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.

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

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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.

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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.

(Intermission)

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.

(Intermission)

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.

(Intermission)

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.

Originally Broadcast April 5, 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 Al Morales, your host and managing partner of The IBM Center for The Business of Government.

Throughout its history, the U.S. Department of Housing and Urban Development, commonly known as HUD, has sought to increase homeownership, support community development, and increase access to affordable housing. Government best serves its taxpayers when it's performing well and producing sound results. Over the past several years, HUD has taken many notable steps to enhance its program management and overall performance.

With us this morning to discuss HUD's success in such areas is our special guest Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Good morning, Roy.

Mr. Bernardi: Good morning, Al. Nice to be with you and Steve.

Mr. Morales: Also joining us in our conversation is Steve Sieke, director in IBM's Federal Civilian Industry Practice. Good morning, Steve.

Mr. Sieke: Good morning, Al.

Mr. Morales: Roy, let's start out by taking a moment to provide our listeners with an overview of the Department of Housing and Urban Development. Can you tell us a bit about HUD's history and its mission today?

Mr. Bernardi: Well, HUD was founded in 1996, as the 11th department of the federal government. And, you know, the acronym HUD, Housing and Urban Development, the mission is threefold: to increase homeownership, to support community development, and to increase access to affordable housing free from discrimination. That pretty much gives you the overall.

Mr. Morales: Well, that's certainly a pretty broad mission with the country of ours. Can you give us a little bit more perspective and some more specifics, such as how is HUD organized, the size of its budget, number of full-time employees, and perhaps the geographic footprint of the agency?

Mr. Bernardi: Well, the number of full-time employees has been decreasing over the years. At one time, there was a high of 12,000, but in 2008, our number of employees is 8,600. Obviously the headquarters is here in Washington. We have regional and local field offices around the country. We have 82 offices throughout the United States, and also in, well, Puerto Rico, Guam, and the Virgin Islands.

Mr. Sieke: So, Roy, now that you've provided us with a sense of the larger organization, perhaps you could tell us more about your area and your specific role as deputy secretary and chief operating officer within HUD. What are your specific responsibilities and duties?

Mr. Bernardi: To meet the President Bush's Management Agenda is the primary responsibility; to improve ethics and accountability within HUD's programs and among its grant partners; and to oversee the attainment of program goals and assure adequate resources for attaining them. It's basically day-to-day to manage the overall operations. And as you can imagine, not only to look at the program offices, but the support offices and making sure that every dollar that we're utilizing is given to the people that need it the most.

Mr. Sieke: So that's a pretty broad set of responsibilities. Regarding those responsibilities and duties, what are the top three challenges that you face in your position and how have you addressed those challenges?

Mr. Bernardi: Well, there's so many challenges and it'd be difficult to say the top three, but let me tell you a challenge that not only we face at HUD, but I think everywhere in the federal government. The number of employees that are eligible for retirement at HUD is better than 60 percent. And just in the last year, a significant number of our senior management have retired. And how difficult it is to replace these folks. You really can't do it, that institutional knowledge, that longevity that they've had, the relationships that they've built with staff within the program areas, within their office areas, and also obviously the constituency that we serve throughout the country. But we're trying to backfill those. We're trying to hire people that we can bring in that will work under these managers, and making sure that hopefully, in a gradual way, that we don't lose too awfully much. But that is a significant challenge.

Another challenge, and we'll get into that a little bit later, is our FHA reform, modernization. With the subprime crises. and the housing crises in general, that has been a significant challenge for us, especially this past year. Last August, when everything seemed to be coming apart, we realized full well that FHA modernization, which we'd been asking the Congress to basically go ahead and approve, needs to be done, and we're very close to that.

Another challenge is basically making sure that we have the budgetary means to put forth the dollars we need so that folks in our programs, whether it's public and Indian housing, whether it's the Community Development Block Grant Program, our homeless program, housing opportunity for people with AIDS, every year it's a challenge with Congress to making sure that we have the resources we need. I would say that -- there's others, of course, but those are the top.

Mr. Morales: Roy, I understand that prior to coming to HUD, you were mayor and chief executive of the wonderful city of Syracuse, New York. Could you describe a bit your career path for our listeners? How did you get started in government?

Mr. Bernardi: I started my career working in city government as the city auditor quite a while back. That's an elected position. I was elected to that position and served in that position for 18 years, and ran for mayor back in 1993. It wasn't my first run for mayor, so for the young folks that are out there listening about career paths and opportunities, you know, don't give up if you don't succeed the first time. But I ran in 1981 and ran in '85, and came very close both times. I'm a Republican and Syracuse is a very strong Democratic city. Even as the auditor, I was well respected and received a substantial number of votes. However, 1993 was the year for me and reelected in '97. Reelected, won every single ward in the city of Syracuse, the only person, Republican or Democrat, to ever do that. So I think the folks liked the first four years.

Being mayor of any city is the nicest job perhaps that anyone could want, but it's also the most difficult job in the United States, with perhaps the exception of the presidency, because you're right there with the people. You go into a grocery store, you're on the street, and everyone comes up and everyone has a condition or a circumstance that they want addressed. It was a wonderful seven and a half years.

I was asked by the administration to come down in 2001, and I did that. And I left the term six months before it expired, but I had the opportunity to crime reduction, economic development. The city ended up with a nice surplus in the bank. When I got there, there was no money in the bank at all.

We have an excellent Public Works Department. We brought jobs and we brought companies into downtown Syracuse. We did an awful lot of restoration. We did an awful lot of remediation of contaminated properties. It was great to manage the professional staff and also the appointments that I made. I never looked at it as being a Republican mayor. I was just "the" mayor. And I'm affectionately referred to that title. Even at HUD, people call me "the mayor" more than they call me the deputy secretary. Just a wonderful experience.

Public service is a great career and I would encourage anyone who -- especially the younger folks out there to take a look at it. And I think it's exciting times right now, if I may, with the presidential election this year. The first time in how many years where there's no incumbent or no vice president running, and you can just see the excitement in the country in both parties, and that's good. That's what America's all about.

Mr. Morales: It certainly is and that's certainly a wonderful set of accomplishments. So as you reflect back on those experiences, especially those as mayor and your previous tenure as HUD's assistant secretary of community planning and development, how have these experiences prepared you for your current leadership role and shaped your management approach and perhaps you leadership style today?

Mr. Bernardi: I always believed, and still do, that you may be the person at the top, but if you want something to get done, if you want success, you have to be able to not only choose good people, but to give them the authority to do the things that need to be done, provide them with encouragement, making sure that you have significant amount of quality time with your in Syracuse, it was the commissioners and the police chief and the fire chief. And here at HUD now, it's the assistant secretaries and the director of the various programs.

You need to "empower" is a word that's overused, but you need to let them know that you want them to succeed. I always believe that you set a goal, you have an objective, you let people know what it is, and then you let them, the key word is "them," let them do it. You know, don't get in the way, don't micromanage. And I have a personality that I could do that, but I try to not do that. You know, some people will look back at certain presidents and say, gosh, you know, they wanted to get involved in every single detail. Well, that's why you have people -- I would hope that my management style there is one where people respect me for the work that I do, but they also enjoy the way I -- and appreciate the way I treat them. You know, the woman that comes in and empties the trash containers at the end of the day, you know, she's as much a part of HUD as the assistant secretary who just left my office. So respect, understanding, okay, a mistake is made, let them know a mistake is made and you correct that. You know, no retributions.

Mr. Morales: What is being done to mitigate the subprime mortgage situation and stabilize the home mortgage market? We will ask Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Al Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Also joining us in our conversation from IBM is Steve Sieke.

Roy, we understand that HUD has been aggressive in taking action to mitigate the effects of the subprime mortgage issues, which, unfortunately, has been compounded by a slow housing market. Could you describe HUD's efforts in this area? Specifically, what initiatives are being considered to assist those in danger of losing their home due to foreclosures, such as programs like FHA Secure, Project Lifeline, or Hope Now, just to name a few?

Mr. Bernardi: Well, we've seen the problems coming in the housing market for several years, as you mentioned, with the home price appreciation, dramatically it outpaced affordability, the low interest rates and investors accepting higher risk mortgage products. And basically, you know, that's the bottom line to it. Everyone said this isn't going to end. As a matter of fact, I told my wife Alice not two years ago, I said now is the time to sell the house that we bought in 2001. And she said why? I said because this won't last. Nothing goes on forever.

Unfortunately, I think many of the due diligences that needed to be done were not done. People just continued to push. That's why we're pushing. We're pushing for FHA modernization. As you mentioned, we created FHA Secure and we worked with Treasury to encourage the private sector to form the Hope Now Alliance.

Talk a little bit about FHA modernization. Some borrowers with subprime and exotic loans knew what they were getting into. Many families who were steered into subprime loans would have been better off with a safe and affordable FHA loan product. FHA is back since the 1930s, and as you all understand it's 3 percent down, it's a fixed mortgage over 30 years. Well, that became pass� back in '04 and '05 and '06. Everyone else had a better product than FHA.

And our loan limits, they're controlled by statute, could not keep up with the home price inflation, and FHA lacked the flexibility to provide new and competitive loan products. So basically our market share just decreased substantially. That's why we've been working with Congress, as I mentioned earlier, for two years on legislation that would modernize FHA.

The bill that we put forth has broad bipartisan support. The House passed the FHA Modernization Bill on September the 18th, and the Senate passed their version on December the 14th. But you know how it all works down here. Now they've got to get together in committee and hammer it out. We're cautiously optimistic. That's an overused phrase here in Washington. I didn't use that much in Syracuse. Then it'll get out of committee and the president's desk within the next couple of weeks.

FHA Secure. We believe we can help hundreds of thousands of homeowners who are in trouble through FHA Secure, a temporary initiative, designed for families who are good credit risks, but were steered into option adjustable-rate mortgages with interest rate resets that raised their mortgage payment to a level they could no longer afford. This initiative relaxed FHA guidelines to permit lenders to originate an FHA-insured new mortgage for a borrower who is delinquent as a result of the interest rate reset. So that's the folks out there that have the subprime mortgage. They're current. You know, they may be delinquent, but they're not in foreclosure, and that reset is obviously going to lead them to foreclosure. If the subprime mortgage is greater than the property value, lenders can refinance into a safe FHA first mortgage and carry back a subordinate second mortgage that exceeds FHA's normal loan-to-value ratios.

Now, since September of last year, more than 280,000 applications have been received for FHA Secure, and more than 100,000 secure loans have already closed. So this is one way, FHA Secure, in which we've been able to add assistance to the situation that we have.

Now, the Hope Now Alliance, which has received some news just recently in both newspapers and electronic media. Treasury Secretary Paulson and HUD Secretary Jackson have been forceful advocates for strong private sector response to the nationwide problem. And together, the two secretaries have encouraged 26 of the nation's largest mortgage servicers, representing about 90 percent of all mortgage loans, to join together with HUD-approved housing counseling agencies, major investors and industry trade groups, to create comprehensive and coordinated programs to avoid foreclosures and stabilize homeownership. They've made significant strides in a relatively short period of time. They're establishing and aggressively advertising a nationwide hotline for borrowers who need mortgage help, and that number is 888-999-HOPE. It's receiving about 4,000 calls per day and it's providing comprehensive telephone counseling.

So many people, when times get tough, they don't know what to do. They're ashamed of maybe what they -- the situation that they're in. And we just realized full well in working with our private partners that we needed to make sure that people had someone they could call and get started on trying to rectify a bad situation. Getting investor and SEC, Securities and Exchange Commission, authority to fast-track the modification of loans, where interest rates resets made mortgages unaffordable for otherwise creditworthy borrowers. The SEC just cleared the path for fast-track in mid-January, and we expect the first reports later this month.

Another program is Project Lifeline. It's the latest effort to reach no-contact borrowers. Almost 50 percent of borrowers whose loans go to foreclosure have had no communication, as I mentioned earlier, with their lenders, despite repeated attempts by lenders to reach them. Project Lifeline targets seriously delinquent borrowers, who are facing foreclosure, and offers them another chance. If a borrower responds to a Project Lifeline letter by contacting the lender or Hope Now hotline and providing financial information, the lender will delay initiation or continuation of a foreclosure for at least 30 days to allow time to work out a solution.

Everyone has to take some responsibility, you know. This situation didn't come because people were out there taking loans that -- that's one scenario, taking loans that they couldn't afford. You know, lenders have the responsibility here, appraisers have responsibility, the brokers, the investment bankers. There's enough responsibility to go around. Hope Now, in conjunction with HUD and NeighborWorks America, is sponsoring a nationwide series of homeownership preservation fairs to both spread the message that help is available and to provide on-site loan workout assistance for borrowers who attend. And Secretary Jackson has keynoted many of these events.

It's important to recognize, and we always say this, that there's no one-size-fits-all answer to this problem. We need to accelerate the efforts we are taking now to employ a variety of different strategies. I think that's what's taking place. When we say one size does not fit all, that's the difficulty with this, you know. A lot of people will say, well, the solution would be to do just, you know, Project Now, Project Safe, other proposals that are out there by Congress. But really, every loan has its own little nuances: affordability, how do you restructure, is it possible to restructure it.

So we need to make sure that we stay very vigilant on all of this. And we at HUD were hoping for FHA modernization to pass. That will provide us with an opportunity, that'll raise the caps on the amount of money on mortgages that we can insure. You know, we're also looking to be flexibility with a down payment. As opposed to the 3 percent, you know, it could maybe go to 1 or 1 1/2 percent. And also the insurance, we want to insure to risk. We've been set in stone, so to speak, for so long we haven't had any real changes to the FHA Mortgage Insurance Program, that these changes would allow us to not only help folks that are in trouble, but also first-time homebuyers.

Mr. Morales: So these are wonderful programs that are helping people that perhaps are in trouble today or are at-risk of getting in trouble. Could you discuss what's being done to perhaps regulate the mortgage industry to help prevent some of the issues that we've discussed? And what's HUD's role in this area?

Mr. Bernardi: Well, Regulation Z changes. In December, the Federal Reserve proposed a number of changes to the Regulation Z, the truth-in-lending that would be applicable to all loans. Lenders would be prohibited from paying the yield spread premium to mortgage brokers without the written approval of the borrower, and that's key. I think the borrower has to know what that yield spread premium amount is going to be, and obviously give the borrower an opportunity to maybe shop around. For those you out there, the yield spread premium is the fee paid by a lender to a broker for a higher rate of loan.

Creditors and mortgage brokers could not coerce a real estate appraiser to misstate a home's value. I think some people maybe saw recently that Attorney General Cuomo, former Secretary Cuomo, dealt with Fannie and Freddie on appraisals. You know, are these appraisals accurate? You know, are you putting too much pressure on appraisers to have them come in with a number that you need? So we need to be very vigilant there. And companies that service mortgage loans would be required to credit consumers' loan payments timely, provide a schedule of fees to a consumer upon request, and adhere to other fair servicing practices.

For high-cost loans, lenders would be required to verify a borrower's income and assets before extending credit. Now isn't that a novel approach, huh? As I mentioned earlier, you know, you get excited. You know, geez, you know, how many deals do you close in a day? You know, the realtor would say, gosh, I sold six homes. And the appraiser says, well, I've done this number of appraisals. And the lender -- and the investors are asking the lenders we need more of those mortgages.

Well, anyway, I don't want to get off here, but there would be strict limits on pre-payment penalties and lenders would have to establish escrow accounts for taxes and insurance. It's important when you sit down that the borrower not only knows what that principal and what the interest and what all the fees are, you know, to stay in that home, you also have taxes and you have insurance.

Truth in lending. Proposed revisions to truth in lending acts, advertising rules would require additional information about rates, monthly payments, and other loan features; ban deceptive or misleading advertising practices, and require the lenders to provide a good faith estimate within three days after loan application for all mortgage loan types, not just home purchase loans, and prohibit charging any loan fees until the good faith estimate has been received. These actions are aggressive and directed at the source of the problem.

There's always a trade-off obviously between consumer protection and over-regulation that chokes off accessibility of credit. But what we're finding right now is that we had -- we didn't have enough consumer protection and we need to get back to that.

Real Estate Settlement Procedures Act, RESPA. RESPA reform. This is something that we're rolling out right now. We're not the prime regulator, HUD, of lending institutions and mortgage originators. However, in addition to continuing to enhance the loss mitigation protections available to borrowers with FHA-insured loans, that loss mitigation that we have is we actually when people get in trouble, we sit down and try to work with them so we can mitigate any losses.

HUD does have regulatory authority over real estate settlements, and HUD will be publishing a proposed rule -- you're hearing it here for the first time -- under the Real Estate Settlement Procedure Act that will bring about significant reform to the home-buying and mortgage loan process. The rule would require that a standardized, good faith estimate, GFE, that would substantially enhance disclosure of loan terms be given to the consumer at the first stage of the loan process. This good faith estimate would consolidate settlement charges into major categories to avoid fee proliferation and show total estimated settlement charges prominently on the first page, so the consumer can easily compare loan offers.

This is something that we find very interesting and I'm sure people will -- we've tested it out and it seems to work well, and that's the proposed rule is going to include what we call "the closing script," which will be prepared, of course, and read to the consumer by the closing agent to ensure that the consumer understands the exact terms of the loan that he or she is receiving. Sometimes something's on paper, fine. Well, let me read this to you so you'll understand it.

The rule provides more loan information in an understandable manner, so consumers can shop for the best loan, thereby lowering costs and promoting homeownership. We want to make sure that when someone sits down at that good faith estimate, that when you receive that initially, at closing time that they match with that HUD 52.

Mr. Sieke: Well, Roy, that's an impressive set of initiatives that you're working on there. Let me turn now to another topic. HUD's management issues had kept it on the GAO's list of agencies with high-risk programs. However, recently, the GAO removed HUD's Single-Family Housing Mortgage Insurance and Rental Housing Assistance programs from its high-risk list. Could you tell us more about this significant achievement? And what specifically did your department do to be removed from this list?

Mr. Bernardi: Well, HUD was the only cabinet agency to be placed on the GAO high-risk list, watch list, back in 1994. And unfortunately, it covered all of our core programs: FHA mortgage insurance, rental housing assistance, community grants. The Washington Post at that time called us "the ugly duckling of government." So Secretary Jackson and I, we had a lot of corrective work to do, so we were committed to being removed from the list. So we developed the general strategy that addresses management infrastructure issues, focusing on performance, not just compliance. We initiated risk-based targeting of extensive third-party program delivery. We demanded increased reliance on automation and increased performance metrics and accountability.

We overhauled two of HUD's major programs: the Single-Family Housing Mortgage Insurance and the Rental Housing Assistance Program. The Single-Family Housing Mortgage Insurance Program, we accomplished this by FHA improving our lending process. On the Rental Housing Assistance, in 2001, we estimated that HUD's Department of Public Housing and various tenant-based and project-based rental assistance programs issued $3,200,000,000 in gross annual and proper payments attributable to program administrative errors and tenants' underreporting of income.

To reduce these improper rental assistance payments, we worked with housing industry partners and tenant advocacy groups to improve program guidance, training, and automated systems support. We developed and implemented the Enterprise Income Verification System, a web-based state-of-the-art system to share income data and other federal databases with public housing authorities to improve the income verification. And we did that with HHS; that was a nice partnership. They have data on employment, both federal and state, that we were able to utilize.

These collective actions led to a 60 percent decline in gross improper payments between 2001 and 2005. The money that has been paid in error is now being used to house more low-income families. We all know that there's waiting lists everywhere, so those erroneous payments coming down give us the opportunity to help more Americans that are in need.

The high-risk designation was removed in January of '07, because we demonstrated a top management commitment and a workable corrective plan. So we're very proud of that.

Mr. Sieke: HUD obviously played a significant role in supporting Gulf Coast residents displaced by Hurricanes Katrina, Rita, and Wilma. Could you tell us about the department's efforts in this area? What lessons have you learned during the response to these events and to what extent does the creation of the National Housing Locator System illustrate a key lesson learned?

Mr. Bernardi: Well, HUD has worked with its federal, state, and local partners throughout the affected Gulf Coast to design and deploy housing economic development infrastructure programs. In public housing, we recognize the need for continued coordination, long-term housing solutions for the residents that were displaced by the Hurricanes Katrina and Rita. We were asked to design a program to assist those folks that were displaced through an interagency agreement between HUD and FEMA.

Last spring, HUD and FEMA announced that HUD will take over long-term rental assistance for approximately 45,000 eligible non-HUD-assisted families that were displaced by those hurricanes, from FEMA, through a demonstration program called the Disaster Housing Assistance Program. And we implemented that in three phases. After the hurricanes did hit, obviously HUD was responsible for the people that were under our jurisdiction, but there were an awful lot of other folks out there that were hurt. So working with FEMA, we put together the Disaster Housing Assistance Program. We were able to be very helpful, help these families locate a safe place to live, rebuild their lives, and get on a path to self-sufficiency. As I mentioned, the implementation of the Disaster Housing Assistance Program well underway, and we've been successful and we've overcome many obstacles. It's going quite well.

The Community Development Block Grant Program, very interesting. The president and the Congress provided $17 billion through CDBG for Alabama, Florida, Louisiana, Mississippi, and Texas. You've all heard about the Road Home Program in Louisiana, and also the Road Home Program in Mississippi. Louisiana's helped more than 100,000 folks back into housing. Mississippi has helped more than 15,000 homeowners and rental programs to construct or reconstruct more than 50,000 available units are also underway.

There was a lot to learn by everyone following these hurricanes that hit the Coast, and the Homeland Security Council's report, The Federal Response to Hurricane Katrina: Lessons Learned, that was issued in February of 2006. The key HUD lesson learned, HUD, with extensive experience providing housing resources for those in need, must use its extensive networks of regional offices, state and local agencies to prepare for potential relocation emergencies. We used our over 4,200 public housing authorities and our field offices everywhere to assist folks that needed housing.

The hurricanes challenged us in ways that had not been previously challenged. The challenges helped drive innovation at the agency of the National Housing Locator System, Steve, that you mentioned. That's a one-stop shop for families in need of a place to live as a result of a disaster. An example, the locator merges federal housing resources with several commercial housing locators to offer a single outlet for locating rental housing around the country. So what you have is you have this locator system, when an emergency occurs an individual or an organization has an opportunity to find out what housing is available, single-family housing, multi-family housing. Where is it? What's the cost of it?

The locator lists for-sale properties that HUD and the Department of Agriculture and the Veterans Department have acquired through foreclosures. Families utilizing the web locator can search by city, area code, price range, acceptance of housing voucher, acceptance of pets, accessibility, elderly, accommodations for the handicapped. And in most cases, the database also includes an address and map of the housing complex and the contact information for the landlord, monthly rent, and things of that nature.

During the recent wildfires in Southern California, HUD's Emergency Response Team tested the system and we found out that it works. Our team successfully assisted more than 2,000 families during their search for transitional housing. While we're convinced the National Housing Locator is a major step forward, we plan to continue refining, testing, and expanding the system, as you would imagine.

Mr. Morales: That's wonderful. Along similar lines, I think you would agree, Roy, from your experiences as mayor, that the chronically homeless are often the most visible and difficult to serve populations. Yet providing housing and ending chronic homelessness is one of the first steps towards self-sufficiency. Could you tell us about HUD's efforts towards ending chronic homelessness? More specifically, how has HUD improved its effectiveness in assisting the homeless move from transitional housing into permanent housing?

Mr. Bernardi: The chronically homeless, to define them, are single persons with disabilities, who live on the streets or in emergency shelters for an extended period of time. That's how you define chronically homeless. The group represents 20 percent of the entire homeless population in the country, but yet they utilize 50 percent of the emergency shelter resources. So the administration, we found it imperative to focus attention on this needy group, which consumes so much of the nation's resources.

So in 2002, HUD committed to ending chronic homeless. And we've engaged our partners: the states, the cities and counties, as well as nonprofit organizations, foundations, and businesses to achieve this goal. We provide incentives in our National Homeless Assistance Competition, including bonus funding to communities that will provide housing, permanent housing, and services to this group.

In 2007, we awarded communities $330 million in housing and needed services. And these needed services, such as drug treatment, mental health counseling, and job training to the chronically homeless, and we're starting to see results. In 2005, there were approximately 167,000 chronic homeless persons. In 2006, that figure has dropped to 156,000, which is a 12 percent reduction.

Mr. Sieke: That's wonderful.

Mr. Bernardi: It is fantastic. We're very proud of that. That's the first time ever that this country has seen a reduction related to homelessness.

Now, as you can imagine, the chronically homeless, they're very difficult to serve. They're individuals that are out there with alcohol addiction, drug addiction, mental illnesses. But we have found that by concentrating on a permanent solution as best as you possibly can for these individuals, to provide them with permanent housing, to have all the continuums of care throughout the country recognize that the more permanent housing they do, the faster we can deal with this population, that will provide us with additional resources, more resources within our budget to help families, to help children, and to help the remainder of the homeless population.

We just need to make sure that, you know, we don't have a revolving door here. The Interagency Council on the Homeless, Philip Mangano, travels the country and talks exclusively about how we need to make sure chronic homelessness is addressed. And we have partnerships with cities and counties and states to end chronic homelessness within 10 years. So not only at the national level do we have this goal and objective, but the folks on the ground throughout this country are also partners with us.

Mr. Morales: That's fantastic. How has HUD sought to instill a culture that emphasizes performance and results? We will ask Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at HUD. Also joining us in our conversation from IBM is Steve Sieke.

Roy, as you know, since the inception in 2001, the President's Management Agenda, or PMA, has been the key strategy for improving the federal agency management and performance. Could you give us a sense of how HUD leadership approached the PMA from the beginning and what are some of the critical lessons learned from these efforts?

Mr. Bernardi: Well, the main goal of the management initiative is to improve service and make the agencies more efficient and more effective. The president laid this down in 2001 and Clay Johnson over at OMB, he's made sure that very department has taken it to heart and has done what's necessary. Secretary Jackson and I, we're committed to the goals of the PMA and to improving our programs at HUD.

Just briefly, the PMA measures government programs, and we have a traffic light system: we have green, yellow and red. And in 2002, all six of HUD's initial PMA initiatives had red scores; not good. In the initiative, red, of course, means serious jeopardy and unlikely to realize objectives. As of 2008, we have improved scores on five of those initiatives. We're green on three initiatives, we're yellow on two, and we're red on only one, competitive sourcing. Competitive sourcing has proved quite a challenge.

Just briefly with that, you have programs that are done in-house or in-agency and you source them out, and it's difficult. You would think there'd be an awful lot of folks out there that would like to compete with a federal agency in a particular program, but we have found that very difficult, but we're still trying to go with it. We're the first agency to achieve green scores on two additional, beside the six, multiagency initiatives: the Faith-Based Community Initiative and, as we talked about earlier, eliminating improper payments. We set the mark there.

Pretty much we feel good with our objectives. We've done some nice things. The goal is to obviously be green on all of the areas, on status and on progress, but we were red. I remember we were red back in '04, when I became the deputy, on just about everything. But the way to do it is every single initiative to put a person or persons in charge, as I mentioned earlier with my management style, and say here's what OMB, here's what GAO wants. Here's what we need to achieve. Let's set the guideline for doing it.

We do it quarterly and we're great at quarterly on our status and we're great at quarterly on our performance. And we feel very good about where -- how far we've come.

Mr. Bernardi: Okay. HUD has traditionally been the leader on OMB's Credit Program Policy Council. Through efforts such as sharing and expanding FHA's Credit Alert Interactive Voice Response System, there's another acronym for you, huh, that process is for use by all federal programs as a systemic means of flagging entities indebted to the government through loan defaults or other activities to preclude giving them further benefits until their debts are paid.

FHA, as you know, administers one of the largest and most successful housing loan guaranty programs in the world. Since 1934, its initiative, we've provided mortgage insurance to over 35 million single-family households and over 50,000 multifamily housing projects, containing approximately 5.7 million apartment units. FHA is a self-sustaining government corporation that operates off of insurance premiums rather than taxpayers' dollars. So they have to manage their risks to survive just like any commercial business.

FHA's single-family housing mortgage insurance program was on the GAO's high-risk program list when we arrived back in 2001. Through a separate HUD Management and Performance Initiative of the President's Management Agenda, which predated the newer Credit Management Initiative, HUD has already completed a number of significant internal control improvements to reduce the risk of FHA's single-family housing mortgage insurance program. The implementation of credit-watch and appraiser-watch systems and the implementation of the total automated underwriting process, these risk management improvements are primary factors in GAO's removal of the FHA program from the high-risk list in January of '07.

FHA's effective risk management practices are a reason why FHA can effectively serve to provide homebuyers a lower cost and less risky alternative to the subprime market. And again, I will make the plug for the modernization, for the Congress to act very quickly to give us what we need in FHA, so that we can help even more people.

Mr. Sieke: Roy, as you know, the president's E-Government Initiative stresses the value of electronic methods for providing greater levels of public service at lower cost. HUD is a recognized leader among government agencies for this initiative. Would you elaborate on your department's efforts in this area?

Mr. Bernardi: HUD works in partnership with other federal agencies to provide the public with simple, easy-to-use government services and information. These services are accessible, effective, and reduce the burden for customers, and are saving money and time across the participating federal agencies. Basically almost everything is electronic now. The applications that come in for all of our various programs, we require them to be electronic. If they're not electronic, you don't -- you're not able to compete for the grants.

We have had significant accomplishments with e-loans and grants.gov. The e-loans collected $6 million in delinquent debts, and grants.gov, a cost savings of $2-1/2 million. So we're very pleased with what we've been able to do with the E-Government Initiative.

Mr. Sieke: Good. Well, let's move to something now that we're hearing a lot about in the news and that's predatory lending. Predatory lending involves deception and fraud by creditors, mortgage brokers, or even home improvement contractors. It's harmful not only to the consumer, but also harms the economic vitality of the community at large. What steps is HUD taking to reduce predatory lending? And what can be done beyond educating potential homebuyers to recognize such practices?

Mr. Bernardi: Well, Steve, you mentioned educating potential homebuyers, and we've increased funding for housing counseling by 200 percent since 2001. It's very, very important that -- to educate families so they have the financial literacy to protect themselves against predatory lenders. This year, we awarded $50 million in funding to provide classes and personal assistance to prospective buyers and renters as well as current homeowners who are having trouble making their mortgage payments.

Of course, it's wrong. It's a violation of federal law. And Secretary Jackson has created a Fair Lending Division within the Office of Fair Housing and Equal Opportunity to focus specific attention on enforcement of fair lending laws. We have enforcement actions that we can take.

I mentioned the educational component part of it. I think people have to be aware that, unfortunately, there are people out there that will take advantage. And with our Office of Fair Housing and Equal Opportunity, they've done more. In fact, they've been out there monitoring and bringing more charges and more enforcement and working with the Inspector General's Office to make sure that we let it be known out there that we don't tolerate this.

Mr. Sieke: It sounds like the right actions to take. We're in a time of tight budgets and constrained funding. And agencies are often challenged with the need to implement needed infrastructure modifications, including needed IT system upgrades for ongoing and new programs, such as any changes required by the FHA Modernization Bill, which you've mentioned. Has this impacted HUD? And if so, what actions is the department taking to mitigate these challenges?

Mr. Bernardi: Well, IT funding is an area where we could still use some help from Congress. We've been at them all year, going back and forth. Unfortunately, Congress continues to cut our IT funding requests. We have one of the lowest IT budgets in the federal government, even though we have one of the largest and most complex program structures. When HUD has been given IT resources, we're very successful in effectively utilizing them. Let's put it this way: If you're going to modernize and you're going to consolidate your various systems that you have, you need the resources to do that. And we're very hopeful that -- like we talked about the Enterprise Income Verification System, for example. We need to do more of that, but you need resources to do that so that your information technology system is up to date, that it's effective, and that you can continue to improve it as time goes by.

Mr. Morales: Roy, as you look back at the management challenges that you, the secretary, and your staff have faced over the last four to five years, what are some of the success stories that you're most proud of?

Mr. Bernardi: Well, most proud of, as I mentioned earlier, removing HUD from the GAO high-risk program list in January of 2007. I mean, we've been on that since 1994, and that was just a significant achievement.

We strengthened internal controls in two of our largest program areas: single-family housing mortgage insurance and rental housing assistance. Internal controls go such a long way in making sure that the money ends up where it needs to go. And by doing that, we gained support for these programs from OMB and Congress. And now HUD efficiently and effectively provides affordable rental housing and homeownership opportunities to nearly 10 million low-income American households a year; very, very proud of that.

We're proud of the much-needed upgrades to our 40-year-old headquarters facility. We have a new child care center that just opened, and we'll be opening a new cafeteria and a new auditorium any day now.

And, you know, it's rewarding to know that we're leaving the agency substantially better than we found it in 2001.

Mr. Morales: That's great. What does the future hold for the U.S. Department of Housing and Urban Development? We will ask Roy Bernardi, deputy secretary at HUD, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host Albert Morales, and this morning's conversation is with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. Also joining us in our conversation from IBM is Steve Sieke.

Roy, despite the importance of the housing industry to the American economy, it can still take 10 to 25 years for new housing technology to achieve full penetration in the marketplace. Could you tell us about the Partnership for Advancing Technology in Housing, or PATH? How does PATH accelerate the adoption of housing technologies and promote innovation?

Mr. Bernardi: Well, the PATH homes are energy-efficient. They're durable and disaster-efficient. HUD is partnering with the private sectors to get markets penetration about this important issue. We're also working with organizations, such as the National Association of Home Builders, and private developers throughout the country to reduce the timeframe to five years. We're going to continue to encourage the building and buying community to adopt these new technologies. We all want to make sure that we do this as efficiently and effectively as possible.

Mr. Sieke: Roy, collaboration is a big theme in government these days. How do you collaborate with other federal agencies? And what kinds of other partnerships are you developing now to improve operations or outcomes at HUD? And how many of these partnerships change over time?

Mr. Bernardi: Well, we work by means of interagency agreements with several agencies. For example, Department of Transportation, subprime mortgage crises; Environmental Protection Agency, lead and other contamination abatement in homes; and with the Department of Homeland Security, disaster relief, housing assistance; Health and Human Services, as I mentioned earlier, that income verification system that was so helpful to us in reducing our erroneous payments.

We participate in collaborations established by Executive Order. As an example, the President's Committee for People with Intellectual Disabilities, the President's Adult Education Working Group, the Interagency Council on the Homeless.

Mr. Sieke: Roy, in an earlier segment you talked about the limited staff resources that you're dealing with now and the fact that approximately 60 percent of HUD's workforce will be eligible to retire by Fiscal Year 2009. How are you handling the pending retirement wave? And what is HUD doing to address staff imbalances and other human capital challenges that have to be you have to be facing that this point?

Mr. Bernardi: Yeah, we mentioned earlier, Steve, we're committed to making sure that we have a succession plan that's going to keep the agency not only viable, but vibrant and progressive. Key elements of the plan are a strong strategic recruiting initiative and training and development of the current employees. And when it comes to training and development, Secretary Jackson launched a HUD-wide initiative in 2006, requiring all HUD managers to prepare individual annual training plans for each of their employees. For the first time, this gave us the ability to see all the training needs across the entire department and prioritize our training. You know, we would like to be able to, obviously, train everyone all of the time, but resources obviously don't provide that.

So we're working actively making sure that when it comes to our younger employees that we have a student loan repayment program and we try to accelerate promotions. We try to backfill with folks that have been there, like the senior executive service, our SESes, when they retire that's a substantial loss. But we have folks in the GS system that are 13s, 14s, and 15s, and you just want to make sure. I was always cognizant of this when I was mayor of Syracuse, and I've done this as the assistant secretary for community planning and development and try to do it in my position as deputy secretary, is when we know that someone -- I try to tell our folks, let us know when you're going to be leaving, and then to try to put person or persons with that individual for hopefully a significant period of time so they can fill that gap quickly.

Mr. Morales: So, Roy, transitioning now to the future, what are some of the major opportunities and challenges your organization will encounter? And how do you envision your department will evolve over the next, let's say, three to five years? And if I may be so bold as to ask, what advice might you give the next administration in facing these challenges head on?

Mr. Bernardi: Well, our goal during this transition year is to leave the agency better prepared to deliver its services than when we arrived. In fact, I have weekly meetings every Monday morning with the assistant secretaries and the directors of the various programs, and telling them that what we really need to do during this transition is make sure that we have career employees who know the accomplishments, know where we are, and that these people will serve with the administration coming in as the conduit, if you will, so that nothing is lost and what we've been able to accomplish doesn't miss a beat.

The ultimate measure of the program changes made by this administration is that for the first time, as I mentioned, since '94, you know, we're off that high-risk list. And how we got off that, we need to make sure that we transition that to the new folks coming in.

To sum up the changes, we need to -- we just need to consolidate with the new folks coming in as to where we are and the successes that we had, and also let them know the challenges that are still there.

Mr. Morales: Sure, sure. Given your dedication to public service, both as an elected official and now as a leader at the federal level, what advice would you give to a person who's out there perhaps considering a career in public service either at a local level or at a federal level?

Mr. Bernardi: Well, as I mentioned at the outset, you know, people will do something in life for many different reasons. Hopefully, because they enjoy it. I would tell anyone out there if you don't enjoy what you do, then run away from it. You have to like what you do, just like your folks sitting here.

And you can make a lot of money. You're not going to do it in government. I tell folks that, tell young folks that especially. But there's also something about, you know, an accomplishment, what makes you tick inside. And I think all of us, regardless of where we come from, regardless of our standing, and regardless of our economic situation, when you're able to help -- that's the word -- when you're able to help someone, it makes you feel good. That's what public service is all about, you're helping people.

And there's many different ways in which you can do that. I would say to anyone that would want to get into public service at the local level, obviously you're -- "local" means you're right there on the ground. You know, you're face-to-face with the people that you're helping. That's why the 82 offices we have around the country, I love visiting them and I love talking to those folks because they're right there with the folks in the towns and villages and counties, you know, providing the vouchers, providing the economic assistance, providing the infrastructure needs.

And, you know, at the end of the day, every day, you can say to yourself I've helped someone. I've made someone who needs help, their life much easier. And many of the agencies in the federal government, but I'm particularly proud and biased, if you will, to HUD. I mean, we provide housing. We provide such an important part of a person's life to people who couldn't afford it, safe, decent, clean, affordable housing.

And if you want to feel good at the end of the day and at the end of your career I was at a retirement party yesterday for a gentleman who was head of the CDBG program for the last 17 years at HUD in the Department of Community Planning and Development. And all the retirements that I attend, this one included, how pleased they are when their career is over that they were really able to make a difference.

So I would say to everyone it's the highest calling, after your family, the highest calling to help other people.

Mr. Morales: That's a wonderful perspective and great advice. We have reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Steve and I would like to thank you for your dedicated service to our country, both as mayor of Syracuse and now as deputy secretary at HUD.

Mr. Bernardi: If I may, Al and Steve, I want to thank you as well for this time. You know, what you're doing here is you're getting information out to people. And hopefully, we're -- somebody listening out there will be able to take some of this and help someone else. So again, Al and Steve, thank you and a pleasure to be with you.

Mr. Morales: Thank you very much. This has been The Business of Government Hour, featuring a conversation with Roy Bernardi, deputy secretary at the U.S. Department of Housing and Urban Development. My co-host has been Steve Sieke, director in IBM's Federal Civilian Industry 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.

Originally Broadcast October 27, 2007s

Washington, D.C.

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.

Healthy and productive individuals, families and communities are the very foundation of the nation's present and future security and prosperity. The Administration for Children and Families within the U.S. Health and Human Services Department partners with state and local governments, for-profits and nonprofit organizations, faith- and community-based organizations and Native American tribes to design, administer and promote programs that strengthen children, families and communities.

With us this morning to discuss ACF's efforts is our special guest, Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families within the U.S. Department of Health and Human Services.

Good morning, Curt.

Mr. Coy: Good morning.

Mr. Morales: Also joining us in our conversation is Tom Romeo, IBM's general government industry leader.

Good morning, Tom.

Mr. Romeo: Good morning, Al.

Mr. Morales: Curt, let's start by talking about the Administration for Children and Families, otherwise known as ACF. Could you share with us a sense of the history, mission and activities of your organization, and how it supports the overall mission at HHS?

Mr. Coy: I most certainly will, Al. We like to think of ourselves at ACF as the social services of HHS, the Department of Health and Human Services. We're the human services piece of the HHS. Back in 1991, ACF was two different agencies, and they merged into one organization. And since then, as your introduction alluded to, we're principally responsible for those federal programs that promote the economic and social well-being of families and children and individuals.

We have a number of relatively well-known programs, one of which is the Temporary Assistance for Needy Families, commonly known as welfare, and other things like child care, child support, child support enforcement, community services. And we also have subagencies like the Administration for Native Americans and the Administration for Developmentally Disabled folks.

Mr. Morales: Now, this is certainly a very broad mission. So can you give us a sense of scale of the organization, how is ACF organized, the size of its budget, number of full-time employees and its geographic footprint?

Mr. Coy: In round numbers, ACF has about 1,250 federal employees, and a probably close to equal number of contractors, maybe a few less. And we are split essentially equally between Washington, D.C., or the central office, and 10 regional offices throughout the country. Depending on how you count them, about 120 different programs, social programs that we administer. And they're made up of all kind of programs; discretionary, mandatory, entitlement programs, research and development. Every kind of grant-type program there is, we manage at ACF.

Our current budget is somewhere around $47 billion, which makes ACF the second largest agency within the Department of Health and Human Services after Medicare and Medicaid folks within HHS. Our budget, just to put in some degree of context, is bigger than the National Institutes for Health, the Centers for Disease Control and Prevention and the Health Resources Services Administration combined.

Mr. Morales: That's a lot of money and programs to manage with a seemingly modest number of resources.

Mr. Coy: We like to pride ourselves on being able to manage these programs. In reality, ACF is about 2.1 percent of the entire HHS population, but we're managing probably more programs and more dollars than any agency within HHS.

Mr. Romeo: Curt, thanks for providing us with that sense of the organization. Perhaps now you could tell us a little bit more about your area and specific role within ACF. What are your specific responsibilities and duties as the Deputy Assistant Secretary for Administration? And maybe you could tell us a little bit about the areas under your purview.

Mr. Coy: I sure will, Tom. The Deputy Assistant Secretary for Administration, for all intents and purposes, is the chief operating officer of the agency. And you can well imagine all of those sorts of things that come underneath that: resource management, human resources, acquisition, contracts. I also wear the hat of CIO for the Administration for Children and Families. I also wear the hat of CFO, chief financial officer, and the chief grants officer. It's one of the largest grant-making agencies within the federal government. Within my specific office, we have about 220 folks. That's about 100 people here in Washington, D.C. and about 120 in the 10 regional offices that we have throughout the country.

Mr. Romeo: Regarding your responsibilities and duties, what are the top three challenges that you face in your position, and how do you address those challenges?

Mr. Coy: I don't know if these will be in order, but they're the ones that come to mind: first and foremost is the human resource or human capital, and the resource management of how we do our work in ACF. And that's a combination of factors of federal employees, contractor employees, support employees and so on and so forth. ACF's workforce, the demographics of that workforce, is clearly a challenge. It is a maturing workforce. And so getting in good folks and doing good succession planning is a real big challenge.

Most certainly is grants. But we do a lot of grants in ACF, and being able to mange that function effectively, to be good stewards of the taxpayer money, is critically important. On the other side of that fence is the chief financial officer or financial role that I play in ACF. And, again, that's ensuring that we are good stewards of the taxpayer money. But on a practical level, that's the CFO audit, that's all of those things that go with being the CFO.

That's three. And I would add probably two others: the technology challenge. That clearly is critically important as we go down the road and start looking at how we best utilize both our people and our contractors in our systems work.

And then finally, probably one that's more near-term in the next 18 months to two years is sort of stability. And what I mean by that is clearly, the election cycle is upon us, and looking at those challenges as we go down the road and ensuring that we have a stable senior leadership within ACF, and that stable leadership is comprised of both political appointees and career senior managers.

Mr. Morales: Curt, you and I have had the pleasure about 10 years ago of crossing paths, and I know you have a very interesting background. So I'm curious, can you describe for our listeners your career path and how you got started in your career?

Mr. Coy: It's probably one of the stranger career paths. I started out as an enlisted person in the Air Force. For some strange reason, I was accepted into the Naval Academy, graduated from there. Spent the next 20-some years in the Navy as a naval officer; first as a, if you will, a ship driver, and then the last 10 or 15 years as a supply corps officer. Supply corps officers in the Navy are generally considered the business and financial managers of the Navy.

After that, I went to work for Coopers & Lybrand, which then morphed into PricewaterhouseCoopers. I was there for about seven years. I was hired in 2000, in the fall of 2000 to be the director of the HHS Program Support Center, which is about a $400 million fee-for-service organization.

Two years later, I was asked by the new Secretary, then-Secretary Thompson, to become the Deputy Assistant Secretary over at ACF.

So that's the condensed version.

Mr. Morales: That's the Reader's Digest version.

So with all these broad ranges of experience, how has your career, both in the Navy and later on in the private sector, prepared you for your current leadership role and shaped your management style and approach?

Mr. Coy: I don't think any one thing shapes or makes a person what they are now. But there's a lot of background that goes with that. Folks have asked me similar-type questions. My background of being a naval officer is accountability. And that accountability leads to lots of other things.

Probably one of the characteristics that makes a good leader is curiosity. Why do these things work this way? Why do people do things the way they do it? And then probably, I've given a number of lectures at HHS about leadership, and one of the things I tell people is leadership is about taking care of folks. And there is a difference between management and leadership. And I often tell people that management is managing things and leadership is leading people.

Mr. Morales: Great. Thank you.

How is ACF integrating budget and performance information? We will ask Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families. Also joining us in our conversation is Tom Romeo, general government industry leader for IBM.

Curt, let's talk for a moment about the President's Management Agenda, or the PMA. In the last OMB scorecard, about half of the federal agencies, including your department within HHS, received a red rating in financial performance. Could you tell us from your perspective why this is such a challenging area for federal agencies? And second, what has your agency done to contribute to your department's progress and improvement over the last year, so much so that OMB has provided a green rating in progress?

Mr. Coy: Well, that's a long question and an interesting one. In ACF, we've been very successful in the PMA overall. Each quarterly progress rating since 2003, ACF has gotten about 105 out of 109 green progress rating.

With respect to the financial management challenges, just set the stage very, very quickly. The Department of Health and Human Resources is 65,000 employees. In round numbers, their net cost of operations is about $623 billion. HHS also has about 12 operating divisions, of which ACF is one of them, National Institutes for Health is another, and so on and so forth, and about five major accounting centers.

HHS has been working very, very hard to implement a systems-oriented approach to financial management. We have a system called the Unified Financial Management System, but having said what I said about HHS and their budget and the number of divisions, you could say the same thing about the Department of Defense and Homeland Security. The complexity of these organizations is clearly a challenge.

What PMA does is they assign scorecard ratings of red, yellow, and green. And then they divide that further every quarter into progress ratings and status ratings. Right now, HHS is green in progress and red in status. The red in status is in large part due that we're not finished with our UFMS implementation.

The challenge of implementing the state-of-the-art sort of systems environment is exasperated by the size and complexity of what HHS does, or the other federal agencies that are red. But the good news is, as you look at HHS, the progress ratings -- and what progress does is says you're moving toward and doing the right things. And what's exciting about that is HHS has been receiving these green progress ratings. In other words, we're hitting the milestones.

So financial management is not just the CFO audit. It's also looking at how do we develop and adapt a world class financial management system and practices, and use that information on a daily, weekly, and monthly basis.

Mr. Morales: Now, could you talk a little bit about budget and good practices? Budget and performance integration lies at the heart of ensuring both strategic allocation and the efficient use of funds. Many organizations are working to implement the budget and performance integration aspects of the PMA.

But can you tell us about your agency's efforts to get to green and sustain for the budgeting and performance integration? And how has your organization expanded the use of financial data to inform the management decision-making process?

Mr. Coy: Our President's Management Agenda scorecard with respect to budget and performance integration is we have a green in status and we have a green in progress.

First and foremost is probably our PART success. And the PART is the Program Assessment Rating Tool. We are also using financial data to inform management on a number of things, such that we turn things around and use financial data to make decisions.

And I'll give you two or three examples. We use financial data to look at or improve program oversight, debt collection, implement actions resulting in cost savings to the agency. And some of these things are as mundane as prioritizing site visits to grantees, decreasing the number of open or active grants.

I will tell you, in ACF, we have a real success story with respect to grant audits. We've closed over 7,000 grant audits in the last three or four years. We've made a concerted effort to use that financial data to close out a number of our grant audits. We also improved our single audit compliance supplements and a number of our internal controls. Our Child Support Enforcement folks use the information out of UFMS almost on a daily and weekly basis to do forecasting, to take a look at actual expenditures, to take a look at how we prioritize conference spending and travel, and the list goes on and on and on.

The good news is, in all honesty, the use of financial information in today's government is critical. And I don't know that we're proud that we're using it. It's a practical application of what we have to do. And we have to do that because we don't have the kind of people -- numbers -- that we used to.

In the good old days, if you will, it was kind of fun and interesting and easy to have people with spreadsheets and keeping track of all of these things. And we don't have that luxury anymore. But again, it goes back to technology making things happen a little bit better and faster.

Mr. Morales: Now, Curt, earlier in describing your career, you used the word "accountability." So I find it interesting that your organization has received an unqualified opinion on its principal financial statements for the eighth consecutive year, I believe, which clearly demonstrates a pattern of financial accountability. What is the significance of having this clean opinion? And what are the keys to successfully achieving a timely and clean opinion?

Mr. Coy: Well, first, the significance to me is it clearly shows that we're working hard to be good stewards of the taxpayer money. It's not just simply making sure all the numbers are in the right columns or in the right categories. The CFO audit has become so much more than that. It shows that we're a professional organization, that we take pride in what we do, and we stay on these things.

And that's probably the next thing you have to remember: you got to keep up with this year-round. This is not a two-week drill at the end of the fiscal year. This is something that you do over and over and over again throughout the entire year. And probably most importantly is we've been -- knock on wood -- pretty fortunate to have some very, very sharp folks working on this. I think the success of any program in any organization, whether it's in the private sector or public sector, is dependent upon having good folks. And we have some incredibly sharp people that are doing these things, and they're incredibly dedicated.

Mr. Romeo: Curt, part of that accountability is around improper payments. And agencies are required to annually review programs to identify those susceptible to significant improper payments. Improper payments can include payments made in the wrong amount, to an ineligible recipient, or improperly used by the recipient.

Can you elaborate a little bit on the initiatives and strategies that the department has employed to manage and reduce improper payments? Tell us a little bit about the progress you've made. I think the progress you've made in the other areas is very impressive. And then talk a little bit about how much of a challenge that effort still presents to your agency.

Mr. Coy: In HHS, we have about seven programs that are tracked by the Department or OMB, the Office of Management and Budget. Of those seven programs, Medicare and SCHIP, and so on are some of the others -- but ACF owns four of them; the TANF program, which is welfare, Temporary Assistance for Needy Families, our child care program, our foster care program, and our Head Start program. And we also have an improper payments initiative called PARIS. I'm going to talk about that in a few minutes as well.

But the fact of the matter is these four programs are integral to the Department of Health and Human Services' improper payments initiative. And each one presents a different challenge. For example, for the Temporary Assistance to Needy Families, or welfare, that's principally a block grant program that goes out to states. The federal government, for all intents and purposes, does some oversight of that program. But it's left principally up to the states to develop their own welfare programs. That was part of welfare reform back in 1996, and was reinforced again by the reauthorization just last year.

When you say improper payments, we shouldn't be giving money out to the wrong people in the wrong amounts of money. For example, TANF, each state has different eligibility requirements. And so do you measure those that are ineligible, do you measure how many improper payments go to people that aren't supposed to be getting it? Just coming up with those kind of small nuances is critically challenging, if you will.

On the flip side of that is the Head Start program, which is a lot more discretionary program. And what we've done is we've developed an error rate, and we're reporting these things in our budget on a yearly basis. And so -- in each one of these things, they're each done separately.

Now, we've also done about 7 to 15, depending on how you count it, risk assessments of programs that we also have. And we are very serious about it. ACF deserves a lot of credit, those program folks deserve a lot of credit for coming up with strategies to implement the 2002 law.

Mr. Romeo: I can see where, with as many programs as the ACF oversees, it could be a real challenge to track payments across all of those and ensure the correct payments, especially with the number of people that you have as employees.

Mr. Coy: Well, it really is a challenge, because each of these four programs are entirely different, so you can't measure improper payments in Head Start the same way you might measure improper payments in the welfare program. And then there is the child care program and the foster care program. And they're all different size budgets, but they all go out and they're managed by states. The Head Start program is managed by Head Start grantees. And so you can imagine the rolling effect of this.

But what's also interesting is watching the end users of this improper payments initiative and that cultural change, because their first instinct was, "We don't want to have anything to do with this. It's not my problem. That's a federal government problem." Then it went to, "Well, I really don't want anybody to know my error rate." "Who wants to be told what your error rate is? I don't care if it's 1 percent or 50 percent. Nobody wants to be told that you have an error rate."

And that cultural shift is changing now, such that you see things, the nuances of seeing state and local websites that say, "And we're doing these things to support the President's Management Agenda." Or "We're doing these things," maybe not necessarily to support it, but in response to the President's Management Agenda, or in response to the Improper Payments Act.

And we've taken it from, if you will, an environment, I think anyway, that is negative in nature, such that it's now looked at in terms of, "This is critically important." It doesn't mean that you're going to get back all of this money. It doesn't mean that there is going to be billions of dollars that gets poured back into the federal treasury. But what it means is that we, as good stewards of the taxpayer, both at the federal level and at the state and the grantee level, are paying attention to this. And I think that's really the cultural change that one's looking for.

Mr. Romeo: I think the effective application of those dollars to the people they're intended for is a very positive outcome of the programs that you're running.

Mr. Coy: Well, if you look at any one of these significant Improper Payments initiatives, for every dollar that is not spent in the wrong areas is another dollar that can be spent on a Head Start grantee or can be spent on the state's welfare system, can be spent in child care and foster care.

Mr. Romeo: One other area of assessment is the PART tool. So in 2003, the Office of Management and Budget initiated its Program Assessment Rating Tool, commonly referred to as PART. It places greater emphasis on results and outcomes rather than processes and outputs. Can you tell us a little bit about how your agency has performed under the PART? And how has PART enhanced your agency's performance management efforts?

Mr. Coy: PART is rather interesting, and it started out rather slow. And the concept is, "We're not going to just give you money. And to fix your program, we're going to have to give you more money."

What the Program Assessment Rating Tool tries to do is take a look at the intent of the program, and is the program successful with respect to the intent of that program. And so they break PART down into about 25 questions and its four different areas, with the first and fourth section the most important. And then they rate each program as effective, moderately effective, adequate, ineffective, or results not demonstrated.

In ACF, we have had the absolute pleasure of being, if you will, "PARTed" 27 times in the last several years. And we've gotten the following ratings: three were effective, that's the highest score you can get. Eight were moderately effective; that's, if you will, a, b, c, that's the b of things. Seven were adequate. Nine were results not demonstrated. And none of them were ineffective.

We have a great deal of pride that our Child Support Enforcement program scored about 90 percent, which is the highest score for any social services program within the federal government, period, bar none. About 98 percent of ACS performance measures track outcomes rather than outputs. While it may sound like a nuanced response, measuring outcomes instead of how many widgets are you producing with this money and so on, but what is it that you're actually getting for this program, is critically important. And we've seen this success translate into green PMA scores in status and progress.

Our PART team within ACF recently got a Secretary's Distinguished Honor Award. And the other good news is our PART scores are improving. Over the course of 2002 through 2005, we had about 57 percent of our programs that were evaluated rated as results not demonstrated. For the period of 2006 and 2007, only about 12 percent of those scores were results not demonstrated.

So what it shows is two things: first is, there is a little bit of science that goes into the rating tool. But it also points out that you may need to make changes into your program to get the results that you're looking for. And we've used this tool, and now we've inculcated it into our budget and into all of our budget documentations.

Mr. Morales: Curt, we only have about another minute left in this segment. But I do want to ask you about grants management. The grants management line of business seeks to establish a government-wide solution to support the end-to-end grants management activities.

Now, earlier, you mentioned that ACF is perhaps the second largest of the grant-making agencies within the federal government, just behind CMS. Could you tell us about your agency's efforts to become a grants line of management shared services provider within the federal government?

Mr. Coy: We are one of three agencies selected by the Office of Management and Budget to be a Center of Excellence for grant systems processing.

A couple of years ago, in the essence of time here, OMB asked agencies and the private sector to submit proposals to be a Center of Excellence. We did. We were successful. And so now we have about eight different partner agencies. We process about $59 billion in grants through our system alone.

The net operating costs remain at $5 to $6 million a year, which is, if you go look at some of the other grant systems in the federal government, about 10 times less than them. And we got into it for in large part selfish reasons. As you indicated, we're one of the largest grant-making organizations in the federal government. And one could even argue that the Medicaid, Medicare services-type things aren't pure grants as we know them as grants.

We were the big dog, if you will, with respect to the number of grants that were put out -- both in dollars principally. And we thought we had a pretty good system. We wanted to become a Center of Excellence so we wouldn't have to go to anybody else. But the key concepts of the whole Center of Excellence that we've inculcated into ACF is, we look at it as a partnership with our folks that are part of us. It's a shared cost. The overall operating costs are about $5 or $6 million. If you do half of the grant transactions through there, then you pay half the cost.

ACF used to pay the full freight of that $5 or $6 million. Now we pay about 60 percent of it. That money that is physically saved goes back into any number of things, whether it be more grants, whether it be more training opportunities, whether it be more travel opportunities. And so being one of the Centers of Excellence has been really successful for us.

And we've been recognized with a number of awards. We got just this past fall a President's Quality Award, which was HHS' very first President's Quality Award. We've also gotten just recently the Civilian Leadership in Enterprise Architecture Award, presented by the E-Gov Institute.

We were also given the National Grants Contract Management Association Award for Electronic Solutions just this year in April. So we're pretty excited about that.

Mr. Morales: Great, excellent.

What about the Faith-based and Community Initiative? We will ask Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families.

Also joining us in our conversation from IBM is Tom Romeo.

Curt, discretionary grants permit the federal government to exercise judgment or discretion in selecting the applicant or recipient organization through a competitive grant process. In the last fiscal year, the agency provided substantial discretionary grants awards. Could you tell us about the agency's effort to ensure efficiency and manage or reduce risk in this area?

Mr. Coy: I sure can. Let me give you the broad picture. In round numbers, ACF awards about 7,700 grants a year. That's about 20,000 transactions when you add in all of the MODs and this and thats to them, for a total cost of about $47 billion of grants. Of those, about 3,000 of those are discretionary grants, and about 8,800 transactions, worth about $7.5 billion.

And we have a very structured and rigid process with respect to providing discretionary grants. And it all starts with the program announcement. In the contracts world, that's called the Request for Proposal. By the time we get it on the street, it has been vetted by a number of folks. And the program announcement clearly indicates what you're looking for, so that it's critically important that this program announcement be very clear and hopefully very crisp.

In almost every case, we have panels of outside civilians, non-feds, that sit on the panels and evaluate these proposals. And we come up with a rating and ranking list based upon those evaluations. And so they're independent panels overseen by the feds. And so the panel is done. We normalize those scores across panels. And you sort of draw the line on how much money do you have for that particular program. And you draw the line and everybody below the line is not funded, and everybody above the line is funded.

Those grants that we think we're going to fund, we make sure that perhaps there is a geographic distribution that's there. You don't want to have two highly rated grant proposals but they're right next door to each other in the same city, state. You want to try and spread opportunities out across geographic areas.

You also take a look at those grants or proposed grantees and see how they're performing. There are some grantees that are on watch lists because of audits and so on and so forth. So we take a look at it from that aspect.

Once we get done with all of that, that list is then vetted through the grants officers. So the program staff puts it together. Once those two pieces come together, the program staff and the grants staff, and that list is finally established, it comes to me. As the chief grants officer, I take a look at it. Then it goes to the Assistant Secretary. The Assistant Secretary looks at it. And then once the Assistant Secretary says, "Yes, check," then those grants are sent over to the department for sort of one last vetting before we actually make the grants.

Mr. Romeo: Curt, President Bush's Faith-based and Community Initiative represents a new approach to government's role in helping those in need, through its oversight and implementation of key elements of the initiatives agenda. Would you elaborate on how ACF has significantly expanded the number of faith-based communities partnering with HHS?

Mr. Coy: Well, you're hitting on all of the ACF milestones here. ACF is one of the leaders with respect to the President's Faith-Based and Community Initiative programs. And we have a whole wide variety of them, ranging from the Mentoring Children of Prisoners, which the President spoke about in his State of the Union address a couple of years ago, the Healthy Marriage Initiative, the Fatherhood Initiative, the Compassion Capital Fund.

And all of these programs are meant to further the President's Faith-Based and Community Initiative program. And they do it by a number of different areas. Our Compassion Capital Fund initiative, if you will, is sort of a two-part initiative. One is to set up intermediary organizations to help these grassroots, faith-based and community associations apply for federal grants. And so we've been very successful in awarding grants to these intermediary organizations whose sole function is to help those organizations do just that.

We also have another component of the Compassion Capital Fund. We call them mini-grants. And they are $50,000 one-time grants to help a faith-based or community organization in any number of things. And we evaluate those. We started out with, in round numbers, about 52 of them. And in this last year, we gave out about 310. And they range from things -- simple examples of, "Gee whiz, I really could use a new van to get folks from here to there. And that would help my faith-based and community organization do this and that. So I need $47,000 or whatever the number is to do that." "I need a new computer system and printer to be able to print up flyers and so on, so I can do outreach to these folks."

Whatever you might imagine $50,000 might account for, people apply -- and we've given out close to 1,000 of these $50,000 grants, which -- when you think of the federal government, they're worth billions and millions of dollars and hundreds of thousands of dollars. But $50,000 will go a long ways to help one of these organizations. And that might be just the thing that kind of kicks them over the top when it comes to that. So we're very proud of that type of situation.

Our Mentoring Children of Prisoners, as I alluded to, what that does is it gives grants to community organizations that provide children and youth of incarcerated parents with mentors. And we're looking at these kinds of things and seeing very, very positive results when it comes to having good mentors to folks who have kids but are incarcerated.

As well, the Deficit Reduction Act, or TANF, which was reauthorized last year, included about $150 million to support programs that were designed to help couples form and sustain healthy marriages. And so many of these kinds of grants with respect to that are faith-based and community-type grants.

But one of the things that we try not to do is we don't discriminate one from another. What we are trying to do is make sure that faith-based organizations can apply for federal funds just like anybody else. And that's the thrust of what the President's initiative of faith-based is.

So our coalition partners include local governments. They include civic groups; they include churches. They include ethnic and immigrant groups, women's organizations, labor organizations, immigration organizations, community health providers, faith-based organizations, nonprofit social services. And so it's a large encompassing program that we've taken a great deal of pride on its success in the last several years.

Mr. Romeo: Curt, another area that your department has made progress in is improving its real property asset management and rightsizing your asset inventory. Would you talk about how your agency has contributed to the Department's efforts in this area?

Mr. Coy: Well, the Department has a large real property inventory. Under the leadership of the Assistant Secretary Joe Ellis, we have really come a long ways in managing this property. If you sort of think about it, we have the Indian Health Service and the Department of Health and Human Services. They have anything from hospitals to warehouses to all kinds of things.

We're developing a computer-based organization that tracks leased property and owned property by the government, and starting to look at how we manage this property in a much better fashion. Within ACF, we're relatively easy. So I would like to say that we contributed significantly to HHS. But we don't own any buildings. We lease our space. And so our input to real property is principally ensuring that our leases are input into the database, that our leases conform to the kinds of things that the Assistant Secretary has said we need to conform to, as well as OMB.

Mr. Romeo: One of your many hats in the agency is also as the information technology portfolio lead. What are some of the key IT management challenges that ACF faces? And what has your agency done to enhance its IT capabilities to meet such challenges?

Mr. Coy: Well, probably, as I alluded to earlier, the thing that consumes most of our time in the IT world is our grant system Center of Excellence. And we have a number of partners, as you might imagine, and managing that system has become increasingly important.

As CIO, we also are looking at our IT infrastructure. And the IT infrastructure is servers and e-mail and just the business of doing things on a daily basis. ACF has joined a number of other HHS agencies in a shared service platform, it's called the Information Technology Service Center, ITSC, in the hopes of putting together those scale of services, such that we're not managing all of these servers and the nuances of those kinds of things.

Probably the next challenge is the Unified Financial Management System. We implemented that just this past year. There are still things that we need to get the bugs worked out of. And so that consumes time and energy and resources.

And quite frankly, as you look at ACF's budget with respect to discretionary funding, we have been, for all intents and purposes, flatlined for the last several years. What does that mean? We're absorbing pay raises, we're absorbing the cost of increased server costs, we're absorbing the costs of increased IT. And so you get to a point where you have to make some decisions on -- while you would like to do this, what's the business case to be able to go out and get that multimillion-dollar server, for example.

Mr. Morales: Curt, just to change tracks here a little bit. With such a critical and broad mission, collaboration must be critical to your success. What kinds of partnerships are you developing now to improve operations or outcomes at ACF? And how many of these partnerships change over time?

Mr. Coy: Well, to answer your last question first, they change all the time. But one of the things -- and it's most interesting having the CIO role, the CFO role, and the chief grants officer role, and Deputy Assistant Secretary role, because what you're looking at is technology is allowing and the drive to improve business services and government efficiency. It has to. So it's forcing a change in the way organizational boundaries are looked at.

Technology is clearly -- simple things like e-mail. It used to be that you'd take a memo from here to there, and you'd have a runner that would take it to the next building to the -- and now you can communicate almost instantaneously. The grant Center of Excellence that we have is probably an excellent example on how multiple agencies have decided that they have a common interest that's best served by going outside their agency. But they still need to ensure that their mission-critical services are done, and they're done preferably and hopefully at a lower cost.

And so the key to working on this, and a reason this line of business is succeeding for us anyway, is that the vision has to be structured not just on ACF, but the vision has to be structured on what's the bigger picture. And the vision of, in reality, our grant system Center of Excellence is to get grants out the door in a timely and cost-effective manner. It's not to get grants out the door. The way ACF does it, in a timely and in an effective manner. And so these kinds of things become the catalyst as you're working across different agencies.

But the fact of the matter is, you can say technology and you can say financing, you can say all of those things. But you're never going to avoid that interpersonal relationship, the working with other senior staff across agencies. And once you create that bond of that senior staff in fact developing common goals and visions, they quickly become the primary agents of any transformation that you're talking about. And they redefine where those organizational boundaries really are.

I would suggest that across the board, the example that we've seen with our Center of Excellence for the grant system has been a very successful tool. It's been a very collaborative effort, and it's actually been sort of fun.

Mr. Morales: What does the future hold for the Administration for Children and Families?

We will ask Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families.

Also joining us in our conversation is Tom Romeo, IBM's general government industry leader.

Curt, I'd like to transition now and look towards the future. What are some of the major opportunities and challenges your agency will encounter in the future, and how do you envision your office will evolve over the next, say, three to five years to meet these challenges?

Mr. Coy: Well, I think our office is evolving a lot. And that's principally as a result of a maturing workforce. You can call it what you like, but the fact is, retirees are on the rise within the federal government. And so how do we handle that kind of succession planning as you lay out training and lay out hiring schemes and so on and so forth. So that's probably the biggest challenge is we're looking at how do we in fact ensure that our programs are done and done properly.

Technology has to be one of those challenges. It also has to be the opportunity that technology is going to allow us to do things better, faster, hopefully more inexpensively, and to be able to leverage our assets across the board.

And then finally, strategic hiring. How do we bring in the right people? So we have a whole strategic hiring process that we have. As we transition to next year and the year after and the year after, I would suggest that in the near term, those are the kinds of things that keep me awake at night.

Mr. Romeo: Two of those points were about your human resources. How do you ensure that your employees have the appropriate training and skills? And what is the organization doing to ensure that it has the right staff mix to meet the upcoming challenges?

Mr. Coy: Well, we're doing two or three things. We have a very robust training plan. In the past several years, we've seen well over 90 percent of ACF staff participating in some degree of training. And that can be extensive training. It can be sort of online training for computer usages, but we've been very aggressive in trying to ensure that all staff have training opportunities.

We also have taken a look at our training funds. We've fenced training funds. And we've made training part of all of our SES performance contracts. Training's important, and we're going to measure it. Senior staff are being held accountable for those kinds of training things. And so we're making that accountability in training on ensuring that we have the skill set.

We're trying to stand back and look at our hiring from a more strategic sense. And what I mean by that is in the days of past, if you will, if a Head Start program person left, then you would go look for another Head Start program person. But in reality what you want is somebody who could read and write well, somebody who can do analysis and strategic planning and so on and so forth. And what are those kinds of characteristics that we're looking for in our entry level workforce as we move up the whole career path that we have.

And so when you look at the human capital aspect of ACF, we've been very successful in retaining good folks. We've been very successful, and recognized for it. So we're looking at the kinds of skill sets that we're looking at when we hire people; once we have them, to ensure that we have training opportunities; and in some cases, training opportunities at the expense of other things, at the expense of perhaps travel, and perhaps even at the expense of hiring another person. Because for every $100,000 that you put into the travel kitty, in round numbers, that's a person that you're not hiring.

Mr. Romeo: Are there special steps taken to attract and maintain high quality technical and professional resources?

Mr. Coy: Well, one of the things that we're trying to do is a strategic hiring process. And we've done is we've tried to lay out and look at our workforce somewhat more strategically.

If you look at the number of occupational codes or series that the Administration for Children and Families have, in round numbers, there are four occupational codes or series that account for over 82 percent of the staff at ACF. So if you manage those four occupational series and you do it well, the other 18 percent you can do on a onesie-twosie basis, on an as-needed basis as you go down the path.

So we've created hiring schemes for those four occupational series, and gone out nationwide and advertised for those jobs. And folks come in and they apply for these jobs. And we have panels from all of the programs that come in and interview them. And so then we end up ranking and rating these folks. And we may hire 20 of them at a pop, or 30 of them, depending on what our budget looks like and so on and so forth. And there is a hope and the intent that we can almost take any one of these 20 or 15 or 30 folks and plug them into almost any program office within the Administration for Children and Families and they'll be successful, because they have the requisite skills to be able to do that.

How do we keep and attract these folks? What we've had from entrance interviews as well as feedback from our process is -- we have things like a student loan program. We're one of the few operating divisions within the Department that has a student loan reimbursement program. We have a tuition assistance program. We have a leadership development program that is designed to develop high-performing GS-12s, and 13s, and 14s, and 15s.

And then finally, we have developed a culture, if you will, that we only hire -- for the most part, there are exceptions like anything, but for the most part, we only hire at the 9, 11, 12 level. When we need to advertise for a GS-13, 14, or 15, we do that internally. And it forces two or three things. It forces that manager out there to say, "Wait a minute. You're not going to get your next GS-14 replacement off the street. It's going to be from that pool of folks that you see right now. So you better make sure that those folks are getting the training and the opportunities that they need." So we have a very robust program when it comes to those kinds of things.

Mr. Morales: Now, Curt, earlier you mentioned the pending retirement wave. So specifically how are you handling this situation, and what are you doing to ensure that the organization has the right mix as you move into these years?

Mr. Coy: Our workforce has shrunk about 10 percent over the past five years. We've often reported -- as you look at the demographics and the statistics -- and I do -- but ACF remains -- as you look at the Department of Health and Human Services as a whole, we're more diverse, we're more educated, and we're more experienced than HHS. And those are all good news things.

The bad news is that in the next five years, about 50 percent of our non-supervisors will be eligible for retirement. That's almost double what the population of HHS is. Within the next five years, 75 percent of ACF supervisors will be retirement-eligible. That's again way above any of the norms that you even read about in HHS or in the federal government as a whole.

And so we need to take a look at those key issues, and we have been, when we do succession planning. Because what we've seen is, number one, we try and manage ACF as a whole. It's not managing as entities. And we haven't said, "Okay, you get five people. You get 10 people. You get 20 people, 30 people, 200 people."

We take a look at ACF across the board and we make serious management decisions on where we need to do that backfill, because what happens is, over the past five years, in round numbers, we've been able to replace about three people for every five that leave.

And so if you take the leadership aspect of being able to manage the workforce and then bringing in the right folks at the entry level in those four occupational codes and series and you focus on those, hopefully we'll be in a good place. Sometimes change is difficult. But we also look at this opportunity -- when it comes to the percentage of supervisors and non-supervisors who are retirement-eligible, and then you stand back and look at the demographics of that. And in any given year, about 20 percent of those who are eligible actually do retire. But you don't know who that's going to be.

That's the very frustrating part is, you can't do succession planning based upon Bob, and Mary, and Joe, and Susie and so on and so forth, because you're not even allowed to ask somebody when they're thinking about retiring. And so you have to do it on a more global sense, not on a more finite sense. That provides a little bit more of a challenge.

Mr. Morales: Curt, you've had a very extensive and very successful career both in public service as well as in the private sector. So I'm curious, what advice might you give a person who is considering a career in public service?

Mr. Coy: Public service is an honor. As corny as it sounds, people ask me, "What made you get back into the government?" The fact of the matter is, public service really is an honor, and that public service is critically important to the way that you view your job.

I would also suggest when it comes to young folks in government service, my advice would be "be curious." That's probably the one attribute that I value the most. Leverage those who go before you. Make sure that you get everything you can from them before they leave. Don't accept the status quo. It's one of the things that probably, stereotypically, government employees have their worst reputation. And that's the status quo. Don't look at things from a status quo perspective.

And then finally, I would suggest that you celebrate what you do and how you do it and why you do it. Because if you're not in that shower in the morning thinking of all those things that you got to get done today, and if you're not driving home at night or going home at night going, "I didn't get these things done today," I would suggest that you're not having fun. And maybe you need to look for something else to do, because at ACF, there's no way that you can't possibly not be challenged by the kind of work that we do.

Mr. Morales: That's fantastic advice. Curt, unfortunately we have reached the end of our time. I want to thank you for fitting us into your busy schedule. But more importantly, Tom and I would like to thank you for your dedicated service to our country both as a naval officer and now at the Administration for Children and Families.

Mr. Coy: Thank you, Al. I appreciate it.

Mr. Morales: This has been The Business of Government Hour, featuring a conversation with Curt Coy, Deputy Assistant Secretary for Administration at the Administration for Children and Families.

My co-host has been Tom Romeo, IBM's general government industry leader.

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 can't 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.

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.

Wednesday, August 3, 2005

Arlington, Virginia

Mr. Morales: Good morning and welcome to The Business of Government Hour. I'm Albert Morales, managing partner of The IBM Center for The Business of Government. We created the center 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 www.businessofgovernment.org.

Mr. Cooley: Good morning, Al.

Mr. Morales: And joining us in our conversation, also from IBM, is Steve Watson. Good morning Steve.

Mr. Cooley: Thank you Steve.

Mr. Morales: Tom, can you begin by telling us the history and the mission of the National Science Foundation, and more specifically, the Office of Budget Finance and Award Management.

Mr. Cooley: Sure, but I don't want to take a whole lot of time. I could spend an hour just talking about that. The National Science Foundation is a branch and arm of the federal government. It was created in 1950 after World War II, after they found out how important science was -- research and development was to the mission of carrying out that war effort. Our fundamental mission is to support basic science and engineering research and education, primarily through colleges and universities, but we also have activities that are engaging the profits and non-profits as well. We currently have a budget of about $5.8 billion each year. We are waiting to get our fiscal year 2006 budget through Congress right now. What that translates to is roughly thirty-five thousand active awards every year. We get about forty-four thousand proposals from principal investigators at universities and colleges throughout the country. We put them through a rigorous external merit review process. Each year we make about eleven or twelve thousand awards. The typical duration of an award is about three years. Hence we have an active award portfolio in the neighborhood of thirty-four to thirty-six thousand awards each year.

Mr. Morales: Can you tell us about some of NSF's research priority areas?

Mr. Cooley: Well, fundamentally you have to understand that research covers everything from anthropology through zoology, and fundamentally, that is our role, that is our mission, and we do do that. So we have a directorate for biological sciences, we have a director for math and physical science, there's a director for engineering sciences, for example. But there are priorities in any era, and right now some of those priorities are in areas such as nanoscale science and engineering. The public tends to think of that as nanotechnology, and how that may help manufacturing processes in the future, how it may help the healthcare industry in the future, for example. We also have a very interesting research priority in social and dynamic behavior of people and organizations. How do we get things done? How do we get them done more effectively? How do people interact with technology, and what impact is technology having on our lives? There's also a very -- there are some broad national kinds of things going on right now, we call them administration priorities. One is in the National Information Technology Research and Development Program called NITRD. One is in the Nanoscale Science Initiative, that's called NNI. There is also a very broad research program across the federal government in global climate change supported by the administration. It's important for policy to be set by the best science that we can get, and so in order to understand what is really happening with global climate change, it's important to get the research done. These are integrated government-wide programs where the National Science Foundation, NOAA, NASA, Department of Energy, the United States Department of Agriculture, they all collaborate and coordinate and carve out a unique piece that fits their mission and then put an integrated program together.

Mr. Morales: Tom you mentioned some of these other organizations, how does the research in science supported by NSF complement the research supported by organizations such as NASA or NOAA and the National Institutes of Health, and how does NSF work together with these science organizations?

Mr. Cooley: I think the answer is actually a fairly simple one. When one thinks of NASA or NOAA, one thinks of the mission that they have. NASA, space, to put it very distinctly, NOAA is oceans and atmospheres. So in carrying out their missions, they have specific things that they're interested in looking in to. Our mission is about basic research, so we don't have a mission that's directed to a particular component of the environment, the world, the population. What we try to do, and a very fundamental part of our mantra, so to speak, is the training of the future generation of scientists and engineers, so that we're not only helping to fulfill other agency's missions by training people that are going to be the scientists or engineers that work for those agencies, but we also do the kind of basic research that those mission agencies draw upon in order to carry out their own missions. So, for example, one of our partnerships is at the National Center for Atmospheric Research in Boulder, Colorado. We collaborate with them. We are interested in generally, you know, what is causing climates to change, how do you map weather, how can you use super computers to model weather changes and predict and forecast weather at a microscale, which is going to be very difficult, but that's ultimately where people want to go. And so, when storms are coming up, I'm not interested in what's happening in the general D.C. area, I want to know exactly what's going on in Columbia, Maryland where I live, and I think a lot of people feel like that. So many of the National Weather Service activities that are carried out and for which NCAR in part participates -- NCAR, as I said, is the National Center for Atmospheric Research is through a collaborative set of activities that we have working with this center out in Boulder, and with the National Weather Service, with NOAA, whatever.

Mr. Morales: Tom, thank you. That's a fascinating and certainly a broad set of issues, and I would certainly be interested in understanding the weather patterns just around my block. You talked about the budget of $5.8 billion dollars, can you describe a little bit just the overall size of NSF and the skill set of the employees there?

Mr. Cooley: Sure. I think the audience would be surprised to find out how small we actually are. We're about twelve hundred federal employees with about three hundred fifty contractors who help us. Those contractors assist us in classification for our position descriptions. The bulk of our contractors actually assist us in the development of our hardware, software, and maintain those electronics systems for us, and then they do other things, such as the mailroom, delivery into buildings, support services of various kinds. So, within the building over there at 4201 Wilson Boulevard in Arlington, we've got roughly fifteen hundred people, about 75 to 80 percent are full-time federal government employees. The mix of that staff, you know, you've got it all the way down from a GS-4, 5, 6, 7 kind of secretary, program assistant. Usually, traditionally, there are people who are born raised right in this area here. And then at the top end of the system, you have got PhDs, scientists, and engineers working in NSF from Harvard, Yale, MIT, Cornell, the University of Maryland of College Park, Wisconsin, Madison, Charlottesville, University of Virginia, we draw them in from all over. We have a mix right now of about 50 percent full-time program managers and about 50 percent rotaters, and that ensures that about every two to three years those rotaters turn over. These are people who are actually bench scientists. They are out there at the universities, they're on the cutting edge, and they really know what's going on. So that when we get proposals in from the principal investigators, the people who are looking at those proposals, evaluating them and trying to find people to review them, other scientists and engineers in the community. Our staff is really plugged into that community, they know what the hot topics are, and they who are the best and most highly qualified reviewers are. From my perspective as the chief financial officer, that means I can tell the American public the proposals that we fund have undergone the most rigorous external merit review process that we can envision. Many people on the hill refer to it as the gold standard. So that when we make an award with American taxpayer's dollars, my confidence that this is going for something that's really cutting edge, that could really impact our lives, ten, twenty, thirty years from now is really great. I mean, when we look at the fact that research on transistors was done fifty years before transistors were ever used. Sometimes the concept doesn't lead to a product for a very long period of time. And some concepts don't lead to any products at all. They're dead ends. I mean there's value in finding out that there's a dead end out there. It saves other people time and effort from pursuing what ultimately would be a dead end, and then go in a different direction.

Mr. Watson: Tom, you're the chief financial officer, and also the Director of the Office of Budget Finance and Award Management. Can you tell us a little bit about the roles and responsibilities of that position?

Mr. Cooley: Sure, Steve. First of all, I think it's important to understand what it means to be the Director of the Office of Budget Finance and Award Management. I have five divisions that report to me. One is the budget division, so we work with the administration and the Congress to propose a budget and then implement a budget once the Congress has passed it. We have the Division of Financial Management that oversees the internal controls and the financial practices that we use to ensure that every dollar that goes out the door goes to the right person for the right reason. The third division is the Division of Grants and Agreements. They're the division that does the bulk of the business at NSF because we are predominantly a grant making entity. The fourth division is our Acquisition Procurement Division, the division of contracts, and they have the very complex agreements, things where we have a much more hands on relationship with the entity that we've made the award to. And then, the fifth and the newest division is the Division of Institution in Awards Support, and its focus primarily is on audit resolution where we have issues that have been raised through the audit process and we have to find out how much money does the government get back because you didn't spend it all appropriately, or maybe even misused it. And then our largest and newest activity, which is post-award monitoring and oversight. The focus of that is to ensure that if you get an award to do X, that you've actually done X, and that the money that you spent on X was relevant to X. It's important for the accountability of the taxpayer's dollars. I think it's also important to the accountability of the Merit Review System.

Mr. Watson: Tom, that's a lot in one position. What was your experience and what path did you take to prepare yourself for that?

Mr. Cooley: Well, there is a long story. When I was a young man, many years ago, I read a couple of books by some fairly famous authors who were doctors and physicians at the time. It got me very interested in a field called microbiology. And I was more interested at that time on potential for microbiology to help me understand how I might help humankind. As I got older, I discovered that microbiology touched all fields, plants, animals, human beings, soils, et cetera, so I majored in microbiology at the University of Maryland, College Park, came out, went into a job and told myself, oh my goodness, what have I done to myself. I didn't enjoy the work experience. I really did not. I was very fortunate, as I have been at three or four critical times in my career, to have a mentor at that time. He was not my immediate boss, but he was a partner with my boss. And my mentor came to me and said, you know, there's something that's not gelling here for you, I can tell. And he encouraged me to go back to graduate school, which I did. I pursued the field of botany. I got married. Things change when you get married. We had a little girl. And I had an opportunity presented to me, it was a career choice. I had one path or another. I could go to a post-doc at the University of Montana, or work part-time for the summer at a place called the National Science Foundation in 1979 to write an environmental impact statement for what at that time was envisioned as the Ocean Margin Drilling Program. My family is here, my wife's family is here, and our daughter was six months old, and the pay here was twice as much as the pay in Bozeman, Montana. So I thought, well let me go with this and see where it goes. They extended it two more times for a year and a half, after which they hired me full time as a GS-11. I worked for some great people. I worked for Sandra Toy, Al Shin, Joe Cull, all of whom had great influences on my career development, basically gave me some advice, pointed me in a direction, and then left me alone to see if I could really do it or not. And a couple of years ago, the Director of the National Science Foundation, at that time Dr. Rita Colwell, turned to me and said, how would you like to be the CFO, and I said, only if I can dot, dot, dot. And she said, fine. So I've been there for five years in this role. There are days when it's a lot of fun, and there are days when I'm glad to get home. But I think all of our jobs are like that.

Mr. Morales: Tom, that's just a fascinating start to just a wonderful career. How is NSF working on the President's management agenda's five government-wide initiatives? We'll ask NSF CFO Tom Cooley to explain this to 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 Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, can you give us a brief overview as to how NSF is working on the President's management agenda's five government-wide initiatives?

Mr. Cooley: This is not an easy question, and may actually end up being probably one of the most difficult questions you will ask me. First of all, I have answer with a very honest and straightforward one that my staff will recognize, and that is a lot of very hard work. This is not easy. It's one thing when you set your own agenda, it's one thing when someone else sets it for me, and then continually raises the bar so that you do better and better and better. I buy into that philosophy, it's basically a philosophy of continuous feedback, you do something, you do it well, you get feedback for improvement, and then you go off and make improvements based on that feedback. And then I think it's fundamentally the tenant that underlies the President's management agenda. We were very fortunate in that the President's management agenda had two key areas where we had already invested a lot of time and effort -- financial management and e-gov. And it was actually division of my predecessors and now I have to go back to the 1980s to talk about this. My predecessors had thought that it would be good if as many of our paper systems were electronic as is possible. And there were two key vision statements back in the '80s. One by Al Muellbower, who was the Division Director for Financial Management, and he wanted a financial management system that was totally electronic, where on a day to day basis, he knew exactly how much money was left in the bank. On the other hand, Connie -- oh, and I can't think of her name, she was the head of the Division of Information Systems, and her vision was one of how to enable our PIs, or principal investigators, to submit proposals to the foundation electronically rather than in paper copies. When you used to send a paper copy proposal, each proposal was about a half inch thick, and you were required to send twenty of them. So we had stacks of paper in the mailroom. The vision was, if you do this electronically, you can flip them out to your reviewers electronically, you can handle the paperwork electronically, and make your awards electronically. Those visions were put in place in the 1980s, and we were totally electronic by the end of the 1990s. So when the President's management agenda came along, in these two particular areas, it was very natural for us to go over and talk with the President's people in the White House and say we think we're green in financial management because, and we think we're green in e-government because. So when the very first scorecard came out, we in fact were green in financial management. They gave us a yellow in e-gov, because they had some questions for us that we needed to resolve and finish answering. So the next quarter, I believe it was, we did go to green in e-gov. The very interesting thing about the process though, is that they're -- those two do tend to be integrated, and the key integrating function is the other third PMA initiative, the integration of budget and performance. If you're going to integrate your financial system's data with your budget request, your justifications, what we call the budget execution plan, and you want to be able to tell the American public exactly what we are doing with that money and how you're doing, i.e., performance, then these three initiatives are all integrated. What we had not had a vision for was the integration of budget and performance. This agenda item caused us to really think in terms of a vision, we got working on that. My Division Director, Marty Rubenstein, really pulled a great vision together and pulled it off and we've got green and BPI, I believe, three cycles ago, something like that. The other two though were the more difficult ones. We at the National Science Foundation, frankly did not have a vision for human capital. We bought into the system that existed. It seemed to work very well for us. When you look at human capital as the fourth item and competitive sourcing as the fifth item, we were able to take advantage of a concern that we had had about four years ago that we really didn't have a vision for human capital, and we didn't have a vision for how all of the processes of the foundation needed to be integrated to get the most bank for the buck. And we had hired a contractor at that time to do an in depth, integrated assessment of absolutely everything that we do, and everything that we touch at the National Science Foundation, including this very critical piece. The staging of that meant that we needed to understand our human capital needs before we went down the road of trying to figure out what we needed to competitively source. Now part of the background here is that things that the other agencies are competitively sourcing today, we outsourced in the 1980s. I was around, we outsourced mailroom functions, we outsourced all of our IT support functions, we outsourced many, many different things. So where agencies today are looking to outsource those things, we've done other things. So we're on the cutting edge of what do you do after you've done that. Having just gotten to green -- yay, on human capital this last quarter, it allowed us to also integrate our vision for getting to green in human capital with the first steps of competitive sourcing. So we have our first competitive sourcing out on the street. Now we've moved from red to yellow in progress, not in status, so that we now have four greens and a yellow on the progress report card. We're very pleased with that, and I think that in general, while the PMA does take a lot of hard work, if you don't integrate your team across your agency, and you can't be successful if you buy in and set your own vision for yourself, because doing that means that you've got that community integrated within your agency. They see it as part of their vision, and therefore, it's the right thing to do.

Mr. Morales: In the fiscal year 2002, the National Science Foundation established the advisory committee or GPRA performance assessment that is structured internally to report PMA activities to the director of NSF. Who is part of this committee, and how does the committee evaluate NSF's progress on the PMA initiatives?

Mr. Cooley: Well, let me go to ground zero on this question. I think the audience that may by listening in could not necessarily know that the Government Performance and Results Act requires every agency to do its own self-assessment. There's a bit of a conflict of interest in my view with that self-assessment. It means, you know, if I think I'm doing a good job and my staff who work for me tell me that, because they're afraid to tell me otherwise, you know, for whatever reasons, you don't have some independent benchmark. So, a couple of years ago, the foundation agreed, you know, reporting performance was important to the community at large, whether it's a taxpayer, whether it's our principal investigators, whether it's the reviewers that are out there, whether it's the scientific community at large. In order for us to satisfy ourselves, because we have this independent review process that we rely upon to tell us how good a proposal is. The vision that I had was we need an independent group to come in and tell us how good we really think we are. We'll give them all the data, all the information, we won't preload it, we won't prejudge it, or prejudice it. And when they look at that, they have to give us feedback. If they think that we've prejudiced something, or have been lacking and providing them with information in a particular area, then the next time around we'll do better there. So, we came up with this advisory committee for GPRA performance assessment. They do want you here because they review our programs on an annual basis. What we do is we bring in experts in all the fields that we support, they all sit on this, they look at the portfolio of awards that we make, they look at annual reports, they look at collections of reports, they look at our Committee of Visitors reports, they look at National Academy of Science's reports, workshop reports, they look at everything, and they write a report to us and say this is good, or they say this is not so good. We've been very fortunate the last -- at least the last three years that I can remember, they have said that everything that they have seen indicates that the investments that we make to support our mission have been very good and satisfactory, we're making satisfactory progress, they support the mission of the agency, they support the strategic vision and the strategic plan and more importantly, in each annual plan, they support each annual plan in trying to get from point A to point B.

Mr. Watson: Tom, you mentioned you're green already in four of the five key PMA areas. What is your plan for staying there? Is it as difficult to stay there as it is to get there, or do you have processes in place that carry it to this point forward?

Mr. Cooley: The answer is yes, it's as difficult to stay there, and as I had mentioned earlier, it is as difficult to stay there because once you pass a bar, what the government is saying to itself is we need to move that bar higher. If we really want to be an effective and efficient organization, and I think most organizations buy into this concept, you need to do everything that you can through some process of continuous feedback loops, to figure out where you can still improve. It does take a lot of hard work, it does take a lot of effort, and people do pull their hair out, I'll be the first to admit that. But fundamentally, the only way that I, as the CFO of the agency can do it, is to set up a system of trust and integrity, and I think most of us in the government have tried to do that, let your people who are in charge with these activities run with them, get reports periodically on how they're doing, hold them accountable, but fundamentally trust them to do their jobs. Once in a while I find that I have to set a due date to make sure something continues to move along and it doesn't languish. But I think that if you trust your staff, and realizing that they trust you, whatever job you're asking them to do, they'll do their darndest to accomplish for you. And I have seen that time and time again. I've got a -- oh, I guess it's about one hundred twenty-eight or one hundred thirty people that work for me right now, small by most departmental standards, but nonetheless, I know most all of them by their first name. I know something about their history, their family, what their interests are. When I pass them in the hall, I always say hello to them. They always say hello to me. There's a sense of camaraderie, but I think fundamentally underlying that, we each share core values. For the Office of Budget Finance and Award Management, and that's posted on our BFA website. We talk about it at all of retreats to make sure that it's still the appropriate kind of core value and vision for us. And the last phrase in there is have fun. And as long as we don't lose our sense of humor, and we try to find ways to have fun in doing our job, then I think everybody has that little blowout patch available to them on a daily basis.

Mr. Morales: I think I'd certainly like to see that as one of the new initiatives on the PMA having fun. How has NSF successfully linked financial data and performance data? We will ask NSF CFO, Tom Cooley to explain this to 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 Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, I understand that NSF is one of the agencies that excel in the performance assessment report, which links financial data to program performance. What are some of the factors that have lead NSF to successfully articulate and link financial data to performance data.

Mr. Cooley: Well, I think that one of the most fundamental successful factors is the integrity of the science process itself. It starts with the person, man or woman, who has an idea, wants to put it forward, and hopes to get it funded by the federal government. What they want is an excelling research project that is going to make into the scientific literature because after all, these people are -- have the ability to become a tenured faculty member at a university or college, and I think that's part of their own career path. In establishing their research record, while at the same time they're establishing the fact that they teach well at a university or college. That helps them move up the ranks from an assistant to an associate professor, ultimately to a fully tenured faculty member. They have a vested interest themselves in making sure that the results of their research, their education project -- we fund things in informal science education at museums, for example, is known nationally. It's name recognition. You know, they want to become a recognized name in the field. So they want to publish their results. That's an effective way of measuring their performance out there with the taxpayer's funds. If they've got a successful project and it's been successfully published, then taxpayer funded information is now in the public domain for other scientists, engineers, and educators to use around the country to influence not only their own teaching and what information they impart to their undergraduate and graduate students, but their own personal venues of research. Then there's the internal piece of performance, how are we, as members of the federal government, performing with the taxpayer's funds. And in that regard, I think we do a very, very good job. We have one of those systems that, at the beginning of the fiscal year on October 1, you fundamentally load up whatever your appropriation is, and then we start ticking it down. Our system enables every program manager who has a slice of that pie, they can start ticking down from whatever their amount is throughout the fiscal year. Every morning you can log on, you see how much you've got at the beginning of the day, and at the end of day, if you've made some award recommendations, those funds get committed, and you see how much money you have left at the end of the day. The other thing that we have, are online progress reports. PIs are required to submit an annual progress report so you can review it and see how it's doing. They tell us how many graduates students they've got, how many they've trained, did any of them get their Master's, did any of them get their PHD, have they submitted any publications, what's going on in your lab, have you had any kids in, did you talk to them, all of that kind of information is embedded in these so that you get a real picture on an annual basis of what's actually happening out there in the lab. That helps you as the program manager assess whether this project is performing well, and the person who writes it up, generally speaking, the principal investigator at the other end, goes through this thought process once a year. Yeah, I'm doing this and this and this and this and this and stop some things, but I'm not doing so good over here. I need to reach out more to let people know what I'm doing, and you know, some of the area high schools maybe reach out to them, offer field trips for people to come in where you can talk to them about your research and a lot of these PIs do that kind of thing, they tend to get really plugged in to the community around the university.

Mr. Morales: Tom, to dabble a little bit more into the secret sauce over at NSF, how is NSF moving to adopt new technologies in business processes and maintain financial integrity in internal controls?

Mr. Cooley: Well, I would like to think of it as driving business processes rather than moving business processes. We are a homegrown e-system, so what we have are legacy systems that are our contractors built and maintained for us. That comes with a heavy cost in terms of maintenance and operations and upgrades. And I think in the area of financial management there are commercially off the shelf software technologies that are getting better to address the federal needs, but they were built to address private sector needs, and they need some refinement, quite frankly, but I can see those refinements coming. So, where the federal agencies are beginning to go into cuts packages and work with those providers, the providers are learning how to improve the cuts packages. That's fine from my perspective. But in the grant making world, there are no such cuts packages. In order for us to do electronic grants administration, we had to build our own legacy system, that's what we've got. In terms of driving the future, what I would like to see is the government through this new grants management line of business, send a signal to the private sector that if we're really going to do this, we're going to need cuts packages. The grants business alone is something like $560 billion a year that go out in grants. So if the private sector starts building some of those cuts packages and offering them up to the government agencies, then there should become a point in time when we don't have to worry about legacy systems, where we can have integrated systems for grants management across the federal government, some of which may be a legacy system at a huge agency, such as HHS, might be. Or they may have cuts packages that are shared by multiple agencies. So I would like to see the government act a little bit more like the private sector in terms of trying to drive improvement by laying it out there to the private sector, you know, $560 billion a year is a big chunk of change, and if we really want to see if we can do some cost savings government wide by using cuts packages, you guys need to start building those and offering them to us.

Mr. Watson: Tom, you touched on the line of business concept, which is a current push in government and a number of areas. How is that impacting the National Science Foundation?

Mr. Cooley: It's really impacting all government agencies, not just NSF. But if I use NSF as the example, it's forcing us to make key decisions about, do we provide a service or do we go find a service provider? I think it's a key fundamental issue for the government. In the old days, one used to think -- and I'm talking fifty, eighty years ago, the Office of Personnel Management provided all of the personnel functions for the federal government, and everything you did went through OPM. That was disbursed -- probably for very good reasons at that point in time. What they're looking at now is rather than every single agency, and within major departments, every separate bureau having its own system, you name it, classification system for personnel, financial management system, procurement, contracts. Rather than having everybody have to duplicate that everywhere, you can get economy of scale and efficiency of operations by offering that service at a key few touch points. So that ultimately, like we did with the payroll, NSF had its own separate payroll system. The government went from something like twenty-six major providers for payroll to four. And the intent eventually is to get down to two. That created some streamlining, and there were good benefits that came out of that. Were there bumps along the way? Of course, there were bumps along the way. You don't bring any system up without bumps along the way, nothing goes absolutely smoothly. But in terms of trying to turn the government into a much more efficient and streamlined operation, there are shared operations across federal government, grants is one of them, where we need to start thinking strategically about how to do the front end, which we're already out in the front on with the grants.gov find and mechanisms, and how to do the back end, which is, you know, grants management within the federal government, and how to streamline that, make it more effective, make it more useful. One of the criticisms that we hear from -- well, let's say the governor's office. There is a lot of federal money funneling into the states, but there isn't any single portal where anybody in that state can figure out, well, how much is coming in on an annual basis and where is it going. How much is going to our Department of Transportation, how much is going to our public universities and colleges that we support in the state, and for what reasons? So, what's lacking and what is the value added here is the possibility that in the future that information allows you as the governor or as the state legislator, or as a single PI in the university to start to begin to integrate those efforts to get even greater value added our of the integration of those efforts. I've got an award over here and this guy over in the Department of Transportation has an award over here, I got to talk to him about what he's doing and let him know what I'm doing because maybe we have great information to share that may be of value to both of us.

Mr. Watson: Tom, you have mentioned using some of these lines of business, payroll for example. Any areas where you envision the National Science Foundation becoming a center of excellence providing a line of business?

Mr. Cooley: I would like to see us be able to do it for the grants management line of business, but we have a legacy system. It was not built with the intention of having a lot of capacity to it. We're not stretched right now in receiving forty-five thousand proposals a year, but on the other hand, we certainly couldn't handle the volume of proposals that comes in to the National Institutes of Health. If we did want to pursue becoming a center of excellence for the grants management line of business, we would have to bite off a discreet chunk that we felt that we could handle appropriately. Small bureaus, small departments, people in the federal government that already operate similarly to us, so if a portion of USDA, maybe EPA, maybe the National Endowment of the Humanities -- if I were to just take three random organizations, my guess is those three just about fill up our capacity. So then our concern would be what do we do if all of a sudden state funding dries up, and even more proposals -- say our proposal load goes from forty-five thousand per year to sixty thousand per year, that would saturate our capacity, we wouldn't be able to provide the service that we're supposed to be providing to the other agencies and the whole system could come crashing down. So, you know, we still got some homework to do, but I think that there would be value in pursuing that. The government is right now asking agencies to consider if they want to be a service provider, do a business case for yourself, and at the end of the business case, make a decision. So what I'd like to do is do the business case and see what it tells me.

Mr. Morales: Certainly a challenge, but an opportunity. What does the future hold for NSF? We will ask NSF CFO, Tom Cooley to explain this to 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 Tom Cooley, Chief Financial Officer of the National Science Foundation. Also joining us in our conversation is Steve Watson. Tom, how is NSF promoting partnership with academia, government industry, and international stakeholders?

Mr. Cooley: That's an easy one. Person to person contact. Without that personal contact, things just aren't going to get done. This is one area that I would say NSF has excelled in the past fifty-five years of our existence. The very nature of research is global in scope. That caused the agency when it was first forming itself to worry about how do you touch all the bases, how do we touch the Office of Naval Research, how do we touch the United States Department of Agriculture and their research programs? So many of our program managers that reside at the National Science Foundation know the other program managers that work at the Office of Naval Research, or the Defense Advance Research Agency, DARPA, or the USDA. So there's that inside the government natural connection that already exists, and we frequently invite them to be reviewers on our panels and they invite us to be reviewers on their panels. In terms of working with academia, that is the fundamental tenant of the Principle of Operation at the National Science Foundation. The relationship between the foundation as an arm of the federal government and academia is one of partnership. We expect them to put something in, you know, they turn on the lights everyday for the PIs, and they make sure the water is running. The PIs give something back to the institution, sure they're being paid a salary, but they're expected to teach and do research, find time to mentor students, graduate students, post-docs, find time to talk with undergraduates, bring undergraduate students into the laboratory and have an undergraduate research experience those students who are thinking about a science or engineering career, reach out to the community, visit high schools, that is just a nature of our business. Even our own program managers in NSF do science fairs, participate in research at nearby universities, keep their ongoing research programs going. Industry has been a bit more of a sticky wicket, and I think that our real outreach to industry started about in the 1970s, but really solidified under our director for six years from -- I think it was about '84 to '90, Dr. Erich Bloch promoted a lot more partnerships. He envisioned a couple of very key programs that required industrial participation. That has. We have some centers -- I remember one that's up in Rochester, New York, where for a long time, I believe it's still in existence, Kodak was a partner because it was research on -- in the whole field of photography. And then international, well, we have several ways to do that. First of all, government-wide, you've got the State Department. So you'll always need to be concerned with working through the State Department, particularly in some sensitive countries, but we have our own Office of International Science and Engineering, and they have their own connections to their counterparts in -- out in the other countries. So, for example, my boss at the time who was the Chief Operating Officer, Joe Bordogna and I were invited to go to Beijing about a year and a half ago because the National Science Foundation's counterpart in the Chinese government located in Beijing was undergoing a strategic planning and envisioning exercise, and they wanted to know how NSF did it, and how NSF implemented it, and sold it to their own administration. Well, we found out about that because there was a very natural relationship between the people in those -- in that office in Beijing, and our people, here at NSF and the Office of International Science and Engineering who are always going back and forth and touching base and finding out what's going on in each other's countries, so we do that with virtually every country on every continent, and of course with cell phones now, it's instantaneous, call up, dial up, email, whatever. Then there are some research communities which by their very nature are international in scope. The astronomy community comes to mind, the ocean sciences community comes to mind. But you see more and more of this internationalization of research, biosciences is probably the hottest topic right now, and that's the sharing of information across borders about what's going on with the human genome and plant genomes, and how to worry about getting better crops that are drought resistant, or other kinds of things, that's very important on a world-wide basis.

Mr. Watson: Tom, looking into the future, what are the major challenges you see for the National Science Foundation, generally, and then more specifically, for your office?

Mr. Cooley: Making sure that people can actually go home at the end of a very busy, hard day. We all work more than eight hours, we know that now. Email has made it -- you work virtually twenty-four/seven. I get home, I take off my tie, and in the summer time put on shorts and go around in flip-flips because of the heat, but after dinner I logon. Do I have any important messages, did somebody need to give me a heads up about things the next day, is there something I didn't get to today because I had meetings all day long and I didn't have time to actually sit back and think? I think that in my own opinion right now, the biggest problem that we, as a nation are facing is that there is so little time left to be proactive or reacting to everything because it's information coming at you twenty-four/seven, whether it's TV, radio, email, people in the halls, and having that quiet time to stop and think strategically about where you should go right now is lacking. So, I guess the answer to the question is, the biggest significant challenge is carving out a piece of time to yourself, and letting your employees carve out a similar piece of time to themselves. One of the ways I do that, I refuse to have an iPod or a Blackberry or a cell phone. If you want to reach me, I log on to email, you can leave me a message. If it's really that important, you have that venue, but I don't want you calling me on my cell phone at 11 p.m. at night, nothing's that urgent, I'll deal with it in the morning when I get in. And I think that as long as people wherever they work feel like they still have that little safe spot they can go to, you know, you can keep pushing yourself along, you can bring home the paycheck, you can do what you need to do for the family, but we all need that little safe spot.

Mr. Watson: Tom, earlier in the program you told us a wonderful story about how you got started. What advice can you give a person who is interested in a career in public service?

Mr. Cooley: Understand what you're getting into. I think that was the real wakeup call for me when I got into my first real job. Like many of us, we had part-time jobs in high school and college. I worked my way through college. But, you know, you see multiple career paths, and sometimes you have to actually get on that path and find out for yourself whether you're going to be happy or not. In terms of the basics, I think most people who are worried about any kind of future career need to be thinking about to what extent am I going to be happy, and to what extent is my earning power going to support my family if I'm the kind of person that wants to have a family, big or small. So, good high school education, certainly go to college, because I think having a college degree opens up your earning potential as you get older. If you really love college, stay in college, get a Master's, get an MBA, go on for a PhD if you're interested in pursuing education, if you're interested in pursuing science or engineering. I'll tell you one thing about having a well-rounded, educated background, whether it's just a Bachelor's or a Master's, is I do think it prepares you to take advantage of the opportunities. As we all know in life, doors close and it's up to you to find out where that window is open, and trust me, based on my own personal experience, when a door closes somewhere, there's always a window open somewhere, but you've got to find it. And then when you find it, you have to have confidence in yourself that your background, your education, your experience, your training allows you to leap through that window. And frankly, if you're not sure, leap anyway, take the chance. You can always go to the supervisor and say, you know, I thought I really understood this, I need some more training in this area. And if you've got a good supervisor, they're going to say, absolutely, go do it. I'll pay for it.

Mr. Morales: Tom, that is just great advice. Unfortunately, that will have to be our last question. Steve and I want to thank you for fitting us into your busy schedule and joining us this morning. And we also want to especially thank you for your service to our country, both first at the Department of Agriculture, and now at the National Science Foundation.

Mr. Cooley: Well, that's great. I really do appreciate that. I'm third generation in service to this country, so over the past one hundred years, I've loved living in Washington, D.C., all of my life. If anybody wants to find anything else about the National Science Foundation, a very simple website, www.nsf.gov. Thank you.

Mr. Morales: This has been The Business of Government Hour featuring a conversation with Tom Cooley, Chief Financial Officer of the National Science Foundation. Be sure to visit us on the web at www.businessofgovernment.org. There you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's www.businessofgovernment.org.

Arlington, Virginia

July 1, 2003

Mr. Lawrence: Good morning and welcome to The Business of Government Hour. I'm Paul Lawrence, the partner in charge of The IBM Center for The Business of Government. We created the Center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more by visiting us on the web at www.businessofgovernment.org.

The Business of Government Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest today and our conversation this morning is with Dr. Rita Colwell, director of the National Science Foundation.

Good morning.

Dr. Colwell: Good morning. It's a pleasure to be here.

Mr. Lawrence: And joining us in our conversation is Tom Burlin.

Good morning, Tom.

Mr. Burlin: Good morning, Paul. Good morning, Rita.

Mr. Lawrence: Well, Rita, let's start by finding out more about NSF. Could you tell us about its mission and its activities?

Dr. Colwell: The mission of NSF is to continue to ensure America's place at the forefront of scientific and engineering capability, and to develop a technically competent workforce for what is a rapidly changing world.

Mr. Lawrence: Could you give us a sense of the budget and the number of people who work there, and even the types of people? When I think about science, I think of a wide range of people.

Dr. Colwell: The budget right now for fiscal 2003 is $5.3 billion. We have a staff of about 1,250 full-time employees and about 350 contract employees. We have a lot of rotating scientists and educators, meaning people who come in, probably about 5- or 600 of the total, who come in for two or three years, scientists from university, from industry, who will spend time with us and continually bring in the wonderful new ideas, new thoughts, new directions. It's a very dynamic situation.

Mr. Lawrence: And they're coming from academia?

Dr. Colwell: They come from academia predominantly, universities around the country, but also we do bring in folks from industry on occasion.

Mr. Lawrence: Now NSF has a unique governance structure. Could you tell us about the National Science Board?

Dr. Colwell: The National Science Foundation was established in 1950. It was an act of Congress signed by Harry Truman on May 10, 1950, from the back of a train in Pocatello, Idaho. So if you pass through Pocatello, have a toast to the National Science Foundation. But it comprises the director and the National Science Board, which is very interesting because the director, I report directly to the President of the United States. The Science Board reports to the director, advises the director, and advises the President on major policy issues. Its role is to set policy for the foundation and to advise the director on the processes of the foundation, mainly with respect to policy. It approves budgets and it acts as a sounding board. It's very helpful and it's quite unique.

Mr. Burlin: Thank you, that's very informative. Rita, how about yourself? Can you share with us some of your roles and responsibilities as the director?

Dr. Colwell: As the director of the National Science Foundation, I have a staff of about, let's say, 9 or 10 people who report directly to me. Altogether, including the fiscal officers and the legal counsel and so forth, it's probably a team of about a dozen that are the major senior council for the National Science Foundation. Interestingly, the National Science Foundation sets the direction really for fundamental research and engineering in the United States. We fund everything from anthropology and archeology all the way to zoology, if you will, engineering, biosciences, computer sciences, social/behavioral/economic sciences, as well as the traditional math, physics, chemistry, material science. So we fund research for the country.

And the proposals come in. They are prepared by scientists and engineers around the country. We receive about 35,000 proposals every year and we have about 50,000 people on the Rolodex, if you will, who act as reviewers. So we do about 250,000 reviews and then we select 9,000 proposals. We usually have about 10,000 ongoing, so it's somewhere between 19,000 and 20,000 proposals that we're managing every year.

So it's a complicated job in that I coordinate what goes on within the NSF, but I'm also the spokesperson externally, which means a lot of talks, visits, site visits, speeches, throughout the country. I must say it's a challenge, but it's wonderful. I often tell people I have the best job in Washington.

Mr. Burlin: That's wonderful. One of the things that's always interesting to me is the background and experiences that prepare people for these types of positions. Can you share with us some of your prior career experiences prior to becoming the director of NSF?

Dr. Colwell: I do have a rather unusual background in that I have a background that includes a bachelor's degree in bacteriology. Now in the time since I got my degree, generally most universities now would have that included within a Department of Biology. I did a master's degree in genetics, classical genetics and molecular genetics, which was really a very good foundation. And from there, studies at the University of Washington in Seattle on marine microbiology, which means that I have a degree, a Ph.D., in oceanography. Now that's quite unusual because it's a span of training that I think has enabled me to be an effective director.

I did a post-doc in Canada at the National Research Council, and spent time, therefore, in another country. Well, you may not consider Canada another country, but I think Canada certainly does. From there, I taught at Georgetown University, and then at the University of Maryland as a full professor with a very active research group; founded the Sea Grant College Program at the University of Maryland, College Park, and then founded the University of Maryland Biotechnology Institute. This occurred while I was the academic vice president and provost for the University of Maryland system. From there, of course, I was tapped to become the director of the National Science Foundation.

My research, personal research, has involved work in Bangladesh and India on cholera, tracking the origins of cholera. We made some very exciting discoveries over the last 25 years showing that the bacterium really is an environmental bacterium. Here's a clue that I got being a marine microbiologist: I discovered that the bacterium, in fact, requires salt for growth because it's marine and it's associated with plankton. And we were able to use remote sensing to show the relationship of the epidemics of cholera with sea surface temperature and sea surface height, which means tides and the ocean influenced cholera epidemics.

This was quite unheard of and, of course, was against the dogma, but we were able to put all of the basic research to good practical use. We discovered that the bacterium are attached to plankton, microscopic animals living in the sea. We were able to show that if you took cloth, the cloth that women use for their dresses, sari cloth, folded 4 to 8 times, you got a very good filter of about 20 micrometers, and these plankton are about 200 micrometers. So we did a very large study showing that if you filtered water before you drank it in these villages where they don't have water purification, we were able to reduce it by 48 percent. So that was a major study that showed a very practical human benefit from all of this research, which included oceanography, clinical microbiology, medicine, remote sensing, mathematics, mathematical modeling, et cetera.

So it was a very interesting background that led to some very important human discoveries, which is one of the reasons why I love being at the National Science Foundation, because it covers all of science. And it's like being in a candy store for scientist to be at the head of the National Science Foundation.

Mr. Burlin: As I said, I'm never disappointed with that question because I find that it takes very diverse and convergent backgrounds to be able to take on responsibilities as broad as that as the director of NSF. Is there any particular experience that you would relate back to that really helps you in your current position?

Dr. Colwell: I do think that running a very large laboratory was the primary training. At the University of Maryland, I had a laboratory at one point with 30 or 40 people and a budget well over a million dollars, and this was, you know, 20, 25 years ago when a million dollars was a whole lot more than it is now, unfortunately for us now. And it was an important responsibility to keep track of the funding, to keep track of students, graduate students, and their career progress, to have postdoctoral fellows, and to have visiting scientists from countries all over the world. At one point, they referred to my lab as the United Nations because we had scientists from Africa and Europe and the U.K. and Japan and China. But it was very good for the students, and certainly a marvelous training for interdisciplinary international science, much of what NSF does.

Mr. Lawrence: Well, that's a good point.

We've heard a lot already about NSF grants. Who's eligible, how much money's involved, and what's the process? We'll ask Dr. Rita Colwell of NSF to tell us more about the grants when The Business of Government Hour returns.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning's conversation is with Dr. Rita Colwell, director of the National Science Foundation.

And joining us in our conversation is Tom Burlin.

Well, Rita, can you tell us about the NSF's strategic goals of people, ideas, and tools?

Dr. Colwell: Well, the most important thing we do starts with people. It extends well beyond the scope of our 1,300 or 1,400 employees, because our programs impact almost a quarter-million people, from senior researchers down to K-12 students. Now people are fundamental. These are the graduate students, the faculty, the high school students. Altogether, we touch each year, as I say, nearly a quarter or a million people. Their ideas are critical because, after all, that is what comprises the grants that they submit.

And then what is very important and has become increasingly so are the tools, the high-end computers, the telescopes for astronomers, the laser interferometer gravitational wave observatories for physicists and astrophysicists. These are critical to carrying out science in the 21st century. And we find that even the social/behavioral scientists are now increasingly requiring very large-scale and, unfortunately, expensive tools because they are mining databases. In fact, the term "computational sociologist" is one that is increasingly common because sociologists analyze very large lots of data, and these large databases require computing, either personal computers or computers connected to very large high-end computers. And that means that we're focused on providing a cyber infrastructure; that is, connectivity, for all scientists and engineers around the country to computing capacity.

So we believe that people, their ideas, and the tools they need to carry out their ideas and their explorations comprise the holistic approach and the fundamental aspect of the National Science Foundation. We say this because it makes it very clear and very straightforward what NSF is all about.

Mr. Burlin: Doctor, you know, a new goal this year is for organizational excellence. Can you tell us what steps you've taken to address this goal?

Dr. Colwell: We've done quite a lot. When I first came to NSF, we set our ambitions to doubling the budget and, therefore, to have a management capability that would handle a large budget, and to be the most efficient and the most effective agency in the entire federal government. We established that as one of our goals, along with enhancing people, ideas, and tools; that is, good management. We brought in video teleconferencing capability so that we could reach any part of the country and interact with individuals. That proved extremely important post-9/11 because we were able to continue with our panels.

We also established NSF as an electronic agency. And now 99.99 percent of our proposals come in electronically; they're reviewed electronically, they're processed with panels using computer E-business rooms, and the reports are prepared by the time the panel finishes. The awards are made electronically, and the monitoring of the awards reports and financial reports are electronic.

Now as a result of our emphasis on good business practices, we've established, for example, an external review committee for our business practices. No other agency, I believe, has done that. And we've brought in experts from industry, from other government agencies, previous employees from the OMB, good advisers from outside, and these folks meet several times a year and advise us on our business practices. The consequence is a very good one. We are the only agency to receive a green light in the federal government, both in financial management and in E-business.

Mr. Lawrence: Let me ask you about setting priorities for NSF. You have a finite amount of money, and it sounds like many more requests than you can support. How do you determine priorities and balance that with new areas?

Dr. Colwell: We establish priorities because of several reasons. One is that there is a limited amount of money, as you said. $5.3 billion sounds like a lot, but when you've got thousands of scientists out there from 2,000 universities and other research institutions, they can, as they do, submit many times more dollar requests than we can afford to provide.

We also ensure in the reviewing of the grants that we seek out the very best of the science and engineering and the cutting edge. How do we achieve what is cutting edge or determine what is cutting edge? Probably this is by proposal pressure, because if you begin to see a lot of proposals coming in, in, let's say, information technology, you have a notion that things are happening.

Secondly, we have advisory committees for each one of our directorates. We have seven directorates and two offices. Each of these has an advisory committee. They also have a Committee of Visitors who come in after the awards have been made to see how well we have actually fulfilled our strategic plan and directions.

And we have workshops. We bring in the best and brightest: young people, seasoned veterans to advise on the direction science is going. And with all of this input we were able to establish quite early that information technology was fundamental to all of science and very, very important for us to fund.

Nanotechnology was an area that was beginning to really explode, and we needed to invest in nanotech. Mathematics is fundamental to all of the sciences and engineering, and we needed to establish primacy, leadership, in mathematics, so that became an area of importance.

Biocomplexity, understanding the complexity of the environment, understanding how it works as a system, we've been spending a lot of time drilling down to the atomic structure, and we had a lot of information at the atomic, molecular, organismic, community, and system level, and we needed to bring all that information together in the direction of biocomplexity.

And then a workforce for the 21st century. If we don't focus on K-12 education, science and math education, we aren't going to have the scientists and engineers we need for the 21st century. And more recently, we had been focusing on the human and social dimension. How does society respond to change? How can we interact with computers? What is the future for social, behavior, and economic dimensions of science? So these became our priorities through this very complicated process of evaluation and ensuring that we're right there at the cutting edge.

Mr. Burlin: Well, Rita, I think I've shared with you many, many years ago that as a lowly undergraduate biology student, I was a recipient of a National Science Foundation grant. However, a HP scientific calculator was high-tech back then, and I'm sure things have changed. Could you give us an overview of the different directorates within the Science Foundation, and also the process for applying for grants? Who's eligible, what's a typical grant?

Dr. Colwell: The directorates include the biological sciences; the geo sciences; mathematical and physical sciences, which means math, chemistry, material science, physics; social and behavioral and economic sciences; engineering, which is very important; and education and human resources; that is all the programs for K-12, graduate fellowships, IGERT fellowships, and so forth.

And we also have an Office of Polar Programs. We run the research programs in the Antarctic and also in the Arctic. This is quite exciting because it means as director, I get to go to the South Pole and to the North Pole. And I must tell you, that's very, very exciting.

We also have an Office of Integrative Activities where we have major programs, like the science and technology centers, infrastructure support programs. That means instrumentation and that sort of thing are coordinated through the Office of Integrative Activities.

For grants, we have a grant proposal guide. It's online, so you can go online for it. It's very straightforward. It describes how you submit proposals. And we have periodic solicitations where we send out notices and ask for proposals for most of the programs. Now people can apply for grants individually, scientists and engineers at universities or research institutes. But if it's not under a specific program solicitation where we're asking for proposals, it's better if the individual, if you as an individual scientist call the program manager, find out just where your ideas for a proposal would fit, and that advice would be I think a very efficient way for you to go about submitting a proposal.

Mr. Lawrence: How does one get to green on the President's Management Scorecard? We'll ask Dr. Rita Colwell of NSF to tell us about this achievement when The Business of Government Hour continues.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning's conversation is with Dr. Rita Colwell. She's the director of the National Science Foundation.

And joining us in our conversation is Tom Burlin.

Mr. Burlin: Thanks, Paul.

Doctor, you mentioned earlier about the President's Management Agenda and receiving green lights. In fact, the National Science Foundation is the only agency that has gotten those green lights in the President's Management Agenda. Can you describe to us some of your activities to date, specifically in E-government?

Dr. Colwell: The President has embraced NSF's vision and its value to the nation. I think this was clearly stated when OMB Director Mitch Daniels called NSF one of the true centers of excellence in the government, and we are very proud of that. Two green lights from OMB for financial management and E-government underscore, I think, the confidence in the way NSF does its business.

That success is due to stewardship and accountability of our resources. We also have applied very high-quality business services to internal and external customers. That is, we have done surveys to find out what our customers, namely our PIs, find important, what we do well and what we don't do well. We've learned that one of the things that was critical for them was to find out the decision on their proposals within six months. So we set ourselves a goal of at least 70 percent of our proposals would be reviewed, evaluated, and determined and announced to the principal investigators as to the decision within six months. Well, we worked really hard on it, and we managed to beat that by 74 percent of the proposals.

But it's that kind of interaction with the community, knowing what's needed and being highly responsive to the community and using electronic systems for our operations and transactions, and also establishing constructive partnerships to pilot the new practices and specialized services. This has given us I think a leg up in achieving our goal of continuing to be the best-managed agency in the government.

And we have a quality-based versus a quantity-based performance measuring system. We want to make sure what we do is the very best. And we have, I think, a good management that leads to very high performance of our staff, and we care very much about our staff and their careers. We've established within NSF an academy that provides career path and personal development. Our staff can get degrees externally at the university or they can take courses through the academy to achieve the kind of performance capabilities, whether it's using computers or doing accounting, et cetera. So I think it's managing the constancy of change, growth, and constant improvement. I think these are the keys to our performance.

Mr. Burlin: Can you tell us, are there any specific examples of how technology has changed the way you do business?

Dr. Colwell: Very clearly, being totally electronic has made a huge difference. We review all of our proposals. We receive them, review them, and manage them entirely through computing capability. Technology has changed significantly through e-mail, through business practices, through constant upgrading of the computer system. One of the very first things we did five years ago was upgrade the telephone system, and even the telephone system now becomes almost part of the business apparatus through voice mail and messaging. So I would say that technology has made a huge difference in how we run the foundation.

Mr. Lawrence: NSF was one of the first agencies to go green in financial management. Could you tell us about this accomplishment?

Dr. Colwell: I think the most important aspect of it was good financial practices; that is, accountability; good accounting practices; good planning on the part of NSF; competitive sourcing; undertaking an extensive human capital plan this year, which we have underway, from which we can pull the proper strategy to fit our human capital needs. That's very important. And our unique mix of full-time and rotator personnel, keeping a good balance between those who come in for two or three years bringing good ideas, and those who are the important continuing personnel throughout the agency.

We consider NSF as sort of like a laboratory: constantly testing, modeling, self-examining. We look for peer review for our research, and we also have peer review for our institutional knowledge and our business practices. As I mentioned earlier, we use an external advisory committee of peers to examine our business practices and to address the issues as they come up, challenges that we have periodically.

And I think the General Accounting Office has identified NSF's readily visible culture of self-evaluation. The GAO defines it as self-examination, data quality, analytic expertise, and collaborative partnerships. I think that's pretty strong praise for an agency to come from GAO.

Mr. Burlin: Throughout your conversations, you continually refer back to the people. Can you tell us what the National Science Foundation is doing in regards to its people, its human capital?

Dr. Colwell: Well, the human capital, we consider our most precious resource. We've established the NSF Academy for Career Path Development. We've also made a strong effort to determine in our planning for human resources the kind of job growth within the NSF. We have found that our human capital, our people, are highly prized and constantly recruited. In order to retain our people, we want to make sure we have a career path for them.

I find that, quite honestly, people like the NSF and stay a long time. It's very common and frequent to have retirement parties for people who've been at NSF 29 or 30 years, 35 years. That's an indication of job satisfaction.

We also make an effort to learn what will improve the job environment for our staff. And this is done in a variety of ways, through surveys and boxes for suggestions and so forth. But I think we have in the NSF a loyal, hard-working, committed, dedicated staff and I'm very proud of them.

Mr. Burlin: Change the subject a little bit. You mentioned competitive sourcing. That's a hot topic around the Washington area now. Can you tell us, in an area as challenging as the National Science Foundation, what you're doing in the way of competitive sourcing and how that may be more difficult for an agency like the NSF?

Dr. Colwell: Well, I think, frankly, the fact that we have about 5- or 600 rotators means that we are outsourcing, because these are not permanent employees. They're IPAs who come in, they're rotators. So we have a constant influx of ideas and new staff. We have also worked very hard to determine those jobs that can be contracted. And I mentioned earlier that we have 350 contractors amongst our employees. We do our very best to determine those tasks that can be done by nongovernment employees, but we also make sure that the fundamental operations of the NSF, which really require the NSF government employees to undertake, are defined and protected, so to speak.

Mr. Lawrence: One of the things you've talked about throughout this part of our conversation is about accountability. How do you ensure accountability in the implementation of the Management Agenda?

Dr. Colwell: Accountability is critical because we are accountable to Congress. We're accountable to the Office of Management and Budget, the President, and we're accountable to our principal investigators to ensure that we carry out the research the way it should be done. We have installed what we call our good business practices. We've in the process of establishing mechanisms for looking at those high-risk proposals that we will put more time and effort into. Because as we move into the 21st century, finding that the most rich resource people are in community colleges, are in tribal colleges, are in historically black institutions, colleges, and universities, Hispanic-serving institutions, institutions that may not have had experience and a kind of ongoing interaction with the NSF, in order to ensure their success and our success we have traveling workshops, which go out and do regional presentations. These will be people from our financial management, our grants management, our scientific directorates, and from our business offices to ensure that we can convey to our principal investigators what we expect of them and to help them make sure that their financial management as well as their scientific and educational management are really at the excellent level.

So we are doing all we can to ensure that our grants and contracts are carried out expeditiously, efficiently, and effectively. I think a part of this, too, is ensuring that we transmit information, communicate well, and that we have help desks, as we do for our information technology, but also help desks for our principal investigators.

Mr. Lawrence: That's a good point.

What role does NSF have in homeland security? We'll ask Dr. Rita Colwell for her perspective when The Business of Government Hour returns.

(Intermission)

Mr. Lawrence: Welcome back to The Business of Government Hour. I'm Paul Lawrence, and this morning's conversation is with Dr. Rita Colwell, director of the National Science Foundation.

And joining us in our conversation is Tom Burlin.

Well, Rita, could you tell us more? You've talked a lot about partnerships this morning. Could you tell us how NSF is using partnerships to fulfill its mission?

Dr. Colwell: Partnerships are critical to the mission of NSF. School systems partnering with universities under the math and science partnerships; a wonderful program called GK-12, graduate students who spend time in the classroom, elementary, middle, and high school, for the 20 hours a week for their stipend instead of working in the undergraduate laboratory, which is more traditional; universities and industry through the science and technology centers, the engineering research centers, Partnerships for Innovation Program. These have been enormously successful.

States and universities with NSF under EPSCoR, the experimental program for experimental research; this program is to bring those 100 universities that are in the lower half of success rate into a competitive scheme amongst themselves so that they don't find themselves always competing against Stanford and Harvard and Berkeley and Illinois, but they can compete amongst themselves. This has been extremely successful, building infrastructure capacity. NSF and other agencies of the federal government, with EPA, with NIH -- a program, for example, with NIH in mathematical biology, programs with Department of Energy in high-energy physics.

We have a new program in human social dynamics that has brought a lot of interest from the intelligence community, which is a new partnership. Our Scholarship for Service Program contributes a whole cadr� of information assurance professionals as part of a broader National Security Agency program on protecting cyber infrastructure, which we now know is more and more important. And again with NIH, we're partnering on the biomedical information science and technology initiative, and we certainly have been partnering with them on genome sciences.

So partnerships, that's our middle name.

Mr. Burlin: Doctor, we're all acutely aware of the responsibilities of Secretary Ridge and the Department of Homeland Security. Can you share with us the role that the National Science Foundation plays in homeland security, particularly in relationship between scientific freedom and national security?

Dr. Colwell: Well, first let me say that you will be surprised to learn that one of the first agencies to be at Ground Zero post-9/11 was the National Science Foundation. We had engineers there examining the rubble, the steel, the twisted steel, and so forth, developing a computer model of exactly what did happen and providing a sense of what could be used for materials in the future. We have engineers doing 3-D mapping of the interiors and exteriors of buildings that were damaged near the World Trade Center. That's another example.

We also had scientists from our social, behavioral, and economic sciences directorate. They're doing economic impact studies, doing affect on humans, just the folks who live in the area and survived. And then those small shoebox-sized robots that were used to search for, we hoped survivors, but victims found. This was an NSF principal investigator, Robin Murphy, and the funding from DARPA, and NSF was involved in the development of those robots, which are now part of the armamentarium of the FEMA, Federal Emergency Management Agency. So the small grants for exploratory research, these are small-scale, short-term, we can get these grants out quickly, in 24 hours if we had to, and we did in the case of post-9/11, as opposed to months with initial review internal, because we have scientists, very good scientists in-house, and extensions to grants that are already in place.

So we are able to fund now an investment of over $300 million in FY 2003 in science and engineering that will have an extraordinary impact on defense, intelligence, and security. We have several studies underway of above-ground and underground infrastructure systems, services, their coordination with first-responders. These are connected to the World Trade Center disaster. We also funded The Institute for Genomic Research, TIGR, to study the genome of the Florida anthrax strain that appeared after 9/11. So I would say that in homeland security, we're doing a great deal.

I would also add that we're doing a lot on cyber infrastructure, cyber security. Ironically, September 1, 2001, we had announced an award, request for proposals for awards, to be made in cyber security. So we were sort of ahead of the game, and we've certainly increased our emphasis on cyber security since then. So I would say that you might be surprised to know that an agency that has a mission of fundamental research in science and engineering was there immediately after 9/11.

Mr. Burlin: Well, certainly, I think that would be comforting to the citizens to know that some of our brightest minds under the stewardship of the National Science Foundation are working on those very important problems. Can you tell us a little bit about the Committee on Science of the National Science and Technology and your role as the co-chair?

Dr. Colwell: The Committee on Science is a coordinating committee for all of science throughout the federal government. And it looks at different topics, such as indirect costs, infrastructure needs for the whole nation across all agencies, a focus on the oceans will be one of the new things we'll do to bring the ocean sciences into a cross-agency focus. It's co-chaired by Kathie Olsen in the Office of Science and Technology Policy; Elias Zerhouni, the director of NIH; and myself as the director of the National Science Foundation. And we find this to be a very, very good way to interconnect with other agencies on things like high-end computing needs for the nation, infrastructure needs, and so forth. So I would say that it's a very effective mechanism for coordinating science and engineering activities across the federal government.

Mr. Lawrence: Could you tell us about some of the honorary awards that NSF administers? I was thinking about the President's National Medal of Science, for example.

Dr. Colwell: Well, the Medal of Science is always an exciting event each year. These are awards made to U.S. scientists and engineers for their very special contributions to scientific knowledge. And it's probably as close as anything we have to the Nobel Prize. Of course, I must mention that with respect to the Nobel Prize, since its inception at the turn of the century -- and remember, NSF was started only in 1950 -- about 150 Nobel laureates were NSF grantees before or during the time they got the Nobel Prize. So we pick them well.

Mr. Burlin: Doctor, I'm going to ask you to look into your crystal ball a bit now. Can you tell us where you see the National Science Foundation in the next 5 to 10 years?

Dr. Colwell: I think that the National Science Foundation is very, very important for the future of our country. The fundamental research that we do is important for economic strength, for national security. I mentioned some of the things we're doing already, and I could point out that we've developed a high-tech inspection system from an SBIR grant for sea cargo containers that could protect vulnerable port areas from terrorist incursions. And I see that not only for national security, but for social stability in providing education to the next generation, scientists and engineers, young children who can go on to become scientists and engineers, which are high-income jobs that contribute to the national welfare. I think that these are ways that we contribute significantly to the future of the United States.

I see the National Science Foundation as the agency where creativity blossoms, new discoveries are made from which new jobs, new companies, new industry are developed for national security, through cyber security for our computers, for our banking industry. I think the National Science Foundation has a firm place in the future of our country.

Mr. Lawrence: At the beginning of our show, you described your career, which is very interesting and cut across several different segments: the public sector, the academic sector. So I'm curious, what advice would you give someone interested in a career in public service?

Dr. Colwell: I would say that if you have any inclination to science or engineering, go for it. It's a wonderful way to develop a career, science and engineering. It's international; your friendships are international. I would urge anyone interested in administration to learn how to run a project, learn how to chase an idea to its discovery and ultimate completion of that idea. That is one way, I think, to learn how to manage in the future, because if you have a great idea for whether it's for a new mousetrap or whether it's an idea about how to do science even better, by fulfilling that idea to its completion that will teach you how to manage larger and larger projects, and ultimately, you may too become the director of the National Science Foundation.

Mr. Lawrence: Rita, I'm afraid that'll have to be the last question. Tom and I want to thank you for being with us this morning.

Dr. Colwell: Thank you very much. It's been a pleasure to be here. If you want to learn more about the National Science Foundation, go on the web to nsf.gov.

Mr. Lawrence: This has been The Business of Government Hour, featuring a conversation with Dr. Rita Colwell, the director of the National Science Foundation.

Be sure and visit us on the web at businessofgovernment.org. There, you can learn more about our programs and get a transcript of today's interesting conversation. Again, that's businessofgovernment.org.

This is Paul Lawrence. Thank you for listening.

Arlington, Virginia

Monday, April 30, 2001

Mr. Lawrence: Welcome to The Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers, and a 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 our research 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 today is with William R. Ferris, chairman, National Endowment for the Humanities. Welcome, Bill.

Mr. Ferris: Thank you. It's great to be with you, Paul.

Mr. Lawrence: A lot of people know about the National Endowment for the Humanities. But I bet they don't know all the things it does. Could you describe its activities for us?

Mr. Ferris: Well, the National Endowment for the Humanities is the nation's largest supporter of the humanities and in so doing, we support public television, radio series like the Ken Burns series on the Civil War and his recent series on jazz. We support programs in local libraries and museums. We support classroom teaching, websites that help teachers and summer institutes for teachers. We also support research -- scholars, the preservation of presidential papers. And we increasingly are reaching out to all American people to try to make the humanities a household word, in initiatives like family history website, called "My History is America's History" that allows anyone to put their stories and genealogy online, and to connect through that with American history. So we have a broad, wide web of relationships and support that we bring to our nation on behalf of the humanities.

Mr. Lawrence: How big is it? How many people work there? And what type people are they?

Mr. Ferris: Well, by Washington standards, we're very small. We have a 170 staff, an annual budget of $120 million. And the staff I think of as a university. These are many PhDs, who speak many languages. The diversity of expertise is really extraordinary, not unlike the National Science Foundation.

We vet an extraordinary range of programs from international research to the history of American culture. We often have to draw on different languages, different periods of history to vet our projects. And we have scholars in house who are fully equipped to do that.

Mr. Lawrence: Well, tell us about your career.

Mr. Ferris: Well, I grew up on a farm in Mississippi. And studied English and later folklore. In terms of the South, my interests have focused on the Deep South traditions like blues. I did a book on a storyteller, a mule trader called You Live and Learn, Then You Die and Forget It All. And I think of that as a sense of urgency in my work as a folklorist.

I've also been privileged to direct for 18 years before coming here, a Center for Study of Southern Culture at the University of Mississippi. And we produced an encyclopedia of Southern culture that looks at one of the nation's great regions in great detail.

And all of that work has in various ways shaped important initiatives that we're now doing here at the Endowment.

Mr. Lawrence: How did you get out of academia and come to the Endowment?

Mr. Ferris: Well, I was invited. To be offered the position that I have, I think of as the highest honor an academic can ever have. I've worked for many years over my life with the humanities, and have been blessed with support, both as a scholar and as an administrator from NEH.

So, to come here and to return that favor by leading and supporting the initiatives that NEH is doing was something that I never dreamed would be a part of my life. And so when I was offered that opportunity three and a half years ago, it was certainly an easy choice to make.

Mr. Lawrence: It's interesting that you describe the position as both a scholar and an administrator. Which jobs in your career best prepared you for both of those functions?

Mr. Ferris: I think they both did because I was on the other side of the fence before coming here, requesting support for scholarly research and teaching, and also for administrative work -- the renovation of an antebellum observatory, the creation of new curriculum on the South. All of which happened because of NEH.

So I know, in a very personal way, a lot about our programs because I've been a part of them for probably 22 years before coming here.

So I feel as though I am knowledgeable advocate for the humanities. In speaking to the White House and to Congress and to the American people on behalf of our agency, I can call on personal experience in saying how powerfully important this work is for the whole nation.

Mr. Lawrence: How would you contrast the cultures of academia versus the public sector?

Mr. Ferris: Well, I think in many ways they're similar, in that you are responsible to the public, both at a university and at the Endowment.

But there are differences. Within the university, you respond to a department chair or to a university president. Here, I'm responsible to the White House, to Congress and to the American people.

And I think all three of those entities are equally important. You have to respect and be accountable to all of them. There are new ways of walking here, in the sense that you have ethical restrictions that normally would not apply in a private world within a university.

But ultimately it's following your heart, trying to be as honest and clear in what you are doing and want to do as possible. And when I first came here I was very intimidated by the thought of going into the White House, or going into a Senator or a Congressional office and speaking with people that I had read about and admired enormously.

But to go in and actually talk about your business was something I had never thought would be possible. But you quickly realize that you're dealing with other people who share values and once they understand that the work we're doing is improving and enriching the lives of people they represent, it becomes a clear choice of, I think, supporting this agency.

The increased support that we've had from Congress over the last two years reflects, I think, the confidence that they have in our work.

Mr. Lawrence: How about the differences in management styles?

Mr. Ferris: Well, the differences in management style at the basic level I don't think have changed. I'm the same person I was before. But the scale of management is far greater.

I mean, I was directing a Center for Study of Southern culture, managing about 18 people. Here, there are 170, and it's far more complex.

So, I had a steep learning curve. I'm still learning every day. But as a result of trying to understand an agency that I already felt I knew, but was quickly able to see that there was far more there than anyone really understood, we created over the last three years four working papers as a way to look in great depth at our programs, with international programs, with regional programs, science, technology and the humanities and teaching and lifelong learning.

And these are all on our website, a very impressive upgraded website. We are making ourselves much more visible to the American people and to our own staff. I mean, the range of projects and activities within this single agency is very impressive. And it helps to be able to also pull up a 35-year time line on our website, and look at the distinguished work that has taken place under every president and every chair since our creation 35 years ago.

Mr. Lawrence: Well, since you're an expert in Southern culture, I'm curious to know how would you contrast Washington, D.C. with the rest of the South?

Mr. Ferris: First of all, I have to say very proudly that I would consider Washington a part of the South. In our Encyclopedia of Southern Culture we include Washington. And from the very earliest colonial period Southern leaders like Thomas Jefferson played a significant role in the city.

So as a Southerner coming here, having worked on the South for 30 years, I found myself very comfortable here.

Mr. Lawrence: This is The Business of Government Hour. We'll re-join our conversation in just a few minutes.

(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 William R. Ferris, chairman of the National Endowment for the Humanities.

Could you tell us about the development of the Rediscovering America program?

Mr. Ferris: Yes. Our real initiative at the Endowment is to connect the humanities to every American. And to do that, we are reaching out to American families and communities with a number of initiatives that are making a significant difference.

Mr. Lawrence: We know that you're planning ten regional centers as part of this program. What will these centers do?

Mr. Ferris: Well, these centers will be housed within major universities in 10 five-state areas that roughly correspond to the areas we think of as New England, the Deep South, the Southwest, the Midwest.

They will offer the B.A. and M.A. interdisciplinary degrees on the history and culture of their region. They will support research projects like encyclopedias on each region. And they'll do public programs -- television, radio, exhibitions.

And they'll link over the five-state area the infrastructure of education and culture: religious groups, civic groups, national parks, universities, colleges, K through 12, arts and humanities councils.

Groups that normally don't talk to each other will be gathered together at a common table so that when an initiative like an exhibition on the California Gold Rush is being developed all of these groups will have a chance to take part in it and to help make it a stronger initiative.

Mr. Lawrence: What are the management challenges of running these centers?

Mr. Ferris: Well, the centers will all be run by the universities in which they're housed. They're actually built on already existing work, in some cases; programs that have been focused on the region for 20 and 30 years.

And what we are issuing is a challenge grant over five years that will offer each university a million dollars a year. And they in turn will match it with a three to one match.

And we are turning to Congress for only four of the six. The other six we are raising support from private sources for -- we recently received a two and a half million dollar gift from the Knight Foundation which is the largest single gift in the 35 year history of our agency.

So I think Congress and the private sector are very excited about the ways that this will deepen our knowledge of what American culture is all about.

Mr. Lawrence: We know that you spearheaded an effort to put statewide cultural encyclopedias online. Could you tell us what this is and what the biggest hurdle to doing this is?

Mr. Ferris: Prior to coming here, I was co-editor of an encyclopedia of Southern culture, which the NEH funded. And I saw firsthand how powerfully important that was in helping people understand about their own history and culture. And we have already seen in the last few years a growing number of state-based encyclopedias, mostly print encyclopedias.

So we've decided to create an online encyclopedia in every state through our state humanities councils. There is one that we funded earlier, which is up and running: The Handbook of Texas, which is an enormously successful project. And it's a prototype for what will be available in every state over the next five to 10 years.

It allows teachers and students to develop new curriculum. It has an impact on economic growth through cultural tourism. They have a tremendously important role in the life of the individual state. And they virtually cover the globe in the ability they offer to learn more about Texas, for example.

We have recently funded 17 states and we'll fund another round of states this summer with $50,000 planning grants to get the process started. And then we'll come back with $450,000 implementation grants to help put it all together.

Mr. Lawrence: What's the Schools for the New Millennium program?

Mr. Ferris: The Schools for the New Millennium is a very exciting approach to looking at the entire school and reshaping curriculum by developing technology and bringing together not only the students and faculty but parents and the administration. We partner that entire group of the school's leadership with a local museum and a university. For example, the Booker T. Washington High School in Memphis, Tennessee is partnered with the National Civil Rights Museum in Memphis and with Northeastern University in Boston developing a new curriculum on the civil rights movement.

And for those students in the classes in Memphis, the civil rights movement is a part of history. It's something that took place before they were born. So it's a wonderful way of doing oral histories with parents and family and neighbors to give them a deeper sense of their local history. We have similar projects with the Laguna Pueblo in New Mexico, looking at their Native American myths and comparing those with the theater of Shakespeare.

In each of these schools around the country, wonderful new, innovative work is being done; again, using technology and partnerships with museums and universities that make a high school curriculum far more exciting than ever before.

Mr. Lawrence: The Endowment is encouraging Americans to write down their stories through the My History is America's History project. Could you tell us more about this project?

Mr. Ferris: This My History project is our most comprehensive effort to reach out to all Americans. It involves first of all a book that is also online at thatsmyhistory.org.

And if one wishes, you can either get the book or you can pull down on the web all the information on it. And you can also get a copy of the book by calling 877-NEH-history.

Basically, what the book or the website does is to walk you through the ways of putting together your genealogy or gathering your family stories and then putting those online. And through those stories, and your own personal genealogy, you begin to connect in a much more exciting way with American history. We've put two copies of this wonderful book in every library in the nation. And we're working with teachers to use family history as part of their curriculum.

In states like Pennsylvania the State Humanities Councils are launching special oral history initiatives in communities all over the state. It's a project that is growing in terms of the numbers that are using it, and it's also bringing the humanities in a very powerful way into the personal life and family history of all Americans.

Mr. Lawrence: You've suggested that NEH should function as a traditional endowment where both private and public funds are added to the large pot of funding. What are the benefits of this structure?

Mr. Ferris: I think our new administration believed very strongly that there should be a private- public partnership. And our current budget of $120 million is simply not adequate to fully address the needs of the nation in the humanities areas.

So we have turned, with the encouragement of both the White House and Congress to corporations, to foundations, and to individual donors. We've had a wonderful gift of about $1.7 million from the WorldCom Foundation to create Edcitement, which is a K through 12 website that includes 105 websites, the Smithsonian, the Library of Congress and others.

And now, thanks to this gift and this website a teacher in Oklahoma can pull up Thomas Jefferson or Martin Luther King and it will sweep all these websites and give you the information.And then they can say I'm a 10th grade teacher in Tulsa. Give me a teaching unit on this subject using the Oklahoma teaching standards. So within 5 or 10 minutes, a teacher has a wonderful lesson plan on the subject they need that they carry into the classroom.

So we are very encouraged by the growing numbers of gifts for specific projects in the humanities that we are receiving. And Congress and the White House applaud this kind of entrepreneurial spirit within the humanities.

Mr. Lawrence: I'm talking with William Ferris of the National Endowment for the Humanities. This is The Business of Government Hour. We'll rejoin our conversation in just a few minutes. (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 William R. Ferris, chairman of the National Endowment for the Humanities. Well, you've been credited with refocusing the Endowment's mission from funding controversial projects to those that preserve America's heritage. Can you tell us about the process that you used to shift the mission of the NEH?

Mr: Ferris: As a folklorist, I think of humanities as the human story and I think of a proverb, an African proverb, that I often use in teaching my students folklore. The proverb says that when an old man or woman dies, a library burns to the ground. And I view the humanities as a work of urgency, that we need to be about preserving those stories, not only of our family, but understanding more deeply the stories of our nation's history, our literature our philosophy, our folklore. These are all fields that we study really from kindergarten on; they are the humanities and there's nothing controversial about this. It's simply getting a good education. Our founding legislation draws on the language of Thomas Jefferson, which says that a democracy must depend on an educated citizenry, and we in our democracy have to protect and nurture our education for all ages, from kindergarten through lifelong learning. And that's what the humanities is all about -- there's nothing controversial about the work that we do. It is an urgently needed necessity for our nation, to support the programs that we have.

Mr. Lawrence: NEH regularly deals with competing and sometimes conflicting interests. How do you keep all the stakeholders satisfied?

Mr. Ferris: I view the various groups within the humanities as a parent would view children. You love them all, you want to nurture them all and take care of each of them.

And that is exactly our approach. We have public programs that nurture the public television, radio, and museum worlds. We have research programs that deal with scholarly research. We have education that assists classroom teaching and develops websites. We have challenge grants that help build long term support for institutions. And we have preservation and access, which is a way of preserving historic documents and making them available to the public. All of these are part of what we think of as the pipeline of the humanities. We have to preserve the collections of papers in order that scholars can write about them and filmmakers can draw on the photography -- like Ken Burns has done. Eventually, these films and scholarly works will find their ways in to the classroom of K through 12. So in some ways, you can look at a decade-long process of preservation and making accessible resources that are then used and turned into very public and very accessible worlds. All of these steps are important. We view all each area with equal care, and we try to be as fair as possible in supporting them all.

Mr. Lawrence: Money is often an issue and has been in the past has been somewhat of a struggle. You testified after the budget cuts of 1996 that NEH was forced to close down many of its core grant programs, lay off a quarter of its employees, and downsize many of its functions. How did you prioritize what would continue to receive funding in this period?

Mr. Ferris: Actually, that all happened before I became Chairman. It was several years after those deep cuts that I came on board. It clearly had a terrible effect on the agency. All of our younger staff that had just come on fairly recently had to be let go. Many of our programs that people depended on in a variety of areas were reduced or cut. It's been my challenge to rebuild those programs through Congressional or White House support or through private support; to seek additional funding for these programs. And I'm delighted to say that we're on the right course, both with Congress and the White House and the private sector. Private support also is flowing in ways that I think will steadily increase in the coming years.

Mr. Lawrence: NEH was able to increase its budget in the past year. What lessons would pass on to other leaders navigating the budget process?

Mr. Ferris: I'm very proud that we've had a five million dollar increase over each of the last two years and that was after flat funding for a number of years. My sense is that there are no shortcuts to this process, it's a process of learning to understand and respect the Congressional and White House leadership and over time -- over a number of years-- explaining about your programs, and why there're important, and how they affect to the American people. The bottom line here is that we are a democracy and the Endowment exists because of the generosity of the American people and their elected officials. We are responsible to those people and to the degree that our programs enrich and support their lives in every part of the nation, then I think we will thrive and grow. That's what we're doing. The growth in our budgets and in other areas of the agency represent our work.

Mr. Lawrence: In 1999, the NEH was criticized for inviting President Clinton to deliver the Endowment's annual Jefferson Lecture. What lessons can you pass along to other leaders faced with this level of controversy?

Mr. Ferris: Our idea was -- and I think it continues to be a valid idea -- that every sitting president should have an opportunity at the end of their term to reflect on the humanities and their role on of history in their leadership during their four year period. Regardless of who the president might be, I think that would be a significant resource for the nation. If we had such a resource on every president from George Washington to the present, it would be a treasure trove. I continue to think that this is an idea that is very important. We certainly are open to seeing this be made a part of the future of humanities if the leadership in the White House and Congress feel that it is important.

Mr. Lawrence: In an era where all government agencies are being asked to produce results, and track performance, how does NEH track and communicate performance information?

Mr. Ferris: Well we increasingly are using our website and electronic reporting of information from grantees and from audience participation and programs to monitor and track the results of our projects.

We've also responded to the Government Performance and Results Act in creating what is called a Performance Plan for all of our projects. It establishes goals and sets forth a series of indicators that help us understand how our various grants are succeeding. And we in turn report that to Congress and the White House.

I think technology is in our favor in that our website and our ability to use technology to move data quickly and to sort data is increasingly giving us a clear picture of how successful our projects are. And they are enormously successful. We can begin to see a summer institute for a high school teacher gives that teacher a much firmer knowledge of the subjects they teach.

And then you can only imagine for the next 10, 20, maybe 40 or 50 years that teacher, year after year, is a better teacher for hundreds and thousands of students who will then go forth and be better citizens.

So you multiply that one teacher by hundreds of teachers at the secondary and college level, and then you multiply the numbers of students whose lives they touch. And you begin to see it's like a pebble dropped in the water and the ripples go out. That is but one example of how our programs make our nation far stronger and far richer.

Mr. Lawrence: It's time for a break. We'll be back with more of The Business of Government Hour and our conversation with William R. Ferris, chairman of the National Endowment for the Humanities.

(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 William R. Ferris, chairman of the National Endowment for the Humanities.

One of the toughest challenges that many employers are facing now is recruiting and retaining new employees. Does NEH have this problem?

Mr. Ferris: I would say we have a problem with retaining employees. But our problem, like many federal agencies, is that we have a graying workforce, which is particularly acute in our situation, because so many of our younger staff were cut when the 40 percent budget reductions came through a few years earlier. But we are slowly and steadily rebuilding this workforce. As our staff retires, then we are bringing in wonderful young leadership within the humanities, and many of whom are PhDs in various fields.

And there's a great love for the Endowment across the nation. And I think it's going to be exciting and easy to recruit highly professional trained scholars who are interested in helping through the Endowment to build the humanities all over the nation.

Mr. Lawrence: Will they come for a job that will last a career, or will they be moving back and forth to, say, academia?

Mr. Ferris: Well, one can do both. But I think in most cases we will be bringing in people to work for a career. But it's also possible to come into the government for a year or two and to have that experience, and then to go back into the university. But most of the examples that I'm familiar with within the agency indicate that once staff is there, they do not leave until they retire. Because it's an extraordinarily and moving experience to see institutions and individuals grow and flourish. Because -- and I'm the best example. I mean, my whole career as a teacher and scholar and administrator would not have been possible without the NEH support.

So, I know full well that the kinds of advantages the Endowment offers individuals are in direct relationship to the leadership we have at our agency. These are leaders who become very personally involved and they have a chance to watch over several decades, sometimes, a small institution grow and flourish, or an individual scholar who's totally unknown, a young Ken Burns get help for his first film on Huey Long, and then become one of the nation's greatest filmmakers.

There are many examples like that. Ralph Applebaum, who designed the Holocaust Museum began his career as an unknown designer for museums with NEH support. The examples that one can cite are many. And to bring staff in and to give them a chance literally to shape the nation for the better I think is very appealing. And I look forward to seeing the growth and the development of young staff as they increasingly come to our agency.

Mr. Lawrence: What advice would you give to a young person who is interested in a career at NEH?

Mr. Ferris: Well, I always tell young people to follow their hearts. Life is too short to do otherwise. And do what you love. And if you love the humanities, and want to come to the NEH, then look at those positions that appeal to you most.

In some cases, it might be working with research, in others with public programs. A person who has a strong background in film or radio would be much more challenged and excited by the public program sector. If you've done research and published books and so on, then the research division would be a more likely venue.

But there's a wide range of wonderful opportunities within our agency. And each summer we bring in summer fellows who are college students. And they bring a wonderful new energy for the summer into the agency. And many of those are inspired and have indicated that they would like to come back, you know, after they finish their education and join our staff full-time.

And so there is a process here that clearly is exciting to the public. And we are never without wonderful choices when we're seeking to hire new staff.

Mr. Lawrence: Is there a key characteristic, from your observation, that separates the really excellent researchers or filmmakers from the other ones you see -- the Ken Burns, for example, from the other filmmakers?

Mr. Ferris: Well, I think there are really no filmmakers who are not good. I mean, I'm a filmmaker myself. And I know a lot of what separates one filmmaker from another is simply the access to resources. And Ken Burns really is unique in his ability to raise support and to build institutions around the subjects he's done, such as the Civil War and jazz.

And we seek not only to help the blockbuster productions, but to help the unknown filmmakers who are just beginning their career. We're launching support for filmmakers who are coming to us for the first time. And maybe $10,000 spread over 50 filmmakers -- of 10,000 each -- will yield a handful of truly significant filmmakers over the next 50 years who will be household names in the ways that Ken Burns' name is today.

So I think no one can distinguish between good, better, best. In scholarship, in filmmaking we simply can't judge what a decade or two from now will be viewed as a very powerful and important grant. And many of our smallest grants have had this effect. We funded a perhaps about $10,000 or $12,000 to a scholar to do a research project and a book on the Amistad incident about 25 years ago. Well, that book was one of the key resources for Steven Spielberg's wonderful film.

We can point to many examples where we gave an archeologist a modest amount of money to do work in Peru that led to the discovery eventually of the Ice Maiden. So, our work moves in wonderful and mysterious ways. And I think these are all God's children that we support. And they're all very beautiful and significant work in our eyes.

And I think as we look back over our 35 years, we can see the patterns of growth that have come in very unexpected ways that have blessed and enriched the lives of all Americans thanks to this great institution, the National Endowment for the Humanities.

Mr. Lawrence: What does the future hold for the National Endowment of the Humanities five, 10 years out? What do you think it will look like, and what do you think it will be doing?

Mr. Ferris: I think it will be hardly recognizable in terms of what we see now. First of all, all of our applications will be done electronically. We will have virtually every resource in our nation, presidential papers, family trees, the histories of local communities on websites that will all be linked so that a student in the 5th grade in rural Montana will have equal access to the rich worlds of the Library of Congress, as rich as anyone in the country. And we will see the agency partnered in a very intimate way with the White House, and Congress as we shape national and international policies, economic, cultural. We will have a whole new sense of pride and understanding about our nation's culture.

And that step will have been made because of NEH. I think NEH will grow and will become an essential part of all public policy. Not only education, but cultural and economic because culture is related to economic development. And we grow as a community, as a region and as a nation in direct proportion to our ability to know our history and our culture.

In our recent book on the 35-year history of the agency, there's a preface by Stephen Ambrose, in which he says, "I can't imagine an America without the NEH." And I think that will be the thought of every American in the coming years.

Mr. Lawrence: I want to thank you, Bill. I'm afraid we're out of time. I've enjoyed our conversation very much.

Mr. Ferris: Thank you very much.

Mr. Lawrence: This has been The Business of Government Hour featuring a conversation with William R. Ferris, chairman of the National Endowment for the Humanities.

To learn more about our programs and research into new approaches to improving government effectiveness, visit us on the web at endowment.pwcglobal.com. See you next week.