Action: OMB and agencies will stop using full-time equivalent ceilings, managing and budgeting instead with ceilings on operating costs to control spending.18 In another effort to control spending, both the executive and legislative branches often limit the number of each agency's employees by using full-time equivalent (FTE) limits. When agencies prepare their budget estimates, they must state how many FTEs they need in addition to how many dollars. Then, each department or agency divides that number into a ceiling for each bureau, division, branch, or other unit. Congress occasionally complicates the situation by legislating FTE floors. Federal managers often cite FTE controls as the single most oppressive restriction on their ability to manage. Under the existing system, FTE controls are the only way to make good on the President's commitment to reduce the federal bureaucracy by 100,000 positions through attrition. But as we redesign the government for greater accountability, we need to use budgets, rather than FTE controls, to drive our downsizing. FTE ceilings are usually imposed independently of--and often conflict with--budget allocations. They are frequently arbitrary, rarely account for changing circumstances, and are normally imposed as across-the-board percentage cuts in FTEs for all of an agency's units- -regardless of changing circumstances. Organizations that face new regulations or a greater workload don't get new FTE ceilings. Consequently, they must contract out work that could be done better and cheaper in-house. One manager at Vice President Gore's meeting with foreign affairs community employees at the State Department in May 1993 offered an example: his FTE limit had forced him to contract out for a junior programmer for the Foreign Service Institute. As it turned out, the programmer's hourly rate equaled the Institute Director's, so the move cost money instead of saving it. The President should direct OMB and agency heads to stop setting FTE ceilings in fiscal year 1995. For this transition, the agencies' accounting systems will have to separate true operating costs from program and other costs. Some agencies already have such systems in place; others must develop financial management systems to allow them to calculate these costs. We address this issue in a separate recommendation in chapter 3. This recommendation fully supports the President's commitment to maintain a reduced federal workforce. Instead of controlling the size of the federal workforce by employment ceilings--which cause inefficiencies and distortions in managers' personnel and resource allocation decisions--this new system will control the federal workforce by dollars available in operating funds.