Occam's Razor

My agency is going through another one of its periodic, politically required, staff reductions. My agency is hardly unique. Cutting the number of federal employees has become the key metric for demonstrating that government itself is smaller. In 1996 when President Clinton declared the era of big government was over there were approximately 1.9 million of us on the payroll. This follows a downward trend that President Bush is only accelerating.

If government is getting smaller why does it still feel so big? Our office space has not shrunk, and I don’t pass rows of empty cubicles every day. The answer becomes a lot clearer when I look at who is now occupying cubicles of the departed. Their badges are not white. Their badges are pink. In my agency this means they are a contractor. It should not be news that the federal government has relied more on contractors and less on civil servants to get its work done. Indeed in my agency the political imperative to contract out is written into the performance plan of every manager. These contractors are doing work that previously was done by federal employees. Those in favor of a leaner and meaner federal government should applaud. But is the government really any leaner?

Clearly the cost of a federal employee is not a trivial expense. We come with generous leave allowances and decent health care plans. Those of us who remain often have other benefits, such as flexible work schedules and, increasingly, flexible work locations too. And no civil servant I’ve run into can candidly admit they haven’t seen fellow employees abuse the civil service rules and get away with it. Clearly some reforms are needed. I can report after nearly 20 years in the federal trenches that the stereotype of the lazy government bureaucrat is a rare exception to the rule.

One motivation for hiring a contractor instead of a federal employee is that they are expendable. Or are they? I found a curious thing when I arrived at my agency in 1998. Many of the contractors had been working for and supporting the agency longer than many of the federal employees. On those infrequent occasions when contract companies changed, the new contractor invariably picked up these old time contractors. Even more alarming from my perspective is that they often had sole subject matter expertise. If all our contractors were to leave tomorrow it is not even clear that my agency could even function in any meaningful sense. In the information technology shop where I work, many of us “feds” would be hard pressed to modify a line of code, and would be harder pressed to find it. If a contractor looks like a fed, talks like a fed, and squawks like a fed, isn’t it a fed? Clearly the Bush Administration doesn’t think so, and Congress shares this opinion. To admit otherwise would be to admit that government is not leaner than it was.

A leaner government should be able to squeeze more value for the taxpayer. As a taxpayer I certainly hope this is the case, but I am skeptical. Most of the contractors I encounter work on services contracts. While there are exceptions most of them work in-house. My agency provides them virtually all the standard services it would provide a federal employee. Their cubicle may be a bit smaller, but they use the same phones and copiers. When they travel, they use government travel services and get the same discount airfares. But there are a few things that are different. Some of them have to take leave on federal holidays. And work cannot be directly delegated. It must go through contracting supervisors, which can create lag times. In addition the contract can be performance based.

I do know that of those contracts I have seen that the billing rates have raised my eyebrows. I know there are indirect costs (such as the cost of the infrastructure) that must be added to my direct costs that make my official salary nowhere near my true cost to the government. But these are mostly services we provide to our in-house contractors. So it is tempting, though perhaps not completely accurate, to compare direct federal costs vs. contract billing rates.

If our contractors were federal employees I’d guess their average grade would be a GS-13 making perhaps $65,000 a year. Let’s add a generous 70% for other direct employment costs such as employer contributions to social security and amortizing costs for retirement then if they were federal employees they would cost the taxpayer about $110,000 a year in direct costs. This amounts to about $53 per hour.

How much is the government being billed by the contractor for these services? If you were to add 50 to 100 percent you would be in the ballpark. Ah, but contractors are disposable! Congress could come by tomorrow and wipe out the program they support and off they would go. But of course Congress hardly ever wipes out programs. So contractors stay. And their meters keep running.

The true size of government is hard to calculate. Statistics are hard to come by because it appears that agencies don’t want to collect this information. The Brookings Institution published a persuasive book called “The True Size of Government” in 1999 that argue as of 1996 there were in excess of 12 million fulltime federal employee equivalents. Even if the true number is half that amount, the true size of the federal work force is growing.

Federal employees keep retiring at a brisk pace, often spurred on by early retirement options provided by agencies desperate to make the latest politically motivated head count. Those who remain grow grayer. It is increasingly difficult for agencies to bring in new employees to replace them. It is a safe bet that domain knowledge is being transferred to contracting staff. This assumption means that large numbers of government contractors are in effect federal employees performing inherently governmental functions. And contracting agencies are likely making very nice profits.

As a federal employee I am concerned about this trend. Congress needs to examine the true size of government and think about what it means if inherently governmental functions are being done by those who are not federal employees. New and meaningful metrics on the true size of government are needed. As a taxpayer you should consider that increasing the number of federal employees might well be in your interest, provided they are coupled with meaningful reforms in the civil service system. Be suspicious of numbers you are hearing about how the size of government has shrunk. Most likely you are being sold snake oil.