When times are tight and states have effective performance budgeting processes, they are less likely to resort to across-the-board cuts. Are there lessons here for the federal government?
New research findings by a team led Daniel Mullins at American University examine recent state-level trends in the use of performance budgeting or “budgeting for results” approach. This research, presented at the annual conference of the American Society for Public Administration, offers some insights for any future federal performance budgeting initiative.
Performance budgeting is the use of information on the performance of programs and agencies to inform decision-makers in the executive and legislative branches as they make trade-offs during the budgeting process. For example, can an agency show progress in reducing the costs of job training? Budgeting for results is similar, but is at a higher level. It examines the results achieved from programs and uses those results as the basis for making budget trade-offs. For example, which strategies or mix of programs will be most effective for reducing unemployment— better high school preparation, vocational job training, economic development?
The federal government has periodically attempted performance budgeting initiatives—the most widely known is the Defense Department’s Planning, Programming, Budgeting and Execution System. But Office of Management and Budget Director Sylvia Burwell has announced that starting in fiscal 2016, agency performance will be factored into budget decisions governmentwide. Separately, OMB has said agencies will have discretion on how to develop their approaches to making this happen through the new agency strategic review process. So it may be worthwhile to see how states are approaching this.
Formal Initiatives in 44 States
Performance budgeting has been an enduring budget reform initiative for many decades, with many variations, at the federal, state and local levels. But the most prevalent use seems to be in state governments. According to the research team led by Mullins, as of 2013, 44 states had formal initiatives in place for executive branch-led performance or results budgeting. Of these, 38 require performance information to be included in budget requests to their state legislatures.
The approaches used varied, but those the researchers deemed more successful had several common process-related features:
An institutionalized commitment. This includes elements such as a statewide strategic plan, agency-level operating plans tied to the statewide strategic plan, periodic monitoring of agency progress during the course of the year, priority-setting and resource allocations aligned with goals and informed by performance measures.
Effective mechanisms for public input. Availability of a statewide forum, or other mechanism, in which citizens can provide input and gain a broader understanding of the scope of a state’s priorities and choices that must be made.
Transparency in decision-making processes. Presentation of performance information, along with independent and open monitoring of measures.
Obstacles to Measuring Performance
- Difficulty in gaining clear agreement among stakeholders on the primary purpose of programs and activities.
- A tendency to focus on what is measurable.
- Difficulty linking agency performance to the actual achievement of specific goals.
- Budget decisions made on the basis of priorities of elected leaders, not necessarily measures of performance.
- Incentives for agencies to choose easily achievable targets, or cheat in the use of measures.
But in addition to these technical issues, the researchers say there is often a tension between the rational/technical elements of performance budgeting and the political/philosophical elements. They say a key question is: “Is public sector budgeting an outcome or a process?” To date, they say, “performance budgeting has not been successful at elevating outcomes about process.” Nevertheless, states are moving forward.
What Some States Are Doing
The researchers highlighted what several states were doing in terms of best practices around each of the three success factors they identified.
Institutionalized participation and commitment:
- Iowa. The state’s commitment to performance budgeting has waxed and waned depending on who serves as governor. In 1997, Gov. Terry Branstad required agencies to include performance information with their budget submissions. A 2005 law championed by Gov. Tom Vilsack institutionalized strategic planning and results-based budgeting. His successor de-emphasized the approach, but Branstad returned to office in 2011, restoring the prominence of this approach.
- Texas. Agencies submit their requests directly to the legislature, and the Legislative Budget Board provides them direction, in consultation with the governor’s budget office. The Budget Board has created an agency performance review board that assesses program operations and efficiency, as well as the elements for performance reporting. According to the researchers: “The Texas legislature has the strongest performance budgeting role of any state reviewed.”
- Washington. Like his predecessors, Gov. Jay Inslee has identified state-level priority results areas—in his case, five. More than 900 individual agency activities are mapped to these results areas and are ranked in terms of their relative contribution to these results areas. Agencies then justify budget requests based on their activities’ linkage to gubernatorial priorities, and activity-level performance measures are included in budget decision-making packages.
Effective mechanisms for public input:
- Washington. The previous governor, Christine Gregoire, established a Committee on Transforming Washington’s Budget. It comprised a “broad public membership to submit ideas for restructuring, costs saving, outsourcing and addressing services needs.” It conducted a series of hearings to inform the governor on budget and statewide priorities.
- Michigan. A legislative proposal is pending to create a Michigan Progress Board that would monitor agency performance and hold public hearings to gain input into state priorities and progress toward these priorities. A similar board operated in Oregon for a number of years before being abolished in an austerity move. The state currently has a dashboard of broad indicators of societal outcomes and trends—MiDashboard—but they are not linked to agency activities, goals or objectives, according to the researchers.
Transparency in decision-making processes:
- Washington. The state assesses state and agency progress in priority areas and tracks them publicly via the Governor’s Results Washington website, which is open to the public and provides a dashboard for ease in interpretation by the public. There are also links to agency actions plans. However, the researchers say that the site focuses on a handful of priorities, not all state programs.
- Texas. The Texas Transparency website provides comprehensive state spending information, and the Legislative Budget Board’s website provides access to detailed agency budget submissions, which contain performance information. These are supplemented with biennial Government Effectiveness and Efficiency Reports. The researchers, however, conclude that they are not easily accessible and are hard to digest by outsiders.
The researchers gleaned a handful of lessons learned from their review of state performance budgeting efforts. Several of them have potential implications for any federal efforts to adopt a performance or results approach to informing budget decision-making:
Clarifying priorities. A key benefit of linking performance information to budget decisions—at least in the executive branch’s budget formulation efforts—is that this approach can help clarify priorities and help align agency strategies to achieving results, especially if a result reaches across agency boundaries.
Measuring contributions. At the state level, the use of performance budgeting approaches tends to disadvantage programs that cannot demonstrate how they contribute to measurable outcomes. These predominantly tend to be social services that depend on changing behaviors over a long period of time that may be influenced by the broader environment (e.g., homelessness, obesity, domestic violence, disengaged youth). Since federal programs are largely grants to states, localities and nonprofits, measures of contributions may be even more difficult.
Making trade-offs. At the state level, leaders have not yet developed an approach for making trade-offs across budget functions. For example, should they fund more early childhood education or more infrastructure investment? States’ experiences with performance budgeting seems to be more effective in making trade-offs within a budget function. This may be the same at the federal level, where performance budgeting may be more useful to appropriations committees than to the budget committees.
Avoiding over-standardization. An interesting finding that seems to have a federal parallel is that creating overly standardized systems can be problematic: “Agencies need flexibility in determining how to collect, organize and interpret information to meet their unique service delivery responsibilities.” This insight has been a guiding principle of the Office of Management and Budget in its implementation of laws such as the Government Performance and Results Act, as well as its approach to budgeting.
While the research team at American University tended to be a bit more skeptical than I about states’ progress in performance budgeting, its findings are encouraging and continue the trends begun decades ago in the field of performance budgeting.