Challenge Grant: The Government of the Future - Looking to 2040

Tuesday, January 16th, 2018 - 11:06
Provided below are proposals presenting applicants' 2040 vision for the structure and operations of government. Please provide feedback on the following proposals by emailing us the proposal number and your comment. Deadline for the 300 word proposals is February 28, 2018. Proposal 1: Investing in Resilient Communities

Envisioning the Future of Government: A Challenge Grant Competition

Wednesday, January 10th, 2018 - 13:16
This blog post is one in a series in our 20th anniversary year for the IBM Center for The Business of Government. We are advancing ideas, activities, and reports by the Center that look to the future, reflecting on Center and other contributions about past management trends and reform efforts. Joining me in this effort are Mark Abramson, the founding executive director of the IBM Center, and John Kamensky, the IBM Center’s most senior fellow.

Envisioning the Future of Government

Tuesday, January 9th, 2018 - 18:10
To commemorate our 20th anniversary, the Center is engaging in a series of collaborative activities, events, and reports that envision government 20 years from now, informed by a look back at our research over the last 20 years – the “20/20” project. We hope to spark imaginative discussion and content about what government structure, operations, and service delivery might look like in two decades.

The Future Has Begun! Using Artificial Intelligence to Transform Government

Tuesday, January 9th, 2018 - 12:09
Blog Co-Author: Claude Yusti, Partner, IBM Global Business Services Government agencies are being challenged to provide more and better services. At the same time, agencies face budget and resource constraints. Some organizations are looking at how to reinvent their programs for serving citizens. This environment places a premium on investigating and testing new approaches -- one of the most intriguing such approach involves the use of artificial intelligence, or AI.

Challenge Grant: The Government of the Future - Looking to 2040

Wednesday, January 3rd, 2018 - 15:41
The IBM Center for The Business of Government is very pleased to announce a Challenge Grant for essays envisioning the future of the structure and operations of government in the year 2040. The Challenge Grant will provide $2,500 for the winners of the competition to produce essays for publication.
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Magnifying the Voice of the Future

Tuesday, November 11th, 2014 - 10:40
Tuesday, November 11, 2014 - 09:29
Dr. Boston, visiting the U.S. on a Fulbright Scholarship, sums up some of his initial research on how the U.S. and several other democratic countries address long-term policy issues, in a recent presentation at American University.

Creating Strategic Foresight in Government

Monday, April 8th, 2013 - 16:43
Monday, April 8, 2013 - 16:39
Strategic foresight is not futurist forecasting, nor is it the sole purvey of Popular Science magazine, the World Future Society, or the Jetson Family.  It is about having the imagination to be prepared for what may come, regardless of which scenario occurs – it’s a mindset, not a process. Creating a Federal Community. 

Steven Preston interview

Friday, April 25th, 2008 - 20:00
Steven Preston
Radio show date: 
Sat, 04/26/2008
Intro text: 
Steven Preston
Complete transcript: 

Originally Broadcast April 26, 2008

Washington, D.C.

Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org. And now The Business of Government Hour.


Mr. Morales: Good morning. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government.


Small business ownership can be the gateway to opportunities for all Americans. In fact, in just over four years, two-thirds of the eight million new American jobs were created by small businesses. These entrepreneurs foster an economy driven by innovation and their passion, along with the organizations dedicated to serving them, clearly reflect the American spirit of ingenuity and opportunity.

With us this morning to discuss his department's effort in support of American small business is our special guest, Steven Preston, administrator of the U.S. Small Business Administration. Good morning, Steve.

Mr. Preston: Good morning.

Mr. Morales: And joining us in our conversation, also from IBM, is Paul Kayatta, partner in IBM's Public Sector General Government Practice. Good morning, Paul.


Mr. Kayatta: Good morning, Al. Hello, Steve.

Mr. Morales: Steve, let's start by taking a moment to provide our listeners with an overview of the Small Business Administration, or sometimes referred to as the SBA. Can you tell us a bit about the history and the evolution and its current mission today?

Mr. Preston: Sure. And I think, Al, you did a great job of sort of giving us a sense of the importance of small business in our country. Roughly, they're half of our economy. They're most of our job creation and a lot of the innovation that drives our economy. And because of that, the SBA was created in 1953 as an independent agency to support small businesses in any number of ways.

Now, what that means today is that we provide guarantees for private loans to small businesses. That helps our banks and other lenders reach a little bit harder to reach small businesses who need capital to grow. It means that we train and counsel small businesses around our country. Every year, we have programs that touch about a million entrepreneurs a year to help prepare them for ownership or help them through issues they face as a small-business owner. We also help small businesses if they want to sell their goods or services to the federal government. We help prepare them for that process and learn how to bid on contracts.

And then the other thing we do, which is a little different than our primary small business mission, is we are America's government bank for disaster victims -- not only small businesses, but homeowners. So, for example, today we have over $6 billion with homeowners and business owners in the Gulf of Mexico, helping them rebuild their lives after the 2005 hurricanes.

Mr. Morales: That's great. That's a broader mission than I had thought. So can you provide us then a sense of scale and tell us a little bit more about how the SBA's organized, perhaps the size of its budget, number of full-time employees, and your geographical footprint across the country?

Mr. Preston: Sure. Right now, there are effectively two parts to the agency: the disaster side and the non-disaster side. The non-disaster side has slightly over 2,000 employees. Now, the disaster side, the size of the employee base depends on what we're dealing with. So, for example, today we've got about 1,200 employees, but after Hurricane Katrina, we had over 4,000.

In addition to that, in our training and counseling operations, we fund third parties that provide those services for us. They have about 13,000 counselors around the country. And then we work with about 4,000 banks and non-bank lenders. So we have a large base of employees, but we also have a large network that is not employed by us, but works with us to deliver that mission.

Our budget, it takes somewhat over $800 million to run the agency in any given year, but many of our programs are actually self-funding. I think the other thing to note is when you look at all of our guaranteed lending programs and other programs we have to get capital to small business, there is about $85 billion worth of capital in people's hands around our country that is supported by the SBA. So we're a very significant part of getting capital to small-business owners.

Mr. Kayatta: Now that you've provided us with a great sense of the organization, perhaps you could tell us a little bit about your role as the administrator of SBA. Could you describe for us your specific roles and duties?

Mr. Preston: Yeah, well, you know, as head of the federal agency, my duties are fairly broad. But I look at them really probably in a couple of baskets. First of all, I think I need to be the point of accountability for high-quality service delivery by our agency. At the end of the day, we're a service organization that helps Americans. And I feel like I need to make sure that every penny that's spent on the agency is a penny well spent and that we are a high-quality organization delivering that service. We've had a lot of challenges along the way, but I think we've made a lot of progress.

As such, I need to be an important advocate for our employees, and the work that they do. And I also think I need to be a very visible advocate for small businesses in our country. We are consistently facing policy issues, like health care, like tax policy, like export policy, that are very relevant to the small businesses in our country. So as head of the agency, it's important for me to understand what's taking place on the legislative agenda and the regulatory agenda, and ensure that we're doing everything we can to make sure the voice of small business is heard.

Mr. Kayatta: So you've gone over several of the challenges that you're addressing. Could you tell us what you think your top three challenges are, and how are you addressing them?

Mr. Preston: Well, you know, when I came into the position, I came in about 11 months after Hurricane Katrina. And we provide loans to disaster victims, and those are low-interest loans on very favorable terms, and we had just a tremendous backlog at that point. So job number one for me when I came into the agency was to ensure that we got those funds into the hands of disaster victims and then that we ensure that we could reform the agency in a way that would ensure that we could support disaster victims in the future. As people say, hope for the best, but plan for the worst. So we have dramatically changed the process of making a disaster loan at the agency, which has required extensive reengineering of processes, bringing more technology to the table, coordinating with federal and state and local groups much more effectively.

And the other thing we did is we're trying to move our disaster operation -- we actually already have -- from feeling like a large bureaucracy to a friendly organization. So everybody who applies for a disaster loan right now is going to get a case manager, somebody they can talk to about how to submit their loan, the person can help them through the process. We want to be a helpful, responsive body. So that was the big challenge and I'm thrilled with the progress we've made there.

I'd say, secondly, we face similar operational challenges that have made it difficult for us, I think, to deliver the service that we do with the type of quality that we need to. And so we've applied many of the same learnings to other areas in the agency to become a much more customer-friendly organization in our lending programs, in our procurement programs, and in all sorts of other things.

And I'd say the other thing is, you know, when I came into the agency I think we had some real employee morale issues. The government surveys on employee satisfaction indicated that the SBA had a lot of challenges in that area. So I've been very focused on ensuring that our employees are trained to do their jobs effectively, that they have the tools to do their jobs effectively, and that they have a work environment that really makes them look forward to coming to work every day. And we've made a lot of progress on that front as well. A couple months ago, we got results from an employee survey that was roughly a year after we brought the new team in, and we saw very dramatic improvements. So we're thrilled with the progress we're making there as well.

Mr. Morales: Steve, I understand that prior to coming to SBA, you were an executive in the private sector. Could you describe your career path for our listeners and perhaps let us know how you got started in government?

Mr. Preston: Yeah, it's probably more of a zigzag than a straight line. You know, I came out of business school with a finance MBA and went to work in investment banking. I worked on Wall Street for a number of years, from sort of the mid-'80s to the early '90s. It was very exciting. I learned a tremendous amount. It was, I think, just a great place for a young person to be who wanted to learn about financial services and the markets and dealing with corporate issues. But I really decided I wanted to be part of building something in a different way. I always felt that my clients were having more fun than I was by being part of building an organization, so I became the treasurer of one of our clients. And it was a very large company with a lot of very complex financial challenges. And then I ultimately moved from there to become the chief financial officer of a Fortune 500 company, and then ultimately an operational leader there.

So my pathway has sort of gone from being a provider of financial services to companies to working as the financial and strategy person within the company on to roles where I actually was focused on improving the operations of the company to help it provide better service, to help it do that more efficiently, and to improve the growth of the company. When the opportunity to come to the SBA, which, as I mentioned earlier, is a large service organization that has had some operational challenges, when that opportunity came up, it made a lot of sense to me to take it.

The mission, also, made it, I think, particularly compelling. Like a lot of Americans, after Hurricane Katrina, you know, I watched the footage from my living room and, you know, I prayed for those people and I, you know, sent money and just wished I could do more to help. And sure enough, the opportunity came up to really pour what I had built over almost a 25-year career in financial and operational roles into an agency that directly impacted those people's lives. So I just felt like if I was looking for a sense of mission I couldn't have gotten a better one.

Mr. Morales: So, Steve, as you reflect back on these experiences, how have they prepared you for your current leadership role as administrator and perhaps shaped your management approach and leadership style? And if I may, what management lessons have you learned and brought to the SBA culture from these private sector experiences?

Mr. Preston: Okay, great. Well, I think I can probably wrap all of those questions up in a handful of thoughts. First of all, if you're leading an organization and you want it to go somewhere, you have to really paint a compelling vision of where you're going to take that organization. And that compelling vision is something that has to live and breathe within the organization. And so, when I very first came into the role, I spent a lot of time understanding what we needed to do as an organization, who we needed to serve, and how we needed to serve them, and working closely with the employee base, listening to them, and the customer base, listening to them, in bringing that forward.

Then I think once you paint that compelling vision for people, you need to make sure that everything you do in the organization lines up behind it: launching major initiatives to support that vision, tracking the progress, fervently supporting the progress in those initiatives; every month or periodically, whatever, looking at the progress and making sure that things don't get off track; looking at compensation programs and reward programs that support that; and then continually being up front in front of the organization reinforcing where you're heading and why you're heading there.

The other thing I've learned over my career that I've definitely employed at the SBA is if you're going to have an effective service organization, you need to have motivated employees that care about what they're doing and you need to provide those employees with the training to do their jobs and the tools to do their jobs. Because if they're motivated employees and they care about what they're doing, the last thing you want to do is put them in an environment where there's poor morale, where they're not trained to do their jobs, or they don't have equipment or whatever. So you really need to focus on the employee base and their ability to serve the mission as sort of square one in being an effective service organization.

Mr. Morales: That's fantastic. What about SBA's reform agenda? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, from my conversations with government executives, anytime you drive broad organizational change you need this compelling vision that you talked about earlier and you need to drive it through your teams. Now, applying that back to SBA, can you give us a brief overview of SBA's actual strategic plan and can you describe the vision that underlines and unifies your strategic goals?

Mr. Preston: Yeah. I think there are a handful of things that we're very focused on right now. First of all, we've really worked very hard, as I mentioned a little earlier, to ensure that we're prepared to handle whatever disaster might affect our country and, in doing so, get capital to people to help them rebuild their lives. It's not very difficult, frankly, to get people within the agency to see that as a heartfelt mission that they care about deeply. And the people in our disaster operation really want to serve well. And so I think an important thing to do there has been to help them understand how what they do in their jobs helps us deliver that mission effectively.

The other part of the mission, which I often refer to as our "reform agenda," is to look at all of our programs and services and make them easier to use, more customer-friendly, more compassionate in how they're delivered, and much more efficient, frankly, because there's a tremendous opportunity for us to improve the efficiency of the organization. And what I tell people often about that portion of the vision is, look, we can have the greatest product or service in the world -- whether it's guaranteeing loans to help people get capital, whether it's a program that helps them with procurement -- but if they're extremely difficult to use, if there is a ton of paperwork to fill out, if it takes us very long to make decisions or get back to people, if we're overly bureaucratic, people will not use the program. It might be a great service, but if it's too tough to use, they won't come to us and they won't seek our help.

I was talking to somebody about this recently and I said, gee, you know, when you look at opening a bank account do you look at the interest rate or do you look at the ease of use? You know, is there a branch nearby you? Do you like the electronic banking? Is that easy to use? Can you get information on your account? If they forgot to send you your statements every month and you had to drive six miles, getting another, you know, half a percent on your savings account may not make a big difference. So it's very important for us to understand that ease of use, simplicity, and responsiveness is a big part of quality service in helping America's small businesses because these people have big jobs that consume a tremendous amount of their time. They need us to respect that as we're delivering the service.

Mr. Morales: Now, Steven, I have to admit here that I cheated a little bit by doing some research on your plan and it seems like it's guided by four core pillars. Could you elaborate on these pillars along with your vision that complement the reform agenda that you described? And in so doing, could you give us a brief introduction to the reform agenda for SBA?

Mr. Preston: Yeah. What I found not long after I came to the SBA is it was important for us, in setting the vision and in establishing initiatives to fulfill that vision, it was important for us to agree on what we needed to talk about. What are sort of the guideposts for making decisions? And we came up really with four key things.

First of all, we decided our agenda had to be outcomes-driven. It couldn't be about how many loans we processed or, you know, how much paperwork we shoved. It had to be about the value we created to people. And so what are the outcomes we're driving? Are we helping people get back into their homes? Are we helping small businesses get capital ultimately? So not let's just talk about the process, let's talk about the value we're creating, so outcomes-driven.


Number two, everything we needed to do had to be customer-focused. What I talk to people about is, when we look at a new opportunity, I say we have to start with the customer and work back from the customer because that's the person we're serving. And our customer is a taxpayer, whether it be a small business or a disaster victim.

The third thing we talked about is being employee-enabled. We need to enable our employees to deliver that service because, if we don't, we won't be able to do it effectively.

And the fourth thing, we couldn't figure a pithy or short term to come up with, but it gets to the notion of having an agency that's transparent around what we're doing. We're a government agency. We've got to be open and transparent about how well we're doing. If we're not doing well, we have to be honest about it. We have to be accountable and we have to be efficient. It all gets to the concept of stewardship and openness in management. So outcomes-driven, customer-focused, employee-enabled, and then the last one we kind of call transparent, accountable, and efficient.

Now, as we look at applying that to sort of the reform agenda, we can use those guiding principles and we can look at each one of these programs to say do we know what outcome we're driving and are we set up with our initiatives to improve that outcome? Does that outcome really affect the customer the way we want it to? Do we have programs in place to support our employees to deliver that service with a high quality or are we disabled at that level? And finally, are we really accountable in how we're delivering the service? Are we measuring it right? Are we driving toward the right goals? And are we honest about how well we're performing?

So that's kind of how the four pillars apply to the reform agenda.

Mr. Morales: That's great. Now, you know, earlier in the first segment, we talked a little bit about the growth of small businesses over the past several years. What's interesting is, over the last three decades, the number of employees at large Fortune 500 companies has actually been declining. Could you elaborate a bit on your efforts to improve the economic environment for these small businesses?

Mr. Preston: Certainly. There are a number of things that we focus on in that regard. Right now, obviously, we are seeing somewhat of a challenging time in our economy, and one of the things that we are concerned about is the ability of small businesses to get capital. So we are working very hard to meet with hundreds of banks around the country to make sure that they understand our programs fully, that they're using them in a way that will help them get capital to small businesses, and that if they have any problems in working with us that may discourage them to use our services, that we're taking care of those issues, that we're being a good partner with them. So it's very much about outreach and improving our service quality to the banks so that they, in turn, will adopt our programs and get capital to small businesses.

Now, the other thing that's very important during this period of time is often small businesses, they're facing something that they haven't faced before: potentially a decline in sales or, in this case, in the current environment, higher energy costs, or challenges like that. Our network of counselors can sit down with those small businesses and actually help them think through how to address those issues. Should they be thinking about an adjustment to their prices? Are there strategies that they can have to bring down their energy costs? We're also about to launch a program that will help small businesses learn how to become more energy efficient because it is an increasing cost for them.

Mr. Kayatta: In rural areas, small businesses account for two-thirds of all jobs and in inner cities, small businesses provide 80 percent of all the employment. So entrepreneurship can be a very valuable vehicle in these communities. Could you elaborate on SBA's efforts to develop new products and to serve these underserved markets?

Mr. Preston: Yeah. This is a very, very important focus for us because in areas of our country where we see higher poverty and higher unemployment, we want to make absolutely sure we're doing everything we can to support entrepreneurship. And the reason for that is very, very simple. If new businesses can get a foothold, if small businesses that are existing there have the resources and the support to grow, they will create jobs, they'll bring investment, they'll improve the physical face of neighborhoods and in a way that is sustainable and lasting and, in many cases, growing. So we are working very hard to drive our services to areas of our country that need it the most so they can get lasting change.

Now, how are we doing that? First of all, we're providing goals for all of our offices around the country to increase our presence in those areas, and those goals have shown real fruit.

Secondly, we are rolling out products that are specifically designed to help people in those areas. For example, many small community banks are reluctant to use our services, our guaranteed lending services, because they're concerned about dealing with the government bureaucracy, and it can be challenging for them if they don't have a lot of staff. So we're rolling out an entirely new program for them that has a simplified application; they can do it online. We give them a customer support desk if they have any questions. And we promise them that we'll turn around their loans in a few days. We want to make it easy and supportive for them, and we'll be signing up small banks that reach many rural areas as a result.

And another thing that I would mention is a very exciting initiative we are launching right now called the "Emerging 200." We've chosen 11 cities in the country for a pilot called the "SBA Emerging 200." These are cities that have experienced job loss in the inner city. We are going to those areas and we're bringing in 15 to 25 small businesses that have a profile of a growth company. It looks like they've got an idea that could really ramp, but it looks like they also need a lot of help. So we're putting them through an intensive program for six to eight months. They'll get classroom training. They'll get one-on-one counseling if they want it. We'll give them business connections in the community. We'll provide them with introductions and support with lenders and investors. But we want to make sure that these companies in our inner cities that have potential to grow dramatically have every bit of support from us to become successful. And if they're successful, if you have 20 companies, for example, in Baltimore, which is one of the cities, or in Memphis, which is one of the cities, and they begin creating new jobs, that abets more economic activity. Hopefully, next year, we'll have another class of people coming in. And it can begin to change the face of neighborhoods and communities around our country. So we're very, very excited about the launch of the Emerging 200.

Mr. Kayatta: As you mentioned earlier, the SBA manages a loan portfolio in the range of $85 billion. To that end, OMB's Improved Credit Management Initiative requires agencies to strengthen the way that they award and service loans, manage portfolios, and collect debts. Would you tell us about the department's management and strategy for improving its credit management capability?

Mr. Preston: Certainly. This is a very important initiative and I'm thrilled that OMB has focused so heavily on this because the federal government does have a lot of financial resources out there and it's critical that we're managing those very tightly. Really what it requires is a focus to make sure that you have the right policies in place to manage those portfolios and that you are being very diligent about following those policies. And so in our case it's required us to really look at the whole pathway, the life of a loan, to make sure of how we're servicing loans, how we're managing the portfolios, how we're collecting the debt, that those things are all managed tightly, that we're tracking them, and that they're done in compliance with the OMB directives.

Now, over time what we're doing in addition to that is we're rolling out new systems to be able to support us so that we can do it much more efficiently and in a way that allows us to kind of get all of our information and all of our management processes in one place.

Mr. Morales: Steve, you've been talking quite a bit about your work in the area of disaster recovery. What lessons has your organization learned in the aftermath of the Gulf experiences? But more importantly, what are some of the major improvements to SBA's disaster operations that you've made that ensure the agency is stronger in the face of any future national emergencies?

Mr. Preston: Well, we've learned a number of things and I think these are the areas where we really have focused on improving. First of all, on a very base level, I think it's important to realize that when somebody has gone through a disaster, in many cases they're absolutely shell-shocked. It is a very, very difficult situation. I've been in many of our disaster recovery centers after a tornado or a flood. Sometimes people come in, they look entirely dazed because they're just in shock. We need to be a compassionate, helpful face and voice to them when they come into our process because they need help in getting through the process of doing a disaster loan when they've lost so much.

Some people will say to me, how can it be efficient to give people that kind of support? Isn't it expensive? And what I typically say is, no. A, it's the right thing to do but, B, it is efficient because if you invest 15 or 20 minutes with an individual, taking him through the process, helping them understand what they have to do, it saves all of us a tremendous amount of time in getting the documents correct. Before we were frequently shipping documents back and forth because they're weren't filled out right or we didn't have enough information. So helping people at the front end the compassionate way can also be more efficient. That's number one.

Number two, I think we have to have a system in place that allows us to ramp our capacity very quickly in a major disaster. That means that we have to have a way to hire people very quickly. It means that we have to have a way to ensure that we have systems in place to handle high volume. And it means that we need to have facilities to put those people in those systems. So we have a very detailed surge strategy in place. And, in fact, we'll be testing it in a simulation to test all of our disaster capacity in various events. And we have thousands of reservists around the country right now that are ready to be called up, and that's very important.

And the third thing I would highlight is we're not alone when something like this happens. There are many people out there to support us and there are also people that we have to coordinate with so that we can both do our jobs more effectively. So we've dramatically improved our coordination with other federal agencies. We have put in place protocols to improve our coordination with local groups. And we've also, believe it or not, we have a field network around the country that delivers non-SBA disaster services. It delivers lending and all the other services which is separate from disaster. We haven't always coordinated between those two, but we have a wealth of resources with almost a thousand people in the field that know their local chambers, know the local banks, and know the local media outlets. So we have protocols in place now to coordinate with our other SBA resources on the ground to leverage their resources. And that is very important because in a situation like this, everybody needs to lock arms and work together closely if they're going to effectively deliver the services to the disaster victims.

Mr. Morales: That's great. That sounds like you're taking a very proactive position against any future occurrences. Steve, another critical area is our country's veterans. Could you tell us more about your efforts to ensure that veterans receive fair access to federal contracts and that veterans get the capital and technical assistance they need to be successful as small-business owners? What are some things that you do in this area?

Mr. Preston: Well, this is a very important area to us and it's an area that we've invested a lot of focus. Because not only do we all feel a heartfelt commitment to the people that have served us in the military, it's also important to remember that these people, men and women who've served us so well, have learned critical skills that make them great entrepreneurs. They've learned disciplines, they've learned hard skills. In many cases, they've learned how to sacrifice to build something. Those are all great things to pour into a small business and veterans make very successful small-business owners. So we've got a number of programs that provide training and technical assistance to veterans. We have veterans centers that specifically focus on delivering those services around the country. And we also have partners that have special veterans programs, whether it be through small business development centers or our SCORE partners, which some people know.

The other thing we've done is we've designed specific lending programs to reach members of the military community who need capital to grow. First of all, last year, we launched something called the "Patriot Express," which combines the best elements of all of our loan products into one. And the thing I love about the Patriot Express is it's not just for veterans. It's for reservists, it's for National Guard members, and their spouses. Military service is a family affair. Small business ownership is a family affair. And we're supporting the entire military family in doing this. Since our launch last summer, we've made over $100 billion in Patriot Express loans around the country, which is very exciting.

The other thing is a great program we have, but, very frankly, we've had a hard time telling people about it. It's something called the "Military Reservist Economic Injury Disaster Loan," maybe because it has such a long title. But effectively, what we say is this: If you're a reservist and you work for a small business and you get called up for active duty, if that small business is in some way injured economically by the fact that you were called up for active duty, that small business can apply to the federal government through the SBA for a 4 percent business loan. And on those loans we can go out as long as 30 years. So this is a great loan product for small businesses that are disrupted by the sacrifice that our reservists are making for our country.

Now, Congress just passed a bill and the president signed it earlier this year that allows people to pre-apply for these loans before they get called up. So if you're a reservist and you work for a small business, you should give us a call and pre-apply for one of these loans, so that if the small business is impacted somehow by your being called up, your paperwork's in place and we can kick in and support the challenges that the small business faces as a result of it.

Mr. Morales: That's a fantastic program. How is SBA ensuring accountability and managing for results? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, it's my understanding that in an effort to increase the transparency and accountability in small business contracting, SBA and OMB issued a small business procurement scorecard. Could you tell us a little bit more about this scorecard and what it tracks? But more importantly, could you elaborate on the overall federal performance in this area and what lessons are you learning?

Mr. Preston: Well, you know, just by way of background, the federal government has a mandate -- it's not a requirement, but it's a strong mandate -- to purchase at least 23 percent of what they buy from small businesses. We're the largest buyer of things in the world and so this is an important part of providing an opportunity to small businesses. But as I always say, it's not just about fairness, it's about good business. Because small businesses are often more flexible, they're often cheaper, they give everything they have, so it's good business to do business with small business.

But what we did was the following. We wanted to make sure that we were doing everything we can to help the other federal agencies meet their small business procurement targets, but also hold them accountable and to be honest about how we're doing. And so what we did is we launched a scorecard. Every one of the larger federal agencies has a small business goal: a percentage of their goods and services that they buy that should come from small business. And for also some different types of small businesses, we also have goals. For example, businesses owned by service-disabled veterans, they have goals for that. We were just talking about veterans.

What we do now is we rank every federal agency against their goals and then we also rank them based on the progress they're making to improve their performance. And then once a year, we issue a scorecard. And some people get green if they're doing well and hitting their goals, some get yellow, and a lot of them have gotten red. All of our views are that, you know, if somebody's not hitting their goal, we have to be honest about it. We're the federal government and this is a mandate. Let's be honest about it and if we're not hitting the goal, then let's put a pathway in place to achieve that goal.

Mr. Morales: Now, Steven, we talked earlier about reform and accountability. So specifically, what types of reengineering efforts are you embarking to address some basic operational issues such as reducing error rates, reducing backlogs, and reducing decision-making bottlenecks within the organization?

Mr. Preston: Well, you know, I think probably a very good example of that would be in our lending operations. As I mentioned before, we guarantee bank loans and credit union loans and other private lenders. If we need to make good on that guarantee, effectively what happens is the bank sells the loan back to us and we buy it and then we make good on it. Well, there have been many challenges in that operation. The backlogs at one point were very, very long. Our policies were confusing. It was difficult for the banks to interact with us, and so we did a number of things.

First of all, we made sure to clean up our policies, to make sure that they made sense, and then we rewrote all of our standard operating procedures and sent those to the banking community. It doesn't sound very exciting, but in a process like that you've got to make sure that the rule book is clear and the rule book wasn't clear. And the banks were asking us to make sure that we were crystal clear on how we did these things.

Then we actually took a look at how we do the process of purchasing a loan. It's almost like a little manufacturing operation except, you know, you've got a loan going through it. There were a lot of issues there that needed to be cleaned up to make it more efficient, to make it more consistent, to improve the processes. And then in addition to that, we needed to improve the technology so that we could support the improvement of that process.

The next thing we did is we instituted a customer service desk in our processing centers, so that the banks would have a place to call if they needed help or had questions.

And then the last thing we did was we undertook a very significant retraining program, not only for the people processing the loans, but for people in our field offices. And the reason for that is this: The banks are out there in the field and our people are out there in the field, and we wanted to make sure that we could have our people go physically to a bank if they were confused about our process, sit down with them, and help them work through it.

When we analyzed the bigger problems we had here, one of the biggest problems we had was a lot of the banks were sending in information that was incorrect or incomplete or they didn't understand the process. So we decided we had to train our people in the field to sit with banks and help them get it right the first time.

The other thing we do now is everything is tracked. I know what the backlog looks like. I know how old it is. I know which banks we're having challenges with. I know how much production we're doing. We have metrics on all of these responsiveness and efficiency measures, which we never had before, so that we can actually manage it effectively.

And the last thing we did is we told banks that we were going to make the process easier. And if they complied with the new process, we would deliver a promise to them of getting them their money in 45 days. Well, we have done that and right now we're getting them their money on average in about 25 days.

Mr. Morales: Wow, that's fantastic.

Mr. Preston: We're hitting the bank promise and we're getting tremendous kudos from the industry, so we're very excited about that.

Mr. Kayatta: Steve, could you tell us about some of the most critical issues that face small businesses today and what you're doing to assist them through those issues?

Mr. Preston: Well, right now, based on what we're seeing in the economy, I mentioned a little earlier that a lot of small businesses, especially those that have vehicle fleets or large facilities, are hurting from the increase in energy costs. Another thing that small businesses have been facing for a number of years, which is so difficult, is the increase in health care costs. Many people don't think of the health care challenges we have in the country as being a small-business issue, but many statistics would show that 70 percent of our uninsured workforce works for a small business. And the smaller a business is, the less likely they are to offer health care. So we have to make sure we understand how to work to improve the health care system to allow small businesses to offer it to their employees or for those employees to be able to buy it directly on a reasonable basis.

So for businesses that are specifically impacted by this economy or these costs challenges, we offer a lot of counseling services to help them think through how to address them in their business, how to manage their costs more effectively, how to manage their labor more effectively, how to manage cash flow more effectively, for example.

The other thing we're doing right now is making sure that we're doing everything we can to help them get capital they need. If they need working capital to grow or help through a challenging time, to make sure our guaranteed lending operations are getting to those people and supporting them.

Then the last thing I'd say that we're doing probably more so now than ever is making sure that we do everything we can that the voice of small business is heard on the policy front. We need to make sure that we're advancing the health care policy improvements that I mentioned. Right now, exports are very much on the agenda. A lot of people don't realize that almost 30 percent of our country's exports come from small- and medium-sized businesses. So we're working very hard to help people understand that because many of the trade agreements that are being contemplated right now are very good for small business, will open up those markets for them, add new jobs, and help them address the issues they face in the economy today.

Mr. Kayatta: So there's certainly a lot of opportunity in the whole world of international trade, and you talked about collaboration as well. Could you describe the Resource Partner Program and how it's working to fulfill the mission?

Mr. Preston: Yeah. And specifically in trade, our resource partners in the small business development centers and women's business centers and our partners at SCORE, which is a network largely made up of volunteers, many of those people have specific expertise in foreign trade. And they will sit down with a small business and help them think through what they need to do if they're looking at foreign markets to expand.

We also, in conjunction with the Department of Commerce, work very directly with small businesses on exporting to specific countries. So if somebody comes in the door, they can go to a U.S. Export Assistance Center and get help with respect to a particular country. For example, if they want to export to Portugal, we can help them understand it and then the Department of Commerce actually has resources in Portugal that can help them.

The last thing I would say right now is we are kicking off a series of trade symposia around the country. Just recently we had one in Miami, in a town outside of Miami actually called Hialeah, and we had 400 small businesses come to learn more about exporting. We brought small businesses that were successful exporters to speak in a roundtable to share their experiences. I talked about the value of free trade agreements in exports. We had a number of service providers that explained what services they could provide to help them out. We had a number of banks there to help them with their financing issues. It was a very, very exciting day for those businesses. And many of them were really encouraged by the opportunity they have to reach foreign markets.

We also do provide financing through our guaranteed programs for small businesses who need to build working capital to support their exports or if they export financing for the actual shipments.

Mr. Morales: So many people may not know that some of SBA's former clients, if you will, included such notables such as Intel, Apple, Amgen, Ben & Jerry's, and Federal Express, just to name a few. Given such success stories and these American icons, could you highlight perhaps, if you can, some up and coming success stories that you see in the near future?

Mr. Preston: Yeah, there's a great one. I mentioned Miami just a second ago, our trade symposium there. I had a chance to visit with an exporter down there who ships products all around the world for installation into industrial kitchens. And he has installed kitchens throughout Asia, in Latin America. Sometimes you really don't even know what's out there until you actually start seeing these small businesses and what they do. But, you know, he had a familiarity with China 20 years ago, and he set up an operation there and began installing kitchens in hotels that were being built and other industrial kitchens. Then he took it to a number of other countries, and now he's exporting to countries around the world.

A couple of months ago, I was in St. Louis, and there were two ladies who had started a business that develops software that blocks hackers from foreign countries who are trying to get into government computer systems. I mean, an incredibly valuable service to our country to protect our security infrastructure, and it was a small business with, you know, 10 or 20 employees that developed this software that's doing so much for our country.

So we forget how varied and valuable and innovative so many of these companies are. When you start hearing the stories, I got to tell you, it's just so encouraging. And that's, you know, actually one of the great things about this job is I get to go around the country and meet many of them.

Mr. Morales: That's exciting. It must give you a great sense of pride to see some of these organizations starting up and doing so well with what is seemingly a very small set of resources.

Mr. Preston: Well, you know, one of the other things I had the opportunity to do is speak with my counterparts around the world, who either lead commerce departments or small business departments in other governments. And frequently, people will say, well, how do you do it in America? You know, how come your small business culture is so energetic and so rich and it drives your economy? What should we do?

And I tell them about our programs and I tell them about our policies, but then, you know, I stop and I say, but small business is in our DNA. That's who we are as a country. We are an entrepreneurial culture. Kids grow up many times thinking about owning a business. They join Junior Achievement. They go to college and they take courses on entrepreneurship. Many of our best known Americans started out as small-business owners that they built into big businesses. And so it's so important that we have policies in our country that support the small-business owners, that support the people that have a dream and want to build that dream because it is the backbone of our economy. It drives innovation and competitiveness for our country around the world.

Mr. Morales: That's fantastic. So what does the future hold for SBA? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.


Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.

Steve, I'd like to transition now to the future and talk a little bit about what you see as some of the major opportunities and challenges that your organization will encounter in, say, the next two to three years, and how you think SBA will need to adapt to meet these challenges.

Mr. Preston: There's a lot in that question. One of the things I'd say is we have to be ready for whatever changes might happen because some of them will be unexpected. And one of the things we're doing right now is to work throughout our employee base to put in place tools to help people address challenges, known or unknown, help people learn how to manage change, to envision positive change, and then to actually sponsor it and manage it. And so it's important for an organization to have a flexible mindset. That's a lot of what we're doing.

More specifically, things that we know that are coming down the pike, we have a significant population that's eligible for retirement, and it's not only unique to the SBA. Much of the federal government faces that issue. So what we are trying to do is actually look at that as an opportunity for our people. Because as people retire, we understand that we're losing a lot of talent and a lot of knowledge, but it also creates opportunities for other people for promotion. So we're rolling out very extensive training programs to ensure that people have the skills to do the jobs that they're in today, but also to prepare them for the jobs that may arise in the future.

We're also rolling out a process where every employee who elects to can do an individual development plan with their manager. That individual development plan looks at their strengths, opportunities for improvement, and then puts in place a pathway for them to be able to address those areas for improvement. We're then taking all of that information and building employee development programs designed around specialized training, potentially internship-type programs that would help these employees along their development pathway.

Mr. Morales: So along those lines, Steven, could you tell us a little bit about some of the major training initiatives, such as SBA University? And how do you ensure that your employees have the appropriate training and skills to meet some of these upcoming challenges that you described?

Mr. Preston: Well, training is so important and I think it's the easiest thing for an organization to cut when there's a budget challenge, but it's one of the most important things, I think, for any organization to protect. What we have done is, this last year, we designed something called SBA University, which was a one-week, off-site experience for employees to ensure that they had the fundamental skills to do the jobs that they're in as well as the tools to be more effective in addressing opportunities going forward. And we worked very extensively throughout our network of experts to design a curriculum that was very relevant to our programs and very relevant to the challenges we face. At this point, our entire field organization of almost a thousand people have been through at least one week of SBAU. People in our processing centers have been through it. And this summer, people in our headquarters operation will be going through SBAU.

The other thing it's designed to do is to ensure that people in management positions have the skills to manage their people effectively. We want to make sure that we have a management culture that fosters development and growth as well as productivity, as well as service quality. So those are the kinds of things we're doing there.

Now, through the individual development plan process, we will then use what we learned from our people in terms of their development needs and design a much longer term, much broader training strategy for the organization that will, I believe, provide a sustainable quality culture for the organization for many years to come.

Mr. Morales: So, Steven, to take advantage of this moment on radio, what advice could you give to a budding entrepreneur who may be out there listening to this show?

Mr. Preston: What I'd tell a budding entrepreneur is a few things. First of all, understand what you don't understand. Think about what it's going to take to be successful and understand where your challenges are going to be, and then get out there and get help. Make sure you've thought about your markets, you've thought about the capital you're going to need for that business, you've thought about what it's going to take to be successful. And then when you're honest about where you're strong and where you're not strong, make sure that you fill in your blind spots. Because we want to take all of that excitement and all that energy and all that commitment that you're going to be putting into that small business and make sure it's successful.

The other thing I'd say is it takes a lot. You know, I've often said every dollar of equity an entrepreneur puts in their business is matched with $10 of sweat equity. That's going to be very important to be a small-business owner. You really got to give it all you have and be realistic about the challenges.

I was interviewed recently by somebody who said, gee, you know, if somebody wants to have a more relaxed life and more free time, wouldn't you recommend their getting into a small business and owning a business? And I said you know what? That's just the opposite. It takes blood, sweat, and tears. But you know what? That's why our small-business economy is so powerful. It's because we have people who give it all that they've got.

Mr. Morales: And I've got to believe the rewards are even greater on that side.

Mr. Preston: They're terrific. And it's not just a job for people. It's their lives and it's their passion, and that's what makes it so exciting.

Mr. Morales: So, Steve, as a follow-up now, what advice would you give to a person who perhaps is considering a career in public service, whether that be at a local level or at a federal level?

Mr. Preston: Well, the advice I would give is based on the fact that I just think it is an incredible honor to be able to serve in a capacity that helps other people, that serves Americans in either delivering services to them or doing, you know, so many things that our government does for people that's valuable. I think it's very easy to get a sense of mission and a sense of value in work if you go into public service. And so what I would do is say, think about what you can give. Think about how you can move the needle. Think about how you can provide value to other people through that. And think about, you know, the skills that you build in the private sector or someplace else, how they can be effective in doing that.

Mr. Morales: That's great. Steven, unfortunately, we have reached the end of our time. More importantly, Paul and I would like to thank you for your dedicated service to our country in supporting the small business community.

Mr. Preston: Great. Thank you very much. And certainly, if there are any potential entrepreneurs out there or any small-business owners that have any challenges that they'd like us to help them with, please come to the Small Business Administration. You can find us at sba.gov.

The other thing I would like to encourage small-business owners out there to do is to look at some of the provisions in the stimulus package that was passed earlier this year. There are many tax advantages to investing in your business in 2008 that you may not be aware of, that could be very good for you and very good for our economy. So thank you very much.

Mr. Morales: Great. Thank you, Steven. This has been The Business of Government Hour, featuring a conversation with Steven Preston, administrator at the U.S. Small Business Administration. My co-host has been Paul Kayatta, partner in IBM's General Government Practice.

As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.

For The Business of Government Hour, I'm Albert Morales. Thank you for listening.

Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the web at businessofgovernment.org. There you can learn more about our programs and get a transcript of today's conversation. Until next week, it's businessofgovernment.org.

Donna McLean interview

Friday, September 13th, 2002 - 20:00
Donna McLean
Radio show date: 
Sat, 09/14/2002
Intro text: 
Financial Management Managing for Performance and Results...
Financial Management Managing for Performance and Results
Complete transcript: 

Arlington, Virginia

Friday, August 23, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and the co-chair of The Endowment for The Business of Government. We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about the Endowment and our programs by visiting us on the Web at endowment.pwcglobal.com.

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation this morning is with Donna McLean, Assistant Secretary for Budget and Programs and Chief Financial Officer of the U.S. Department of Transportation.

Good morning, Donna.

Ms. McLean: Good morning.

Mr. Lawrence: And joining us in our conversation is Dave Abel, another PwC partner.

Good morning, Dave.

Mr. Abel: Good morning.

Mr. Lawrence: Donna, perhaps you could start by giving us an overview of the activities of the Department of Transportation and its different agencies.

Ms. McLean: Well, the Department of Transportation is just as it sounds, the Department that oversees our modes of transportation. We have 14 individual modes in the Department, some that you might recognize, some you might not. The Federal Highway Administration. So basically, we're responsible for pulling in the taxes off the gasoline that you buy, and putting it towards concrete, and distributing that money to the states. And that's quite a big bit of our budget.

FAA, the Federal Aviation Administration. Obviously, most people think of FAA as the Air Traffic Controllers, who make sure that we fly safely, and that they in fact control those planes, and we pretty much have the safest aviation industry in the world. And that's something that we're very proud of.

But there are some other modes that you might not realize that we oversee. Coast Guard right now is part of the Department of Transportation. And they're responsible obviously for the safety in the seas, but also for saving folks if they are at sea and have trouble. And we also have the MARAD Administration, and we have the Federal Transit Administration. And, you know, several other modes. But that gives you a flavor of what we see.

Mr. Lawrence: You have a very interesting title. You're the Assistant Secretary for Budget and Programs and the Chief Financial Officer. That's a mouthful. What are your roles and responsibilities?

Ms. McLean: Well, let me just say, I didn't give myself my own title. It was there before I came to the Department. And lately, I must say, with the issues on the chief financial officers of WorldCom and some of these other organizations, I tend to use right now the Assistant Secretary for Budget and Programs, and not happen to mention the CFO part.

But at any rate, under my office is both the formulation of the Department's budget, and also the actual execution of the finances of the Department. So we have the accountants under our department as well. That sounds very boring to most people, but the advantage of the Department, or being in the Department and in the budget area, obviously is that if anybody needs money, they need to come to us, either to propose for additional money, or see if we have any additional money. And so, as a result, the budget office gets involved in a lot of issues.

Mr. Lawrence: How large is your office? And is it just all accountants, or are there other skill sets?

Ms. McLean: I've got about 50 folks working for me at the actual department. But then we have a CFO in each of the modes. So there's a CFO at FAA and Highways. And where we set at the Department the policy, so the accounting policies, maybe travel policies, how we use credit cards, what you can use credit cards for traveling, and that type of thing; that type of policy is set in my office, as well as the formulation of the budget that DOT sends both to the President and then finalizes it and it goes to the Hill.

So we have a mix of folks who are more policy accountants, I'd say, and more larger, bigger budget picture folks, where the more detailed folks reside in the modes.

Mr. Lawrence: You've had an interesting career leading up to your current role. Can you tell us a little bit about your career progression?

Ms. McLean: Actually, right out of graduate school, I graduated from Indiana University. I got my undergraduate in political science there, and then I went on to get a graduate degree in public policy at the School of Public and Environmental Affairs, also called SPEA, at Indiana University.

After graduating there, I actually came and worked for the Department of Transportation for the Assistant Secretary for Budget and Programs. So I worked in the office I'm now heading up. And the woman who was heading it up at the time was Kate Moore. And it was a wonderful beginning into government, because like I said earlier, the budget office often has so much exposure to a lot of the policies. It's just not crunching numbers.

And I only did aviation. And then I went from there to the Office of Management and Budget. And these were all career positions. I went to the Office of Management and Budget, and was the budget examiner for FAA at the time, so I was looking at policy more from the Executive Office of the President.

And then from there I went to the Hill, and actually started a political position, working for the House Transportation and Infrastructure Committee, again on aviation policy, and was there for about 6 years. And that was a great, wonderful opportunity to work for Congress.

And then I actually went back to a career position, which is a little bit unusual. And I started -- I was the CFO at the Federal Aviation Administration. And then from there went back to a political position, which is where I am now, the CFO of the Department. So actually, this job that I'm in right now is the first time I've had transportation experience beyond aviation. So this last year and a half has been fantastic, because it's just really opened my world, and my knowledge of transportation, so it's been great.

Mr. Abel: Let's talk a little bit about that transition from FAA to being CFO of the Department of Transportation. What are some of the differences in working at the agency level versus the department level?

Ms. McLean: Well, the agency level, obviously, you're a little more concerned as a CFO on budget execution. So, you know, are we paying our bills on time? Are we making sure that at the end of the year, we haven't inappropriately spent something? Obviously, there's policy involved as well.

When I went to the Department as the CFO, it's much more policy-oriented, and probably more politically influenced. And part of that is because, like I said, I went from a career job to a political job. And so I'm a little more involved in policy I think at the Department than I was at FAA. But at the same time, FAA has a very strong group of career experts, with some phenomenal skills.

So when I went to FAA, sort of I was competing, I guess I'd say, for the administrator's time with just some excellent career folks that just had such strong backgrounds. It was a little bit harder for me to push into policy. And that I think maybe has less to do with an agency versus a department level, and more to do with just the personalities of FAA, you know, at the time that I was working there. There's just some phenomenally dedicated and very smart career folks there.

Mr. Lawrence: How about the differences from being a career versus being a political appointee?

Ms. McLean: I guess, you know, since I, like I said, flip back and forth, it's all public policy to me. And everything I have been involved in, I've been fortunate enough to feel like the decisions are made on their merits. Whether I'm in a career position or a political position, I am unbelievably honored to work for this President, George Bush. I have so much faith in him, and I'm just thrilled that at this point in my career, I am able to work for this President. So in that sense, that's just fantastic for me personally.

But for my day-to-day decisions, like I said, I think Transportation is, unlike some of the other departments, is less political. I mean, we are, at the Department of Transportation, promoting safety. It doesn't matter if you're a Republican or a Democrat. You're promoting safety. And as a CFO, I'm very interested in making sure the money we spend is spent wisely and most effectively. And again, I don't think that has a difference between whether or not you're a career person or a political person, or if you're a Republican or a Democrat.

Mr. Lawrence: And you've worked on the Hill. How would you contrast your experiences as being in the Executive Branch and being in the Legislative Branch?

Ms. McLean: I think in the Legislative Branch, you set policies, obviously, when you pass a bill. And sometimes, a committee may not pass a bill for, you know, a matter of a year or so. Or you might be working on a very large bill, and it passes -- you know, reauthorization for the Federal Aviation Administration, for instance, may only come along every 4 to 5 years.

So you're making policy, and you're setting large policy, and you're helping the members of Congress, you know, put into law their ideas. But it tends to be on a little bigger picture, and on a little longer time horizon. Once you get in the Department, I think you're taking those larger picture decisions from the Congress, and putting them in place in, obviously, more detail.

So you're setting policy, but it's on a smaller scale and more detailed scale, and so you're diving into really how does the aviation industry work? Really how does the trucking industry work? And when I make this decision, how does that really affect the industry?

And so I think it's a level, a degree of granularity, I guess I'd say.

Mr. Lawrence: Do you find that your management skills are the same in both settings, or were there different tools used based on that?

Ms. McLean: I think in the Department -- well, on the Hill, you know, the staffing size is so small on the Hill, that even those folks who do have management positions are managing a handful of people. Maybe on the committee level, you're managing, you know, 60 people. But in the Department, you can have -- you know, you're managing hundreds of people at a time.

So I think in any case, communication skills are important. And obviously, in the Department, while I'm saying I'm doing a lot of policy decisions, it's also a very fast pace. And so one of the things that is incredibly important is making sure that your staff is up to date on the decisions that are being made, so that they can understand why these decisions are made and not feel like this decision came out of the blue.

So I think as much as I can, and as much as I can slow down and talk to folks and make sure they feel like they understand what's been happening and why the decisions are made, I think communication is probably key in both places.

Mr. Lawrence: That's interesting, but we've got to stop for a break. Come back with us in a few minutes as we continue our conversation with Donna McLean of the Department of Transportation.

How does one get a clean opinion? The Department of Transportation just got one, so we'll ask Donna when The Business of Government Hour returns. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs and Chief Financial Officer of the U.S. Department of Transportation.

Joining us in our conversation is Dave Abel, another PwC partner.

Well, Donna, the Department of Transportation just received its first clean audit opinion on the financial statements for 2001. What steps did the Department take to achieve this?

Ms. McLean: Well, I have to be honest about this. We actually received a clean opinion in 1999, and lost it in 2000, and got it back in '01. And it I think just simply proves that a clean opinion is, once you get it, you don't rest on your laurels, because it's hard to maintain it, particularly with -- we are just now modernizing our accounting system. And we are trying to keep our clean opinion with a rather antiquated system. And it results in a lot of good people working phenomenal hours at the end of the calendar year to basically make sure all of our documentation is in order.

If I can talk for a minute about why we lost our clean opinion, because I think it's sort of interesting. At least for a budget geek like me, I think it's sort of interesting. Anyway.

In 1999, we got our clean opinion, sort of, like I said, by the skin of our teeth, working very, very, very hard. In 2000, we lost it, because in 1999, we got our clean opinion. And the way the accountants look at this is obviously, when you finish your clean opinion, then they don't look back again. They're just looking at your clean opinion then for that current year.

And what happened in FAA, some good people just made some wrong decisions. Some folks who managed property for FAA and were trying to make the documentation even better and clearer changed some documentation that actually affected some of the calculations on property values from 1999 and prior.

So what basically was happening was, let's say that you had a radar. And there was -- we were making sure that our documentation was clear and clean. And we had some kind of a new feature added to the radar. So there was an upgrade. So the value of that property in fact increased.

Well, if somebody logged in and actually changed the value of that property that affected prior to 2000, that basically took a database that was clean, according to our 1999 audit, and degraded it. Again, these are people thinking they're doing the right things, but we just didn't realize this was happening until late in the year and we couldn't correct it. And so the accountants, or the auditors, looked back and said, hey, this has now been violated, this clean property information.

So we actually lost it because people thought they were doing the right thing. Well, we've got that a bit under control now, and we were able to pull our property back into shape at FAA. And we did gain our clean opinion in 2001. I think we're working very closely with our inspector general, who's helping us do the audit, or who is doing our audit. And I think we're going to have some real risks in 2001, in part because the Department of Transportation has had some big changes to it, which you've probably noticed.

And in part, that's the establishment of the Transportation Security Administration. And this is basically the screeners at the airports. And that right now is part of the Department of Transportation. So we have had to set up, and we are hiring, depending on whose opinion of how many staff there are, we right now have the authority to hire up to 45,000 people. But it could be larger than that.

You know, we've got new equipment and property we have to keep track of. So that's going to be a big risk for us for 2002.

Mr. Lawrence: Well, how about the OMB scorecard for financial management? How are you doing getting to green?

Ms. McLean: Well, I'm a fortunate CFO, because, you know, obviously I started with the Bush administration just a year and a half ago or so. And our predecessors had worked very, very hard to put in, or to start putting in a new financial system. It's an Oracle-based financial system we call Delphi. But we are progressing pretty well on that. We now have 10 of our operating administrations out of the 15 on our Oracle financials. And so as a result, we're doing pretty well on the getting to green financial. You know, we had a status grade of yellow for the Department of Transportation on financial management.

Mr. Abel: Let's talk for just a second about Delphi. Delphi, as we understand, is an integrated financial management system. Can you explain to us a bit about what that means? What does it mean to you to be rolling out this integrated system?

Ms. McLean: Well, in short, it means that we can have our consolidated financial system really at a push of the button. So previously, we had several accounting systems that were online, and we had to then have these interfaces that pulled numbers and data together, and then had a financial system that pulled all those numbers, and in fact created our financial statement.

Now it's all in, or will be, once we finish, will be all in one system. And so it obviously reduces the possibility for errors. But it also increases the reliability from the standpoint of managers logging in and getting information up-to-date, accurate.

Mr. Lawrence: How is your progress in rolling it out through the Department?

Ms. McLean: Well, a couple of years ago, the prognosis was not good. We were pushing ahead, probably more aggressively than many other departments. And we had an IG report that came out saying that in fact, I mean, that we were moving too fast. And I mean, how often does the IG or GAO come out and tell a department they're moving too fast? Not very often. They're usually saying you're behind schedule.

So, we were pushing very, very hard and very fast to get this system up and running. Oracle has upgraded its financial system. We had 11.03, and now we're at 11i, which basically means that Oracle had some problems with the older version, and they fixed some of those problems.

And we've got three big pieces left. That's our Federal Aviation Administration, Federal Highway Administration, and Coast Guard are all pending to be turned over to our Oracle financial. So in the next 5 months, we'll see how we do with these large organizations. We're doing well. Up to this point, we're doing really, really, really well. I'm just always concerned about the next milestone.

Mr. Abel: The progress is good. For those that are out there listening that may be thinking, I want to do this, I need to do this in my organization, what lessons learned or what recommendations would you give them as far as this transition and rollout is concerned?

Ms. McLean: Well, I think it is really, really hard to do this. But you have to do it. If you have an old accounting system that isn't FFMIA-compliant, or JFMIP-compliant, then you obviously have to upgrade. If you have a system that is homemade and made for your own department, you obviously have to get an off-the-shelf-type system.

And I think the biggest recommendation I would make would be that the person that heads up this transition does not necessarily have to be a financial manager. This is a big data change. It is like installing new air traffic controller computers or new high-tech equipment in a Coast Guard vessel. So you need a project manager that has some financial experience, but really has that project management, because it is driving this project to the finish line that's so important that, you know, financial managers on a day-to-day basis don't necessarily have that skill set.

So I would say that you really need to make sure that you get a project manager that has pushed a big project through to the end.

Mr. Lawrence: That's great advice. Let's go in a little bit different direction for a minute, and move from systems into some accounting methods. Some organizations have been implementing activity-based costing and other cost-accounting methods. Is this something that the DOT is currently using, considering?

Ms. McLean: Actually, whether we wanted to consider it or not, it was in legislation that FAA establish a cost accounting system a couple of years ago. And in fact, I was working on the Hill at the time. So I think I somehow was involved in that, writing that legislation. But anyway, now I'm living it.

FAA actually has put into place a cost accounting system that is quite impressive. It's not completely finished, but about 75 percent of its costs right now are -- FAA is able to produce in a cost accounting monthly data. FAA has taken that information, and has been able to provide some great incentives for its employees.

For instance, they've been able to make sure that the en-route facility in one location, which is, you know, basically a facility that controls the airplanes when they're in the high altitudes, and they sometimes will have, you know, 300 people in these facilities, or 500 people, that they understand what the cost of providing per operation is. And then that's compared to another facility that has similar responsibility.

And you sort of set up a competition, really, between these organizations, or these locations. And you sort of question, you know, why does Joe at his facility have a lower cost per aircraft operation than Bill does? And let's start looking at what are the operational changes that we can make to be basically most cost effective in all of our facilities? So it's set up some really good dynamics. And we're just scratching the surface on being able to use that.

For the rest of the Department, we are beginning to use, and we will be using the Oracle financials for our cost accounting. But we are just beginning that. Obviously, FAA is one of our more businesslike models, because they provide air traffic control on a daily, 24/7 situation. So they were the right place to start for cost accounting.

Mr. Lawrence: That's a good stopping point. It's time for a break. Rejoin us in a few minutes as we continue talking about management with Donna McLean of the Department of Transportation.

What does the CFO Council do? We'll ask Donna, who serves on the Council, when The Business of Government Hour returns. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs, and Chief Financial Officer at the U.S. Department of Transportation.

Joining us in our conversation is another PwC partner, Dave Abel.

Mr. Abel: Donna, you mentioned earlier in one of our earlier segments the tremendous challenge that the DOT has faced this year in bringing up the Transportation Security Administration. What have been some of the challenges that you faced in overseeing the Department's budget in bringing up the TSA?

Ms. McLean: Can I first say that even though it's been really very, very challenging to set up TSA, or the Transportation Security Administration, it has always also been extremely rewarding. I think that a lot of us felt, after September 11th, it was so devastating. And we all had a life-changing experience, and, you know, how can I help this country heal?

And at the Department, you know, we have been working phenomenal hours. But we have been doing something, I think, to help us all heal. And part of that is, you know, if it's not sounding too -- I mean, too -- I don't know, self-important or something. But I just mean I think we all feel very strongly that setting up TSA has been both a huge challenge. And we have all sacrificed time with our families because of the hours we're working. But it's also been very, very rewarding, and something that we all feel very strongly about.

But what our requirement from the law is to set up a federalized screening workforce by November 19, 2002. And that is in a year, basically, hire enough screeners at airports, train them, change the equipment so it's improved to cover 429 airports that are just scattered around the country.

We didn't even know what that meant. We still don't know completely how many people we're talking about to complete this effort. So usually, when you establish a budget, you say okay, this is our mission. This is how we're going to achieve it, which is usually pretty well laid out. And then this is how many people we need to achieve it. And, you know, maybe there's some gray area.

But the whole thing in setting up the TSA was a gray area. You know, yes, we knew that we had to have federal workers in place screening passengers by November 19th. But we immediately went out and tried to survey how many screeners were in place at the time the bill was passed. And we couldn't get a handle on how many people there were in fact physically screening people in airports. And so the estimates have gone from you know 20,000 people to 70,000 people.

And of course, it's not just screening the passengers. Because there, at least we could go out and get a feel for what's happening today. The law also requires that all baggage be screened by explosive detection systems by the end of this calendar year. We are building that as we speak.

So we had to take existing technology or any technology that's perhaps on the edge of becoming certifiable, and effective, and try to put that in place and to deal with screened baggage. So setting up a budget of how much that all costs has been a huge challenge, just because you have to have the information, obviously, to set up the budget.

And I'll just say I've had several people, several of my bosses say, you know, Donna, we need to get this budget number nailed down. But it's not the budget number. It's all the policy that goes into creating those budget numbers. And it's just been a huge effort to - because everybody has a different opinion on how to get the job done. And I mean by everybody people in the Department of Transportation, people in the White House, and people on the Hill, the Congress. Everybody has a different opinion on how to get the job done.

So it's been a great challenge. But, you know, an experience I will look back on and say, wow, how lucky I was to be in the middle of such a huge challenge.

Mr. Lawrence: How are you balancing it? You gave an interesting description. How are you balancing what I imagine is a need to go quickly, but a need to be, I guess, as the CFO, to be precise and then prudent with money? I mean, what skills do you use to sort of make those two mix?

Ms. McLean: We're not the only department that's facing this. I mean, this has been just an unfortunate, crazy year for budget cycles. I mean, we had the first supplemental before the end of the fiscal year, and then we had the December supplemental, and then we just passed another supplemental.

And then the President made a choice on whether or not he was going to initiate and use the $5 billion in the second supplemental. So in fact, we didn't actually know what our '02 budget final numbers were until about 6 weeks before the end of the fiscal year. I can't imagine that we have many situations where you're going through to the end of your fiscal year, and you don't even know what your budget is until 6 weeks before it ends.

So it has been a year of -- you know, we have numbers, and we're telling you these are the best estimates we have today, but we're collecting information as we speak. And you've got to help and understand that these numbers could change. And that's been hard for everybody, including me. Budget is a sort of world where you think of it as being precise and something that doesn't change. But it's been a little bit fluid this year.

Mr. Lawrence: Let me change subjects a little bit. You're a member of the federal CFO Council. Can you give us an overview of what the Council does?

Ms. McLean: I think the purpose of the CFO Council is to oversee, obviously, deal with sort of the issues that all the CFOs are facing. But the CFO Council was fortunate enough, again under the Bush administration, to have a very significant role, because of the Presidential Management Agenda that was laid out by President Bush very early on in his administration.

And two of the five Presidential Management Agendas had to do with issues that usually affect the chief financial officer: one on the financial management, improving financial management; and the second one on linking budget and performance integration.

So the CFO Council has taken those PMAs and broken them up, and there's been different councils basically trying to help the government as a whole achieve the goals of the President in those five Presidential Management areas. So that's certainly one of the main efforts and benefits of the CFO Council.

Mr. Lawrence: You're chair of the Budget and Performance Committee within the Council. Can you tell us a little bit about the objectives of the committee and perhaps some of the best practices that you've identified?

Ms. McLean: Yes. Well, let me also tell you how I became the chair. Mark Everson, who is at the Office of Management and Budget, he's sort of the CFO of the entire government. I talked to him about this Presidential Management Agenda, which was to link budget and performance. And basically, the concept was, you know, if you're going to spend a dollar, tell me what I'm going to get for it. That's a totally reasonable, wonderful philosophy.

But I said to Mark, listen, this is great, but how do people get there? I understand the concept, and I've been trying to do this for several years. And I don't get how you get from the theory into the practical world. And he said, well, Donna, I think you're right. And I think you should chair this group and figure it out.

So I guess unfortunately, I complained, and then was asked to head up the group. So it wasn't out of a skill set, necessarily. It was probably more out of complaining.

Anyway. So I was fortunate enough to have worked with a lot of great departments. And we worked with the Department of Energy, and EPA, and some folks from SBA and Interior. I'll probably forget some of them. But we all got together and basically said, you know, we really need a path to get from the theoretical to the practical.

And so we put together an approach that perhaps isn't pretty. But we have some more specific guidelines for the departments on how to get from the theoretical to the practical. And that can be a whole hour radio show in and of itself.

So, I'll just say that Office of Management and Budget decided to put it in their A-11 Guidelines, which are the guidelines on how you develop your budget. So there is some more information that you can find on the website.

Mr. Lawrence: Were there any best practices or particular tools and techniques that were being done that are worth mentioning?

Ms. McLean: To be able to link budget and performance, you have to have a new financial system, or you have to have a new budget system, or you have to have a system to help you do this. And I strongly believe that's a way to procrastinate. And it is really something that I think we just should not have as an excuse for not linking budget and performance.

Now, don't get me wrong. Linking budget and performance is extremely difficult. But I don't think we necessarily need new systems to be able to do it. At least maybe in its perfect end state, yes. But in getting there, we don't necessarily have to do that. So, best practices. I think, you know, again, I don't want to go into so much depth that we get off all the other topics.

But the general practice that we're trying to push people towards is first, they have to have a performance report that is strong, and is something that both is acceptable to OMB and to the White House and the administration, but also to folks on the Hill. Again, I'm fortunate that I am CFO of a department that has a very good performance report. And these are the performance reports that were required by GPRA.

For the last 2 years, DOT has had the second rating from the Mercatus Institute for their performance report in government. And this year, we were fortunate enough to have the number one rating. So we start with a very strong base. If you don't have a strong performance report, then I think you need to just, first off, make sure you've got a solid -- go back and look at your strategic plan, and re-evaluate whether or not you have the right performance report. Because I think that's where it all starts.

Then, I think you need to make some hard decisions on looking at your budget items. You can start from the bottom up, which is sort of the way I like to look at it. And look at each of your requests, and ask yourself two questions: what is this request going to do to improve one of your GPRA goals? Now, you might say, well, how can you answer that question for research? How can I answer that question for a long-term capital procurement project that I'm not going to see finished for 5 years? That's a very good question. But then you ask yourself the second question, which is what is the milestones that I am going to see from this additional $100 million, $5 million, take your pick.

So, you kind of have to force yourself to say yes, I know that, in the terminology of performance, we have outcome goals, and you have output goals. I think you have to ask yourself both. What is the output, meaning what is the milestone in the short term, and what's the outcome? So is this investment in fact going to reduce the number of fatalities on highways? And then build up from there.

Mr. Lawrence: That's a very good answer, and a good stopping point. Rejoin us in a few minutes as we continue talking about management with Donna McLean of the Department of Transportation.

What are the biggest management challenges ahead for the Department? We'll ask Donna for her thoughts when The Business of Government Hour continues. (Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers. And today's conversation is with Donna McLean, Assistant Secretary for Budget and Programs and the Chief Financial Officer of the U.S. Department of Transportation.

Joining us in our conversation is Dave Abel, another PwC partner.

Well, Donna, in the last segment, you talked about the importance of financial management. And I'm curious. In the future, will program managers assume more responsibility for financial management?

Ms. McLean: I think they have to. I think there are many program managers who definitely have their eye on their budget and their eye on making sure that each dollar they spend is as effective as possible. But I think when you're talking about, again, one of President Bush's big initiatives, which is his Presidential Management Agenda, it's trying to force government into a more businesslike fashion. So that's not -- I've got $20 million to obligate during this fiscal year, because I've got one-year money.

That may be the sort of mindset that we have in government. It needs to be I've got $20 million, how efficiently and effectively can I spend that money to get to my output goal, which would be, you know, again, improving safety, or whatever your -- I always talk about safety in transportation. There's a lot of other areas in Transportation and in other departments.

But so I think that as financial managers, and as the CFO office, we have to encourage program managers to have as much financial information as possible. But we also have to hold people accountable. And that's part of budget and performance integration as well. It's sort of, you know, what did you promise you were going to do with this money? And did you in fact do this? And if you didn't, that needs to be reflected in your performance evaluation.

So if the theory on performance and budget integration really works, it should go all the way down to the program manager and his or her employees, and their, you know, specific program evaluations on an annual and bi-annual basis.

Mr. Abel: So what does the pipeline look like for future financial managers in your office, recruiting them, and how hard do you think it will be to be able to continue to bring in people into this role?

Ms. McLean: Well, I think, again, the Department is going to be at an advantage, simply because we're going to have the Oracle financial system up and running. And I think that's going to be appealing to a lot of folks, that we have, you know, right now state of the art. And because we took the Oracle financials, and we didn't alter it significantly for our needs, we'll be able to upgrade it easily. Because of course, if you customize these computer systems, forget it. As far as upgrades, they're going to be costly and time-consuming, and you'll probably, with budget crunches, end up not in fact doing those upgrades.

So I think the Department is going to be an attractive place to come. But I also think that we have to look at, with the new financial system, we're going to need two kinds of people. We're going to need the important folks who sit there every day, they come into work, they log on, they spend their time in Oracle financials, making sure that the books are right, making sure that we don't over-obligate, making sure that, you know, whatever you have put on the books, you and your program office, whatever you've put on the books is accurate. You know, our hardcore accountants.

But we're also going to need another level. The philosophy of the Oracle financials is that you can pull data out, and you can pull data out easily, and you can pull out data in useful, helpful reports. But the CFO's office has to be the liaison between the accounting information and the program office. And we have to be teachers, and help program managers understand their financial information better, and use it to improve, again, how we manage programs, and how we get progress and best performance out of the money that we spend.

So I see a future sort of workforce in any CFO office is going to have these two layers. And it's the sort of financial management area that I think DOT, in the next couple of years, that's going to be key.

Mr. Lawrence: What big challenges lie ahead for the Department?

Ms. McLean: I think one of the biggest challenges is, of course, we just talked about setting up the Transportation Security Administration. But that now is going to move, or the President is proposing that it move to the Department of Homeland Security along with the Coast Guard, which is part of the Department of Transportation. And so if that proposal is accepted, which it certainly looks as if it will be by Congress -- but I don't want to be presumptuous -- but assuming that in fact occurs, we have to make sure, from a financial management standpoint, that we send both Coast Guard and TSA with the most solid financial system possible.

We've got TSA on Oracle financials, because they just started. So we put them on Oracle financials. But Coast Guard is still on our old customized DAFUS (?) program, which is -- you know, only the experts in the Department that have been working on it for years know about.

So it's unfortunate the timing is such that we're going to be sending two of the biggest chunks, single chunks of the Department of Homeland Security on two different accounting systems. So it's unfortunate, but it's a situation of timing. And then of course, we don't know what's going to happen at the Department of Homeland Security, and what the needs are of that department, and what kind of financial system they'll be putting in place.

Obviously, the other thing that we're going to be making sure, we've got to deliver success to Homeland Security here. And property management in TSA is going to be a big issue. So again, you know, I said that was going to be an issue for our clean audit. But it's also going to be an issue for Homeland Security, too, when we transfer.

So, you know, those are in the short-term, 12-month sort of time frame. In the longer term, I think, again, making performance and budget in fact a reality, and not theory is going to be a big challenge for the long term.

Mr. Lawrence: You mentioned property management, which we covered a little bit when we talked about the clean audit opinion in the FAA. Do the lessons that you learned in recovering your clean audit opinion around property management apply to the TSA? How does that solution relate to what you need to do in TSA?

Ms. McLean: Focus, focus, focus. We have to make sure that absolutely, that we keep track, have a good solid system for tracking that property. And let me just explain what some of the property that TSA will be having to keep track of.

You know, you've got the magnetometers, which is what you walk through at an airport. They're probably not going to move. But you've got all those wands that, you know, we don't -- they're very movable. And if you don't like property, that's very movable, because it's harder to keep track of.

We've got air marshals that are armed. So suddenly, the Department of Transportation, it's new for us to have to keep track of a lot of guns. We've got them in Coast Guard, but that's about it. And we've got, also, explosive detection systems, some of them that are huge, and we will know where they are, because they are the size of SUVs. But we've also got some smaller explosive detection systems that are called trace detectors. And they are more like the size of the top of a table, and can be moved, and will probably, part of the purpose will be to be on rollers, and be able to move them.

So we've got a big challenge on making sure that we keep track of all of that, and of course, any upgrades and valuation to that. So we have set up a property system that should be able to handle that. But it's obviously something that's on my mind and I'm worried about.

Mr. Lawrence: What advice would you give to a young person considering a career in public service in, say, perhaps the Department of Transportation, or even Homeland Security?

Ms. McLean: Well, I think you have to ask yourself, obviously, what makes you happy? And if you decide -- what made me happy before, when I was, you know, in school, in high school, thinking about what do I want to do for the rest of my life? I was a volunteer. And I won't go into all the places.

But it was incredibly rewarding to me. But by definition, you don't get any money out of being a volunteer. So public service I think is probably the best substitution for that. It's incredibly rewarding. And if you have decided that public service is something that you want to do, I would highly recommend getting as much education as you can before you begin your career path.

So if you can get a graduate degree, particularly if you're interested in going to Washington, I think it gives you a huge step up. And then, I'd say take as many -- don't be frightened. Challenge yourself as much as possible. Don't be fearful. I think government actually rewards you for taking challenges, and in fact changing jobs.

You could say, if you look at my career and how many years I've stayed in one career versus another, that I can't keep a job, because I think my longest job was 6 years in one place.

But I think the government is very good to folks who are willing to take challenges, and women and minorities. I think I've been very blessed, looking back on my career. But I think I've had opportunities I might not otherwise have had in the private sector, because government is conscientious about making sure the workforce is diverse.

Mr. Lawrence: Donna, I'm afraid that will have to be our last question, because we're out of time. Dave and I want to thank you for being with us this morning.

Ms. McLean: Thank you. I really enjoyed it. I'm not a radio person, so it's been surprisingly enjoyable.

Mr. Lawrence: And if anybody's interested in some of the things you said, is there a website or anything they could go to to find out more?

Ms. McLean: Yes. Again, you can go to the Office of Management and Budget website. It will have the A-11 guidelines, which will show our approach to getting you to green on our budget and performance integration. Also, the DOT website has some information specifically about our financial office as well.

Mr. Lawrence: Great. This has been The Business of Government Hour featuring a conversation with Donna McLean, Assistant Secretary for Budget and Programs, and the Chief Financial Officer of the U.S. Department of Transportation.

Be sure and visit us on the web at endowment.pwcglobal.com. There, you can learn more about our programs and researches into new approaches to improving government effectiveness. You can also get a transcript of today's very interesting conversation.

Again, that's endowment.pwcglobal.com.

This is Paul Lawrence. See you next week.

Linda Morgan interview

Friday, August 2nd, 2002 - 20:00
Linda Morgan
Radio show date: 
Sat, 08/03/2002
Intro text: 
Linda Morgan
Complete transcript: 

Arlington, Virginia

Tuesday, July 23, 2002

Mr. Lawrence: Welcome to The Business of Government Hour. � I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and the co-chair of The Endowment for the Business of Government. � We created The Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. � Find out more about The Endowment by visiting us on the web at endowment.pwcglobal.com.

The Business of Government Hour >features a conversation about management with a government executive who is changing the way government does business. � Our conversation this morning is with Linda Morgan, chairman, Surface Transportation Board. �

>Good morning, Linda.

Ms. Morgan: Good morning. � I'm happy to be here.

Mr. Lawrence: Great. � Joining us in our conversation is another PwC partner, Dave Abel. �

Good morning, Dave.

Mr. Abel: Good morning, Paul.

Mr. Lawrence: Linda, could you describe the mission and the responsibilities of the Surface Transportation Board for our listeners?

Ms. Morgan: The Board's primary mission is economic regulation of surface transportation, principally freight rail transportation. � We regulate all aspects of freight rail transportation, rates, service, restructuring, such as mergers, line sales, abandonments. � Then in addition to rail, we also regulate some aspects of trucking and bus, as well as pipelines and noncontiguous domestic water trade.

Mr. Lawrence: You've described so much. � How many employees make up the organization, and what types of skills do they have?

Ms. Morgan: We have about 140 employees. � We have a mixed group of skills, and really, the skills reflect the kinds of cases that we have come before us. � We have lawyers, we have economists, we have transportation analysts, we have environmental specialists, and we have technology experts. � All of those experts come together to make sure that we issue the right kinds of decisions.

Mr. Abel: As chairman of the Surface Transportation Board, what are your specific responsibilities?

Ms. Morgan: Well, I have broad administrative responsibilities, personnel, budget, managing day-to-day the operations of the Board. � Then I also have responsibility for docket management. � In other words, I make sure that we handle our cases in an expeditious manner and move through the process in the way that we need to.

I also set the overall mission and direction of the Board. � Obviously, every organization is a group of people working as a team, but they need a leader, and that leader has the responsibility, as in my case, for setting the direction. � Then I also am the spokesperson for the agency. � So I speak to the press, I speak to members of Congress, I speak to other agency heads, I speak to people out in the hinterlands who are interested in what the Board is doing.

Mr. Abel: How about the other members of the Board? � How would you describe their responsibilities?

Ms. Morgan: They work with me on administrative issues as appropriate. � Obviously, I have the primary responsibility for the administration of the Board, and that is by statute. � But I make sure to consult as appropriate as I work my way through those functions.

The primary responsibility of the other board members is case disposition. � That is where they are involved principally. � We all vote on cases that are before us. � We function like a court, really. � We are an adjudicative body, so each of the Board members reviews the cases that come in and the records built on those cases, and then we vote on those cases. � That is really where the Board members' primary responsibility lies.

Mr. Lawrence: Tell us about your career prior to becoming chairman.

Ms. Morgan: I have been for just about my entire professional career a public servant of some sort or another; that's 24 years in public service. � I spent 15 years with the Senate Commerce Committee, first as a staff counsel working on transportation legislation. � Then I became general counsel of that committee, and then that allowed me to get into the areas of the Commerce Committee. � If you know anything about the Commerce Committee, its jurisdiction is quite broad and gets into a lot of business-related issues. � So that was 15 years with the committee.

Then I came to the Interstate Commerce Commission, first as a commissioner, and then I became chairman of that agency. � Then I was responsible for terminating the ICC. � Then I became chairman of the Surface Transportation Board, which is what I am today, and that has been about an 8-year period.

Mr. Lawrence: You've worked in both the branches, the Legislative and the Executive Branches. � How would you compare your experiences in each in terms of the culture and type of styles?

Ms. Morgan: First of all, I think in both places, I have found an incredible dedication among the staff people both on the Hill and at the agency. � I know there's a lot of talk out there about the quality of government service and the type of people who are in government and the kind of work that they do, and I can say that the public is in very good hands both on the Hill from the staffing perspective and at the Board.

I think your question for me is very interesting because I made a choice after spending 15 years in the Legislative Branch to go into another branch of government. � I felt that I'd spent time writing the laws, it was a good opportunity for me then to go and implement the laws that I had been involved in writing. � I think that that's actually a good experience to have, and I think it has certainly helped me to do my job at the Board to understand how the laws came about. � I think I also have a good appreciation for what it means to work with interested parties as well as Congress as I'm doing my job at the Board.

Mr. Abel: If you look at the beginning of your career, what drew you initially to public service? � What was the draw to begin public service in the first place?

Ms. Morgan: Well, I think it's a couple of things. � I think, first of all, I went to a Quaker school, and Quakers are very focused on public service. � That's one of the things, that if you go to a Quaker school, you spend a lot of time on. � You do a lot of community service, a lot of discussion about serving the public. � So that was in my blood from a very early age.

I think the second factor is that my father always used to say there is no greater reward than government service; if you have an opportunity to do that, please do. � He came from the Depression generation, where I think there was a view that government service was an honorable profession, and if you were in it, you should stay in it and devote your time to it, and he spent many of his years in government service.

I think the third thing is that I am from that generation of the �60s and the �70s, so I think we were raised in an environment where we were focused on public issues, whether it was the Civil Rights movement or whatever the issues were of that particular time. � Now, I happened to be in law school when Watergate was in process, and that still did not deter, at least myself and others from my generation, from going ahead and pursuing public service. �

So I think it was a combination of all of those, and then once I got into public service, I realized that I really did enjoy it and continued to be in it and have found it very satisfying.

Mr. Lawrence: You said earlier that when you got to the Surface Transportation Board, you got to see how the laws that you had helped write were actually being implemented or how they worked their way through the system. � Were there any surprises when you got on the other side?

Ms. Morgan: No. � In fact, interestingly, there were parts of the law I remember as a staff person working on that were left purposefully vague, and then when I proceeded to try to implement those vague provisions, I realized that, yes, they were vague and they were struggled with. � So that was not any surprise to me.

I also think, though, that the legislative process does need to be understood from another angle, and I, again, am very appreciative of having had the opportunity to see both sides, because I think I can now have a much greater appreciation and can work with others in educating them on a greater appreciation for how the entire process works.

Mr. Lawrence: You described your work on the Hill, and it sounds as though you interacted with a lot of private sector businesses.

Ms. Morgan: Yes.

Mr. Lawrence: So I'm curious, when you left if you ever left if you ever thought going to work for a private sector organization.

Ms. Morgan: Well, at the time I left the Hill, I didn't, because as I indicated earlier, I felt that it was time for me now to try another branch of government. � Now, I had been on the Hill as a Democrat during several Republican administrations. � So when President Clinton became President, that really, for a Democrat, was the first opportunity in some time go actually get a position in another branch of government. � So I knew that this was an opportunity that if I was going to take it, I needed to take it then. � But I really at that point didn't have any thought about going into the private sector.

Now, at some point I'm going to have to make that decision, but for right now, I'm a public servant, and that's what I'm doing.

Mr. Lawrence: Are there any special nuances working in an organization, running an organization where you're surrounded by highly educated, credentialed individuals, economists, lawyers, and accountants? � Does that affect how you manage the organization versus some places where they might not have as much schooling or as much specialization?

Ms. Morgan: I feel that it's very important to bring all the skills into the room when you're trying to make the right decision, and I am not shy about bringing someone in who knows more than I do on a particular matter and make sure that I ask all the questions that I need to ask, starting with the basics if necessary to get me to a place that I need to be so that I can make the right decision. � And coming from a congressional staff position, I was actually quite comfortable with that, because as a staffer on the Hill, you spend a lot of time with people who know a lot more than you about their particular area. � But I feel that everyone has a role in the ultimate decision-making process, so I'm very, very focused on bringing everyone in who needs to be in, in a team-like setting as we move through the process.

Mr. Lawrence: That's a good stopping point. � Rejoin us in a few minutes as we continue our conversation with Linda Morgan of the Surface Transportation Board. �

Whatever happened to the Interstate Commerce Commission? � We'll ask Linda when The Business of Government Hour returns. �


Mr. Lawrence: Welcome back to The Business of Government Hour. �I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Linda Morgan, chairman, Surface Transportation Board. � Joining us in our conversation is another PwC partner, Dave Abel.

Linda, what role does the federal government play in the regulatory oversight of railroad, trucking, and the bus industries? �

Ms. Morgan: Well, again, as I mentioned earlier, for the freight rail industry, the regulatory scheme is pervasive in that we do touch all elements of the business of freight railroads: rates, service, restructuring, whether it be mergers, line sales, or abandonments.

With respect to the trucking industry, our main focus is in the rate area, and even there, it's a limited oversight. � With respect to buses, it's principally mergers of inner city bus companies. � Then with respect to pipelines, it's rate review. � With respect to noncontiguous domestic water trade, that's also rate review.

Some would say it sounds as though the freight rail industry is regulated more pervasively than some of these other modes; why is that? � I think first of all we need to go back into history a little bit. � The freight rail industry regularly scheme has been reformed. � In 1980, Congress passed the Staggers Rail Act, which I as a staff person actually worked on, and that law did significantly reform the regulatory scheme applicable to the freight railroads.

What remains is regulation where the market is imperfect, because you have to remember, with the freight rail industry, entry is not as easy as in other modes. � To build a new rail line obviously takes time and money, unlike, say, in the trucking industry, where a trucker can go buy a truck and enter a market with really low entry costs. � So there's a recognition that since entry is not as easy, that there are places where the market does not provide for the perfect competition in the marketplace. �

But, again, the regulatory scheme is much less than it used to be. � Prior to 1980, regulation was very heavy and burdensome. � As a matter of fact, the freight rail industry was in financial decay and as a whole was about to go bankrupt. � So government stepped in and essentially peeled back the regulations. � So now what we do is focus on that small segment of the market that needs a little extra oversight from some sort of regulatory body.

The other thing about the freight rail industry that's very important is that we have preemption in our statute, which means that states and localities can only affect the operations of the freight rail network in a limited way, because, obviously, you don't want to burden interstate commerce unnecessarily. � So having a regulatory scheme in place that in essence preempts the field, if you will, of economic regulation ensures that the freight railroads can continue to do their business without unnecessary interference.

Mr. Abel: Linda, what's the history of the Board? � How did the Board assume the regulatory responsibility for these modes of transportation?

Ms. Morgan: Of course, you had the Interstate Commerce Commission in existence since 1887. � It was the first independent regulatory body created. � It oversaw railroads and then got into other modes of transportation over its history. � Then as I told you, there were some deregulatory laws passed, not only the Staggers Rail Act, but also the Motor Carrier Act of 1980, the Bus Act of -- I think it was 1982, and then some more trucking reform in 1994.

Congress reached a point where it decided that the Interstate Commerce Commission as an agency was no longer serving a needed function, and so there was discussion of eliminating the agency as we knew it at that time. � After some debate in Congress, it was determined that there were functions, particularly in the rail area, that needed to be continued. � So they needed to find a place for those continued functions, and they also needed to continue some sort of independent forum. � The determination in Congress was made that we needed to have some sort of independent adjudicative body to handle these rail issues that needed oversight.

So they eliminated the ICC as part of the ICC Termination Act of 1995, but then as part of that, they created the Surface Transportation Board, which came into existence in 1996. � The Board assumed in essence all of the responsibilities in the freight rail area that the ICC had had; the motor carrier arena was deregulated further, and what was left of that was split between the Board and the Department of Transportation, which now has safety-related truck and bus functions.

Mr. Lawrence: You were part of the ICC, and now you're part of the Surface Transportation Board. � One went away, another was sort of born in some limited context. � What were the management challenges involved in closing an organization and setting up a new one? style='font-weight:

Ms. Morgan: There were actually several challenges. � Some of them were internal, and some of them were external. � The external challenges were that while Congress had indicated that it wanted to eliminate the ICC, the law making that happen did not really pass until after the appropriations bill that was implementing what the Congress wanted to do was passed. � So I had a funding bill, in essence, that told me how much in funds I would have available before I actually had the implementing law in place. � So I ended up having to figure out how many people could remain with the funds that I would have available, rather than figuring out what the functions were going to be, figuring out how many people I needed to do the functions, and then figuring out how much money would be available.

It's no criticism of the process, it's just that sometimes in Congress, things happen that way. � So that was the first challenge, is how to figure out how many people I would need given the money that I knew I was going to have available. �

The second challenge was that I closed the ICC at the same time that the Congress and the White House were in battle over the famous government shutdown. � If you recall, in 1995, there was quite a battle going on about appropriations for the government in total. � So I was having to worry about the broader issues of shutting an agency down and trying to seek help on that. � At the same time, I knew that my agency was also going to shut down in any event. � As you know, there are personnel requirements that you must fulfill in terms of notifying employees of when they might be terminated, and the requirements were different depending upon whether it was about shutting the agency down or about some sort of furlough associated with a government shutdown. � So it was a very complex challenge.

I think the third challenge, which is the internal challenge, is how do you keep your work going, and how do you keep the morale of people up when they know that some will be laid off and some will not be laid off? � That was really a script that I wrote that no one else had written before me, how to keep the work going and how to keep the morale up. �

What I would say if I were advising somebody in that situation, first of all, be honest with your employees about what you know and what you don't know in terms of what's going to happen to them, be very visible, be working very hard on the pending matters so that they see you caring about what's going on in terms of the substance, and just providing the kind of honest leadership that's necessary in a difficult time like that. � I ended up actually separating employees over the Christmas holidays of that particular year, which was a very difficult process. �

But I'm happy to say that employees who were separated have come back to see me, and the one thing that they have said is that while we lost our job in this process, you were always fair, you were always open, you were always available, you always showed that you cared about what was happening to us in this process. � So I think that's a lesson for everyone. � And I've also been told by people in Congress that they appreciated the fact that the work continued to somehow get done despite the difficult situation that was presented to the ICC.

Mr. Abel: Linda, we've seen the start-up of a new agency in DOT, the Transportation Security Administration. � There's been a lot of talk about it being financed by user fees.

Ms. Morgan: Yes.

Mr. Abel: The Board is partially financed by user fees. � What type of fees is it that the Board collects, and how does that fit into the overall budget of the organization?

Ms. Morgan: First of all, we have a budget of about $17 million, and of that, one million comes from user fees. � The fees are collected from various types of filings. � For example, if someone seeks a merger authority, they file an application, and with that they file a fee. � If someone complains about a rate being too high, they file a complaint, and they file a fee with that.

This whole notion of fees came about a number of years ago. � This is not unique to the Board or the ICC before it. � There was a move several years ago to begin to collect from the recipients of government service some sort of fee to cover the cost, and the ICC joined in that effort, if you will. � But I will say that since that decision was made, there continues to be concern raised about whether at an independent adjudicative body, there should be any kind of fees at all.

Mr. Lawrence: That's a good stopping point for a break. � Come back in a few minutes as we continue our conversation about management with Linda Morgan of the Surface Transportation Board. �

This is The Business of Government Hour.


Mr. Lawrence: Welcome back to The Business of Government Hour. � I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Linda Morgan, chairman, Surface Transportation Board. �

Joining us in our conversation is Dave Abel, another PwC partner. �

Linda, how does the adjudication process work? � Could you describe some of the cases you've handled during your time on the Board?

Ms. Morgan: First of all, in terms of the process itself, all decisions in an adjudicative body must be made on a record that is compiled by all of the parties who participate in a particular proceeding. � So someone files something with us to initiate the proceeding. � Then we have a series of filings and replies and further comments. � All of the letters that we receive on particular proceedings go into the record. � We may hold hearings. � All of that is part of the record.

But the important thing to remember is that the ultimate decision must be based on the evidence that is presented formally to the agency on the record. � So conversations outside the record, newspaper articles that are not in the record, all of that is not relevant to the decision-maker in the ultimate decision. � That's very important because, as you might imagine, when we make decisions, obviously not everyone is happy with the decisions that we make because decisions come to us with dispute inherent in them. � Proceedings are about disputes that people have regarding particular matters, and people need to remember that decisions are based on the record. � So if you have a problem with something, you need to make sure that you bring it to our attention so that it is before us as we make our decision.

In terms of the cases that we have had before us, I've had some easy cases, and I've had some hard cases. � I always say that the hard cases are the ones that I'm really paid to decide upon, because those are the ones where the record is not crystal clear, where you have people supporting something and you have people not supporting something, and then you must take the statute and you must look at the record and you must make a decision based on the statute and the record before you, even if the record presents somewhat of a conflicting viewpoint out there.

For example, I've made a couple of decisions on important rail mergers over the last couple of years. � One rail merger in particular was the merger of the Union Pacific and the Southern Pacific, both freight railroad carriers in the western part of the country, and that was a controversial merger. � You had people who were for it, you had people who were not for it. � I had customers who were for it, I had customers who were against it. � I had states and localities for it, I had states and localities against it. � I had employees for it, rail employees, and rail employees against it. � And so it was not a clear-cut decision. � I ultimately voted to approve the merger for a lot of reasons. � But, again, that was a very difficult case, a very controversial case, but one that I think adjudicators are supposed to be about in terms of carrying out their responsibilities.

Mr. Lawrence: Can you give us an order of magnitude of the type of work around such a case? � How many people would be involved? � How long would it take to actually work that all the way through?

Ms. Morgan: Well, again, in terms of cases, it depends on the type of case as to how long it will take. � We have statutory deadlines for just about all of our cases. � Then we superimpose internally deadlines to make sure that we meet the statutory deadline, if not get it out sooner than the statutory deadline.

In terms of a merger case in particular, we have a team, a merger team, and that is a floating number of people, but can be upwards of 10 people working on a particular merger, and that team again reflects the kind of expertise that I discussed earlier, lawyers, economists, transportation analysts, environmental specialists, and so forth. � We've had merger cases that we've decided in 6 months, in 9 months, in a year. � So, again, it depends on the case and the deadline that we put on ourselves.

Mr. Abel: Linda, adjudication is one of many roles you've described. � In organizations that have a diverse number of roles, it can often be very difficult to define who your customer is. � Who does the Board see as being their customers? � And what are their expectations of you? � What do they expect for you to do?

Ms. Morgan: Well, I think the customer for the Board is the public. � The public is obviously a broad term, but everybody is impacted in some way or another by our decisions. � Whether it's a carrier or a shipper or an employee or a community or an individual person, all of those pieces of the public are impacted.

In terms of what people expect of us, I think people expect us to be expeditious and fair in resolving the issues before us. � I think they expect an ease of access to our process and to the procedures that we have available, and also the information that we have available. � So I think it's how we handle our cases, and also how we make ourselves available to the public in general.

Mr. Lawrence: When you described the rail merger that you had to decide on, I began to think about a process that had lots of people, lots of paper, lots of information floating around. � So I'm curious how technology is being used by the Board to make it easier for customers through this process.

Ms. Morgan: Well, we have focused a lot of energies since the Board's creation in 1996 on a website that we're very proud of, and frankly, we have gotten a lot of good comments on. � That website has all of our decisions on it, press releases, important other information about the Board. � Right now, in significant cases, it has all of the filings in a particular proceeding. � So throughout the process of a proceeding, somebody can tap into the website and have access to all the documentation.

We are now working on a project whereby all of the filings in all of the cases will be available on the website so everybody will be able to access everything that comes in. � We scan all of those documents and put them on the website. � We also are working on a project for the future whereby people will actually be able to file electronically all of the material, so that hopefully will be another phase.

You have to be careful with this, however, because not everybody is technologically at the same level of advancement. � So because we are an adjudicative body, needing to be available to not only entities but individuals, we need to make sure that we do not get so advanced that we leave people behind. � So that's why we have to take it in stages.

Mr. Abel: Linda, you were actually nominated in the previous administration by President Clinton. � What challenges have you had working across the administrations?

Ms. Morgan: Well, I really haven't felt uncomfortable or felt unusually challenged. � I think my philosophy in terms of running the Board was well known to the prior administration and to the current administration. � The current administration, at least for the time being, has been comfortable with how I have been conducting the affairs of the Board. � You must also remember that an adjudicative body like the Board is really focused on resolving matters that come to us. � We are not focused the way Executive Branch agencies are on setting new broad policies that need to be implemented. � We're more taking a statute and then applying that statute to matters that come before us, then looking at the record developed and then making a decision.

Mr. Abel: We know that passenger rail in the U.S., Amtrak, is struggling. � We read about it often in the paper. � What impact is this having on freight rail operations through the country? � Is there a relationship between the two, and how is the Amtrak circumstance impacting freight rail?

Ms. Morgan: First of all, in terms of the Board's jurisdiction over Amtrak, we get involved with Amtrak issues as a regular matter because Amtrak runs over the tracks of the freight railroads, and Amtrak and the freight railroads must enter into agreements as to the terms of those operations. � Occasionally, those discussions break down, and so cases are brought to us and we must make a determination about the disputes between Amtrak and a particular freight railroad and decide on the terms, which usually involve compensation issues.

Now, in terms of the present circumstance, Amtrak affects the freight railroads, particularly where Amtrak owns the track. � The Northeast corridor, for example, is owned by Amtrak. � If Amtrak ceases to operate, then those other carriers that operate over the Northeast corridor are at a disadvantage because they are using the resources of Amtrak. And this is true not only for the freight railroads that operate in the Northeast, but also the commuters that operate in the Northeast.

There is a piece of legislation pending in the House. � It was introduced by Chairman Young, the House Transportation Infrastructure Committee, that would give the Board clear authority to direct service, direct freight and commuter service, over the Northeast corridor in the event that Amtrak ceases to operate.

Mr. Lawrence: That's a good stopping point. � Rejoin us in a few minutes as we continue our conversation about management with Linda Morgan of the Surface Transportation Board. �

What will the regulatory framework look like in the future? � We'll ask Linda for her thoughts when The Business of Government Hour returns.


Mr. Lawrence: Welcome back to The Business of Government Hour. � I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and today's conversation is with Linda Morgan, chairman, Surface Transportation Board. �

Joining us in our conversation is Dave Abel, another PwC partner.

Mr. Abel: Linda, for the Board, how do you manage success?

Ms. Morgan: Well, I think first of all, I look at the timeliness of our resolution of the cases before us. � I think that's critically important to all the parties, that we handle their matter expeditiously. � I also look at whether we are being fair, we're being professional, and we're being accessible. � I measure that by what I hear from the outside, what I see when I'm watching employees deal with the public, how I conduct myself when I am out talking to people and testifying on the Hill. � So I think in terms of success, it's really how we do our business, and are we responsive and are we being professional.

Mr. Lawrence: What do you think the regulatory landscape in the United States will look like 10 years from now?

Ms. Morgan: Well, I think the challenge for all regulatory bodies is the same today as it will be 10 years from now, and that is, how do you make sure you have the right level of regulatory oversight? � Right now, we're in one of those periods where there is some unhappiness about how deregulation has worked, whether it's in communications or the electric utility industry or the airline industry. � So when you have those kinds of discussions going on, there's a tendency to start looking broadly at all the regulatory schemes and perhaps determining that we need to make some changes. � So I think the challenge is to make sure that you don't make changes that perhaps might not be in the best interests of the public long-term, because you're reacting to concerns of today. � And I think that's a challenge for all regulation and all regulatory bodies.

I think the second challenge for regulatory organizations is taking the statute that the particular organization has and then using it wisely. � There are times when regulation is the appropriate response, regulatory oversight is the appropriate response; sometimes the better response is to bring parties together in the private sector and get them to work out a resolution, with the agency encouraging the process. �

A lot of what I have done at the Board has been really to focus on using my position to encourage private parties to resolve their differences outside of the governmental process, because my own view is that when parties agree to something on their own, they have a vested interest in its success, they feel better about the result because they've been part of it, it's not like somebody has told them this is what's going to happen, and then perhaps they have gotten more out of it for themselves than government could have given them, because government is constrained in response by what its statute allows it to do. � So, again, I think the creative use of government is a challenge that I think faces all of us in the regulatory business.

Mr. Abel: Linda, you have some unique experience, closing down the Interstate Commerce Commission, creating the Surface Transportation Board, you have some very interesting lessons learned. � What of those lessons learned would you share with forming the Department of Homeland Security as it tries to organize itself?

Ms. Morgan: Well, I guess first of all, there must be strong leadership through a transition of any kind. � So whoever is at the top has a special responsibility to take strong hold of the operation through transition, because when people are trying to do their job and trying to adjust to a new organizational structure, they can become distracted away from the substance and naturally focused on the organizational change. � That's natural, and a leader has to remember that that's going on. �

From my own experience, I think just staying in touch with the employees, being clear about what the mission of the new organization is from a substantive perspective, making sure that people are not being distracted unnecessarily by the organizational transition, make sure you have people who are working on the organizational transition so that the people who should be doing the substance are doing the substance and not being confused by the organizational transition.

When we were closing down the ICC and starting up the Board, I had one person who had a team of people, a small team, who essentially mapped out for the entire transition period what was going to happen when organizationally, and that was that person's responsibility. � No one else was distracted by that. � And I made it perfectly clear that that was not their responsibility; their responsibility was to continue to do the work. � So strong leadership, sending a clear message about what the mission of the organization was going to be, clear organizational authority given to a group of people who would be working specifically on organizational transition, and then finally, making sure you're in touch with all the employees and the outside community so there's not this feeling that you have lost your way in the transitional period.

Mr. Lawrence: We hear a lot about the coming wave of government retirements and the expected impact it might have on federal agencies. � I'm curious as to what kind of challenges this presents to the Board. � As you were describing the adjudication process and the body of knowledge people must know to really be good at their jobs, I couldn't help but think that a lot of that is on-the-job experience, and I wonder who's coming behind them. � So I'm curious as to how this might play out for the Board.

Ms. Morgan: Well, I think, first of all, this issue of retirements is probably the biggest challenge that the government as a whole faces, so the Board is not unique in that challenge. � I will say the Board is unique in a related respect, and that is that when we terminated the ICC and eliminated 50 percent of the employees at the time of the termination, obviously, you lose a lot of younger employees, because the way the governmental reduction-in-force process works, you separate those who have fewer years of service. � So what the Board has is a lot of senior people, so we are faced with this in a very stark way. �

What I have been doing for the last couple of years is actually going out and finding employees with the skills that we need to come in and be there before retirements occur. � So I go out and I look for a transportation analyst who can come in, work with an existing transportation analyst before that analyst retires so that you have a transition period of sharing of expertise. � I've been working on this now for a couple of years and have been very focused on this, because this is a very important part of continuing to make sure we do the job that we're supposed to be doing.

In terms of attracting people to government, which I think is the other challenge that we all in government face, what I've tried to do is to make people realize that government service, first of all, is fun service. � You get to do a lot of interesting things for the public, and that's a good experience to have, and you need to try your hand at it. � Also, a smaller agency can be a very good experience, because you get responsibility very quickly, and the way we operate, we're basically like a team rather than layers of bureaucracy. � So you come in and you're immediately part of a team and you have an important role to play. � So recruiting is important, and I've focused a lot of energy on that part of it as well.

Mr. Lawrence: Let me take you back one more time and ask you about how you go about making decisions. � I thought it was interesting when you described the purpose of people style='mso-bidi-font-weight: appearing before you is because there is a dispute, and Dave asked about customers and what they expect. � You also have stakeholders, Congress, other folks all engaged. � How does one weigh all the different points of view around these to come up with a decision?

Ms. Morgan: Well, it is a delicate balancing, but our statute is one of balance. � It directs us to balance a lot of different interests. � I think the important for all parties to remember is that as far as we're concerned, whatever is filed is important, and it will be given important weight, no matter whether you're an individual or a mayor or a member of Congress. � You are all parties to us, and you're important parties, and we weigh what you have to say in the balance.

Obviously, some cases are more difficult, as I described the one that was challenging. � But after looking at all that's in the record, you come to the best decision that you can make. � I always know when I come to a decision and make it, why I'm making it, and feel very comfortable with justifying it, which I've had to do on a number of occasions. � But it's a balancing, and each case is different, and the balancing in each case is different.

Mr. Lawrence: Linda, I'm afraid we're out of time. � Dave and I want to thank you for being with us this morning.

Ms. Morgan: Thank you for having me. � I've enjoyed the conversation. �

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Linda Morgan, chairman, Surface Transportation Board. �

Be sure and visit us on the web at endowment.pwcglobal.com. � There, you can learn more about our programs and research into new approaches to improving government effectiveness. � You can also get a transcript of today's very interesting conversation. � Again, that's endowment.pwcglobal.com. �

This is Paul Lawrence. � See you next week.