on this particular subset of agencies, so it has been hard and GAO has actually been trying to avoid the relative ranking of agencies.
I would say that a number of these plans probably stack up reasonably well, but there probably is one that is not quite up, and that is partly because I think the Federal Reserve is in the process of taking the bull by the horns. I think they are moving in the right direction, but they probably need to think a little bit more about what GPRA is trying to do, and try to approach their own goals and objectives in that spirit. I think they are trying, but I think they still have a little bit further to go than the others.
Mr. LUCAS. Following up on that, and that was a point raised by one of my colleagues, what is your opinion about whether they, from a legal perspective, are subject to the Act or not?
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Mr. MCCOOL. Well, we haven't done a formal legal analysis. I think our initial impression was that the Board of Governors was probably under the Results Act, though the banks, the Federal Reserve banks, are not. That is not an official legal opinion, that is just again a sort of first impression and our sense of the matter. But our view would be that the Board of Governors is more likely to be under it, but the banks—Federal Reserve banks—probably not. The Board of Governors, I think, is considered a Federal agency whereas the banks are not such.
Mr. LUCAS. Let me ask one particular question and then I think, unless my colleagues have questions, that will conclude my comments.
On page 17 of the document, you state that ''OCC's goals and objectives seemed appropriate to meet the agency's mission.'' Could you explain how you would justify the OCC's second goal which I believe they stated to be to promote competition by allowing banks to offer new products and services under its current statutory mandate?
Mr. MCCOOL. I think basically their statutory mandate is a very broad one, so it covers a multitude of potential goals and I think that their interpretation is an attempt to keep the banking industry, and especially national banks, viable and potent institutions and safe and sound; that allowing them to compete is an important part of that process. Again, in the discussion of their goal, I think they do try to take into account the need to also evaluate this from a risk management perspective whether these new products and programs that they are allowing banks are, in fact, in accord with safe and sound activities.
I think that is their interpretation. Again, that is not something that we didn't try to judge whether that is a correct interpretation or whether that is pushing the boundaries or anything like that. I think it is consistent with a broad interpretation of their mandate.
Mr. LUCAS. Thank you, Mr. McCool.
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Mr. Chairman, we have had a discussion here about whether the attendance will be like this in 20 years, should I ever have the privilege of chairing this committee. Everyone was very polite.
Chairman LEACH [presiding]. Thank you very much, Frank, and thank you for chairing this in my absence.
Is GAO looking over the plans of all of the agencies of Government under all the committees?
Mr. MCCOOL. Pretty much. I am not sure it has all been done, but there has been an effort to look at the 25 CFO agencies and I think most of those have been issued as written products. I am not sure they have all been completed, but a substantial number of them have and there are still some that are in process, Mr. Chairman.
Chairman LEACH. How do the four banking regulators compare in forthcoming——
Mr. MCCOOL. The question was already asked.
I guess my sense is—and again, I haven't really looked at all the 25, so it is hard for me to rank them. I would say that, in general, they are probably average to above-average would be my general, and fairly vague, ranking. But that is my sense in the few that I have looked at.
Again, it is especially hard because I haven't looked at very many regulatory agency plans. I have looked at more that have goals and objectives that more easily lend themselves to measurement and so the hardest part for these agencies is to come up with results-oriented goals and things that are measurable outcomes. So I think that these agencies have struggled to some extent to get there and they still have a distance to go, but I think that is their major challenge.
Chairman LEACH. There is some emphasis on those that originally set up this approach, that they be as numerical as possible, and it strikes me that is not a very easy circumstance, because when you are dealing with policy agencies it is policy goals, rather than numerical goals, that are key. Would that be valid?
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Mr. MCCOOL. I think that is certainly true for certain of the Federal Reserve's activities. I suspect it is also true, to some extent, for the bank regulators, though I think probably there are some ways of teasing out some of the effects, for example, of their examination program, or their enforcement program on the performance of the institutions that they regulate that, again, some astute researchers may be able to do with some effort and with some energy.
There are some bottom-line measures that you could think of. Again, they are not necessarily the best—or the only—but, for example, coming out of FDICIA, I think that the regulators ought to try to make sure that failed institutions, for example, have a minimal impact on the insurance fund that could be a useful sort of measure. The loss-to-asset ratio of failed banks might be at least one potential meaningful indicator of how well the supervision system is working. Again, that is not the only one and it has its own problems, but I think there are some ways of getting at some measurable results-oriented measures for these institutions.
Chairman LEACH. Well, thank you very much. I appreciate it.
Mr. MCCOOL. Thank you, Mr. Chairman.
Mr. LUCAS. Thank you, Mr. McCool. Seeing no other questions, you are dismissed, sir.
Chairman LEACH. For our third panel today, the Committee is pleased to welcome two individuals with extensive experience in the Federal Government and in the field of strategic planning and measurement.
Our first witness on the panel is C. Morgan Kinghorn, Jr., appearing today as a Fellow with the National Academy of Public Administration, where he is involved with NAPA's current assessment of developments in Government performance specialty.
Although he left Government in 1995 and is currently a Director at Coopers & Lybrand Consulting, Mr. Kinghorn has had a long and distinguished career in public service.
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Our second witness is Gerald R. Riso. Am I pronouncing that correctly, sir?
Mr. RISO. Yes, sir, you are.
Chairman LEACH. Thank you. He has also had a long and impressive career in Federal service.
He served as Associate Director at OMB and was appointed by President Reagan as the first CFO in the Federal Government. He has also served as Vice Chair of the President's Council on Management Improvement, and is a member of the President's Council on Integrity and Efficiency and has served at a number of other Government agencies and has a teaching appointment at Johns Hopkins.
While I welcome both of you, I apologize on behalf of the Congress. This is the last week before a recess. At the moment there is a Republican conference going on, and I am kind of violating some rules to proceed, but I think it is better that we do than otherwise.
Do you have a preference who goes first?
Mr. KINGHORN. I'll try.
Chairman LEACH. Fair enough.
STATEMENT OF C. MORGAN KINGHORN, JR., FELLOW, NATIONAL ACADEMY OF PUBLIC ADMINISTRATION
Mr. KINGHORN. Thank you, Mr. Chairman. I am honored to be here.
I am C. Morgan Kinghorn, a Fellow at the National Academy of Public Administration and I appreciate the opportunity to offer my comments on the status of implementation of GPRA.
My comments today will draw upon the work of the academy and represent my own perspective on the challenges of the Results Act.
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Since passage of GPRA IN 1993, and certainly in the last 12 months, there really has been an increasing interest in the potential of GPRA and other management mandates. However, there are already indications of some impatience of the implementation in many agencies. There indeed may be a mini-crisis of expectations as to just how far organizations have been able to go in their effective use of the Results Act to improve their management of their operations.
I believe, however, that this is actually a good sign.
I want to share with you today three broad evaluation criteria. One thing about strategic planning that was alluded to earlier is that it can become a paper exercise, and I would like to just share three general, but I think important, evaluation criteria that, from my own viewpoint, are fundamental to your evaluation of GPRA results.
After all, it is not the Act itself that is the end of this process, it is improved decisionmaking in the public sector.
Such improvements in management operations will help convince the American public that the way Government works is as good as what Government provides.
My first criteria is simple. Does the plan make sense to you in a strategic way? The question for Congress to ask itself is do these strategic plans add value for you and the stakeholders of these organizations? Do they provide you with specific measurement information to help you understand the results and the impact of the strategic management decisions in achieving the desired results?
Do they envision a changing operating environment and link those changes to possible changes in organizational strategy? In fact, is there a strategic focus? These are supposed to be strategic plans. They are not designed to look like yearly operational plans.
Several of the banking agencies' strategic plans deal with these issues reasonably well. For instance, the OCC's strategic plan has an excellent discussion of key factors affecting the future—such issues as industry consolidation, electronic money, and the changing competitive environment.
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The OTS plan discusses how its own mission statement and goals should be better integrated into the Department's own plan and goals. That is often an issue that is forgotten.
The FDIC discusses some broad strategies dealing with staffing and technological challenges to meet some of the environmental and industry challenges.
Those are good starts. The question of course next becomes just how do things change in the organizations to meet those strategic challenges?
Performances measures themselves are the kingpin for making results-based management actually work.
The two most relevant types of measures most discussed today are output and outcome measures. I believe there needs to be a balance between these two types of measures and they need to measure various aspects of an organization's results.
Many organizations are using the concept of a balanced scorecard which was mentioned earlier this morning where measures, whether output or outcome, are focused not just on traditional financial measures, but on customer needs, stakeholder requirements, internal budget or financing issues, even human resources and agency innovation issues.
There are some excellent examples that provide some focus on outcome measures in these banking agency plans.
For instance, OTS measures the number of times thrifts rated the value of the examination process as being satisfactory or better than satisfactory. This might be a reasonably good outcome measure for customer satisfaction.
The NCUA measures the ratio of insurance program losses per thousand dollars of insured shares as an outcome measure for one of its own key objectives.
The FDIC measures the time elapsed before the FDIC-insured depositors receive, or have access to their funds after an institution fails, as an outcome measure for achieving quick deposit or access, which is one of their objectives.
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However, in many instances throughout all these plans and others in Government, there is an overbalance of measures that report on process, rather than on output or outcome.
For example, the number of examination reports in process, the seminars held, the number of exams started on schedule, the number of times the organization testifies on the Hill, or the number of times an institution receives a review. These are not improper measures, but without better outcome measures associated with them, for example, the results of the reviews or exams or the elimination of found deficiencies, the focus can only be on the completion of a process and not implementing the finding of solutions to the core issues.
The second criteria is what is going on day-to-day within the organization to develop the strategic plan. I thought some of the questions this morning went to this very issue.
The real value of the strategic plan is the process, and I don't mean the paper process, but the process by which the plan is developed.
You need to ask questions about who is involved in the process within the organization?; how involved and committed is the organization's top leadership?; and what plans do the organization leaders have to utilize the results of this planning process?
How are strategic choices affecting resource allocations within the organizations and also budget requests that go to OMB or the Congress, and how deep does the support and understanding of GPRA go within the organizations that were here this morning in terms of its senior leadership as well as its general personnel?
GAO recently completed a survey of senior Federal managers throughout Government that we have covered GS–14s through SESers. One of the questions was related to knowledge of GPRA by senior managers in the Federal Government.
GAO asked, ''What describes best your''—the senior manager's—''awareness of GPRA?'' In total, about 74 percent, nearly three-quarters of the managers in the Federal Government, had little or no knowledge of what GPRA required.
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It is this question you need to ask these banking organizations. How real is the commitment throughout their organizations to a fundamentally different way of doing business in terms of strategic planning, program performance and results measurement?
Most public entities and certainly in the Federal Government look at performance in terms of inputs. That is traditionally the way that has been looked at—the spending of money, the hiring of personnel. This whole strategic look is quite different.
The final key criteria is the degree of effective consultation. The public sector is an inherently complex operating environment, predominantly because of the necessity for a large number of diverse and influential stakeholders. Strategic planning has as its core the concept of concurrence of purpose or mission in a GPRA context, and it is because of the broad stakeholder environment that such a process is not easy to effectively implement.
One of the highest values of the Results Act tool is the mandate for engagement with stakeholders and customers. The key to any change initiative is people asking the right questions.
GPRA demands that individual Federal managers and employees think strategically in a traditionally tactical environment. While that is an essential element, the stakeholders too must become involved in the process as early as possible.
Again, many strategic plans discuss stakeholder involvement, and they were mentioned this morning. The OCC's goals were formulated in part based on discussions of the banking industry, trade groups, and public interest groups, and OTS has an extensive discussion of its actions to talk with its customers. You need to ensure that you are comfortable with how effective that stakeholder involvement has been. What specifically changed based on the consultation efforts?
Finally, the vision of GPRA will only be fulfilled if oversight organizations and investors, whether Legislative or Executive, ask some tough questions and make investment decisions on the basis of the quality of the answers associated with their review of strategic plans and the performance.
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If Federal managers see no difference in investment decisions made for those that have really tried to implement improved performance-based management from those that have done significantly less, it is unlikely that managers will respond to GPRA seriously.
Attention can sometimes be a painful exercise, but I think if we all understand these changes are very fundamental to improving the way Government has operated for decades we can balance an expectation crisis with some real anticipation that it may indeed help Government work better.
Mr. Chairman, that concludes my prepared statement and I would be pleased to answer questions later.
Chairman LEACH. Thank you very much, Mr. Kinghorn.
Mr. Riso.
STATEMENT OF GERALD R. RISO, RISO & RISO
Mr. RISO. Thank you, sir.
Based on my experience in both the public and private sector, I conclude that the planning environment in the public sector is much more complicated than that in the private sector. A couple of factors apply. The roles and responsibilities of Government are continuously debated and occasionally changed; program goals and objectives are blurred and occasionally compromised by political compromise; we have much more turnover in agency and program leadership in the Federal Government than in comparable organizations elsewhere; and we have our planning and budget calendars out of sync; and program performance data, as you know, are not always available.
The need for strategic planning is not new. I would call to your attention—largely because I and others wrote it back in 1988—the Management Report to the Congress. OMB urged consideration of strategic planning approaches to budgeting, not because you automatically get a better budget, but the Executive Branch and the Congressional Branch ought to deal with each other on strategic issues and not simply the arithmetic of budget accounts.
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The Act, I believe, is not a full answer, but a very effective beginning in helping Congress and the Executive Branch to begin addressing fundamental questions about the role of Government; the role of individual agencies; the costs of public services; and what results are being obtained.
GPRA is not an easy Act to implement. Strategic planning is not easy and there are some pitfalls that Congress faces generally, not only this Committee, and the Executive Branch. I'll just cite some.
I would urge Congress to give this Act the attention it requires. If it is lip service, don't be discouraged if everybody else gives lip service to it as well.
I would urge Congress to engage the agencies on strategic issues, their roles and missions, be concerned whether agencies are doing the right thing as compared to whether they are doing the same old things right. They may come to different conclusions.
Next, openly consider whether other agencies might take on responsibilities as compared to agency mission creep.
During consultation—and that is not well defined yet, does consultation mean talking to or reaching agreement? I have concluded there has to be an open mind on consultation and that when there is not agreement—agreement is not guaranteed—mutual appreciation of each other's position just might result in better results.
I think Congress has to worry about its capacity to receive and analyze the performance data, because agencies, if they report data and there is no response, will periodically turn off data and 2 or 3 years from now, program data will not be available.
Maintain a long-term perspective despite the lure of short-term political advantage. This thing takes time. In other agencies, other governments where it's been tried, the private sector, a 5–10 year period for implementation is not uncommon.
I would urge Congress to constrain itself in using performance data constructively. If data are used to only bash agencies, data will be suppressed.
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The Executive Branch has pitfalls as well. Top management political leadership has to be involved in the process. Otherwise it becomes, as Morgan says, a paper exercise.
Our program managers should be involved in plan preparation as compared to staff officers. The organization gets committed to a plan only because program people participate in building that plan.
I would urge the Executive Branch to develop performance measures that are useful to program managers. Measures that only serve oversight and budget staffs don't serve the agency program. Be patient, allow time for success, resist preoccupation with resource questions. Strategic direction should be shaped by needs.
Availability of resources controls. How much and how soon—which should not dominate the question of whether. Then I urge the Executive Branch to resist excessive preoccupation with the models of foreign government and local government. The forms of government are different. Some of the functions are profoundly different. We are large enough, sophisticated enough, to develop our own models.
Where are we now? I speak not only in terms of where the banking agencies stand, but I have had the occasion, the challenge, I might say, of looking at over 20 strategic plans of different departments.
Progress is being made, but, as others have said, there is much, much room for improvement. I say that is equally true of the banking agencies, as well as the other civilian agencies.
Here's the areas I think need the most improvement; better assessment of the impact on the external environment on the functions and the challenges facing the agency. Very uneven reporting there. Too many of the plans present a better rationale for what is being done today, rather than actively looking at what we should be doing in the future.
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More commitment to interagency cooperation and collaboration—it's implied, but not specified. In some agencies the involvement of political leadership needs to be increased.
A fundamental challenge facing almost every agency I come in touch with is how will they integrate the planning, the budgeting, the people-planning processes, and tie them into their financial systems and their management controls. It is a complicated task and I just don't know whether they have the time, the skills, and the resources to do that well. More importantly, they recognize that more than I do.
As was said this morning, consultations with stakeholders is not as easy as everyone assumed. Who are they? What role do they have? How much weight do you give their opinions? How do you include their views? How do you prove you consulted with them?
It is a challenge. It is not impossible, but it is a challenge. You will see the plans do not spend, with some exceptions, much time on a candid assessment of the internal strengths and weaknesses of the agencies. If an agency has not brought up a system successfully in 5 years, and their future is tied to their ability to bring up a system, you ought to know about that. In the plan, that ought to be accommodated to.
Development of performance measures continues to be a problem for everyone. There is confusion among input, output, and outcome. I have been at this for 30 years. I get confused by it sometimes, and it differs by agency. I would simply urge the agencies not become preoccupied with efficiency measures only. They are important, but equal concern should be given to quality measures, things like error rates, appeals upheld, the compliance at agencies with rules and regulations, response times, program coverage given the constituency. Broadly, missions need to be defined with greater precision.
Today, I think most plans represent a conscientious professional effort to do the job. They provide a foundation for improvement, but much more needs to be done. One caution with this process. We can hone this process and get very good at it, but the process will not serve the Congress nor the agencies in the absence of perceptive leadership, clarification of objectives, and clarity with what they are trying to do.
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If the planning process helps you do that, that's fine, but the planning process and the paper ought not be offered up as a substitute for that kind of planning.
Thank you, sir.
Chairman LEACH. Thank you, Mr. Riso. Both of you are experts in the area of strategic planning.
There is something a little special about the banking agencies and the jurisdiction of this Committee in this regard. We have a separate jurisdiction over HUD, which one—or both of you—have some experience, and that is a relationship of a traditional authorizing committee with the expenditure of money.
With the banking agencies, basically we are dealing with policy rather than money, although each has an expense to run. The policy is one that is really geared to a customer base in the public interest in an intertwining way, where the customer base wants certain things that may not be in the public interest.
The public interest, for example, may be for a little more regulation than the industry wants, but it is a unique area in some ways to look at from strategic planning and especially numerically it is a unique effort, because not everything comes down to numerics, but there are a number.
For example, the most successful regulatory format would certainly include—although not be the exclusive concern of the agency—that there is no public loss of funds, which is an interesting way of putting in a quantifiable circumstance.
In the other end, you can develop a regulatory system that guarantees against any loss of funds that may stifle industries and stifle the economy. So you have to have a balance between what is an appropriate level of regulation, without it being over-regulation or under-regulation, but clearly with the banking industry that is pre-eminent.
With regard to the Fed, this Committee also has jurisdiction over monetary policy and there are very quantifiable circumstances—targets for money growth, targets for inflation, targets for growth in the economy, whatever it may be. All of the macroeconomics of Government go to the Fed in one way or another, or affect Fed policy in one way or another, and so it is a particularly interesting area to look at in terms of the issues of strategy.
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But do you have any advise—I mean, you are the generalists on the subject of the strategic planning and oversight of strategic planning—but from that experience as generalists, do you have very specific things to suggest that we ought to watch for particularly closely with regard, on the one hand, to the banking regulatory system that includes credit unions, national banks, State banks, as well as potentially some new industries, with bank modernization? And second, with regard to the conduct of monetary policy?
Mr. KINGHORN. We talked to the first on aid a little bit on two aspects. One, someone mentioned earlier today to one of the questions on the use of what in consulting business, is called the ''balanced scorecard approach'', which gets to your issue of the balance between taking regulatory action and over-regulating, in effect to prevent the industry from growing or whatever.
I think that has to be looked at. Most of the plans that I am familiar that have successfully balanced that, do look at a variety of measures, some pure traditionally financial. Others look at innovation of the organization. People are trying now to develop innovative measures of how open the organization is to change, to changing environments, so I think the balance concept is an important one.
On oversight, there seemed to be in the mission statements of all these agencies, fairly strongly-stated missions and they seemed to be well understood. There are other organizations or industries in the Government, such as Environment, who probably find it difficult to find agreement on a mission and nearly impossible to find agreement on objectives.
Take EPA, which probably has 25 to 30 different committees that have something to say in terms of authorizing.
There are other agencies who have a single committee, so that singleness of purpose, I think, helps. I would find it very difficult if I were in an agency, as I recently was, being the IRS, where right now the basic mission in some cases is a question.
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From that uncertainty and the lack of clarity in terms of the objectives, your strategic plan, and your yearly measurable objectives become very hard to define. I think the advantage you have here is that you have oversight of all these agencies and it is—I am sure there are different views in this Committee—but it is, sort of, a one forum to go to, and I think that certainly helps.
The agencies that don't have that environment find it very difficult all the way from the beginning of defining mission to defining measures makes it even more difficult.
Chairman LEACH. Mr. Riso.
Mr. RISO. I have just had one brief experience, which leads to this observation.
In oversight there is the temptation to focus upon how well you are managing your oversight activities and not being open to the question are the oversight activities helpful.
So, in the one experience I am citing, a particular organization was examining a number of credit organizations, and they believed that they were effectively managing the process, and they were. But they had failed to look at the question, ''Does the process make any sense to the way the system ought to be running?'' One of the things we had to do, and we were reasonably successful, is to change the horizon from successful management of an activity to, ''What does the system look like at the end and how does your intervention help it?''
It's hard sometimes, but that is the observation I would give you.
Chairman LEACH. Interesting. I am impressed, and I think part of it is because I think it is maintained at the top, more or less, that there is no analogy to the vice president for planning in most Government agencies or strategic planning. I don't know if that is good, bad, or indifferent.
Would you care to comment? Do you think the Fed ought to have some sort of a governor in charge of strategic planning or professional staff in that direction, or should the other agencies?
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Mr. RISO. If I may, sir, as a function, there ought to be within the Cabinet agencies a strategic planning function. What level and such is debatable, but there are just so many management processes taking place in agencies today. For a variety of reasons we have fragmented them, so we have chief information officers, financial officers, administrative officers. We will probably wind up some day with procurement officers. They all practice their profession and they do their jobs well, but integration does not take place on a day-to-day basis.
I do believe there is a requirement for strategic thinking, future direction. I would see it in at least two places in the large agencies to which I have been exposed. In some agencies at the secretarial level, and second, in large agencies where the office of secretary is almost a holding company for a host of diverse, and probably unrelated programs or relationships. I am thinking of the Department of Interior as an example. But, they are rather remote, strategic planning within the program level.
As a function I would urge it to be tied closely to the head of the bureau or the head of the department, but that runs counter to the kind of turnover we have in those departments. I think the average of a political appointee is less than 24 months these days. So, strategic planning with an 18–20 month horizon is an oxymoron.
Chairman LEACH. Well, let me give you an analogy in fact.
Mr. RISO. Please.
Chairman LEACH. I never will forget a speech I heard about 15 years ago by one of America's better-known industrial leaders, a man named—I think it's G. William Miller—could that be? No. He was the head of a trucking company in Indiana, and he was well-known for having better labor relations than most in the auto industry. He told an anecdote of the union representatives coming into his office and saying to him, ''Who do you think is the most loyal to this company, your management team or us?'' He said, ''Well, I think equally.'' And the union said, ''We beg to differ,'' and they went down the tenure of the average union member of the shop—20 years, 25 years, 18 years, whatever.
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The union steward said, ''Now, you just had a vice president for strategic planning. He was with you 18 months and then he went on. In fact, you have had three in the last 6 years.'' The name of the company is Cummins Engines. The President started to look at this and he said, ''You know, it's impressive to me how these people come in. They are bright kids out of Chicago business schools. We give them this assignment and then they are on to another company and another company.'' He said the last two were now vice president for strategic planning. Each went to smaller and smaller companies. They are doing less well now than before.
But, it is a hard thing to do in corporations. There is a lot of turnover too. We have introduced to the Congress, we are doing certain strategic planning under the leadership, and my committee is in the process of producing some documents in this way, and in one sense it is a headache. In another sense—and I am sure the agencies that testified before us thought it was a bit of a headache—in another sense it's revealing some very interesting things to go through this discipline.
I think your discipline is very helpful, but you have got a good point. Probably most Administrations want to bring in a politically-sensitive person, and someone that's new, and yet their tenure is fairly brief. That may not be any different from other industries as you might suspect, but go ahead, Mr. Kinghorn.
Mr. KINGHORN. I worked in two very different organizations.
I worked in the Environmental Protection Agency for 10 years, as what would now be the Deputy CFO, and CFO and tremendous numbers of political appointees, and worked for 5 years at IRS, that had one political appointee out of 120,000 people.
I think the importance of leadership is key. In most bureaus where this work really gets done, in general terms, my sense is the leadership involved in strategic planning is career leadership. In some organizations the impact of the political appointee will be significantly more than less, but that is a variable.
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I think the issue really comes down to basically the relevance of the planning process. If it is relevant, and I think we are struggling with this issue, to the program managers in the field who do the business of the agency—in IRS to a revenue agent and to EPA an environmental protection specialist who is in a region doing work—over time the strategic planning process will probably make more sense. If it is not relevant, it is basically designed by a bunch of strategic planners, of which I was one once, and not relevant to anyone else, but becomes a process of a group of 20 people in a bureau, you are going to get the response you think you are going to get.
I think the political leadership question is important. I think leadership is important for stability, but I also think the relevance in where you place these processes. I think it does have to be placed somewhere where there is authority, and in some organizations it is an executive assistant to the head of the agency. In others, it is more formal, a division perhaps.
At IRS it was one of the chiefs at one point, one of the six chiefs was the strategic planner.
The placement can be important, but I think the relevance is important. Often these processes become—like budget often becomes—the purview and owned by the strategic planners, and not owned, or felt to be owned, by the people doing the work in the field of the organization. It is really a complex issue, but I think an important one. It's not just one answer.
Mr. RISO. If I may add to that. I think if an organization, public or private, gets committed to strategic planning, they ought to understand what it is the strategic planner is doing.
If it is assumed—and this would be inappropriate—if it is assumed that the only person, or the only group, in the organization that is looking beyond tomorrow is this office of strategic planning, that would be a mistake, because there is no commitment within the organization.
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I have always regarded the strategic planner as just having the knowledge, the planning disciplines, and the analytical techniques. The product is owned by the leadership of the agency, public or private, the program managers, and the employees who have to do the work. The challenge of the planning process is how do you include them, and how do you build commitment on their part to what you want to get done? That's easily said.
I just said that in about a minute. It may take several years in any organization, and then with turnover and the different environment in the public setting, it takes longer than that.
The value of enlightened career leadership in the process who are able to take political direction is invaluable.
Chairman LEACH. Were there any aspects of the testimony given by the four regulators today that you would particularly object to?
Mr. KINGHORN. Object to?
Chairman LEACH. Yes.
Mr. KINGHORN. I don't think I object to anything. I have studied these plans, not in a tremendously in-depth way, but I have looked at the comparisons.
I think Jerry said it, and I would agree with him. I think they are ''works in progress,'' and I was fairly impressed with the back-and-forth with some of the witnesses on the depth of how much they knew about their plans.
I have been at some meetings where the leadership really wasn't involved and some of the questions that have been asked today would not have achieved a very good response. I must say I was impressed with the responses. I think they have a lot of work to do, however.
GAO said the plans today probably represent the rest of—I have looked at probably 30 plans—these are very representative from the good, the bad, the ugly, just like the rest of the Federal Government. There is a range here of plans, but I was fairly impressed with the leadership being able to respond to what I thought were some very deep, good, detailed questions and they showed an understanding of the subject.
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Chairman LEACH. So you are giving a pretty good grade to leadership. How would you grade the plans? Are they C, B——
Mr. KINGHORN. I think most plans in Government are probably at the C level. This is a tough process and there are some exemplary pieces of plans. I think there are some good discussions in here. Again, the OCC, and probably even the Federal Reserve, had a good discussion of some future issues coming up.
Again, I don't like grading these, because I think what is important, as I said in my testimony, is if you are an important stakeholder or investor in these organizations, what does it mean to you and the committee?
To learn what that means you have got to have this back-and-forth, probably several times and begin to understand it. Can these people go down below the first half-inch of that plan and talk about it? Did they look at State agencies? How much do they involve the State regulatory agencies? If they said they did, ask them, ''What did you change in your plan and what did you decide not to change in your plan?''
On the face of it, GAO indicated they have all complied with statutory tick points. You know, ''you got this, you got this.''
I think what is below the surface is what is more important. The only way to understand that for your agencies is to work with them and continue this process. If you don't continue it, this will be put on the third shelf down from the top and wait for another hearing, so I think what you are doing is exactly right.
It is only a piece of this management puzzle. You have got policy, CFO Act, other authorities that are beginning to change these processes.
Chairman LEACH. Mr. Riso.
Mr. RISO. I don't know that I would use the word ''object.'' I thought that all of them lost out on an opportunity to have a conversation with the committee about the legislative policy framework within which they were operating that defines their mission. To begin the conversation in the event that they had questions about the legislative framework, or the policy framework as an impediment to doing their jobs, this was a wonderful opportunity, I thought, for them to lay that before you.
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Chairman LEACH. Well, that is a very interesting observation. You may know, by way of background, we have been trying to produce comprehensive banking reform legislation that, frankly, has major ramifications for each of the institutions. There is always some regulatory rivalry, as there is industrial rivalry.
Mr. RISO. Sure.
Chairman LEACH. I think you would have seen some of the consensus break down if you were to probe that very deeply. But that is, you know, at the heart of matters today.
Now, in addition, there are regulators of an industry that is fast transforming itself. That is, the market is really dynamic and dynamically shifting, so certain things are driven by legislation. More things are driven by the marketplace itself, and how alert they are to change is a critical issue.
Mr. KINGHORN. That is why many agencies are looking at innovative types of measures, particularly in the private sector, which is where it started. As your market changes as quickly as it does, you have got to have the ability to respond and it's important.
Chairman LEACH. Well, to give them some credit, I have read some very thoughtful, progressive speeches by the Comptroller and by the Chairman of the Fed that all point to this. Even though I have differences with one or the other at times, but I think they are pretty alert. They are forced to be alert. They have no choice.
Mr. KINGHORN. That's part of the process.
Chairman LEACH. One of you—I think it was Mr. Riso—suggested earlier you want to be ''encouraging'' as well as ''discouraging.''
What would you advise the Chair? Should I write them a letter saying, ''Well done, chaps,'' or should I write them a letter saying, ''You made a fairly credible first step, but there is a lot more to be revealed and thought through''? What is your advice?
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Mr. RISO. My advice, sir, and this time it's free. I would suggest that you clearly indicate to them that this was a very constructive first step in the consultation process, but to the extent that the plans were silent on some policy issues and some challenges for the future, I think it is well within your jurisdiction to say, ''How do you propose to be handling it?''
The plans I looked at, and I don't know that I looked at all of them, were forthcoming on internal questions with respect to technology and with respect to a diverse workforce—those were valuable.
I would ask more questions about their capability as they see it to function 5 years from now as an organization. That is what the strategic planning process is supposed to be all about.
It is too late to start raising these questions during the arithmetic of the budget process, sir. You know, I have testified on budgets and spent 20 minutes on rotary versus fixed wing aircraft and not two seconds on missions, because they had to get down to an appropriation. That defeats this planning process.
Chairman LEACH. Mr. Kinghorn, would you like to comment?
Mr. KINGHORN. I don't have any more to offer on that. I think I would certainly make it a balanced response. I think they made a credible effort. I think some of the plans have got a long way to go. It was mentioned earlier today which those might be, but I think you need to give them a little hook to come back.
Again, I think it's this discourse that you need to have with them, on as regular a basis as you can do in this environment, and make it work for you. If you are interested in the strategic—what it's going to look like in 4 or 5 years—focus on those strategic issues, because there is enough in this town that focuses on the operational day-to-day minutiae—too much of it.
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Chairman LEACH. Well, I want to thank you both and I would like to make one broader explanation of a word, and that is by accident I used the word ''expensive.'' I think there could be nothing more ''expensive'' than not to think about strategic planning, so as ''expensive'' as it may be, it may be more ''expensive'' not to.
Mr. RISO. Well, just for the record, sir, he is ''expensive.'' I'm ''extensive.''
Mr. KINGHORN. You're Mutt and I'm Jeff, right?
Chairman LEACH. Well, the record will show that you are both very thoughtful and appreciated witnesses.
Mr. RISO. Thank you, sir.
Mr. KINGHORN. Thank you very much.
[Whereupon, at 12:48 p.m., the hearing was concluded.]