Federal Reform Panel Facing Huge Challenge : Government: Gore-led review hopes to produce a plan by September to overhaul the national structure.

For Michael Joyce, the light dawned the morning he walked into the first Grace Commission hearing on government waste 10 years ago and found the room packed with special interests intent on fighting proposals to save government money.

“They were professional lobbyists who wanted to find out what would be labeled as wasteful” so they could crusade against cutting it in Congress, said Joyce, president of the Bradley Foundation and a member of the commission, which was appointed by then-President Ronald Reagan.

“I just tell this story,” he said last week, “because it reminds me what a politicized process that was.”

Now President Clinton--like Reagan and so many other new chief executives before him--is going to try his hand at government reform.

Clinton has put Vice President Al Gore in charge of what is called the National Performance Review, based on a model used by the Texas state government. The review will be directed by a task force of six civil servants from state and federal government. They will oversee a team of officials from various federal agencies, and will seek advice from outside consultants.

Although they are gathering information in public hearings, as well as from other sources, much of their work will be conducted in secret from a “war room” near the White House.

Task force members are to move at top speed, zipping from agency to agency, interviewing federal employees and watching the government at work. Their goal is to produce a plan by September for overhauling the federal government.

“We are going to the people on the front lines, those who have the most experience and the most insight into government, and who oftentimes are the most frustrated, and asking them for their opinions,” said Marla Romash, Gore’s communication director.

The task is formidable, and is being met by more than a dollop of skepticism. “There’s been a lot of laughing at this Gore thing, and some of it deserved,” said Colman MacKenzie, a professor at Colby College in Waterville, Me., and an expert on the workings of the federal government.

The Administration must do head-on battle with the Iron Triangle--a combination of government bureaucracy, special interests, and members of Congress--that often succeeds in sidetracking reforms.

Just ask Edward L. Hutton, another former Grace Commission member, who recalls a commission suggestion to contract the cleaning of federal buildings out to a private company.

The idea was not popular with the union whose janitors would have been displaced by the shift, “so Congress on a late Friday night passed a law forbidding even the study of cleaning buildings with outside personnel,” Hutton fumed. “Talk about Disneyland. . . . “

The greatest hope for reform, many say, lies in the work force itself, where many civil servants dedicated to public service have grown frustrated with a system they believe tends to reward mediocrity over dynamism and innovation. Perhaps that same frustration in the public at large, some say, is what made an unlikely bestseller last year out of the scholarly tome “Reinventing Government.”

Written by political consultants David Osborne and Ted Gaebler, the book analyzes various innovations in federal, state and local government and concludes that the public sector needs an infusion of entrepreneurial spirit and flexibility to keep up with changes in society. Candidate Clinton hailed the book as a model for changes he hoped to make as President, and last week Osborne was named as a consultant to Gore’s team.

To insulate task force members from politics and special interests intent on thwarting reforms, the task force plans to follow the model of the Texas Performance Review.

Led by Texas State Comptroller John Sharp--also a consultant to Gore’s team--the review assembled 104 state employees and outside contractors to figure out how government could provide the same services for less money.

The commission was given five months to complete its top-to-bottom examination. To shield members from outside pressures, most of its work was conducted in private. In fact, only two members of the audit team had an overview of the report before it was released publicly in 1991.

The panel recommended $4.2 billion in cuts, of which the state Legislature adopted $2.4 billion.

Few deny that the Texas audit worked, but many question how applicable its methods are to the labyrinthine federal government. “My sense is that some of these things are easier to do at the state and local levels than at the federal levels,” MacKenzie said.

Others, such as Sen. William V. Roth Jr. (R-Del.), a longtime advocate of government reform, agree with the federal task force’s goals, but object to the secrecy.

“I’m very much in favor of opening up the system,” Roth said. “These are very earthshaking decisions, and the public has a right to know.”

If history is any indication, the effort faces substantial opposition. The 14 volumes filled with the 2,478 suggestions offered by the Grace Commission now lie gathering dust on Washington bookshelves.

Jimmy Carter’s much-ballyhooed “zero-based budgeting” innovations brought his Administration more headache than progress. Attempts by former Presidents George Bush and Gerald R. Ford to rein in the ballooning bureaucracy also fell short of their objectives.

Sharp insists the results will be different this time. Like his commission did in Texas, he said, the National Performance Review results will be taken over the head of legislators and straight to the people.

“If no one knows about it, you can’t overcome the special interests who don’t want things to change anyway,” Sharp said. “In order to overcome this, you need a lot of publicity.”

If it was done in Austin, he said, it can be done inside the Beltway. People who say Washington isn’t Texas do not understand that “the principle that drives people to govern is the same in city councils, state legislatures, and the federal government,” he said.

“The only difference in Washington is that they’ve got a bigger mess.”