People Factor

Sunday, May 3, 2009

About 1.9 million people work for the federal government, and almost half of them will be eligible for retirement in the next five years. Linda Bilmes, a lecturer at the Kennedy School of Government at Harvard, says in a new book that the government can look to two agencies in particular to learn how to treat and value workers, and to get the most out of them. ... Also, ULI's Marketplace is Monday at the Hynes; doing economic stimulus smart, and a note on the Journal ...

Bilmes is coauthor, with W. Scott Gould, of "The People Factor: Strengthening America by Investing in Public Service," a new book that kind of combines the messages we hear from Democrats and Republicans. After years of research (her 14-year-old son says she's been working on it "for as long as he's known me"), she says public service is vital -- but its got to be efficient.

Bilmes, who spent 10 years at the Boston Consulting Group and is also coauthor of "The Three Trillion Dollar War: The True Cost of the Iraq Conflict," has been assistant secretary and CFO of the U.S. Department of Commerce. She spoke recently to a group convened by the Rappaport Institute for Greater Boston and the Mossavar-Rahmani Center for Business and Government.

It's hard to get people to think about reform of the federal personnel system when pirates and swine flu are in the news, she said. But, given the big changes about to occur, this is the time to think about it. With all those people -- "the generation that came in after John F. Kennedy's call to service" -- ready to retire, "It's now really about to hit." There's a huge opportunity for reform, but also a huge challenge.

Patents, veterans' benefits, Medicare -- the volume of government transactions is vast and growing. Veterans benefits claims take, on average, twice as long as they did in the Vietnam era.

The new book came from a study in the private sector, in which the authors liked at "high performance" companies -- those that had superior financial performance (total shareholder returns) over eight years, and had more innovation. Those companies, it turned out, paid an unusually high amount of attention to human resources.

The authors surveyed 2,000 companies and collected information on several hundred firms in the United States and Europe. They studied traditional human resources criteria -- how much vacation, working conditions -- and through interviews sought out what they call "intrapreneurship" criteria, things harder to identify.

"Investment in the people factor increases job satisfaction and loyalty to employers," Bilmes said. The median percentage of employees "highly satisfied" was 34. But companies that paid more attention to employees showed 50 percent were highly satisfied.

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ULI Marketplace Monday

Don't forget tomorrow's Urban Land Institute Boston's Marketplace, 11 a.m.-5 p.m. Monday and then cocktails), at the Hynes Convention Center.

Speakers are U.S. Rep. Barney Frank, state director of infrastructure investment Jeffrey Simon, Holliday Fenoglio & Fowler's John Fowler, Fenway developer (and movie producer) Steve Samuels, New Boston Fund's Jerry Rappaport, and Property & Portfolio Research's Bret Wilkerson.

This is Boston's first, but Marketplace -- bringing people together to foster collaboration in the intereset of revitalization of urban locations -- has been a success elsewhere in the country. About 50 exhibits and 300 participants are expected. See you there.

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The average for employees loyal to their organization was 46 percent. But businesses that allowed employees to put their own ideas into practice had 70 percent loyalty. Improved satisfaction came from pay-for-performance, offering constructive criticism, training, and other practices.

"Most say these things are important, but less than half get it," Bilmes said. A number of studies have shown that training and flexibility drive productivity, she noted, but one of the most prominent showed the investment in employees comes first, then the benefit, and not the other way around.

The book then looks at the military world, where there is a high degree of investment in "employees," and asks, "Could this work in government?"

Bilmes and Gould, who is a vice president at IBM Global Business Services, documented two cases in government "where transformations were made based on the people factor."

One was the Defense Logistics Agency, which reduced its hiring process from 114 days in 2001 to 56 days in 2006. The agency, under Vice Admiral Keith Lippert, had some layoffs but paid attention to out-placement of those employees. Turnover in the agency, which provides support to the military, was reduced to two percent.

Though it is under a rigid wage-grade system, the agency created some flexibility. And cost as a percentage of business completed dropped from 25 percent to 14 percent, even though business doubled, to $35 billion. "There was quite a dramatic turnaround in this organization," Bilmes said.

The second organization that has turned around is the better known Government Accounting Office, with 3,000 employees (Defense Logistics has 21,000), many with advanced degrees. Kennedy school grads frequently go to the GAO, she noted.

Between 2001 and 2006, the GAO moved to a pay-for-performance system, rather than just for hours logged. The result was "much higher retention and job satisfaction scores."

The GAO moved from being a stodgy organization to one that is recognized as being on the leading edge, embracing telecommuting and other things popular with employees. And, "This is not an organization that would stand out for its backwardness, which is where a lot of government organizations have been," Bilmes said.

She said the controller general, David Walker, who led the change at GAO, attributed 80 percent of the improvement to "people strategies." (He was once head of human resources at Pricewaterhouse Coopers.)

The federal government will be hiring 500,000 workers just this year (excluding Census workers). Normally, it hires 300,000, but retirement is up -- and, under this administration and given this economy, the government is busier.

A third part of the book concentrates on perceptions of government. Students were surveyed and consider it important but said they tend to avoid government work because it lacks things the private sector has. On average, private companies take six weeks to decide on hiring; the government takes three months.

The book recommends restructuring federal public service now, suggesting a "civil service GI bill" that would offer training at community colleges. (Eighty-five percent of the federal workforce is outside the Washington, D.C., area. There are 65,000 federal workers in New England.)

Bilmes said that figuring in the government's involvement in AIG and other institutions, it has 1.5 million more workers now than before the credit crisis. Some six million contractors are hired by government weekly. And there are state workers and those operating on grants who essentially are part of the federal workforce too.

But the book focuses on the 1.9 million direct employees, and she said change is badly needed. "It's almost impossible to fire somebody from the federal government," she said, though she added there is little hard data collected on the subject. "Situations with poor performances are one of the most demotivating" to other employees. The DLA resolved the problem by working cooperatively with union leaders, and GAO actively did outplacement.

"About half the people in a federal government survey said dealing with poor performance is something it did badly at." In private business, about 20 percent said that. "This is a big problem," Bilmes said, because what's the point of paying for performance if nobody gets fired?

One study of the subject said the gap between public and private performance has widened over 30 years. The Veterans Administration takes a year to process a claim "if nothing goes wrong." Blue Cross Blue Shield process 35 million claims a year, "all within 60 days."

The book calls for $10 million in investment in training for federal employees over the next five years. ("Funny how $10 million seems much smaller these days," Bilmes said.)

It suggests a small tax on service contracts to help pay for that, and, "We estimate $300 billion in gains over the next decade" as a result.

Federal contracts are now worth $700 billion a year, and those could be improvement considerably by changes in contract design and management, she said.

Lippert and Walker "were really sort of true believers that came into government," she said. They spent about four percent of their budgets on human resources and training.

"Not all organizations might be amenable to this strategy," she said, and visibility of government operations can make change difficult. "You're not just operating in a fish bowl, you're operating in an aquarium."

But the vast scale of government -- the VA is 180,000 employees and services 27 million veterans -- means the savings could be large.

More attention to employees would result in higher productivity, more collaboration, better contracts, improved supervision and oversight and budgeting, and reduced waste, Bilmes said. About one-fourth of the federal budget is spent on people.

The need to cut costs is made even greater by the fact that favorable pensions mean the government will be paying at least 60 percent of a former employee's cost -- plus the cost of hiring a replacement. Most agencies need to shrink by two percent as they replace employees to leave.

"These kinds of issues that are very important but no urgent are hard to get attention for," she said. And if they aren't dealt with, she said, Americans may not get the kind of change they voted for in the last election.

Market Smart

"Policy," said Brian Blaesser, a partner at the law firm Robinson & Cole. "It's simply something we enjoy being involved in. It's a passion we have."

It helps the firm and "informs the debate," he said recently, as some members of Robinson & Cole's Massachusetts Economic Stimulus Team held a little roundtable for reporters and Journal-ists, at their offices at One Boston Place.

The team has issued two recent white papers as part of a series on the stimulus program. The firm does work mostly for private clients, does a lot of land-use and real estate work, and focuses on complicated programs like I-Cubed and DIF, district improvement financing.

The states are scheduled to get as much as $787 billion under the American Recovery and Reinvestment Act, Massachusetts' share an estimated $6 billion to $9 billion. But there are a lot of catches, one being that it all has to be obligated by March 2010. It's for "shovel-ready" projects, a term not specifically defined but clearly requiring, for the transportation category, that projects be on the state's TIP, or transportation improvement program list.

ARRA is for transportation, health care, education, physical infrastructure, and public private partnerships. And it's use-it-or-lose-it money, meaning it's offered to other states if it doesn't get used, or committed, here by next spring. Half of the money has to be obligated by June 27.

Amanda Eckhoff, a firm associate, noted the Patrick administration has 600 projects on its list. More than $60 million in funds for infrastructure projects has been obligated under ARRA. "Funds are obligated when projects are fully designed and ready to advance for construction," Eckhoff said.

The Robinson & Cole team has been studying "What's the best way to use the money?" as Blaesser put it. And notes that while transportation projects may be worthy, "They don't have a multiplier effect on the economy."

Robinson & Cole has even trademarked the term "Market Smart," which it advises is the best bang for the stimulus buck. "The public private partnership -- the only way we think we're going to get out of this recession," Blaesser said.

About $20 million in projects have gone out to bid, and some have been awarded already.

But none have fallen into the Market Smart category, which includes:

-- Redevelopment -- reusing vacant or underutilized properties with existing transportation advantages or utilities in place.

-- Public Private Partnerships -- public land or dollars used in connection with a private developer.

-- Sustainable Development -- revitalizing city or town centers, multi-use projects, protecting historic resources, projects with minimal environmental impact.

-- Economic Impact -- projects that generate new private investment, jobs, tax revenue, and economic opportunities and new uses.

Market Smart are the ones "that offer the most tangible long-term benefits."

The key is not using undeveloped land.

An example of the partnership is development of MBTA land under a lease, and stimulus funds would go toward an access road, garage, or utilities.

Matthew Lawlor, counsel at the firm, said that on the entire state list of projects, there isn't one that qualifies as Market Smart. "They're mostly paving and painting." There is one project that includes multiple modes of transportation, in Greenfield.

The state TIP list gets modified on an annual basis, compiled from regional TIPs. It's made up by a panel within the state's transportation executive office. Metropolitan Planning Organizations put those regional lists together.

Round 2 of the ARRA funds will be awarded based on an August update of projects.

Lawlor said there are 5-10 Market Smart projects that are "easily shovel-ready" and could be moved up on the list. (The Obama administration elected to stick with the existing process for funding projects, not to set up a separate system for stimulus funds, and not to go direct to local communities, but rather to go through the state.)

Gregory Sampson, an associate at Robinson & Cole, said federal environmental review can be triggered by use of the federal money and "can take several years." The stimulus bill, Eckhoff noted, said, "We encourage streamlining NEPA review," but that's not required, and it's easier said than done and can clearly result in projects getting torpedoed. NEPA is the National Environmental Policy Act.

Normally, projects can receive a "categorical exclusion" from review, or they are required to complete an environmental impact statement. With specific cooperation from the Federal Highway Administration or the Federal Transit Administration, projects can fall in between and be required to do some, but not full, review.

Some projects on the state's list that have already gone through Massachusetts Environmental Policy Act scrutiny, could still be required to meet NEPA rules because of the federal money. And MEPA, the attorneys noted, is centralized, whereas with NEPA each agency in the US government has its own regulations under the act.

Robinson and Cole attorneys concluded that "procurement as usual" will create timing problems for some ARRA-eligible projects, and state and federal officials need to pay attention and act or projects will be left out, money left on the table (or yielded to other states).

"I-Cubed offers a possible approach to Market Smart project obstacles," said Sampson. "There's an exception from the normal procurement process." For example, I-Cubed projects don't require sealed bids, and the advertising time for projects is abbreviated.

A law has been proposed that would expedite other projects as well, even beyond I-Cubed. "I-Cubed is a model that ought to be applied to ARRA," he said. "A project might have to be redesigned if part of it uses ARRA money."

Robinson & Cole issued its own list of eight projects that would be good candidates for stimulus money, including Hamilton Canal in Lowell, Jackson Square in Boston (more on that one in this Journal soon), Assembly Square, and the redevelopment of the South Weymouth Naval Air Station.

The firm isn't working on any of those projects but is working on redevelopment of Wonderland Station at Revere. Attorneys admitted, under pressure, that they thought it also would be an excellent candidate.

Of their list of eight projects, "We were hopeful it would happen in the first round," said Lawlor. "It didn't happen."

If the state does all the infrastructure first, and the private developments have to wait out the economy, some of those permits may expire. NAIOP Massachusetts, the Robinson & Cole team noted, has proposed that permits be extended to save a lot of those projects in an unusual, perhaps unprecedented, economic time.

LENGTH

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For the time being, we take the view of Los Angeles Times editors of the 1970s, who let their reporters write and write, and continued those articles from page to page to page. (Back then, in the days of our internship, they had the advertising to support printing all those pages.) Their view was that a few people might want to read the whole thing, in depth, and no one was obligated to read more than they had time or interest for. Just turn the page, they said. (Today you hit the "Next page" button.)

One primary purpose of the Journal is to fill a void long left by newspapers, to cover some of the basic, not-so-sensational, but nevertheless important developments and policy discussions that take place, in the worlds of real estate and development, transportation, and the economy. One lovely thing about the web is it doesn't harm the environment a bit to bring you longer articles.

So, thanks, Paul. We'll continue to welcome and consider suggestions like yours. And we do thank all those of you who say you find the Journal worthy reading. For now, though, we'll write on.

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