• make an independent assessment of the annual report of the Board of Trustees and report the results of this assessment to the President and the Congress;

• engage in public dialogue and education about Social Security;

suggest to the President names to consider in selecting his nominee for Social Security Administrator;

• review and assess major legislative proposals regarding Social Security, including an assessment of the administrative feasibility and consequences of those proposals;

• review and assess the quality of service that the agency provides to the public; • make an annual assessment of the progress in upgrading the agency's computer-based technology;

• review and assess the agency's progress in developing needed management improvements; and

in consultation with the Administrator, review the development and implementation of a long-range research and evaluation plan for the agency.

Under the Panel's plan, the Advisory Board would have a detailed and important role to play in an independent Social Security agency. With distinguished and accomplished members, this Board would complement the strong Administrator whose first priority, as seen by the Panel in 1984, was the resolution of the Social Security Administration's operating problems.

OPERATING ISSUES

The Panel considered detailed information about the operational problems facing the Social Security program in 1984. These were summarized in the Panel's Report. The Panel was struck by the severity of those problems, particularly the pervasive effect of the Social Security Administration's inability to take full advantage of modern computer technology and the serious internal management issues that the agency would face when able to modernize its systems and procedures.

The causes of administrative difficulties found by the Social Security Administration in 1984 were myriad. It seemed clear to the Panel that frequent turnover of top leadership, repeated reorganizations, and continuous amendment of the Social Security Act, when coupled with inadequate systems support and restrictive controls imposed by the central management agencies of the executive branch, all played a part. The Panel's recommendations addressed these causes.

But the Panel also noted that not only did some of the Social Security Administration's management challenges result from circumstances beyond its direct control, but also that the agency and its employees do an admirable job under less than ideal conditions. On a cursory reading, the Panel's report may appear to be critical of the agency's shortcomings, but it emphasized that in the vast majority of cases, the Social Security Administration sends the right check to the right person in the right amount at the beginning of every month. The Panel concluded that the Social Security Administration can and should do better; its employees very much want to do a better job; and that its recommendations for strengthening the management of the Social Security agency would promote operational excellence.

The Panel concluded that the first step in that process would be to build stability and professionalism in the agency. Thus, the Panel recommended that the Social Security Administrator be selected on the basis of demonstrated competence as a manager, that the position be elevated to executive level II to attract the most qualified candidates and to provide status comparable to other independent agencies of the government, and that the Administrator be appointed for a term of 4 years, coinciding with the term of the President. While the first two points are fairly obvious, the four-year term was intended to create the expectation that nominees would, upon accepting the position, make an implicit commitment to stay at least through the term of the President. In other words, the position of Social Security Administrator should be a goal to be sought by the most qualified and experienced individuals. On the other hand, the Panel did not believe that a term exceeding that of the President would be appropriate since the administrator would speak for the President on Social Security issues and must have the President's full confidence.

MANAGEMENT AUTHORITIES

The Panel's Report emphasized that many of the Social Security Administration's 1984 operational problems were caused by-or at least exacerbated by-circumstances beyond the agency's direct control. One of those factors was the perceived tendency of the central management agencies of the Federal government, particularly the General Services Administration, the Office of Personnel Management and

the Office of Management and Budget, to over-regulate and over-control the operating agencies of the Federal establishment.

The Panel was influenced by a 1983 report by the national Academy of Public Administration, entitled "Revitalizing Federal Management: Managers and Their Overburdened Systems," which analyzed deleterious effects of centralized government-wide administrative regulations. In addition, the report of the President's Private Sector Survey on Cost Control (Grace Commission) pointed out that many agencies, the Social Security Administration in particular, are fully capable of managing their administrative services without unnecessary and duplicative oversight by control agencies. The Panel asked the National Academy of Public Administration, building on their earlier study, to recommend administrative authorities that could, if delegated to the Social Security Administration, improve its capacity to manage effectively. The Panel used the National Academy's analysis in reaching its own conclusions on these questions.

To improve the Administrator's ability to manage the new Social Security agency, and to achieve and be held accountable for results, the Panel recommended that the following management authorities be delegated to the extent now permitted by law: • information resource management and automated data processing planning and acquisition authority;

authority to acquire, operate and maintain the facilities necessary for the Social Security programs;

personnel management authority to establish its own recruitment and examination program for entry level employees and to establish its own classification system for those job categories identified by the Administrator as unique and/or critical to agency operations.

The Panel's purposes in recommending these delegations was to balance authority and responsibility in the hands of the Administrator. The Panel concluded that the Administrator cannot be expected to be responsible for program performance unless provided the tools to achieve superior performance.

The budget process consumes time and energy of all Federal administrators. One of the National Academy's central findings was that the budget process for many agencies places_unnecessary and burdensome demands on top management's time and attention. For stable agencies like the Social Security Administration, the cost of an annual budget, compared to less frequent budgeting, may not be justified. Thus, the Panel recommended that the Social Security Agency be authorized to present a biennial budget request to the President and the Congress.

The budget process can also be counterproductive when it is misdirected. The Panel agreed with the National Academy that agencies with workload-based administrative budgets should be required to submit workforce plans to the President and the Congress, and that once that plan is approved, agency management should be free to implement it without the imposition of arbitrary ceiling restraints. Thus, the Panel recommended that the Social Security Administration be required to submit such a workforce plan and that its administrative budget be based on dollar limitations rather than personnel ceiling controls.

PROGRAMS INCLUDED IN AN INDEPENDENT AGENCY

When the Panel began its deliberations, its members fully expected that one of the most difficult questions to answer would be, what programs should the new agency administer? In fact, a consensus was reached rather quickly on this issue. The Panel recommended an independent Social Security agency with responsibility only for the Old Age, Survivors, and Disability Insurance (OASDI) and the Supplemental Security Income (SSI) programs. Accordingly, the Panel recommended that programs administered by the Social Security Administration in 1984-Aid to Families with Dependent Children (AFDC), Child Support Enforcement, Low Income Energy Assistance, and Refugee Resettlement-should remain in the Department of Health and Human Services. (This particular recommendation has been made moot by the subsequent transfer of these welfare and social service programs from the Social Security Administration to a separate agency in the Department of Health and Human Services.) In addition, no other programs now outside the Social Security Administration's jurisdiction, including the Medicare and Medicaid programs, should be transferred to an independent Social Security agency. This recommendation followed from the Panel's conclusion that the OASDI and SSI programs constitute enormous management and operational challenges in and of themselves, and would require the full time attention of a strong administrator.

In the case of Medicare and Medicaid, the Panel heard testimony in favor of reuniting Medicare with Social Security, thus locating these social insurance, payroll tax financed programs in a single agency in order to improve beneficiary service.

The Social Security Administration provides certain administrative support services to the Health Care Financing Administration; Medicare applications are taken in the Social Security Administration's field offices, and the Social Security Administration provides beneficiary information and data to the Health Care Financing Administration from its computer system. Beneficiaries apply for Medicare in the Social Security Administration's field offices and many return to the Social Security Administration with questions on reimbursement, coverage, and the like. However, the Social Security Administration's field employees often are not in a position to respond to many of these questions and must refer many beneficiary questions to Medicare carriers and intermediaries. The Panel was advised that beneficiary service might be improved if the Social Security Administration was responsible for the program and field employees were better trained in Medicare policy and procedures. The Panel recognized merit in these arguments, but decided on balance that it would be a mistake to place Medicare (and Medicaid, for the two medical insurance programs are forging increasingly important policy linkages) in the Social Security agency. Such a combination would be detrimental to the new Social Security agency, as well as to the Health Care Financing Administration and the Department of Health and Human Services. The Panel correctly predicted that national health care policy would be one of the most difficult and pressing social issues in the years ahead. Resolving these issues, still facing the Nation, will not only require the full time and attention of program managers, it will also require careful coordination among all Federal health care policymakers. Removing Medicare and Medicaid from the Department of Health and Human Services would make health policy coordination much more difficult, and would be enormously disruptive to the Department of Health and Human Services, to a new Social Security agency, and to itself. Therefore, the Panel recommended that Medicare and Medicaid remain in the Department of Health and Human Services with other Federal health programs. Mr. Chairman, this completes my statement. I would be happy to answer your questions.

PREPARED STATEMENT OF JOHN N. STURDIVANT

Mr. Chairman, members of the Committee, my name is John N. Sturdivant. I am President of the American Federation of Government Employees (AFGE), AFL-CIO, which represents more than 700,000 Federal employees working throughout the government. On behalf of the 55,000 workers at the Social Security Administration (SSA) whom we represent, I thank you for this opportunity to testify on the establishment of Social Security as an independent agency and issuing of annual account statements for prospective Social Security beneficiaries.

The first subject I would like to address is S. 22, a bill which directs the SSA to provide annual statements of personal earnings and potential benefits for all workers covered by Social Security by the year 2000. AFGE recommended this measure to the Ways & Means Social Security Subcommittee at the time of its hearing on the failure of SSA to post $58.6 billion of workers' earnings.

We believe that the issuance of annual statements would serve three major purposes. First, public confidence in the Social Security system would be enhanced by the receipt of an official annual statement. Second, we believe that workers would welcome the statements for the opportunity they would provide to reconcile their own records with those of the SSA. Finally, the responsibility to issue these statements would encourage SSA to pay more careful attention to the posting of earnings.

AFGE does have some serious concerns relating to the implementation of this law. As a new service, the issuing of annual earnings and benefit statements will cost money and claim resources. It is difficult to predict with any accuracy just how much it will cost because of the very real possibility of unanticipated complications. For example, issuing statements might be handled successfully by few employees using mostly automated processes, and be relatively error-free. But just as likely is the possibility that divergences will be discovered between workers' private accounts and the SSA statements. While the time spent. reconciling these accounts would be well-spent, it would constitute a new service, and an increased workload for the already overburdened Social Security staff.

One of AFGE's greatest concerns with the SSA has to do with understaffing. Employees of SSA experience continual demands to do much more with much less: less in the way of material, human, and financial resources, and more in the way of handling increased functions for an increased number of beneficiaries.

To accommodate the costs associated with the provision of the new service, we ask that the Congress be certain to provide the additional resources necessary to meet the increased demand. Too often, the Congress enacts legislation without a concomitant increase in resources to implement the legislation. Thus, we recommend that S. 216 Section 234(b) be amended to add on item (3) to read: "The Secretary will report to the Congress as to the resources needed to implement the provisions above."

The other subject of today's hearing concerns S. 216, which would establish SSA as an independent agency. We believe that the consideration of this bill, S. 216, could not be more timely. The SSA is in a state of confusion and disarray. Morale among managers and rank and file workers has never been lower. The agency has been politicized to a degree that would have been unthinkable just a few years ago. Staffing has plunged from a Congressional appropriation level of 86,213 workyears in 1985 to the FY 1990 budget request level of 63,911 workyears, a difference of 22,302 workyears, or 26 percent.

Despite the fact that Congress has recognized the need for more staff, and has, in each of the last five fiscal years, appropriated additional funds for staffing, the agency has not fully utilized the funds for that purpose. (The funds, however, have been expended for other purposes.) These staff reductions have taken place while the senior population has risen by approximately 10 percent. In addition, SSA employees have been required to implement major new statutory requirements and effect major shifts in the way the SSA conducts its affairs. This has produced a significant addition to the workload of SSA employees, at the same time that the workforce has been vastly reduced.

The most recent General Accounting Office (GAO) report, "Views of Agency Personnel on Service Quality and Staff Reductions" (Feb. 1989-GAO/KRŎ-89-37BR) describes graphically the seriousness of the situation. GAO reports plummeting morale and the widespread existence of serious misgiving on the part of employees about the agency's current direction. Our union recently conducted a massive survey of the SSA workforce, collecting information on workers' attitudes toward their jobs, pay, support, and their opinions about the source of the problems they face. In most areas, AFGE's findings are consistent with those of the GAO. One particularly disturbing survey result shows that 42.8 percent of SSA's employees the field offices are currently looking for work outside of SSA.

The 26 percent staff reductions to which I referred to above were by and large justified by the adoption of a modernized computer system. Unfortunately, it must be said that this computer system has been a failure. Both the GAO and the Congress cautioned SSA about its leap into purchasing hardware and implementing the modernization before adequate field testing of the system occurred. Congress was promised, in the early 1980's, that the system of highly sophisticated and efficient hardware and software would solve the vast majority of what were then SSA's concerns. The system was to cost approximately $450 million and be completed by 1988. An October 3, 1988, report by the Government Operations Committee paints an ugly picture of mismanagement, failed opportunities, and, in fact, corruption at the highest levels. To date, the computer system has cost at least $600 million. The SSA plans to spend another $500 million during the next few years, primarily on hardware needed to compensate for poorly designed software. The GAO has stated that by 1990 the SSA will have spent $1.1 billion and that the promised sophisticated software systems will not be in place until the mid 1990's, if ever.

The agency has thus been required to develop ways to alleviate its workload that will take the pressure of its inadequate and malfunctioning computer system. The shortcuts have been the subject of many hearings before this Committee and other Committees in the House and Senate. One such shortcut, the recent attempt to change the hearings and appeals regulations by restricting appeals, may be the most outrageous example of an agency which has lost sight of its historic mission and legal responsibilities. Millions of citizens could have been harmed if the Congress had not acted quickly and kept SSA from implementing changes in the appeals process. AFGE is proud to have played a role in making the agency's plan public.

Other changes which have already been implemented have resulted in making SSA the public's adversary rather than its advocate. Disability applicants are told to take the complicated application form home to complete. Disability reviews are not conducted in a timely manner. The "appointment system" in which the walk-in public is told to leave and call in for an appointment is used to dissuade and discourage beneficiaries and applicants. Social Security Insurance application and redetermination will no longer be done face-to-face. Protective filings often are not taken. Earnings are not properly posted. Claims are not fully developed. And it is likely that individuals becoming citizens under immigration reform will be denied

retirement, survivor's, and disability benefits because the Agency has made no effort to inform the population that there are serious problems with the posting of their earnings. The "800 number" initiative raises questions about the SSA's ability to implement orderly and effective change. It also raises serious questions with regard to SSA's approach to service delivery. The list goes on and on.

Most of the problems outlined above are of relatively recent origin. They flow from decisions made unilaterally by short-term political appointees and by the Office of Management and Budget in its zeal to see "savings" result from the investment in computer and systems modernization.

Unfortunately the "savings" have come at the expense of a vastly reduced workforce. As a result, the public is not as well served as it was just a few years ago. Former SSA Commissioner Robert M. Ball, in his testimony before the House Ways & Means Subcommittee on Social Security on March 1, 1989, made a persuasive case that the "savings" from systems modernization could as easily have been an opportunity to improve services to SSA's claimants and beneficiaries. An independent Social Security board, setting broad policy directions, would be far more likely to be interested in improving SSA's service to the public, and less likely to alter adversely the appeals process, and certainly not likely to spend SSA's resources in passing out SSN "negative verifications" (SSA's euphemism) to private concerns.

While the "Board" approach is no panacea for all of SSA's problems, it is an important step in depoliticizing the agency and assuring that those who run the agency, and determine its directions have as their greatest concern the integrity of the Social Security system and the interests of the public it serves.

AFGE's support for establishing the Social Security Administration as an independent agency is firm. However, our review of S. 216 raises several serious questions. As a labor union, AFGE has steadfastly maintained that all Federal employees should be treated equitably. To this end, we have consistently maintained that all legislative provisions pertaining to personnel embrace the concept of a civil service dependent upon merit principles.

S. 216 clearly provides that SSA would be established as an independent agency whose function would be to administer the OASDI and SSI programs. Under S. 216, the new independent SSA would be directed by a Social Security Board consisting of three members who would have broad authority in terms of personnel management without regard to many of the provisions of the existing personnel management policies and procedures comprising the merit-based civil service system. Initially, the Board could transfer only such personnel from HHS/SSA as it so desired. But we have concerns about what may happen to current SSA employees if they were not transferred to the new agency.

The bill purports to transfer all of the functions now carried out by the Secretary of HHS, with respect to OASDI and SSI, to the new independent SSA. AFGE believes that all personnel performing functions which are transferred, should also be transferred. In addition, all authorized full-time_equivalent positions should be transferred along with pertinent appropriations. This is precisely what occurred when archival functions were transferred from GSA to National Archives. Based on this precedent, AFGE suggest amending Section 104 of the proposed bill to achieve this goal aid provide employee protections.

The new Board is given the same authority which now is vested in OPM to carry out demonstration projects with respect to its personnel. While it is true that AFGE has in many cases supported demonstration projects, we have done so when such projects were a joint effort among the employees, the agencies involved, OPM, and the Congress; carried out specifically to determine whether a specified change in personnel management policies or procedures would result in improved Federal personnel management.

Under the current demonstration project authority vested in OPM, both the employees who are to be affected by a proposed project, and their exclusive representatives have a meaningful opportunity to negotiate its design and implementation. Prior to implementation, a proposed project is subject to review not only by the employees and the agency, but by OPM and the Congress as well. Following this formula, each demonstration project becomes the product of careful deliberation by many responsible persons. This process insures fairness to all who are to be affected by a demonstration projects. S. 216 provides no such protections. Not only could all of the employees of the new independent agency be under a demonstration project, but the Board would have no obligation to consult with the employees since the projects could be established prior to the actual transfer of the employees from HHS/SSA to the new agency. The projects would not have to be approved by OPM or any other entity.