Following his 1980 election to the White House on a pledge to shrink the federal government, President Ronald Reagan established a private-sector commission to uncover wasteful spending and improve government efficiency.
Starting with President Theodore Roosevelt’s creation of the Committee on Department Methods in 1905, multiple task forces were formed throughout the 20th century to explore ways to reform the administration of the executive branch. Shortly after his inauguration as governor of California in 1967, Reagan created the privately financed and staffed Governor’s Survey on Efficiency and Cost Control, which made nearly 2,000 recommendations on ways to deliver state services “in the most efficient, expeditious and economical manner.”
Industrialist J. Peter Grace, CEO of W.R. Grace & Company, convinced Reagan to undertake a similar initiative on the federal level. On June 30, 1982, Reagan signed an executive order that established the President’s Private Sector Survey on Cost Control, with Grace serving as chairman.
Funded exclusively by $76 million in private-sector contributions, the “Grace Commission” was tasked with identifying opportunities for increased efficiencies and cost reductions through executive action or legislation, suggesting managerial operating improvements and determining areas for improved administrative controls.
More than 160 CEOs and senior corporate leaders chaired 36 task forces that reviewed executive branch agencies or functions, and nearly 2,000 business executives—and no federal employees—staffed the commission.
Reagan directed the commission to apply modern business practices to improve the efficiency and effectiveness of federal agencies. “Be bold,” Reagan urged the Grace Commission. “We want your team to work like tireless bloodhounds. Don’t leave any stone unturned in your search to root out inefficiency,”
The Grace Commission's Findings
For 18 months, the commission hunted for wastefulness and inefficiencies before issuing its formal findings on January 16, 1984. In a report that filled 47 volumes and 23,000 pages, the commission made 2,478 cost-cutting and revenue-enhancing recommendations that it estimated would result in $424 billion in savings over three years.
“The federal government is suffering from a critical case of inefficient and ineffective management, evidenced particularly by the hemorrhaging of billions of tax dollars and mounting deficits,” the report stated.
While scandalous examples of profligate spending by the Department of Defense, such as $436 for a claw hammer and $511 for a 60-cent light bulb, grabbed headlines, the commission pinpointed more mundane, but fruitful, targets. It flagged the Federal Power Marketing Administration for selling subsidized power in the Northwest at one-third of market rates and recommended that cash seized by the Justice Department be placed in interest-earning bank accounts. It found the Treasury Department could save $1.3 billion over three years by paying bills when they were due instead of when they were received and estimated that individuals and corporations failed to pay $81.5 billion in taxes in 1981.
The Grace Commission also reported that civil service retirees received three times the benefits of the best private-sector plans, with military employees receiving six times the benefits. In addition, federal employees retired at considerably younger ages and received pensions fully indexed for inflation, a rarity in the private sector. The commission estimated federal pension reform could result in more than $60 billion in three-year savings.
Critics Fire Back
Grace Commission critics questioned its underlying premise that private-sector management principles could be directly applied to the public sector. They also expressed concerns about potential conflicts of interest, given that business executives were investigating federal agencies responsible for regulating their own companies.
A joint report by the Congressional Budget Office (CBO) and General Accounting Office (GAO) reviewed nearly 400 of the commission’s recommendations—the ones responsible for nearly 90 percent of the estimated savings—and found the savings to be only one-third of that projected by task force, in part because of different accounting practices.
The report noted that most of the savings identified by the Grace Commission—such as reducing federal employee retirement benefits or repealing or modifying prevailing wage rates for federal construction contractors—were tied “to recommendations that would require significant changes in current laws and policies.” That’s where the Grace Commission’s efforts hit a roadblock.
Recommendations Stall with Congress
According to Citizens Against Government Waste—a nonprofit co-founded by Grace in 1984 to eliminate waste, fraud, abuse and mismanagement in government through research and public education activities—Reagan saved more than $100 billion by implementing Grace Commission proposals through executive orders.
However, the Grace Commission projected that only 27 percent of its recommendations could be implemented by presidential authority, with the other 73 percent requiring action by Congress. The measures that could have the biggest cost impact, such as $88 billion in changes to Medicare and federal pensions, were also the most politically controversial and non-starters in the Democratic-controlled U.S. House of Representatives.
Congress did adopt some commission recommendations, such as the closure of unnecessary military bases and relinquishing federal control of two airports serving Washington, D.C., to a local authority.
According to Ronald Reagan Presidential Library & Museum, “Most of the recommendations, especially those requiring legislation from Congress, were never implemented. However, the commission’s work provided a starting point for many conservative critiques of the federal government.”
While Reagan succeeded in implementing substantial cuts to federal tax rates during his presidency, spending reductions proved more difficult. By the time he left office in 1989, the annual deficit and national debt had tripled during his two terms in the White House.
