J. OF PUBLIC BUDGETING, ACCOUNTING & FINANCIAL MANAGEMENT, 14(1), 53-73
SPRING 2002
PERFORMANCE BUDGETING—THE NEXT BUDGETARY
ANSWER. BUT WHAT IS THE QUESTION?1
Bernard Pitsvada and Felix LoStracco*
ABSTRACT. In the world of public budgeting, ideas and concepts often come,
go, and then resurface years later in a slightly modified version. Performance
budgeting was first abandoned in the 1960s; this paper examines its rebirth in an
attempt to determine if it will make a significant contribution to American
budgeting in the 21st century. Does it make for better budgetary decisions?
What are the questions that performance budgeting is supposed to answer? Is it
just another procedure that helps avoid focusing on problems of our “capacity to
govern” (Schick, 1990)? The paper concludes that while there are positive
things to say about the drive to performance budgeting, the Office of
Management and Budget should not recommend blanket adoption.
A BUDGETING CONCEPT FROM THE PAST
Forty years ago, Verne Lewis (1952) put forward “alternative
budgeting.” In this procedure, budget analysts would weigh “...the
relative value of alternative uses of each increment of funds as a step in
developing the alternatives to be submitted to the next higher level in the
organization” (p. 37). Next, the President’s budget submission to
Congress would outline “the major alternatives from which he made his
selection” (p. 37). Although it was not adopted, the proposal was often
cited in scholarly works as a method for improving budgetary decisionmaking. A quarter of a century later, alternative budgeting was
reincarnated as Zero Base Budgeting (ZBB), a series of alternative
-----------------------* Bernard Pitsvada, Ph.D., is a Professor, Department of Public Administration,
George Washington University. His teaching and research interests are in
public budgeting. Felix LoStracco, MPA, is an analyst at the Congressional
Budget Office.
Copyright © 2002 by PrAcademics Press
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decision packages structured “from scratch.” ZBB disappeared from the
scene when Jimmy Carter’s presidency ended.
For those who
participated in this exercise at the federal level, few mourned its passing
because they perceived little benefit from the procedure in relation to the
expenditure of time and the generation of mountains of paper (Lee &
Johnson, 1983).
“Incrementalism” is another widely held budgetary concept. Usually
attributed to the early works of Aaron Wildavsky and further developed
by Richard Fenno, incrementalism was a bottom-up method of
developing the budget through a series of political adjustments that
tended to increase the budget base in small controlled increments
(Wildavsky, 1964; Fenno, 1966). After serving as the standard
explanation of federal budgeting for fifteen years, incrementalism gave
way to “decremental budgeting” and “top down budgeting” during the
early Reagan presidency (Heclo, 1984). For budget-makers, however,
the concept of incrementalism has always explained how the
overwhelming majority of budgetary decisions are made—starting from
an established base, and then moving a little up or a little down. In
analytical terms, there is little difference between decrementalism and
incrementalism. Both are adjustments at the margin: one down, one up.
Although they seemed large at the time, the budget cuts of the
Reagan-era (such as the $10 billion reduction in nondefense
discretionary outlays between fiscal 1981 and 1982) were small when
compared to the reductions made in defense spending in the 1990s (see
Figure 1). The end of the Cold War enabled sizeable cuts in defense but
in the aggregate of the entire budget, these savings were largely offset by
many incremental increases in domestic spending. In fiscal 1991, $320
billion was spent on national defense while $214 billion was spent on
nondefense discretionary programs (Office of Management and Budget,
2001b, Table 8.1). Ten years later, $20 billion less was spent on defense
while $136 billion more was spent on nondefense discretionary programs
(Office of Management and Budget, 2001b, Table 8.1).2
Politicians have yet to prove that they can make major cuts to
nondefense spending. Even obscure programs like wool and mohair
PERFORMANCE BUDGETING—THE NEXT BUDGETARY ANSWER
55
FIGURE 1
Defense and Nondefense Discretionary Outlays, Fiscal Years 19802002 (In billions of dollars)
400
375
350
Defense
Nondefense
325
300
275
250
225
200
175
150
125
1980
1983
1986
1989
1992
Source: Office of Management and Budget (2001).
Historical Tables, Fiscal Year 2002, Table 8.1.
1995
1998
2001
Budget of the United States:
subsidies, which were zeroed-out in the name of deficit reduction, were
resurrected once surpluses emerged. In the first half of the 1990s, the
discretionary spending caps spurred incremental reductions to agency
programs.3 This simply resulted from not adjusting the caps for inflation
while granting annual pay raises and benefits to federal employees. This
slow continued growth in the federal budget by a series of incremental
adjustments was often based on nothing more than calibrated increases in
the cost of living—indexing. By the end of the decade, with dollars
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overflowing the Treasury, the caps could not restrain political will and
the budget continued to expand. Discretionary spending grew from $533
billion in 1996 to approximately $695 billion six years later.4
All of this leads to the most recent innovation from the past—
performance budgeting. In the 1950s, Catheryn Seckler-Hudson defined
it, based upon the 1949 Hoover Commission report, as “...a focus of
attention on the ends to be served by the government rather than on the
dollars to be spent” (Seckler-Hudson, 1953). Key ingredients of
performance budgeting were the relationship of the costs of programs to
resources, and the achievement of an approved plan. It should be noted
that Seckler-Hudson said performance budgeting was already an “old
idea” in 1953.
Performance budgeting in the 1950s came to mean developing
measures of performance or workload, and relating them to the costs of
achieving such activities. Unit costing was usually at the heart of
performance budgeting. This approach became more useful to local
governments than to the federal government, which at the time (1951-61)
was spending over 60 percent of its budget on national defense. These
activities do not lend themselves to unit costing or even measuring
performance short of a war, which was exactly what the programs were
designed to avoid. Before it could be completely implemented at the
federal level, performance budgeting saw itself subsumed under the next
major budget reform—program budgeting. With Robert McNamara
leading the way, the Defense Department implemented a specific form of
program budgeting called Program, Planning and Budgeting System
(PPBS) in 1962.5 Within a few years, President Lyndon Johnson
extended PPBS to the entire federal government.
Performance
measurements or performance factors became vital components since
they provided much of the quantitative data critical to PPBS analyses.
Performance budgeting as a subset of program budgeting suffered the
same fate as program budgeting in most agencies when the Nixon
Administration abandoned it in 1969. However, where remnants of
PPBS survived, so did performance measurement; in some respects, the
Pentagon led the recent march back to performance budgeting because
PPBS remains its operative budget system.
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Elsewhere, performance budgeting continued in the backwater of
budgeting during the seventies and eighties except for a brief respite as
part of ZBB. In the 1990s two events, the Government Performance and
Results Act of 1993 (GPRA) and the issuance of the National
Performance Review (NPR) later that year, brought it back from exile
and placed it in the forefront of budget reform. The former gave
performance budgeting a statutory foot in the door which it had
previously lacked. The latter indicated political support from an
administration that was “committed” to management reform as an
answer to meeting what was expected to be an era of declining resources
and to fend off increasing public concerns about government
performance.6
THE RESULTS ACT
GPRA requires federal agencies to develop strategic plans that
include “comprehensive mission statements” and “general goals and
objectives, including outcome-related goals and objectives.” Supporting
these plans are annual performance plans that cover “each program
activity set forth in the budget of such agency.”7 Next, annual
performance reports look-back to the previous year to see if targets have
been met and explain any deficiencies. The final step is performance
budgeting. While there is no standardized definition offered for
performance budgeting in the pertinent legislation, it is described as
presenting “varying levels of performance, including outcome-related
performance, that would result from different budgeted amounts.” This
sounds once again like Verne Lewis’ alternative budgeting.
When GPRA was passed in 1993, the evidence about how difficult it
would be to implement was speculative and derived largely from what
people said (and did not draw on the experiences of the few practitioners
from the 1950s who were still around). The federal bureaucracy was
also eager to put a positive “can-do” spin to the law and marched off to
perform. Table 1 outlines the implementation schedule and major
features of GPRA.
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TABLE 1
Implementation Schedule and Major Features of the Government
Performance and Results Act
September 1997: Strategic Plans
Agencies submit plans which cover five-years, and must be updated
at least every three years. The plans include a mission statement, how
goals and objectives will be achieved, relate those goals to strategic
objectives, and program evaluations.
February 1998: Performance Plans
Annual plans, which are consistent with the strategic plan, specify
the performance to be achieved by each program activity, express goals
in measurable form, describe resources needed to meet goals, and
provide a basis of comparing actual and projected performance.
March 2000: Performance Reports
Annual reports that review whether goals for the previous year were
achieved, and if they were not met, explain the reasons.
February 2002: Performance Budgeting
Beginning with the fiscal 2003 budget submission, OMB plans to
fully integrate performance with budget decisions. Initially, OMB will
work with agencies to select outcomes for a few important programs, the
outputs that influence these outcomes, how much the options cost, and
how effectiveness could be improved.
Source: Schick, A. with the assistance of LoStracco, F. (2000). The
Federal Budget: Politics, Policy, Process (Rev. ed.). Washington, DC:
Brookings Institution; Office of Management and Budget (2001, August)
The President’s Management Agenda: Fiscal Year 2002. Washington,
DC.
In 1994, Office of Management and Budget Circular A-11 called
upon agencies “to include more program performance indicators and
performance goals in the budget decision-making process and budget
document the focus would be toward developing quantitative and
PERFORMANCE BUDGETING—THE NEXT BUDGETARY ANSWER
59
qualitative measures of outputs and outcomes” (OMB, 1994, section
12.10(C)). While acknowledging the difficulty and complexity of such
an undertaking, the Office of Management and Budget (OMB) offered
no further specifics to the agencies at that time. Six years later, OMB
issued 65 pages of guidance regarding the preparation and submission of
strategic plans in a revised A-11.
As was the case with PPBS and ZBB, OMB chose not to issue
agency-specific instructions; what emerged was generalized guidance.
Goals and indicators should “be expressed in an objective and
quantifiable manner” and “be mainly those used by managers as they
direct and oversee how a program is carried out” (OMB, 1994, section
12.10(C)). Annual plans “should strike a balance between too few and
too many measures” (OMB, 1994, section 12.10(C)). A return to unit
costing is encouraged “even if only approximate costs can be estimated.”
With this guidance, agencies developed their budgets and GPRArequired plans and reports. Under President Bill Clinton, OMB claimed
that its instructions gave agencies the flexibility they needed from the
very start. OMB chose “to encourage agencies to think on their own
about what was best for them” (U.S. Congress, 2000a). Under President
George W. Bush, OMB will initially “work with agencies to select
objectives for a few important programs, assess what programs do to
achieve these objectives, how much that costs, and how effectiveness
could be improved” (Office of Management and Budget, 2001a, p. 29).
Eventually, OMB asserts that “high performing programs will be
reinforced and non-performing activities reformed or terminated” (Office
of Management and Budget, 2001a, p. 29).
Shortly after issuance of agency performance plans in 1997, reports
surfaced that Senator Ted Stevens (R-AK), chairman of the powerful
Appropriations Committee, had threatened to impose penalties for poor
performance plans (McAllister, 1997). Another Senator is quoted in the
article as saying, “Of all the plans we have received, with the exception
of NASA’s plan, most are too general and all of them need more work”
(McAllister, 1997, p. A17).
House Majority Leader Dick Armey (R-TX) issued a report card
grading each agency’s performance plan. Despite the fact that preparing
the annual performance plan, which is based on a mission statement, is
probably one of the easiest parts of implementing GPRA, the average
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score was a mere 42 percent. The Department of Transportation received
the highest mark, 71 percent, while at the other end of the scale the
General Services Administration (GSA) received a paltry 14 percent.
GAO found that “most plans did not explain how funding would be
allocated to achieve performance goals,” and that “agencies were
significantly more likely to have allocated funding to program activities
if they showed simple, clear relationships between program activities and
performance goals” (General Accounting Office, 1999, p. 2).
By the end of March 2000, when agencies delivered their first
GPRA-required annual performance reports, interest from politicians had
sharply decreased. Agencies had expended very much time and energy
to produce these reports that received scant publicity. The most attention
came from Sen. Fred Thompson (R-TN), who released a document
grading the agencies’ reports. The Department of Transportation again
led all agencies with an 85 percent score. For a second time, GSA scored
very poorly, but it was replaced by the National Science Foundation as
the agency with the worst score (35 percent (Ellig, p. ii).
There is further evidence that GPRA’s march has stalled, perhaps
buried under the weight of the paper it has generated. The Department of
Agriculture’s strategic plan sprawled over 500 pages, its performance
plan was another 500-plus pages, and then its performance report was
380 pages (U.S. Department of Agriculture, 1999; U.S. Department of
Agriculture, 2000a; U.S. Department of Agriculture, 2000b). In a
relatively small agency like the Nuclear Regulatory Commission, those
three reports totaled almost 500 pages. To top it all off, GAO has written
over 200 products related to GPRA over the past few years.
Politicians and the media have lost interest in GPRA before the final
stage, performance budgeting, has fully begun. According to the OMB,
not a single agency volunteered to participate in pilot tests of
performance budgeting in 1998. For fiscal 2001, five agencies of
varying sizes agreed to the experiment. As it is in the nature of
budgeteers to support more budgeting procedures, OMB plans to forge
ahead and to begin to produce performance-based budgets for fiscal
PERFORMANCE BUDGETING—THE NEXT BUDGETARY ANSWER
61
2003. It does so, despite the facts that “after eight years of experience,
progress toward the use of performance information for program
management has been discouraging and agencies may be losing ground
in their efforts to building organizational cultures that support a focus on
results” (Office of Management and Budget, 2001a, p. 27). It is one
thing to demand performance information from an agency’s budget
office in headquarters and another thing to get performance from the
employees on the front lines.
NATIONAL PERFORMANCE REVIEW
Shortly after passage of GPRA, Vice-President Al Gore, who was
not particularly known for his interest in “reinventing government” as a
U.S. Senator, issued the basic NPR report. The report claimed that more
than $100 billion could be saved over a few years by “creating a
government that works better and costs less” (the actual subtitle of the
report) (Gore 1993). While the focus of the report was on “streamlining”
governmental processes such as budgeting, procurement, and personnel
management, the data on how these “savings” were to be achieved was
fuzzy at best and actually preceded specific proposed changes.
Regarding performance budgeting, NPR merely stated that to “...invent a
government that puts people first,” one of the eight steps is to “develop
budgets based on outcomes” (Gore, 1993, p. 7).
The report also promoted “an executive budget resolution” that set
“broad policy priorities” and allocated “funds by function for each
agency.” A case can be made that presidents have been doing this since
the Budget and Accounting Act of 1921 mandated an executive budget.
NPR also championed another idea from the past, biennial budgets. The
report borrowed from Gaebler and Osborne calling for “mission-driven,
results-oriented budgeting” but offered no real explanation of how this
apparently new focus in budgeting was related to performance budgeting
(beyond demanding effective implementation of GPRA).
NPR also issued a companion report on federal accounting standards,
integrating budget, financial, and program information, and streamlining
financial services. This report was silent on performance budgeting and
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did not explain how an improved financial structure is critical to
meaningful measurement of performance in the budget. It suggests that
“strong financial management infrastructure” (as the report calls it) is
sufficient in and of itself, and necessary regardless of the cost.
Reasons Why Performance Budgeting Will Fail Again
Perhaps an argument could be made for measuring outcomes when
Verne Lewis wrote his article on alternative budgeting in the 1950s when
discretionary spending was nearly three-quarters of the federal budget.
But the federal government abandoned performance budgeting in the
1960s, during a time when there was more discretion in budgetary
decisions. Why should performance budgeting matter today when it did
not then?
Growth in Uncontrollable Spending. In some respects, the concern with
outcomes appears to have arrived very late in the budgetary game,
perhaps too late to do much good. If we discuss the budget in terms of
net interest, mandatory spending, and discretionary spending, it appears
that the primary area where performance outcomes could influence
budgeting is in the ever-shrinking last category. In fiscal year 1962, net
interest expenditures were 6 percent of the budget and mandatory
spending was 26 percent; only 32 percent of the budget was “relatively
uncontrollable” (see Figure 2).
Four decades later, relatively
uncontrollable has more than doubled (approximately 65 percent of the
budget will be spent on net interest and mandatory programs), and this
upward trend will continue for the foreseeable future unless major policy
changes occur. In other words, two-thirds of the budget is required
regardless of outcomes because current law requires these activities.
Interest on the debt will be paid with or without any further analysis,
although there may be some options as to how and using what
instruments (process-related decisions). Hence, this part of the budget
must simply be excluded from performance budgeting. For mandatory
programs, several questions arise. Can or should government try to
determine the outcome of spending for pensions or medical care? Is the
outcome longer life? If so, how much longer? Is it a better quality of
PERFORMANCE BUDGETING—THE NEXT BUDGETARY ANSWER
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FIGURE 2
Composition of Federal Outlays, 1962, 1982, 2002 (in percent)
6
11
18
25
19
49
26
45
1962
10
1982
Defense Discretionary
16
Net Interest
19
Nondefense Discretionary
55
Programmatic Mandatory
2002 (est.)
Source: Office of Management and Budget (2001). Budget of the United
States, Historical Tables, Fiscal Year 2002. Tables 6.3 and 8.1.
life for the elderly? If so, how much better? Is there some benchmark of
how much health and happiness should be achieved for varying levels of
outlay? Even if such data could be developed, would anyone seriously
use it to support decision-making or set funding levels for Social
Security, Medicare, and Medicaid? We get as much outcome as we are
willing to pay for; the budget will drive policy, not the other way around.
What is true for Social Security and medical entitlements is largely the
case for the other major entitlements. They have become “rights” and
are not dependent on outcomes. Rights do not exist because they are
used wisely, effectively, or efficiently; they are not subject to sound
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management. Citizens are simply entitled to these benefits based upon
existing laws that usually change infrequently. But even when Congress
reconciles an entitlement law on a regular basis, as it has done with
Medicare, the entitlement offers basically the same benefits year after
year.
As the mandatory portion of the budget grows each year, the
discretionary portion subject to annual appropriation shrinks (see figure
2). But to assume that all discretionary appropriations are a matter of
choice is insupportable. How much defense is really open to preference?
Whether we do or do not have a Federal Bureau of Investigation,
Immigration Service, Environmental Protection Agency, or Treasury
Department is a matter of choice only in the most marginal terms.
Incremental adjustments of a few percent certainly are possible but one
must wonder whether it is worth all this “analytical” effort. Do we
believe that as the portion of the budget subject to discretionary
appropriations dwindles, measurement of outcomes is going to play a
larger role in what programs continue and which terminate?
Discretionary programs (beyond defense) that survive for the next
quarter century will remain in existence because they have political
support or their own revenue source to keep them going, rather than
quantitative measures of outcome.
Political Will. Relating outcomes to what is spent on discretionary
programs should play a role in deciding whether to continue, increase, or
terminate such programs. While this makes for wonderful theory, it is
not how budgetary decisions are made. Quantitative data is not powerful
enough to replace political support and political judgment. Performance
budgeting cannot thwart politicians, interest groups, and organized
constituencies that doggedly defend the budget’s largesse.
When performance budgeting is initiated for discretionary programs,
politicians may find it useful in making decisions, and federal managers
may see a practical application in reaching “more informed” decisions.
Hence, when it produces results with which politicians and federal
managers agree, those politicians and managers will support performance
budgeting. When it produces results with which politicians and
managers disagree, however, those results are likely to be ignored. In the
end, performance budgeting cannot change many minds. If this is the
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65
way it will play out, is it worth the massive effort? The most likely use
for performance budgeting would be to give politicians cover for those
things they have already decided to do or do not want to do. Remember
it was a Democratic-controlled Congress that passed GPRA, but then a
Republican-controlled Congress apparently accepted GPRA to serve
their political ends. This suggests that GPRA is a political tool, not an
analytical device.
Inherent Difficulties
The underlying complaint of NPR is that past analytical efforts in the
government focused on process rather than outcome; the end focus of
performance budgeting should be what government has achieved
(outcome), not how it goes about achieving it (process). GPRA and NPR
want to carry this one giant leap further. The catch is that they do not
acknowledge that identifying outcomes is much more difficult than
measuring how much government spends and what the output of
government spending is in terms of goods and services. The techniques,
management structures, and imagination needed for identifying and
measuring outcomes are not out there just waiting to be tapped by policy
analysts. How do we know that what happened was a result of a
government program? In short, cause and effect will be the perennial
problem.
Much has already been written about the difficulty in measuring
outcomes due to:8
S the long range nature of many programs,
S the fact that many programs are conducted by second and third
parties (primarily contractors and local governments) who use, if at
all, different measures, and
S the uncertainty of what outcomes the government is trying to
achieve in the first place.
But even when agencies are able to quantify performance, the
Congressional Budget Office (CBO) concluded that few federal agencies
use performance measures to reallocate resources among programs and
functions. CBO acknowledged the difficulty in “...finding a way to
apply these performance measures to the allocation or management of
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resources in the public sector” and that the “...road to improving federal
performance and tying its measurement to the budget process is studded
with obstacles” (Congressional Budget Office, 1993).
For years analyzing budgets in terms of output and unit cost was
viewed as a laudable achievement of performance budgeting (i.e., linking
inputs or resources to outputs or goods and services). Although
measuring outputs is easier, especially compared to measuring how
programs achieved outcomes, a direct link between the two is necessary
for performance budgeting. Unless a creditable link can be made, all that
is left is process. How long does it take to process and issue welfare
checks? How many Social Security checks are received on time? How
many checks are delivered to dead people? How much fraud, waste, and
abuse is there? How well government performs these administrative
functions in implementing public policy should not be denigrated, as
NPR appears to do. It is important and should not be shrugged off as
merely “measuring process.” Once policy decisions are made, all that is
left is public administration to carry out the day to day, year after year
tasks. When simply delivering goods and services to citizens, outcomes
are not as significant to civil servants as process. In 1887, Woodrow
Wilson wrote that “administration is the most obvious part of
government; it is government in action; it is the executive, the operative,
the most visible side of government, and is of course as old as
government itself” (Wilson, 1887, p. 198). For many programs, the
added complexities of performance budgeting are unnecessary.
Next, there is the verification issue. Can outcomes be measured in
an objective manner when these types of measures are not necessarily
‘scientific’ or value free? There is little question that the incentive exists
for agencies to make themselves look good by “claiming” positive
results, just as presidents take credit for a booming economy and mayors
take credit for everything from declining crime rates to rising SAT
scores. Moreover, OMB is beholden to agencies for much of the
information it needs on how well programs are performing (Schick,
2001). Unless outcomes can be verified independently (by a GAO-type
agency) they will remain suspect. But what outside party can validate
outcomes by replicating all of the calculations? The scope of this step
seems to be overlooked by the proponents of GPRA. It is questionable
that two honest analysts using the same resource and workload data will
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67
always agree on outcomes. We should probably focus on things that will
be useful for managers in carrying out their duties. Data that will be
used simply to “inform” politicians, the press, and the public will always
be questionable; outcomes that managers themselves use can be trusted.
In effect this is why GPRA needs to be a management tool much more
than a budget tool.
Whether the pursuit of outcomes is achieved in any meaningful
manner also depends on the benefits to be achieved by the players—it is
a matter of incentives. Will information on program outcomes be of
importance to decision-makers? Will it make for better choices? Will it
be of importance to federal managers? If managers are able to discover
cost savings in their current processes, they lose these savings at the end
of the fiscal year. Similarly, if managers are able to make do without
expending their entire appropriation, they will most likely receive less
funding the following year. But those that have cost overruns in one year
may receive additional funding the following year. The result is
rewarding managers who overspent with additional funds while
punishing those who are under budget (Melese, 1999). So what do
managers see in this for them? In short, the proper incentives for all
interested parties are missing. It is no wonder that Rep. Steve Horn (RCA) recently said, “Widespread, enthusiastic leadership is still missing at
all levels of government—from Congress to the Office of Management
and Budget and each federal department and agency” (U.S. Congress,
2000b).
Improved Financial Management
Is there anything positive to say about the drive to performance
budgeting? First, agencies and OMB must take the proper steps and not
shrug performance budgeting off as simple and obvious. Performance
budgeting and measurement begins with the development of verifiable
standard accounting systems that provide the agency with real time data
for financial control, budget preparation, and managerial purposes.
Horror stories abound about the lack of good accounting systems in the
federal government; regardless of performance budgeting, we need to
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overcome this shortcoming. The NPR Financial Management report
recommended comprehensive accounting standards, but this only begins
the process. The NPR report talked about fully integrating budget,
financial, and program information, but focused on OMB circulars as the
proper vehicle for achieving this. If the answer is that simple, one has to
ask, “What took so long?”
Once an accounting system is in place, then workload measures or
performance factors need to be identified and collected. Many federal
agencies gather performance measures, but determining how to assemble
and use them is critical. Settling on the proper performance measures is
controversial and the subject of much disagreement within agencies.
There is even a strong recognition that some programs such as research
and development probably have no meaningful performance measures.
In fact most programs have multiple measures of performance. In those
cases the problem becomes how many measures should be gathered,
evaluated, and reported. In an entity the size of a federal agency, the
sheer volume of data collected can defeat most attempts to utilize such
data. Witness ZBB, which in most respects drowned itself in paper.
Most federal accounting systems record how and when money is
spent. Recording the financial aspects of governmental activity is only
half of what is needed; the other half is workload or performance
measures. Both financial and performance measures need to be recorded
at the same time by the same transaction. If dollars and workload are
recorded separately, the problem of linking them will always exist. And
when linkage is not made, it will be estimated by necessity. Numbers
will be forced to match each other whether accurate or not. Any
experienced budgeteer knows that budget numbers must match in order
for an activity budget to convey the story that management wants told.
Budgeteers also know how to make workload and dollars match because
much of these data cannot be verified by outside sources. Budget
examiners on the Hill or OMB are not likely to recalculate budgetary
computations because of the sheer magnitude of the task. For agencies,
there is safety in numbers—the more the better. As long as the numbers
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69
are developed rationally, they can probably be justified, regardless of
accuracy.
Establishing compatible resource and workload systems for
budgetary purposes takes time. Since virtually all budgetary data is
comparative data—this year to last year, actual versus planned, budgeted
versus appropriated—data for several years are required. Systems will
need to be checked and rechecked for accuracy, utility, and timeliness.
But given the proper commitment of resources, an accounting system
recording financial obligations and workload performed could be
developed.
CONCLUSION
Knowledgeable observers agree that a serious need exists to link
what any government does to what it costs. But even if this link is
achieved, it still will not answer the question of why the government has
undertaken such a myriad of programs. And for this answer, one cannot
look to performance budgeting.
The public sector lifted agriculture from the doldrums of the Great
Depression through programs such as subsidies and government-backed
insurance. Today, U.S. agriculture is the most productive in the world;
roughly three percent of the U.S. labor force feeds this entire nation and
supplies enough to export. But many agriculture programs have
countless flaws and create perverse economic incentives. New Deal-era
programs continue in the budget despite efforts, such as the Freedom to
Farm Act of 1996 that attempt to replace subsidies with a more efficient
market-based system. Even with that “landmark” law in place,
politicians poured in billions of “emergency” money, pushing agriculture
spending to historic levels. Data on program performance is not a strong
enough tool to successfully counter constituent forces that demand
programs continue, if not expand.
Simply changing the format of the budget will not change budget
outcomes, the budget process, or the behavior of managers. The federal
government should not leap ahead with GPRA and institute performance
budgeting governmentwide. Not only are the costs of doing so
significant, but agencies are not ready or able to do performance
budgeting. Certainly Congress will not change their perspective on how
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funds are to be appropriated; they still demand all of the details that have
been asked for over the years, and now voluminous GPRA-related
materials are piled on as well. While there were at least 37 laws enacted
in the 105th Congress that contained performance-related provisions
(Congressional Research Service, 1998), agencies and programs that
were performing well were slapped with across-the-board rescissions in
2000 and 2001—no differently than poorly performing agencies and
programs. Following a decade that saw a steep rise in omnibus
legislation in which eleventh-hour negotiations decided what substantive
provisions were crammed in (with many members voting on the
legislation without knowing the details), performance budgeting would
not matter. It would be degraded to a waste of time and energy.
On the other hand, to the extent the GPRA and the drive to
performance budgeting lead to better accounting systems that are useful
in gathering performance measures and identifying outcomes for
managerial use, they are a positive step in federal management. But we
have yet to achieve that step. In their first performance reports, the three
things that agencies did worst were: supply cost data, assess reliability of
their data, and demonstrate that agency actions actually made a
difference in the performance measures (Ellig, 2000). Once agencies
have reliable cost information and Congress decides to analytically use
this information, a clear message will be sent. This will benefit
management and employees as they start thinking in terms of mission,
goals, and effectiveness of goal achievement. What we should avoid at
all costs is political gamesmanship and gimmicks that produce a
mountain of paperwork with little visible improvement in government,
and much waste and lost time generating reports.
Finally, the last decade has seen so many attempts at reform that
there has been a case of overload as civil servants have been pushed
hither and yon to improve the functioning of the bureaucracy. It is time
to put aside administrative and management reforms that ask how to do
the things we presently do in a better way. We should raise the ante up
the ladder of government reform, from organizational and structural
relationships, to management-driven and policy-related program reforms,
and finally the political system itself.
PERFORMANCE BUDGETING—THE NEXT BUDGETARY ANSWER
71
NOTES
1. The views expressed in this paper are those of the authors and should
not be interpreted as those of the George Washington University or
the Congressional Budget Office.
2. International spending comprises a small percentage of nondefense
discretionary spending; since 1982, it has comprised less than two
percent of total discretionary spending.
3. The caps were enacted in the Omnibus Budget Reconciliation Act of
1990, and extended in 1993 and again in 1997.
4.
Despite this surge in discretionary spending, spending on mandatory
programs has exceeded the growth in discretionary spending.
5. PPBS could claim as its forerunners the first Hoover Commission,
the 1949 National Security Act Amendments, contractual work
performed by the Rand Corporation, and Hitch and McKean’s
Economics of Defense in the Nuclear Age.
6. One could make a case that a third event, the passage of the Chief
Financial Officers Act of 1990, (P.L. 101-576) should be added to
this list. The CFO Act, however, was not directly aimed at
budgeting but to the broader area of financial management.
Moreover, agency CFOs are not the proper people to develop
systematic performance measures for their agencies (as the law
requires) because to participate in budget preparation hampers their
ability to review subsequent performance in an objective manner.
7. See the Government Performance and Results Act, P.L. 103-62,
Section 6, 119 (b).
8. For numerous studies on these difficulties, see the General
Accounting Office’s website at http://www.gao.gov.
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