Tightening Our Belts

As I wrote last week upon my return to the Office of Management and Budget, the fiscal and economic situation we face today is very different than the projected surpluses we left behind the last time I served as OMB Director in the 1990's. After years of fiscal irresponsibility, President Obama inherited a $1.3 trillion projected deficit and the worst economic downturn since the Great Depression.

The President and his economic team worked quickly to address the crisis, and we are seeing our economy recover – albeit more slowly than anyone would like. Families and businesses are still hurting, and too many who want to work are not able to find a job. Our top priority must be to do what we can to help boost economic growth and spur private sector job creation.

But to lay the foundation for long-term economic growth and to make our nation competitive for years to come, we must put the United States back on a sustainable fiscal course. And that’s going to require some tough choices.

Today, the President made one of those: proposing a two-year pay freeze for all civilian federal workers. This will save  $2 billion over the remainder of this fiscal year, $28 billion in cumulative savings over the next five years, and more than $60 billion over the next 10 years. The freeze will apply to all civilian federal employees, including those in various alternative pay plans and those working at the Department of Defense – but not military personnel.

We are announcing this move today because tomorrow is the legal deadline to submit to Congress the President’s decision about locality pay, a key component of overall federal worker pay.  In addition, we are in the midst of the 2012 budget process, and need to make a decision about pay to develop the 2012 budget. Simply, the time to decide about pay for those two years is now.

Make no mistake: this decision was not made lightly.

Like everyone honored to serve in the White House or the Cabinet, we work with extraordinarily talented public servants every day. Throughout my career in the Congress, at  the State department, and here at OMB, I have met federal workers who have sacrificed more lucrative jobs and hours with their families - -and, in some cases, put their lives in harm’s way -- in order to serve their fellow Americans.  Indeed, anyone who has flown safely, enjoyed our national parks, received a Pell grant to go to college, or relied on a Social Security check to retire in dignity has benefited from the service of federal workers.

This pay freeze is not a reflection on their fine work. It is a reflection of the fiscal reality that we face: just as families and businesses across the nation have tightened their belts, so must the federal government.

Already, the Administration has taken a number of steps in this regard  as part of its Accountable Government Initiative from the President freezing the salaries for all senior White House officials and other top political appointees upon taking office to his efforts to get rid of $8 billion of excess federal real property over the next two years, reduce improper payments by $50 billion by the end of 2012, and freeze non-security spending for three years – which will bring non-security discretionary spending to its lowest level as a share of the economy in 50 years.

Moving forward, we will need to make many more tough choices to construct a plan to pay down these deficits and put our nation on sound fiscal footing. Later this week, the Fiscal Commission will release its report laying out its approach, and I look forward to working with people from across the spectrum on this challenge in the weeks to come.

Jack Lew is the Director of the Office of Management and Budget.

Improper Payment Progress

Readers of OMBlog are now quite familiar with the Administration’s determined effort to cut the billions of dollars wasted each year in improper payments -- payments made by the government to the wrong person, at the wrong time, or in the wrong amount. These include payments made in error by a government agency sending a benefit check, inadequate documentation by a local provider, or outright fraud by a contractor or other recipient.

As part of the President’s Accountable Government Initiative, we’ve worked hard to bring down the rate of improper payments, recapture misallocated funds, and meet the President’s goal of reducing improper payments by $50 billion by the end of 2012. Yesterday, federal agencies finished their year-end financial statements, and I’m pleased to report that we have made significant progress on these fronts.

For 2010, the government-wide improper payment rate declined to 5.49 percent, a decrease from the 5.65 percent reported in 2009. This means that we prevented an additional $3.8 billion in improper payments from being made in 2010, and are headed in the right direction as we work to meet the President’s goal.

In fact, eight of the 10 high-priority programs (programs which account for the majority of government-wide improper payments) reported lower improper payment rates in 2010 compared to 2009. It’s worth noting that Medicare and Medicaid both achieved lower error rates in 2010, avoiding approximately $8 billion in improper payments if those declines had not been achieved.

Agencies also reported that they recaptured almost $687 million in improper payments in 2010, a significant amount of payment recaptures. This total includes approximately $611 million recaptured through payment recapture audit reviews of agency contract payments – a specialized audit in which auditors are given an incentive to find more misspent money. This was the highest recaptured amount reported in the seven years that agencies have conducted payment recapture audits, and more than doubled from 2009. All told, the $687 million recaptured in 2010 puts us on track to achieve the Administration’s goal of recapturing at least $2 billion between 2010 and 2012.

Now, because many of the targeted programs – such as Unemployment Insurance and Medicaid – are paying out more benefits as the economic downturn creates more demand for these benefits, the total number paid out in improper payments increased to $125 billion last fiscal year even though the overall error rate declined. This is an unfortunate result of the recession and of basic math: the more that is paid out, the more paid out in error even if the overall rate declines.

Looking ahead, we are not stopping in our efforts to reduce improper payments. Today, we are releasing guidance to agencies on steps that they should take to comply with the Presidential memorandum on intensifying and expanding payment recapture audits, and steps on how agencies can begin to implement the new recapture authorities contained within the Improper Payments Elimination and Recovery Act (IPERA). We also are launching a partnership with the Department of Veterans Affairs (VA) to pilot www.VerifyPayment.Gov, a new portal for the new Do Not Pay List that will create a central clearinghouse of information to prevent payments to ineligible recipients.

And because, ultimately, it’s your money at stake, information about agencies’ improper payments will be available later today at www.PaymentAccuracy.gov.

The results today demonstrate that we can cut waste, boost effectiveness, and create a government where tax dollars are respected. As the steps we have taken over the past several months continue to take root, I am confident that with the continued hard work of folks across the federal government and with the leadership of President Obama, we will see continued progress in reducing improper payments and toward a more efficient federal government.

And the Top SAVER is...

Over 57,000 of you have spoken, and the winner of the 2010 SAVE Award is Trudy Givens of Portage, Wisconsin.

Trudy is a 19-year veteran of the US Bureau of Prisons, working now as a Business Administrator in the Federal Correctional Institution in Oxford, Wisconsin. Over the course of her career, Trudy noticed that copies from the Federal Register -- the federal government’s official daily publication for rules, proposed rules, and notices of Federal agencies and organizations, as well as executive orders and other presidential documents-- were delivered to her workplace several times per week, but employees rarely referenced the documents. The Federal Register was made available online years ago, and most members of the interested public reference that online version now. Trudy thought that in keeping with the President’s spirit of cutting out waste and going green, the government should end the printing and mailing of thousands of Federal Registers to employees.