Making Smart Cuts: Lessons from the 1990s Budget Front

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As the nation deals with another financial crisis, can lessons learned from two decades ago be applied to the current economic situation? To understand how agencies responded to the steep budget cuts of the 1990s, Booz Allen Hamilton teamed with the Partnership for Public Service to gather and analyze the experiences of more than 30 current and former senior federal officials, academics, and other public-policy experts. The resulting report, “Making Smart Cuts: Lessons from the 1990 Budget Front,” outlines some of the experiences in government downsizing from the 1990s—the successes and the failures—and offers a guide for policymakers as they confront the current economic crisis. The report outlines eight strategies most often used during the previous budget-cutting era, and shares insights on the advantages and disadvantages of each.

• Across-the-board cuts, which reduce budgets, programs, or functions by an equal percentage, are easy for leaders to implement since they apply to all alike, but they ignore differences in priority, performance, or efficiency.
• Programmatic cuts, which reduce programs or functions according to relative importance or efficiency, may allow agencies to protect those programs that are the highest priority or achieving the best results, but they require difficult decisions that may be opposed by affected stakeholders.
• Decreasing administrative costs, which can reduce overhead, may lead over time to a weakening of managerial capacity or critical support functions, such as human resources and financial management.
• Personnel reductions, which can contribute to major cost-savings through attrition, forced layoffs, or both, can also create severe skills imbalances, degrade morale, and “hollow out” organizational limits.
• Consolidating or centralizing functions, which can lead to greater efficiency, may degrade responsiveness or citizen and customer service.
• Reegineering, which can improve service quality and speed, may require significant upfront resources, particularly if technology is employed, as is often recommended.
• Investing in information technology, which can significantly increase productivity and efficiency, requires significant initial investment and may result in unanticipated implementation costs.
• Outsourcing, which assigns functions or tasks to external organizations, ideally at a lower cost, requires oversight by skilled government personnel and may not achieve expected savings.

The report cautions that none of the eight strategies would be successful in isolation, and also identifies four cross-cutting conditions integral to the success of any downsizing effort. The first one addresses the need for top-level leadership willing to make difficult decisions and present the vision to employees and key stakeholders. Planning is equally important; in the 1990s, the most successful agencies planned ahead and were prepared for cuts. The third condition involves using multiple strategies to implement budget cuts, which proved more effective in the past. Interviewees noted that agencies usually needed to use more than one option to absorb significant budget cuts, sometimes simultaneously. Finally, a change management approach is essential. Leaders who used a change-management approach by providing a vision, establishing clear priorities, and measuring performance found more success adjusting to budget cuts.

The Booz Allen team contributing to this report includes Executive Vice President Jack Mayer, Senior Vice President Dave Mader, Senior Executive Advisor Ron Sanders, and Associate Kim Douglass.

Download the report.