Rooting Out the Waste

By WALTER ISAACSON

A commission urges savings at the Pentagon and elsewhere

When Ronald Reagan was running for President, he deflected questions about how he would conquer Government waste by pointing with pride to a program he had used in California: sending flying squads of top businessmen into the state's agencies on missions against inefficiency. To tackle the problem at the federal level, Reagan appointed a similar task force early last year under the direction of J. Peter Grace, 70, chairman of the conglomerate W.R. Grace & Co. Last week the group made public its final batch of findings. Its pointed revelations of wasteful practices were greeted within the Administration with much of the awkward dismay a doomsayer might feel upon being told his prophecies are true.

"We are talking about real money," said Grace last week as he suggested ways to cut as much as $137 billion in purported federal waste over three years. "And we have barely scratched the surface." The recommendations of his task force,* formally known as the President's Private Sector Survey on Cost Control, have been submitted piecemeal during the past three months, and will be compiled in a 1,000-page summary report early this fall. Some are quite specific: as an example of the expense of federal medical facilities, the group cites a Veterans Administration hospital in The Bronx that cost nearly twice as much to build per bed as some private facilities. Others are more sweeping: the Government's 19,300 computers are often incompatible with one another, share no common base of reliable data, use different accounting systems, and operate with obsolete technology. "The whole data-processing thing is one big mess," asserted Grace.

The most controversial of the recommendations, particularly to an Administration instinctively inclined to find fault and fat in social programs, are those designed to save more than $89 billion over three years in defense spending. Military pensions should be scaled back, the report says, so that they no longer amount to about twice the rate found in the private sector. Generous cost of living adjustments have allowed some officers who retired ten years ago to make more than those of equal rank on active duty, and more than those who retired recently. Even issuing payroll checks results in waste. Private businesses can do it for about $1 a check, but it costs the Army $4.20. The Grace commission also cites the operation of unnecessary military bases and the domestic proliferation of subsidized commissaries (six in Washington, B.C., alone) that were originally intended to provide shopping facilities for servicemen in remote outposts.

Encouraging more competition in the procurement of spare parts could save $695 million in three years, the commission says. It notes that less than 25% of aircraft parts are purchased through competitive bids. Such recommendations come at a time of increasing debate over, the way the Pentagon buys weapons. The Senate has been holding heated hearings on a bill to establish an independent testing agency in the Pentagon to ensure that weapons perform as promised. To defuse some of the criticism, top military officials, including Deputy Defense Secretary Paul Thayer, have tried to take the initiative by publicly attacking the shoddy work being done by defense contractors, whose mistakes, they say, add anywhere from 10% to 50% to the cost of many weapons systems.

The Grace commission criticizes the pension plans for nonmilitary civil servants. The Government spends 29% of its payroll on retirees, compared with 14% in private industry, a problem that has been partly offset by plans to bring Government personnel into the Social Security system. The group recommends the appointment of a senior financial officer and management team, with long-term tenures, to manage in a businesslike way the Government's $1.7 trillion in annual cash flow. In addition, Grace notes that "the U.S. is the world's largest conglomerate, largest power producer, largest hospital operator and largest timber-and grazing-land operator," and suggests that many of these activities be turned over to private industry.

Defense Secretary Caspar Weinberger last week responded that tampering with retirement pay would "create havoc with the morale and readiness of our troops." Grace replied tartly that the Defense Department should accurately reflect the retirement costs in its accounts if it cannot change the system. Said he: "If you can't do it, Caspar, then what you have to do is start booking it." Many top officials at Government agencies, while welcoming and even putting into practice some of the free suggestions of such highly qualified management consultants, shook their heads at the political naivete a few of the businessmen showed. Indeed, Grace admits that the recommendations are being made "without any reference to the political problems involved."

The commission's maverick proposals place the President in an uncomfortable position. Having long attacked the federal bureaucracy as a morass of wasteful practices, he is now in charge of that bureaucracy, at least in theory. Official are correct in protesting, just as those in past Administrations have done, that making many of the suggested savings will be difficult. But after creating a task force to transform his rhetorical promises into hard proposals, Reagan will find it difficult to sidestep the challenges posed, even when they involve his military budget. --By Walter Isaacson Reported by Patricia Delaney and Christophe Redman/Washington

*Among the 1,300 unpaid volunteers in the 38 working groups were Chase Manhattan Bank Chairman Willard Butcher, Coca-Cola President Donald Keough, retired IBM Chairman Frank Cary and other leading executives of Fortune 500 companies.

With reporting by Patricia Delaney, Christophe Redman/Washington This file is automatically generated by a robot program, so viewer discretion is required.