WORKING CAPITAL FUND

Mr. Chairman, I need not point out to you and the other members of the Committee that the difficulties we face in financing our programs in USDA require us to continually seek innovative yet cost effective ways to provide quality administrative support and financial management services. For the past forty-three years, our Departmental Working Capital Fund has supported just those kind of services, allowing our program agencies to pursue their programmatic goals unencumbered by the details of providing such services separately and individually. More importantly, recent experience and our Fiscal Year 1988 initiatives will enable us to achieve even greater economies for the benefit of both our USDA agencies and other Government agencies making use of our services. I would like to turn to a brief description of these services and our plans for those activities.

Our largest WCF activity, in terms of annual budget and personnel, is the National Finance Center in New Orleans, Louisiana. The Center continues to serve as the Governmental standard in offering quality financial and administrative services. From both inside and outside USDA, user agencies are able to take advantage of such services as centralized financial management, accounting, administrative payments, personnel, property management, and recordkeeping. Such is the reputation for quality earned by the Center that it was selected to develop and initially operate the Thrift Savings Plan component of the new Federal Employee Retirement System after it was determined that no private source would be capable of implementing the quick start-up of the system the plan demanded.

In the area of automated data processing and telecommunications support, our Departmental Computer Centers in Fort Collins, Colorado; Kansas City, Missouri; and here in Washington; as well as our telephone service and local area network operations at Headquarters provide agencies with cost-effective and technologically superior mainframe computing and telecommunications services. In Fiscal Year 1986, we completed a productivity study of our computer centers which, if implemented, will allow us to improve services further, at greater savings.

Here in Washington, centralized support services are provided to agencies in supply management, mail distribution, duplicating services, video and film, design, imprest fund, property management, shipping and receiving, correspondence management, and numerous other administrative operations.

As you can see, the WCF supports quite a range of activities. This demands quality management control and oversight to insure effective service and financial integrity. That is why, in addition to the oversight you provide, we employ a two-part system to review the finances and services of the WCF. The first part of this system is the review conducted by the WCF Comptroller, who oversees the ongoing operations of the Fund. He and his staff conduct initial reviews of activity budget requests, review on a quarterly basis the finances and management accomplishments of WCF activities, and advises me in my role as "Chief Executive Officer" of the Fund. The second part involves an interagency review board comprised of seven agency program representatives and Departmental budget office representatives. This "board of directors", if you will, conducts further reviews of activity budget requests and quarterly reports on the status of WCF activities. The board then recommends to me and to the Comptroller actions which will further improve financial and activity management of the

Fund. We view this input from the board as a vital element in effective management of the WCF. The agency perspective on WCF activities is essential, acting much as a customer feedback program serves to improve private firms in the delivery of goods and services. As a result of this open, comprehensive review, we have prepared a budget which will allow us to continue providing superior services while exercising fiscal responsibility.

Despite our recent accomplishments and the reputation we have earned for the quality of our services, Mr. Chairman, we stand at an important crossroads in the management of centralized services and the WCF in particular. As you are aware, we have initiated service agreements with other Federal agencies over the past few years. For instance, the National Finance Center has entered into agreements with several diverse agencies, including the Department of Education, the Department of Commerce, and the Merit Systems Protection Board, to provide a range of services such as payroll/personnel, administrative payments, and central accounting. There is a two-way gain in this approach. The reimbursements we have received from those agencies have benefitted USDA agencies, by reducing the share of fixed costs they must bear, and the other Federal users have benefitted, by allowing them to avoid the up-front developmental costs they would have to expend to duplicate the services we provide. These agreements, part of a strategy we call "cross-servicing", result in a win-win outcome for all current and potential service clients. While this means that total activity costs and staff levels needed to do the work may increase, we achieve considerable savings within the entire community of service users, both in the price of services received a cost saving and in costs not paid in developing an agency's own resource - a cost avoidance.

We are aware

that in the past there have been comments regarding the rising costs of our WCF activities. We believe that this is a short-sighted view, failing to appreciate the obvious benefits when the wider view is taken. We strongly believe that it is this wider view that deserves attention. To focus solely on the apparent costs of a WCF activity, or the WCF as a whole, without an appreciation for the wider benefits they create, may force us, as managers of the Fund, to forego future agreements or terminate existing ones as we fulfill our basic responsibilities to our agencies in USDA. We believe this would create a lose-lose situation for USDA and other Federal agencies. Cross-servicing will significantly reduce unit costs of service to all users through economies of centralization as the potential benefits accrue to a much wider population than USDA. In this vein, Mr. Chairman, I think it is important that all of us take a look, not only at the year-to-year changes in our estimates for staff and dollar levels, but how any marginal increases for the WCF are more than offset by savings in the development and operation of duplicative services elsewhere in Government - duplication we are seeking to avoid in this era of necessary budgetary management.

An important element in providing adequate resources is capital acquisitions support. As part of the ongoing plan USDA and Congress developed in 1984, we are requesting $6,000,000 for capital acquisitions in fiscal year 1988. We have had considerable success in modernizing our equipment inventory as a result of the funds provided by the Congress over the past three years. It is due in large part to the technological superiority of the assets purchased with these funds that we have been able to both increase the quantity of service we provide and still maintain our reputation for quality in the services we deliver. We expect that further quality improvements can be made with even

greater cost effectiveness as a result of the acquisitions planned for 1988. This year, Mr. Chairman, we expect to achieve a net cost savings of $2.9 million over three years with purchases made from Fiscal Year 1988 funds, and a total lease cost avoidance over 1985-1988 of $15.2 million. We believe this justifies the confidence place in USDA at the beginning of 1984. This is

evidence of the continued application of responsible management principles to to financing of WCF activities. We will work hard to evaluate our ongoing needs so that we increase benefits to users while minimizing costs.

Having said all this, we are proposing an operating level in Fiscal Year 1988 of $119,433,000. This excludes support for capital acquisitions. Non-inflationary increases in this figure are due primarily to needed increases for cross-servicing activities as we hold the line on costs to USDA agencies.

Detailed information

Mr. Chairman, this concludes my prepared statement. is provided in the budget justifications we have furnished to you, but I would be glad to provide further details and respond to any questions you may have.