INTRODUCTION

Thank you for allowing me the opportunity to address the Speaker's Energy Task Force concerning the Department's worker and community transition program.

My basic message today is simple: When we change the way we do business, the Department affects workers and communities. If we engage those affected by change, we have a chance of enlisting them in our efforts to accomplish our mission. If we ignore them, we will engender unnecessary conflict and delays.

It is this thought that led Secretary Robert McNamara to create the Office of Economic Adjustment in the Pentagon back in the 1960s and it has served that Department well in its efforts to close unnecessary military bases.

Let me give you an example of how the Department of Energy accomplished its mission more effectively by attending to the concerns of workers and communities. It is the tale of two cities: Miamisburg, Ohio and Pinellas, Florida.

It was the best of times and the worst of times...just after I joined the Department's staff, we had to decide whether to implement a controversial decision that the previous Administration had made concerning the reconfiguration of the non-nuclear elements of the nuclear weapons production complex. In short, we were confronted with the same issues that Secretary McNamara faced when he attempted to reduce the military base infrastructure.

We undertook a public review of the previous Administration's decision with the explicit understanding that if we confirmed the earlier decision, we would help convert the unneeded facilities to commercial use. After only 45 days, we confirmed the wisdom of Secretary Watkins' original decision.

Today, five years later, Pinellas has been transferred to the local community and 500 private sector jobs are housed in this old nuclear weapons facility. We completed our responsibilities at the site 18 months ahead of schedule at a savings of at least $29 million to the American taxpayers.

At Mound, we are on track to close-out our activities by 2005, three to four years earlier than expected at a savings of between $150 to $200 million. Already the community is reusing buildings on the site to support over 200 private sector jobs and they have agreed to take the entire site "as is" after we complete the cleanup.

Neither of these accomplishments would have been possible if we had not sought to develop partnerships with the local communities and worked to earn the trust of the people on the ground doing the day-to-day work of going out of business.

This is hard work and I am pleased that the Congress has recognized this in supporting the Department's decision to provide incentives to the Federal workers at Pinellas who performed so effectively in closing our earliest closure site.

WORK FORCE RESTRUCTURING

As many of you know, before I came to the Department of Energy, I served as a staff member on the House Armed Services Committee with responsibility for oversight of the Department's national security programs. During that time, Admiral Watkins and the Congress expanded the size of the Department's contractor work force by over 20,000 people to bring the weapons complex into compliance with safety and health regulations and to expand the environmental management activities.

This expansion came to an abrupt halt, when, on September 27, 1991, President Bush fundamentally altered our nuclear deterrent posture as a gesture of goodwill after the attempted coup in the old Soviet Union. Yet even though things began to change, I watched how hard it was for the Department to separate unneeded employees or to change contracting practices. In an effort to ease the transition process, the Congress passed section 3161 of the National Defense Authorization Act for FY 1993.

Over the past five years, I've had the privilege of helping implement fundamental changes in the ways the Department does business. We have consolidated the nuclear weapons complex, we are changing contracting practices and we are accelerating cleanup and closure of unneeded facilities.

And as those of you who represent affected employees well know, these changes have required painful reductions in employment. Over the past five years, prime contractor employment at Department facilities has fallen from about 149,000 to just over 105,000.

We spent $787 million on separation costs for these 44,000 people; but, as a result, each year the Department saves $2.8 billion in operating costs.

The key to making these decisions stick was the opportunity to treat the affected employees and the communities fairly. We would not have been able to accomplish this task with as little "friction" as we have experienced if we did not have tools for assuring fair treatment.

Don't forget that large private corporations face the same issues when it comes to downsizing. And as we have documented in the Need and Justification Report requested by the Appropriations Committee last year, the tools the Department has used are squarely within the range of separation practices employed in the private sector.

Our approach has evolved over time. Originally, we were concerned about separating employees with long seniority because their skills did not match the new mission. Early retirement programs lent themselves to this approach. While early retirements are expensive, the employees that accept them have the highest compensation, making them sensible investments.

Next, we needed to thin out the work force at the largest sites. In these cases, we offered across-the-board voluntary separation options. The incentives offered were identical to private sector practices -- offering an enhancement to regular severance payments.

As we proceeded, concern about attaining the right work force for the job became the prime objective, and the program emphasized work force planning. To achieve this objective, we targeted voluntary incentives to employees in surplus labor categories.

We are now at the stage when restructuring has become part of the normal course of doing business. Last year, our contractors reduced their roles by about 7,000 employees. In 1996, it was 10,000. In 1995, over 14,000 positions were eliminated. During the next two years, we expect that contractor separations will be below 5,000 per year if the Congress doesn't cut the Department budget significantly. Our office budget reflects this fact -- our request for FY 1999 is $45 million, $16 million less than in the current fiscal year.

Our budget should be sufficient to provide roughly one-quarter of those separating with voluntary incentives. We will also pay enhanced outplacement and training costs for all contractor employees at Defense nuclear sites.

If you expect that the Department's overall budget will be reduced; remember, we are counter-cyclical. For example, we would not have sufficient funds to help the Department adjust to a reduction of $500 million in the Environmental Management account. We would need at about twice as much funding just to mitigate the work force reductions required by such a cut.

COMMUNITY TRANSITION

About half of our budget is targeted for community impact assistance, $6 million would go to Idaho in partial settlement of a lawsuit. Another $5 million would go to Mound, Ohio as part of the agreement with the community to take the Mound site off our hands completely. That leaves no more than $11 million to assist other communities at former Defense nuclear facilities.

The Department's community transition program is modeled on the base closure program at the Defense Department -- we encourage local communities to set a new direction through economic development planning by forming a community reuse organization, comparable to the Pentagon's base reuse committees.

Over the past five years, on average communities have created one job for every $11,000 in adjustment assistance we provided. This ratio is as good as the best benchmarks in the economic development world. According to a GAO report, for example, all Federal assistance for base closures resulted in roughly 1 job per $35,000 in assistance provided -- our record has been three times better than that.

QUESTIONS ABOUT THE PROGRAM

During the last Congressional cycle, questions were raised about the management practices of this program. I am here today to tell you that we can all be proud of how these monies have been spent. Our Inspector General has watched this program closely from the outset and the General Accounting Office has not been far behind. We work closely with both oversight bodies to ensure judicious program execution.

I can say without hesitation that every funding decision within this appropriation has been based on publicly stated objectives well within the range of industry and other government practices. And I welcome the opportunity to have an independent review as called for in the National Defense Authorization Act for FY 1998. This review should be completed during this Summer.

Yes, there have been bumps in the road, but the good news is that the Agency has a corporate memory in our Office that helps prevent us from repeating the mistakes of the past as we move forward.

We have accomplished our restructuring with a minimal number of lawsuits and disgruntled employees because, as the Congress requested, we prepared a plan at each site in consultation with workers and communities that told people how they would be treated before our contractors began handing out pink slips.

Since 1993, every voluntary separation program requested by our contractors and approved by the Department has been reviewed by an actuary within the Department. In addition, these decisions have all been reviewed by legal counsel.

We can demonstrate that every decision we have made has been squarely within the range of industry practice -- indeed, our early retirement programs, which draw the most attention because of cost, are below standard industry practice.

We have been vigilant that individuals who receive voluntary separation benefits not be hired back as subcontractors or contractors. Indeed, we require employees that take a voluntary incentive to sign waivers that they will not return to employment at the site for one year or they are required to repay their incentive.

Just yesterday, there was a report by the IG concerning work force restructuring at Fernald. This is a unique situation that we have been working with the IG on for some time. In early 1995, the Department authorized a voluntary separation program that allowed workers to separate up to April 1996 based on budget projections at that time. Subsequently, during Congressional budget action, the Fernald budget was increased in an effort to achieve early closure.

Unfortunately, before the budget increase was proposed, over 200 offers to separate were accepted. Once accepted, the contractor could only urge employees not to leave, and only 32 agreed to do so. As a result, the contractor was forced to hire temporary employees to fill the gaps. The good news is that the contractor now has in place a planning and reporting system to assure that the work force is effectively managed through closure.

Throughout the last five years, we have remained flexible in our implementation of section 3161. We never issued regulations covering contractor work force restructuring -- instead, we issued interim planning guidance that has been through three major revisions.

As a result of concerns raised by field managers and contractors during 1996, we have fundamentally changed the restructuring process and eliminated most of the Headquarters approvals previously required to separate employees. We now rely on existing work force restructuring plans and good communications to manage the process. You can ask Jim Hall, our manager from Oak Ridge who will be speaking next, how its worked there...

CONCLUSION

Let me conclude by saying that we recognize the Cold War ended almost seven years ago. But the pace of change within the Department has not slowed. No, we are not laying off as many people as we did three years ago, but the Department is still undergoing fundamental restructuring activities that affect workers and communities. Indeed, the recent change to a management and integrating contractor at our Oak Ridge site required careful coordination between Headquarters and the field before the proposal was released for contractors to bid on the job, and we will be monitoring the implementation by the contractor to ensure fair treatment of the workforce as over 3,000 souls shift from the safety of the old M&O world into the project-oriented future.

As I said at the beginning, my message is simple: the government can adopt a strategic approach to managing change or it can stumble into conflict and controversy. In a Department with as large and as concentrated a contractor employment base as we possess, the question comes down to the simple proposition posed by the FRAM Oil Filter man: You can pay me now or you can pay me later...

The President's request for $45 million for the worker and community transition program provides the modest means to implement a strategic approach to managing change in the Department of Energy. I urge you to support this request. Thank you for this opportunity to discuss our program.