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Is Performance Budgeting an Unnatural Act?

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Performance budgeting has been a mantra of government reformers at least since the Hoover Commission in 1949. But implementation has been sporadic. Why is something that seems sensible so hard to do?

A couple of recent research studies could provide some insight—and caution—in attempts to implement performance budgeting. The first report examines agency challenges raised internally by tensions among finance, performance and budget personnel in cities in North Carolina, and the second explores the perspectives of local elected officials in Denmark.

Informing budget decisions with past agency and program performance data, according to University of Maryland professor Phil Joyce, is an “attempt to more explicitly bring together performance information, on the one hand, and the budget process, on the other.” This can be done at various stages in the federal budget process—formulation, approval, execution and audit/evaluation.

In 2003, then-Comptroller General David Walker said in congressional testimony: “Linking planned performance with budget requests and financial reports is an essential step in building a culture of performance management. Such an alignment infuses performance concerns into budgetary deliberations, prompting agencies to reassess their performance goals and strategies and to more clearly understand the cost of performance.”

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More recently, a 2015 House Appropriations committee report noted approvingly: “Performance measures . . . should clearly demonstrate the extent to which performance reporting . . . demonstrates that prior year investments in programs, projects and activities are tied to progress toward achieving performance and priority goals and include estimates for how proposed investments will contribute to additional progress.” The report also urged the Office of Management and Budget to work with agencies to ensure their 2016 spending is linked to their performance plans. So, there is congressional interest.

Can Cost Accountants and Performance Measurement Officers Get Along?

Zachary Mohr, a professor at the University of North Carolina at Charlotte, examined the tensions between cost accountants and performance measurement officers in North Carolina cities, in a recent Public Administration Review article. He concluded: “While cost accounting and performance can be used together in public organizations, this analysis shows that these systems have competing relationships that do not often allow them to work together, as benchmarking and performance budgeting theories suggest.”

Mohr surveyed local governments on their use of cost accounting and performance measures and found that integrating the two to support performance budgeting was not a good assumption.

He noted that “cost accounting corresponds with inputs and processes, and the outputs and outcomes are generally measured by the performance measurement system.” Mohr hypothesized that, as a result, “they do not complement one another, but instead compete as control systems.”

This competition is rooted in who uses the information and for what purpose. Mohr observed: “The preferences of organizational leaders may be different from the preferences of managers of individual programs or services . . . Generally, organizational leaders benefit the most from more cost information . . . In contrast, program and service managers face greater resource uncertainty and reduced autonomy that may lead to resistance to cost accounting.”

He also noted that “program and service managers are likely to prefer performance measurement to cost accounting” because “cost accounting incorporates cost information that may be out of the control of managers because the costs can be incurred by different departments.”

Mohr concluded that communities in North Carolina were able to bridge these tensions by developing the two systems side-by-side, which helped pave the path to using both for performance budgeting. But if one system is already in place and relatively robust, developing the other system will likely be more difficult—and a potential barrier to the longer-term objective of creating performance-informed budget systems.

Do Politicians Only Use Favorable Performance Measures?  

In a second article, in Public Performance and Management Review, Danish researchers Bente Bjornholt, Martin Baekgaard and Kurt Houlberg examined whether local politicians facing budget cuts are more—or less—likely to use performance information to guide their budget decisions.

The authors conducted several surveys of all 2,467 Danish municipal political leaders between 2009 and 2013—a period when budgets were cut 5 percent. The prevailing notion was that performance information would be useful in identifying areas where services can be cut. And the research team noted it has long been thought that “fiscal austerity and how politicians perceive fiscal austerity might lead to an increased emphasis on management instruments such as performance measurement in order to optimize efficiency and effectiveness.”

But it turns out that is not the case.  The authors concluded that “performance systems are based on a logic of management, politics represents a logic of interest.”

In the first survey, 65 percent to 80 percent of politicians said all forms of performance information were of value to them, noting a special interest in citizen surveys. This implies they have a positive attitude toward performance information. But even though they may like such information, their responses in a later survey indicated that they don’t use it when making decisions about budget cuts. In fact, statistical analyses of the survey data, when compared with the degree of fiscal austerity in the municipalities, shows that “the higher the level of fiscal austerity in a municipality, the less the politicians use performance information,” the authors said.

The researchers concluded: “In order to avoid blame, politicians facing fiscal stress are less likely to emphasize performance information and may also question the reliability and validity of such information . . . by making performance information less transparent, politicians may avoid being blamed for highly unpopular declines in public services.” They found, however, that conservative politicians tended to find performance information more useful than their more liberal counterparts. The use of performance information in making budgeting decisions may be—in the words of the researchers—“the politics of good times.”

While the conclusions drawn by the authors of these two reports is a bit distressing to performance advocates, they do leave the door open. They note that it’s not impossible to move to performance budgeting, but that it takes political leadership committed to the use of evidence in making decisions. That tends not to be something that will happen naturally in a political context, especially when making trade-offs, but it is more likely when undertaken by career managers in other phases of the budget process, such as formulation and execution.

John M. Kamensky is a Senior Research Fellow for the IBM Center for the Business of Government. He previously served as deputy director of Vice President Gore's National Partnership for Reinventing Government, a special assistant at the Office of Management and Budget, and as an assistant director at the Government Accountability Office. He is a fellow of the National Academy of Public Administration and received a Masters in Public Affairs from the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.

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