performance-based budgeting: concepts and examples

LEGISLATIVE RESEARCH COMMISSION

PROGRAM REVIEWAND

INVESTIGATIONSCOMMITTEE

Performance-BasedBudgeting:Concepts and Examples

Prepared by:Greg Hager, Ph.D.

Alice HobsonGinny Wilson, Ph.D., Committee Staff Administrator

Research Report No. 302

PROGRAM REVIEW & INVESTIGATIONS COMMITTEESTAFF REPORT

Ginny Wilson, Ph.D.Committee Staff Administrator

PROJECT STAFF:

Greg Hager, Ph.DAlice Hobson

Ginny Wilson, Ph.D.

Research Report No. 302

LEGISLATIVE RESEARCH COMMISSION

Frankfort, Kentucky

Committee for Program Review and Investigations

Adopted: June 14, 2001

This report has been prepared by the Legislative Research Commission and printed with state funds.

PEFORMANCE-BASED BUDGETING:CONCEPTS AND EXAMPLES

Adopted by Program Review and Investigations

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FOREWORD

On September 20, 2000, the Program Review and Investigations Committeedirected staff to prepare a general primer on performance-based budgeting. TheCommittee instructed staff to provide a general guide to budgeting systems, consider howdifferent budgeting systems incorporate information on off-budget funds, and discussbudgeting systems used in selected other states.

The Program Review and Investigations Committee adopted the staff report onJune 14, 2001.

This report is the result of dedicated time and effort by Program Review staff,Ginny Wilson, Ph.D., Committee Staff Administrator, Greg Hager, Ph.D., and AliceHobson.

Robert ShermanDirector

Frankfort, KentuckyJune 14, 2001

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SENATE MEMBERS

David L. WilliamsPresident, LRC Co-Chair

Richard L. Roeding President Pro Tem

HOUSE MEMBERS

Jody RichardsSpeaker, LRC Co-Chair

Larry ClarkSpeaker Pro Tem

Dan Kelly Majority Floor Leader LEGISLATIVE RESEARCH COMMISSION Gregory D. Stumbo

Majority Floor LeaderDavid K. Karem

Minority Floor LeaderState Capitol 700 Capital Avenue Frankfort KY 40601 Jeffrey Hoover

Minority Floor LeaderCharlie Borders

Majority Caucus Chairman502/564-8100 Jim Callahan

Majority Caucus ChairmanDavid E. Boswell

Minority Caucus ChairmanCapitol FAX 502-223-5094Annex FAX 502-564-6543

Bob DeWeese Minority Caucus Chairman

Elizabeth Tori Majority Whip

www.lrc.state.ky.us/home.htm Joe Barrows Majority Whip

Marshall LongMinority Whip

Robert ShermanDirector

Woody Allen Minority Whip

MEMORANDUM

TO: The Honorable Paul E. Patton, GovernorThe Legislative Research Commission, andInterested Individuals

FROM: Senator Katie Stine, Co-ChairRepresentative H. “Gippy” Graham, Co-ChairProgram Review and Investigations Committee

SUBJECT: Adopted Committee Report: Performance-Based Budgeting:Concepts and Examples

DATE: June 14, 2001

On September 20, 2000, the Program Review and Investigations Committee votedto have staff prepare a general primer on performance-based budgeting. The Committeeinstructed staff to provide a general guide to budgeting systems, consider how differentbudgeting systems incorporate information on off-budget funds, and discuss budgetingsystems used in selected other states.

The Program Review and Investigations Committee staff reviewed literature andselected case studies on states’ use of performance budgeting. Based on all theinformation that formed the basis for this report, it was clear that performance budgetinghad many compelling arguments in its favor. Its stress on accountability for resultsachieved by programs could produce a more effective government that concentrates onthe problems that Kentucky residents most care about. Unfortunately, since so few stateshave implemented performance budgeting, there are no model states with long termsuccess that Kentucky can emulate. At this point, there is evidence that performancebudgeting can be implemented; the jury is still out—and may be for some time—onwhether the reform accomplishes its mission of making government more accountableand effective.

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This quality is not unique to proposed changes in the budgetary system. Publicpolicy reforms are usually adopted based on the quality of the arguments behind themand with a less than ideal amount of practical experience for support. Even thoughperformance budgeting does not have a long track record, it is possible to review thebudgeting literature and the efforts at implementing PBB so far to help clarify the theorybehind it and learn from what other states have done. The following conclusions weredrawn from the review:

1. Legislators must determine whether they want to hold agencies accountable for whatthey spend or what they achieve. They must also decide if they want to focusprimarily on changes to the base budget or regularly review current spending as wellas requests for changes.

2. Performance budgeting is a tool that can improve accountability in the use of publicresources. To date, it has not been shown to be a good tool for improving efficiencyin the use of public resources.

3. If a state is to implement performance budgeting successfully, a key decision makerin the budget process—either the governor or a leader in the House or Senate—musttake a strong advocacy role in promoting the change.

4. There should be widespread agreement among decision makers on the objectives theywish programs to achieve.

5. Performance measures should be carefully defined to accurately capture outcomesdue to program activities.

6. Sufficient technical and staff resources should be devoted to initial training andongoing maintenance of the system.

7. Performance measures should be independently validated on a regular basis.

8. Careful planning should limit the number of performance measures to a small set ofwell-crafted indicators.

9. If they want agencies to take performance monitoring and reporting seriously,legislators must demonstrate that they take it seriously.

10. It should be acknowledged that performance budgeting, or any other so-called“rational” budgeting system, provides only part of the information policy makers useto allocate funds among competing needs.

Questions or requests for additional information should be directed to Dr. Ginny Wilson,Committee Staff Administrator for the Program Review and Investigations Committee.

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TABLE OF CONTENTS

FOREWORD...................................................................................................................... iMEMORANDUM............................................................................................................ iiiLIST OF TABLES ........................................................................................................... viEXECUTIVE SUMMARY............................................................................................. vii

INTRODUCTION..............................................................................................................1

AN OVERVIEW OF BUDGETING..................................................................................3 Functions of Budgeting .................................................................................................3 A Brief History of Budgetary Reform...........................................................................5 Performance Budgeting...............................................................................................10 Measures of Performance ............................................................................................13 Choosing the Base .......................................................................................................15 Deciding What is Off-Budget......................................................................................17

BUDGETING IN PRACTICE: STATE EXAMPLES.....................................................21 Kentucky.....................................................................................................................22 Base Budget............................................................................................................23 Additional Funding Requests .................................................................................26

Iowa .............................................................................................................................27

Massachusetts ..............................................................................................................31

Texas ...........................................................................................................................39 Texas Department on Aging...................................................................................43 Satisfaction with the System ..................................................................................50

Louisiana ...................................................................................................................52

CONCLUSIONS ..............................................................................................................61

BIBLIOGRAPHY ............................................................................................................67

APPENDIX A: Predominant Budget Approach...............................................................69

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LIST OF TABLES

Fund Structure Used by Kentucky.....................................................................................19Predominant Budgeting System.........................................................................................22Kentucky Office of Aging Services, Current Services Budget Summary .........................24Kentucky Office of Aging Services, Program Narrative ...................................................24Kentucky Office of Aging Services, Reported Performance Measures ............................25Kentucky Office of Aging Services, Additional Operating Budget Items ........................27Iowa Department for Elder Affairs, Mission Statement and Policy Goals........................28Iowa Department for Elder Affairs, Performance Measures .............................................29Funding Request by Program Area....................................................................................30Iowa Department for Elder Affairs, Legislative Budget-Briefing Document ...................32Excerpt from FY 1993 Massachusetts Budget Message, Gov. William F. Weld..............32Excerpt from FY1993 Massachusetts Budget Submission, Volume II-Line Items Report of Budgetary Accounts......................................................................................34 Governor’s Appropriation Recommendation, Office of Elder Affairs .........................35Funding for Aging Services in Texas ................................................................................44Texas Legislative Budget Board: Legislative Budget Estimates for the 2000-2001 Biennium, Department on Aging................................................................45Summary of Exceptional Items Requested, Texas Department on Aging FY2002 ..........47Texas Department on Aging, Budget and Performance Assessments...............................48Results of Performance Measures Review, Texas Department on Aging ........................51Excerpt of Documents Prepared by the Louisiana Office of Planning and Budget 3/22/00 .......................................................................................................56

Legislative Research CommissionProgram Review and Investigations

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EXECUTIVE SUMMARY

At its September 2000 meeting, the Program Review andInvestigations Committee voted to have staff prepare a generalprimer on performance-based budgeting. The Committeeinstructed staff to provide a general guide to budgetingsystems, consider how different budgeting systems incorporateinformation on off-budget funds, and discuss budgetingsystems used in selected other states.

Overview of Budgeting

The simplest definition of budgeting is that it is a systematicway to allocate resources. Various types of governmentbudgeting systems have been developed to serve multiplepurposes, including financial control, management, planning,priority setting for scarce funds, and accountability in the useof public resources.

The traditional line-item budget, wherein legislators specifyallowable spending on inputs (salaries, supplies, travel), wasfirst developed to guard against the misuse of public funds.Incremental budgeting, often used with line-item budgets,assumes that funding for existing programs will continue atabout the same level as in the past. Most attention is given toconsidering requests for changes in agency base budgets.

Line-item budgeting has been criticized for holding publicagencies accountable only for what they spend. Therefore,some budget reformers have recommended the adoption ofperformance-based budgeting, which is intended to holdagencies accountable for what they achieve. The basics ofperformance-based budgeting are as follows:

1. Objectives. Agencies should develop strategic plans ofwhat they intend to accomplish. These plans should containobjectives based on outcomes that the public values.

2. Performance measures. Based on their strategic plans,agencies should develop specific, systematic measures ofoutcomes that can be used to determine how well agenciesare meeting their objectives. Examples: student test scoresfor education programs; mortality rates for healthprograms.

The Program Review &InvestigationsCommittee requested aprimer on performancebudgeting.

Line-item budgets holdagencies accountable forwhat they spend oninputs.

Performance budgetshold agenciesaccountable for whatthey achieve.


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3. Linkage. Objectives and performance measures are integralparts of the budgetary process. Appropriations are linked toagencies’ results: how well they are meeting theirobjectives as indicated by performance measures.

One of the most difficult aspects of performance-basedbudgeting is the definition of agency performance targets thatcan be reliably measured on a regular basis. Measures can bedeveloped to track several aspects of agency performance, asfollows:

Inputs—also called objects of expenditure—are the resourcesused to provide government services, such as personnel,operating expenses, and capital. Inputs have the advantage ofbeing relatively easy to measure, usually in dollars. Sinceinputs are measured in dollars, it is also easy to makecomparisons of the costs of inputs across diverse publicprograms.

Activities—also called outputs—measure what an agency does.Examples would include such things as the number of minesinspected, miles of highway paved, number of applicationsprocessed, number of classes taught, or number of prisonershoused.

An efficiency measure relates costs to a unit of activity.Examples include annual cost per prisoner, cost of filling apothole, or cost per child vaccination. Relating costs toactivities is not always straightforward. Consider a university’sdays of instruction—defined as days of teaching multiplied bythe number of students. If the university served any functionsother than instruction, it would be necessary to determine whatpercentage of costs should be allocated to instruction. Thatmight be easy for an item such as classroom construction andmaintenance. It would be more difficult to determineinstruction’s share of staff costs or buildings not used asclassrooms.

An outcome indicator is a measure of how well a program ismeeting an objective. Objectives are usually the ends ofgovernment, things that the public values such as safety, health,or educational improvement. To cite some examples, for apolice department, reductions in crime could be an outcomeindicator. For health programs, reductions in the rates ofparticular diseases or increases in life expectancy are feasibleoutcome measures.

1. Inputs: resourcesused to providegovernment services.

2. Activities: work anagency performs.

4. Outcome: how wella program ismeeting anobjective.

3. Efficiency:relationship of costto a unit of activity.

Various types ofperformance measurescan be defined.


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Outcome indicators measure progress toward achievingobjectives. A problem is that objectives are often not under thecontrol of the agency. For instance, the state police couldinitiate a new program to reduce fatalities in automobileaccidents by encouraging more use of seat belts. Seat belt usecould go up and fatalities would go down as expected. Anotherpossibility is that seat belt use could go up but fatalities couldstill increase because so many other factors affect accidentfatalities, such as road conditions, rates of drunken driving andspeeding, or the kinds of vehicles that people drive.Conversely, it is possible that if other factors were favorable, aprogram’s outcome would be good even if the program is noteffective.

To deal with this problem, a measure of a program’seffectiveness should determine how much of the attainment ofthe objective is due only to the program. Effectiveness is themost difficult measure because it requires ruling out the otherfeasible reasons for why a program succeeded or failed inattaining an objective.

The choice of a budgeting approach (line-item or performance-based) is separate from the choice of the budget base. Undervariations of zero-based budgeting, legislators require agenciesto justify some portion of their spending on current services. Inpractice, significant reevaluation of current spending in eachbudget cycle is a huge task for both agencies and legislators.Therefore, whether they use line-item budgeting orperformance-based budgeting, most states budgetincrementally. Unless some special condition focuses theirattention on an aspect of funding for current services,legislators generally give most of their attention to requests forchanges in the base budget.

Deciding which programs or functions are “off budget” isanother decision that is separate from the choice of budgetarysystem. For the purposes of this discussion, “off-budget” fundsare defined as those included in a government’sComprehensive Annual Financial Report, but not appropriatedby the legislature. By definition, changing the budget systemdoes not affect items that are not in the budget. Virtually allgovernments in the United States place some programs offbudget, but governments are not uniform in defining theprograms that are off-budget and those that are on-budget.

5. Effectiveness:Attainment of theobjective due only tothe program.

The choice of budgetsystem does not affectthe designation of off-budget funds.

Most states budgetincrementally.


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The Governmental Accounting Standards Board (GASB)established a recommended fund structure for stategovernments. GASB designates three major categories offunds:

• Governmental funds track basic government activities (e.g.,General Fund, Road Fund).

• Proprietary funds track government activities generallyfinanced and operated like a private business either forothers (e.g., state parks) or for costing support services forstate agencies (e.g., computer services).

• Fiduciary funds track assets held for others and cannot beused to support the government’s own programs (e.g.,employee retirement funds).

Under generally accepted accounting principles, mostgovernmental funds are on-budget, while some proprietaryfunds and virtually all fiduciary funds are off-budget.

Budgeting in Practice: State Examples

To make differences in the types of information usuallyprovided by different budgeting systems more concrete tolegislators, staff obtained budget request and briefing materialsfrom states with a variety of budgeting systems. In addition toKentucky, the states are Iowa, Massachusetts, Texas, andLouisiana. In order to provide examples that were comparableacross states, budgets for state departments for elderly servicesare reviewed.

Kentucky. Although legislators in Kentucky makeincremental appropriations by program, budget decisions arebased primarily on a review of line-item expenditure data.Agencies are not required to submit performance indicators, sothey cannot be held accountable for not meeting specifiedperformance targets. Budget documents present agencyfunding requests by fund source and object of expenditures.The base, or current services, budget is presented withoutdetail. Requests for additional items must be itemized andprioritized by cabinet.

Iowa. The executive branch in Iowa instituted “Budgeting forResults” in 1997. Agencies must include performance goalsand targets in budget requests to the governor. Budget requestsare by program activities, such as case management, ratherthan by department or unit. A review of the performance

Most states, includingKentucky, follow GASBrecommendations forfund structure.

Programs for theelderly were selected fora comparison of budgetinformation from fourcomparison states.

Kentucky legislatorsprimarily review line-item information tomake incrementalbudget decisions.

The Iowa executivebranch implementedperformance budgeting,but it has not beenadopted by thelegislature.


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indicators reported for the Iowa Department for Elder Affairsraised questions about whether they have been appropriatelydefined to capture program effectiveness. The performancebudgeting format has not been adopted by the Iowa legislature,which requires its budget staff to prepare agency information inthe traditional line-item format.

Massachusetts. The governor of Massachusetts requiredagencies to submit performance budgets in FY 1993, partly inreaction to a serious budget shortfall brought on by the nationalrecession. The Governor’s recommended budget reduced 731line-item expense categories in the budget to 128. The numberof accounting funds fell from 35 to 5. Within these five funds,342 service delivery groups were identified. A total of 758outcome targets were specified for all programs in stategovernment. Agencies were to be allowed to transfer up to 10percent of total funds among programs to better achieveoutcome targets. Outcome measures and fund transfers wouldhave been reported quarterly to legislative committees. Thelegislature did not adopt the proposed budget reforms, largelybecause of resistance on the part of the Chair of the SenateWays and Means Committee. Insufficient planning of the effortand inadequate training for agencies and legislators were citedas impediments to successful implementation.

Texas. This state has an advanced performance budgetingsystem. Texas had a long history with the development anduse of performance measures at the agency level, and began toformally incorporate these in its biennial budgeting process in1991. Performance budgeting was implemented in all stateagencies and universities simultaneously, rather than beingphased-in. Approximately 3,000 indicators are designated as“key performance measures” to be used by policy makers asthey make budgeting decisions. The State Auditor reviews thevalidity of agency performance measures.

Both the executive and legislature are significantly involved inthe performance budgeting system and work together to imposeuniform requirements on agencies, who must explain asignificant failure (10 percent or more) to meet requiredperformance targets. Managers are allowed to transfer up to 35percent of their funds between programs and are subject toincentives and penalties for their results. Agency heads andlegislators who responded to a survey preferred performancebudgeting to line-item budgeting.

A Massachusettsattempt to implementperformance budgetingfailed to win legislativeapproval.

Texas has an advancedperformance budgetingsystem.

The Texas executive andlegislative brancheswork closely together tomake the system work.


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Louisiana. The performance budgeting system in Louisianawas implemented largely due to the efforts of the Chair of theHouse Appropriations Committee. The system shares manysimilarities with that used in Texas. However, coordinationbetween the executive branch, House, and Senate has not beenas consistent, allowing some problems to arise. Agency headscomplain that no one has been given the final authority todefine performance measures, so agencies get conflictingdecisions from the key players about what they must report. Inaddition to performance information, agencies in Louisiana arealso required to submit extensive line-item information in theirbudget requests. This results in a large amount of informationfor review. Legislators indicated that they were frequentlyoverwhelmed by the amount of data they received, which wasoften in a format that was difficult to understand.

Conclusions

Even though performance budgeting does not have a long trackrecord, it is possible to review the budgeting literature and theimplementation efforts to help clarify the theory behind it andlearn from what other states have done. The followingconclusions are drawn from that review.

1. Legislators must determine whether they want to holdagencies accountable for what they spend or what theyachieve. They must also decide if they want to focusprimarily on changes to the base budget or regularlyreview current spending as well as requests for changes.

2. Performance budgeting is a tool that can improveaccountability in the use of public resources. To date, ithas not been a good tool for improving efficiency in theuse of public resources.

3. If a state is to implement performance budgetingsuccessfully, a key decision maker in the budget process—either the governor or a leader in the House orSenate—must take a strong advocacy role in promotingthe change.

4. There should be widespread agreement among decisionmakers on the objectives they wish programs to achieve.

5. Performance measures should be carefully defined toaccurately capture outcomes due to program activities.

Louisiana has a systemsimilar to Texas, but hashad more problems withcoordination.


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6. Sufficient technical and staff resources should bedevoted to initial training and ongoing maintenance ofthe system.

7. Performance measures should be independentlyvalidated on a regular basis.

8. Careful planning should limit the number ofperformance measures to a small set of well-craftedindicators.

9. If they want agencies to take performance monitoringand reporting seriously, legislators must demonstratethat they take it seriously.

10. It should be acknowledged that performance budgeting,or any other so-called “rational” budgeting system,provides only part of the information policy makers useto allocate funds among competing needs.


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INTRODUCTION

Performance-based budgeting (PBB) is a budgeting methodthat links appropriations ultimately to the outcomes ofprograms. Agencies create strategic plans that include broadgoals and more specific objectives for achieving those goals.For example, an agency’s goal may be to improve the health ofpoor children. Its objectives might be to reduce rates ofparticular diseases or poor health conditions by specific,measurable amounts over a certain period of time. Outcomeswould be the measurable reductions in the incidence of thespecified diseases. Agency personnel have more flexibility inallocating budgeted resources than under the traditional budgetsystem but are held responsible for how well their agencymeets performance targets.

Elements of performance budgeting have been around fordecades and almost all states use some aspects of PBB, such asdeveloping performance measures for strategic planning andevaluation. The current method for a budgeting system basedon performance is fairly recent, however. Because PBB isrelatively new and—like any new system—difficult toimplement, only a handful of states use performance-basedbudgeting predominantly (Appendix A).

As part of House Bill 502, the 2000 Kentucky GeneralAssembly appropriated $750,000 for the State Budget Directorto fund a Performance Budgeting Pilot Project. The 2000Executive Branch Budget established the followingrequirements:

• Each cabinet must develop a four-year strategicplan to submit with its next budget request.

• The State Budget Director will design andimplement a state performance budgeting pilotprogram for three to six budget units.

• The Auditor of Public Accounts must monitorthe implementation of the pilot project andmake recommendations by February 1, 2002,about whether it should be continued, expanded,or abandoned.

Performance-basedbudgeting tiesappropriations to theoutcomes of programs.

The 2000 GeneralAssembly funded aPerformance BudgetPilot Project.


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At its September 2000 meeting, the Program Review andInvestigations Committee voted to have its staff prepare aprimer on performance-based budgeting. The approved studyproposal identified three topics for inclusion:

• A general discussion of budgeting systems,

• Consideration of how different budgetingsystems incorporate information on off-budget funds, and

• Specific examples of the budgeting systemsused in selected other states.

The first section of this report presents a general overview ofthe characteristics of state budgeting systems, with a particularfocus on performance budgeting, including information on thefunctions of budgeting, a discussion of budgeting reformproposals, and definitions of different measures of budgetarybase and performance. The overview section concludes with adiscussion of off-budget accounts.

The second section attempts to make the general budgetingtopics concrete by presenting examples of state budgetbriefing documents prepared under different budget systemsfor a similar set of programs for the elderly in Kentucky andfour other states: Iowa, Louisiana, Massachusetts, and Texas.States chosen for comparison incorporate different amounts ofperformance information in their budgeting processes.Massachusetts abandoned its attempt at performancebudgeting; the other three states are engaged in continuingefforts to increase the role of performance information inbudget decision-making. Kentucky does not currently have aformal structure for incorporating performance informationinto its budgeting process.

This report is abackground primer onbudgeting information.


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AN OVERVIEW OF BUDGETING

Functions of Budgeting

The simplest definition of budgeting is that it is a systematic wayto allocate resources. One reason that budgeting is socomplicated is that there is no widespread agreement aboutexactly how government funds should be allocated through thebudget—the great “who gets what?” question. Some of thosedisagreements are political; decision makers may have differentvalues and favor different groups. There also has been debateabout how a budgeting system can best serve those makingdecisions. A system for budgeting serves many functions.Though these functions are not necessarily mutually exclusive, ithas been very difficult to come up with a budgeting system thatserves every function well enough to please everyone. Budgetingsystems that have been implemented and proposed emphasizedifferent functions, and the information provided to decisionmakers reflects those different emphases.

One function of a budgeting system is to facilitate financialcontrol.1 To quote from a budgeting textbook: “the mosttraditional and fundamental function is control of expendituresto make certain that they are legal, valid, appropriate, accurate,and honest.”2 In practice, this has usually meant control over theinputs of budgeting: the resources, such as salaries and supplies,necessary to provide government services. The information thatdecision makers receive centers on inputs: the amounts andcategories of money to be spent. Because money is easy tomeasure, once spending is allocated, it is relatively simple toverify that it was spent as decision makers intended. Budgetsystems that maximize financial control, however, may yieldlittle information on the relationship between resources andoutcomes.3 For example, knowing that a university spent itsappropriation within prescribed categories does not necessarilyexplain how effective it is in preparing students for the

1This section describes five major functions of budgeting. Control,management, and planning are described in Allen Schick, “The Road to PPB:The Stages of Budget Reform, Public Administration Review 26 (1966), 243-58. Prioritizing and accountability are described in Irene Rubin, “Budgeting forAccountability: Municipal Budgeting for the 1990s,” Public Budgeting andFinance 16 (1996), 112-32.2 Donald Axelrod, Budgeting for Modern Government (New York: St. Martin’sPress, 1995), p. 10.3 Philip Joyce “Performance-Based Budgeting” in Roy T. Myers (ed.),Handbook of Government Budgeting (San Francisco: Jossey-Bass, 1999).

Budgeting systems servemultiple purposes.

FUNCTIONS OFBUDGETING:

1. Financial control ofinputs


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workplace and society in general, much less how changes inresources would alter effectiveness.

A budget system can also aid in the management of ongoingactivities to improve effectiveness and efficiency. Administratorscan use information on costs, activities, and—if available—results to evaluate how well programs are working. For example,determining the most efficient and effective way to repair roadsmight first require measuring how much it costs to fill a potholeand repave a mile of road. Using budget information formanagement addresses such questions as: “What is the best wayto organize for the accomplishment of a prescribed task? Of thevarious grants and projects proposed, which should beapproved?”4

A budgeting system can be relevant to planning for the future intwo ways. First, the budget may require agencies to forecast howmuch programs will cost, and possibly to relate those costs toactivity levels for some number of years into the future. Second,the budget system may require agencies, programs, or even theentire government to engage in strategic planning. Budgetproposals, appropriations, and implementation should then beconsistent with those plans.

Since every conceivable program cannot be funded, budgeting byits very nature involves setting priorities. Budgeting systemsdiffer though in the extent that they facilitate prioritizing bydifferent criteria. Prioritizing based on costs per unit of work orprogram results requires information on activities and outcomes,not just costs of providing services. Requiring agencies toprovide multiple proposals for providing services could behelpful in setting priorities. Grouping proposals from differentagencies that deal with a common objective (e.g., adulteducation) could provide useful information to decision makersallocating scarce resources.

All budget systems provide for accountability; the question is,accountable to whom and for what. A budget system that focusesonly on inputs allows decision makers to hold administratorsaccountable for how the money was spent. For example, did thehighway repair department spend money appropriated forhighway repair supplies on employee travel instead? Budget

4 Schick, p. 26.

2. Management ofongoing activities

3. Planning

4. Setting priorities

5. Accountability


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systems that require information on activity levels allowaccountability based on efficiency. How much did it cost torepair each mile of highway? A system that mandatesinformation on how well an agency is meeting particularobjectives may allow accountability based on measures ofoutcomes. How did highway repairs affect commuting time,damage to automobiles, and the number of accidents?

A Brief History of Budgetary Reform

This section serves as background for the most recent reformeffort: performance budgeting. As will be seen, the first task ofbudgeting in the United States was to gain better control overhow money was spent. Specifically, budgeting helped guardagainst fraud and misuse of public funds. This concern remains,but budget reformers have long argued that a budget systemshould address other functions as well, such as bettermanagement and planning, particularly since most states nowhave sophisticated accounting and auditing systems to protectagainst misuse of funds. Efforts to change the budgeting systemand the results of those efforts have exhibited a common pattern.First, a new budget system is proposed that purports to serveparticular functions of budgeting better than the method in use.Some governments adopt variations of the new system and keepusing them. Other jurisdictions adopt new systems but thenrevert back to their previous systems. The most commonoutcome though is that governments adopt parts of the newapproach but keep most of what they were using already. After acentury of use and study of budgeting methods, significantchanges have occurred in the way budgeting is done. Change hasbeen gradual, however, usually not because a governmentquickly adopted and retained a new system.

History shows that the success of a new budgeting system is notguaranteed. This does not mean performance budgeting mustrepeat the past. Past reform efforts have sometimes not lived upto expectations because the technology of the time was notsufficient to meet the needs of the new system. Advances incomputer hardware and software have since made processing,analyzing, and presenting large amounts of information mucheasier. Today’s reformers have the benefit of past efforts fromwhich to draw lessons in implementing a new system.Performance budgeting also has the advantage of intuitive appealto a public whose ultimate concern is the results of programs, notthe nuts and bolts of how programs operate.

The traditional budgetused by most states isbased on the line-itemformat and incrementaldecision making.


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After decades of reform efforts, the budgeting systems used bymost governments in the U.S. are hybrids. Budget documentsoften provide information relevant to all functions of budgeting.Still, the typical approach to budgeting has been and remainsfinancial control through the use of the line-item budget thatfocuses on the costs of inputs to programs such as personnel oroperating expenses. Decision makers do request and useinformation on other aspects of programs, such as howprograms contribute to society. The provision and use of suchinformation is usually informal and unsystematic though. Inshort, the line-item budget facilitates analysis of the costs ofresources necessary to provide programs for the public. Theline-item budget does not preclude other kinds of information,but it does not require or effectively facilitate analysis beyondcontrol of how money is spent. This perceived weakness is oneof the rationales for moving to a performance budgeting system.

In making spending decisions, legislators and other decisionmakers have usually focused their attention on proposed changesto programs rather than fully evaluating entire programs eachbudget period. Because government revenues have increased formost budget periods, most agencies have been able to maintaintheir base programs—the activities that they were doingalready—and often have gained support for additional initiatives.This practice of budgeting is often cited as an example ofincremental decision making, accepting much of what wasdecided in the previous budget and concentrating on proposedchanges. Incrementalism is compatible with line-item budgeting,and the two have so often been used together that they aresometimes assumed to be synonymous, but this is not the case.5

The line-item format does not require incremental budgeting andincrementalism does not necessitate using the line-item budget.

A century ago, what we think of as government budgeting didnot exist in the United States. Typically, at the local, state, andnational level, public agencies made their requests for fundsdirectly to the appropriate legislative body. Legislators thenmade lump-sum appropriations for agencies or programs. Oftenthere were few or no conditions as to how the money was to beused. Administrative reformers focused on two major problems

5 Analysts at the National Conference of State Legislatures use the termtraditional/incremental to describe the typical, current state budgeting system.Legislative Budget Procedures(http://www.ncsl.org/programs/fiscal/lbptabls/lbpc3t1.htm), accessedFebruary 12, 2001.

Public budgetingemerged early in thiscentury to providefinancial control andcoordination.


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with this system of appropriations: financial control andcoordination.

The first problem was the lack of financial control. Withnonexistent or loose spending requirements, it was often difficultto determine how public funds were spent. The perception—often accurate—was that corruption was rampant. The solutionwas the adoption of the line-item budget. The “line items” wereamounts of spending for different categories of inputs such aspersonnel, operating expenses, and capital equipment used toprovide services. The items could be categorized in as muchdetail for as many governmental units (agencies, departmentswithin agencies, subunits of departments) as decision makerswanted. If they wished, legislators could impose strict rules abouttransferring money from one item to another. Among the line-item budget’s strengths was that it allowed legislators and otherbudget makers to achieve effective financial control over publicfunds. Legislators could now allocate specified amounts ofmoney for specified inputs for specified periods of time andverify that the money was spent as directed.

The second problem was the lack of coordination. Agencies ordepartments made their requests for funds independently of oneanother, and there was usually not much effort within legislaturesto consolidate them. Reformers argued that the executive was thelogical institution to impose some fiscal discipline on agencies’requests and assemble them into a coherent package to besubmitted to the legislature. Over time, states moved to the nowfamiliar executive budget. Budget centralization and coordinationincreased, as did the influence of governors in the budgetaryprocess. The executive, line-item budget format is an essentialpart of what is considered the traditional budgeting system in theU.S.

There are elements of budgeting other than financial control, ofcourse. As early as the 1910s, some argued that the budget systemshould change to make the management of government programsmore effective. This would be accomplished by focusing on theactivities of agencies rather than on their inputs.6 For example, atransportation agency could project how many miles of roads itwould pave or potholes it would fill in the future. It could also tryto determine how much it costs to pave a mile of road or fill apothole. Based on reports of cost per unit of output and whetheroutputs were meeting target levels, agency managers could 6 John Mikesell, Fiscal Administration (Fort Worth, TX: Harcourt Brace,1999), p. 186.

The line-item budgetprovides financialcontrol by focusing onthe inputs purchased toprovide governmentprograms.

The adoption of theexecutive systemincreased thecoordination ofgovernment spending.

The second phase ofbudget reform stressedmanagement ofresources by focusing onagencies’ activities.


8

determine how to manage resources and services better. A plus forlegislators would be the inclusion of additional useful informationin budget documents. In practice, this information did not oftenlive up to potential; statistics usually summarized the amount ofgovernmental activity but failed to relate it to costs.7

Governments, especially at the local level, did graduallyincorporate more information on governmental activities into thebudgetary process but reliance on the traditional line-item budgetpersisted.8

Program budgeting emerged in the 1950s as a sophisticatedsystem designed to increase the efficiency of resource allocationand facilitate more long range planning. The national governmentemphasized program budgeting in the 1960s, and some nationalagencies, states, and localities use elements of the system now.The major budgetary unit in the program budget is—as the namewould suggest—a broad program area. Each program is definedbased on an objective of government. Typical program areasinclude “Health Services” “Intellectual Development andEducation,” and “Economic Development.” Each program couldconsist of all or parts of diverse departments and agencies. Forexample, in Pennsylvania, the “Protection of Persons andProperty” program includes over twenty agencies ranging fromthe State Police to the Milk Marketing Board.9

An advantage of program budgeting is that the grouping of similaralternatives into a program may encourage competition amongthem to meet the program’s objectives. Using Pennsylvania’s“Protection of Persons and Property” as an example again,contributing agencies may address the program’s objectivesthrough employment policies (Department of Labor and Industry),punishment (Department of Corrections), or dealing with acontributing factor (Liquor Control Board). Usually, governmentsare not reorganized along program lines, requiring thatinformation from different agencies and subunits be linked in thebudget system through a process called crosswalking. Improvedsoftware, computing, and accounting systems have made this taskeasier than when program budgeting began. A remaining technicalproblem with the measurement of inputs is figuring out howshares of a particular agency’s budget should be allocated amongdifferent programs.

7 Allen Schick, Budget Innovation in the States (Washington, D.C.: Brookings,1971).8 Charlie Tyler and Jennifer Willand “Public Budgeting in America: ATwentieth Century Retrospective,” Journal of Public Budgeting, Accountingand Financial Management 9 (1997), 189-219.9 Mikesell, p. 190.

A major rationale forprogram budgeting is tomake planning easier.


9

Zero-based budgeting (ZBB) was implemented by somegovernments in the 1970s as a way to prioritize among differentprograms and to increase accountability. It is important todistinguish between what ZBB is in theory and what it is inpractice. In theory, ZBB means—as its name would suggest—that every budgeting unit is looked at anew each budgetingperiod. There is no assumption that a program will maintain itsbase budget with attention focused only on changes to be made;each program has to justify its existence. So instead of askingwhy a transportation department is asking for a five percentincrease in highway repair, the logic of ZBB is that the entirehighway repair program has to be justified. Officials areaccountable for the performance of their entire program, not justfor proposed changes. This is the opposite of incrementaldecision making where funding for existing programs is assumedto continue at existing levels unless some specific reasonindicates change is needed.

In practice, ZBB means that each budgeting unit makesproposals for what it could accomplish with different levels offunding called decision packages, usually percentages of itscurrent budget. Each unit may be required to propose what itwould accomplish with different percentages of its current levelof funding: 90 percent, 95 percent, 100 percent, and 105 percent,for example. Each unit might also be asked to propose whatwould be the minimal level of funding necessary to serve itsbasic function. Decision makers can then rank all the proposedspending packages and make judgments given the constraint ofhow much they wish to spend in a given period of time. Thismeans that each budgetary unit competes against itself (“Shouldwe spend 95 percent of last year’s budget for road repair or 105percent?”) and other units (choosing one unit’s 95-percentpackage may allow funding of another’s 105-percent package).

ZBB has not been widely adopted. The main criticisms haveconcerned the amount of paperwork and time involved in theprocess. Developing multiple budget proposals for an agencytakes a lot of time, as does choosing among them. Agencies havean incentive to make their higher funding proposals moreappealing than proposals involving no growth or decreases.Presented with an overload of information via the zero-basedbudget format, legislators often reacted by making appropriationsdecisions using the traditional method of accepting most of anagency’s base budget and concentrating on proposed changes.

Zero-based budgetingwas introduced to helpset priorities and tofoster accountability.


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Performance Budgeting

Beginning in the 1990s, reform efforts have centered onperformance-based budgeting (PBB).10 More so than earlierefforts, PBB focuses on the outcomes of programs—the thingsthat citizens want government to accomplish, such as saferneighborhoods, better health, or effective schools. Budgetingbased on results got a big push from the popularity of Osborneand Gaebler’s 1992 book Reinventing Government, but the logicbehind performance budgeting was already well known.11 Thebasic idea of PBB is almost as old as modern budgeting itself;even early critics of line-item budgeting argued that the budgetshould focus more on outcomes.12 At the national level, the ChiefFinancial Officers Act of 1990 mandated the use of performancemeasures for many federal agencies. The GovernmentalAccounting Standards Board began recommending in the 1980sthat governments report on service outcomes.13 Almost all statesnow make use of some kind of performance measurement.14

The details of performance budgeting systems differ but the basicsof PBB are as follows:

1. Objectives. Agencies should develop strategic plans of whatthey intend to accomplish. These plans should containobjectives based on outcomes that the public values.

10 Performance-based budgeting has also been referred to as the newperformance budgeting (to distinguish it from a similarly named proposal fromdecades ago), “entrepreneurial budgeting, results-oriented budgeting, missionbudgeting, and outcome-based budgeting, among others.” Mikesell, p. 202.11 David Osborne and Ted Gaebler, Reinventing Government, How theEntrepreneurial Spirit is Transforming the Public Sector (Reading, MA:Addison-Wesley, 1992).12 Published in 1924, the following quote could be inserted into any recentargument for performance budgeting: “The budget should present a completepicture of what is hoped to accomplish ultimately by governmental means. Fewknow whether departments are doing 100 percent of the task assigned to them.…a request should be accompanied by a statement of exactly what ideal is tobe anticipated in that particular service; what percentage of that ideal can beachieved through the appropriation requested, and leave the ideal open tocriticism by those who may not be as enthusiastic about the project as thespecialist in charge.” Lent D. Upson, “Half-Time Budget Methods,” TheAnnals of the American Academy of Political and Social Science, 113 (1924),p. 73.13 Tyler and Willand, p. 203.14 Julia Melkers and Katherine G. Willoughby, “The State of the States:Performance Based Budgeting in 47 out of 50,” Public Administration Review58 (1998), 66-73.

Though not a new idea,performance budgetingbecame more popular inthe 1990s.

The major elements ofPBB are definingobjectives, developingmeasures ofperformance, linkingspending decisions toresults, andaccountability based onoutcomes.


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2. Performance measures. Based on their strategic plans,agencies should develop specific, systematic measures ofoutcomes that can be used to determine how well thatagencies are meeting their objectives. Examples: student testscores for education programs, mortality rates for healthprograms.

3. Linkage. Objectives and performance measures are integralparts of the budgetary process. Appropriations are linked toagencies’ results: how well they are meeting their objectivesas indicated by performance measures.

4. Accountability. Agencies are responsible for and are heldaccountable for outcomes. Budget proposals and reports willstress outcomes, not inputs. Because accountability is nowbased on what agencies accomplish, agency managers aregiven greater leeway in how resources are allocated to addressagency objectives.

Performance budgeting has great promise but there has beenlimited experience in using it. As with any major change in theway important decisions are made, PBB raises some difficultquestions. Each of the above elements of performance budgetingrequires that decision makers address some key issues ifimplementation is to be successful.

1. Objectives. There must be broad agreement among legislatorsand relevant executive branch personnel on what theobjectives of an agency are. If objectives are unclear or are inconflict, then the rest of the performance budgeting processwill be unsuccessful.

2. Performance measures. Measuring performance is difficult, tosay the least. Accounting systems must be able to link costinformation to specific outcomes. Constructing outcomemeasures is even tougher. The results that the public valuesare often very complicated and costly—in terms of time andmoney—to gauge. Agencies in jurisdictions with performancebudgeting have often resorted to measures of governmentactivities instead.

3. Linkage. Linking appropriations to how well agencies performis appealing, but it is not a straightforward process. If aprogram does not meet its objectives, should it be heldaccountable by having its budget cut? What if a lack of fundsis the reason its objectives were not met in the first place?Should a program that meets or exceeds its objectives be

Key issues inimplementing PBBinclude the broadagreement necessary todefine objectives, thedifficulty ofperformancemeasurement, andfostering accountabilitybased on outcomes.


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rewarded with more funds, or should excess funds be divertedto other uses? A problem with this carrot and stick approach isthat most objectives are affected by forces outside theagency’s control. An agency may be making effective use ofresources and still not be able to meet its objectives. Anagency meeting its objectives may be doing so only becauseother forces are at work to alleviate the problems the agency isaddressing. To avoid being judged for factors they cannotcontrol, program administrators may try to devise objectivesthat are relatively easy to reach.

4. Accountability. Accountability based on results is PBB’sstrongest selling point, and it is hard to conceive of anargument against this concept. In practice, results-orientedbudgeting does raise potential difficulties for programadministrators and elected officials. A key problem foradministrators has already been mentioned: the lack ofcomplete control over outcomes. The problems the agency isdesigned to alleviate may get worse for reasons outside themanagers’ control. For elected officials, program budgetingrequires that they have substantially more trust ofadministrators. If program managers are to be held responsiblefor results, they should be given more flexibility in allocatingresources among inputs. Legislative oversight would still takeplace, “but the detailed use of … appropriations, within thenormal laws of financial propriety, would no longer be anoversight concern.”15

It is worth noting that greater use of outcome-based measuresmay improve the budget process, administration, andaccountability even if a complete performance budgeting systemis not adopted.16 First, the use of such measures may encouragegovernment officials to think more about outcomes when theyare making decisions. As part of the bill drafting process in theGeneral Assembly, staff are required to estimate the costs thatthe bill would impose on local governments. This does not meanthat legislation that imposes unfunded mandates on localities isoff limits, but it does mean that such costs are now documentedand can become part of the debate on the merits of bills. Theavailability of outcome measures can serve a similar function. Ifinformation on program outcomes is readily available, this kindof information is more likely to be considered in decisionmaking. Government can go further in encouraging the use ofinformation on outcomes. For instance, agencies could be

15 Mikesell, p. 209.16 Much of this section is based on material from Joyce, pp. 614-15.

The use of outcome-based measures ofperformance may bevaluable even if a fullperformance budgetingsystem is not adopted.


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eligible for extra funding based on their contribution to achievingparticular objectives in a state’s strategic plan.

Increased attention to outcomes may also offer benefits togovernment administrators and citizens. When elected officialsgrant at least some discretion to administrators, managers can usemeasures of results to allocate resources more effectively withinparticular programs. Agencies may also be encouraged to studyand understand how their actions are related to real changes insociety, such as fewer traffic accidents or better reading abilityamong elementary school students. A focus on results may alsoimprove government accountability to its citizens. Settingpriorities in the first place opens public debate on the issues thatcitizens want government to address and in what order. Givingresidents ready access to information on the results of programslets them know what government is achieving with its resourcesand lets them hold government accountable based on thoseresults.

Measures of Performance

In the current discussion of performance budgeting, it is oftenimplied that “performance” has a specific meaning: a program’scontribution to a stated objective, such as a specific increase in thehigh school graduation rate. Just as with accountability though,almost any budget system measures performance. The issue iswhat kind of performance is being measured. The following levelsof performance measurement range from those that are easiest toconstruct to those that are most complicated.17 Not coincidentally,the measures also range from a measure focusing on inputs tothose measuring how well a program helps solve some societalproblem.

Inputs—also called objects of expenditure—are the resources(such as personnel, operating expenses, and capital) used toprovide government services. Inputs have the advantage of beingrelatively easy to measure, usually in dollars. Since inputs aremeasured in dollars, it is also easy to make comparisons of thecosts of inputs across diverse public programs.

17 There is broad agreement on what the measures of performance are, butresearchers and officials do not always agree on what to call each measure. Thenames and definitions used here are adapted from Joyce, and Haoran Lu,Performance Budgeting Resuscitated: Why Is It Still Inviable?” Journal ofPublic Budgeting, Accounting and Financial Management, 10 (1998), 151-72.

There are differentlevels of performancemeasurement.

1. Inputs: resourcesused to providegovernment services.Example: moneyspent on personnel.


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Activities—also called outputs—measure what an agency does.Examples would include such things as the number of minesinspected, miles of highway paved, the number of applicationsprocessed, the number of classes taught, and the number ofprisoners housed. A measure of activity level could be taken astep further to include more information. For example, auniversity could measure days of instruction by multiplying daysof teaching by the number of students in classes.

An efficiency measure relates costs to a unit of activity.Examples include the annual cost per prisoner, the cost of fillinga pothole, or the cost per child vaccination. Relating costs toactivities is not always straightforward. Consider the previousactivity measure of a university’s days of instruction. If theuniversity served any functions other than instruction, it wouldbe necessary to determine what percentage of costs should beallocated to instruction. That might be easy for an item such asclassroom construction and maintenance. It would be moredifficult to determine instruction’s share of staff costs orbuildings not used as classrooms.

An outcome indicator is a measure of how well a program ismeeting an objective. Objectives are usually the ends ofgovernment, things that the public values such as safety, health, oreducational improvement. To cite some examples, an outcomemeasure for a highway snow removal program could bereductions in the accident rate or commuting time on snowy days.For a police department, reductions in crime could be an outcomeindicator. For health programs, reductions in the rates of particulardiseases or increases in life expectancy are feasible outcomemeasures.

Outcome indicators measure progress toward achievingobjectives. A problem is that objectives are often not under thecontrol of the agency. For instance, the state police could initiate anew program to reduce fatalities in automobile accidents byencouraging more use of seat belts. Seat belt use could go up andfatalities would go down as expected. Another possibility is thatseat belt use could go up but fatalities could still increase becauseso many other factors affect accident fatalities, such as roadconditions, rates of drunken driving and speeding, or the kinds ofvehicles that people drive. Conversely, it is possible that if otherfactors were favorable, a program’s outcome would be good evenif the program is not effective.

2. Activities: work anagency performs.

Example: number ofmines inspected.

3. Efficiency:relationship of costto a unit of activity.Example:cost per childvaccination.

4. Outcome: howwell a program ismeeting anobjective.Example: a reduction inthe crime rate.


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To deal with this problem, a measure of a program’s effectivenessshould determine how much of the attainment of the objective isdue only to the program. Effectiveness is the most difficultmeasure because it requires ruling out the other feasible reasonsfor why a program succeeded or failed in attaining an objective.

To clarify the different measures of performance, consider howthe performance of a jobs training program could be measured.An input measure would delineate the costs of running theprogram and would assume that the spending of inputs achievesthe goal of the program. An activities measure would indicate thenumber of trainees in the program. An efficiency measure wouldprovide the cost per trainee. An outcome measure might be thepercentage of trainees who had jobs at a specified time aftertraining. An effectiveness measure would determine the numberand percentage of trainees who became employed afterparticipating in the program but who would not have gotten jobswithout the program.

Choosing the Base

A key issue in budgeting is the definition of the base budget. Thebase is the starting point for deciding what should be funded inthe upcoming budget period. Typically, programs and amounts offunding in the base budget receive proportionally less attentionthan changes to the base. Another way to think about the base isas the fallback position—official or unofficial—if decisionmakers could not agree on what the new budget should be.

What is the base? In theory, the base can be whatever decisionmakers want it to be. If it were decided that a given agency’sbase budget was zero, this would mean that the agency had toeffectively justify every dollar in its proposed budget anddecision makers would take the time to scrutinize every dollarappropriated for the agency. In practice, it has proved impracticalto assume a zero base for every program for every budget period.Typically, decision makers identify what the base should be inpractice and concentrate their attention on proposed programchanges outside the base. What is considered the base may beofficial policy or the traditional “way things are done.”

An agency’s base may be its continuation budget (also called acurrent services budget). This is what it would cost in theupcoming budget period to provide the same level of services asbefore. If the costs of the resources an agency needs to providethe same level of services have increased and the agency has notbecome more efficient, then the budget for the agency will

5. Effectiveness:Attainment of theobjective due only to theprogram.

Example: job trainingprogram.

The base budget is thestarting point fordeciding a program’snew budget.

There aremultipledefinitions ofbase.

1. Zero base: every itemhas to be fully justified.

2. Continuation budget:cost of providing samelevel of services as inprevious budget period.


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increase even though services have not increased. For entitlementprograms that must serve anyone meeting eligibilityrequirements, the continuation budget will also depend on thenumber of people who are eligible.

Budget bases may be inflation-adjusted using one or moremeasures of price changes, typically the U.S. Consumer PriceIndex (CPI). Some programs may be adjusted by morespecialized indices. For example, inflation for health care hasusually outpaced the general inflation rate so the base for healthprograms could be adjusted using the Medical CPI. Adjusting thebase for inflation is similar but not identical to a continuationbudget. The resources required by different programs would notall be subject to the same changes in prices. For example,agencies that are labor intensive will be more affected bychanges in the cost of labor. Other programs may be moreaffected by the price of energy. Aside from entitlementprograms, the overall inflation-adjusted base may be quite closeto the continuation budget; this is not necessarily true forindividual programs.

Programs may also be frozen at the appropriations levels from theprevious budget period. If the programs’ resources costs rise, theprograms will not be able to provide the same level of servicesunless program managers can increase the efficiency of how thoseservices are provided.

A program’s budgetary base can also be a specific percentagetarget based on its previous budget. In theory, this percentage canbe anything above zero. In practice, targets are usually close to100 percent of the previous budget, either above or below. Targetsbelow 100 percent—95 percent for example—mean that serviceswill likely be reduced. Depending on changes in the costs ofresources, targets just above 100 percent also may not guaranteethe same level of services as before.

Usually, the choice of the kind of base to use can be separatefrom the choice of what kind of budgeting system to use.18 It issometimes assumed that a particular system necessitates aparticular measure of the budgetary base, but this is notnecessarily true. For example, the line-item budget has been thetraditional budget system in the U.S. The budgetary base,decided either formally or informally, has usually beensomething close to the continuation or inflation-adjusted budget.These bases and the line-item format share some advantages;

18 Zero-based budgeting, which is usually based on percentage targets, is anexception.

3. Inflation-adjustedbased on one or moreprice indices.

5. Percentage targetbased on the previousbudget.

Choosing a budgetsystem and choosing abase are usuallyseparate choices.

4. Freeze at previousamount ofappropriations.


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they reduce conflict and the time required to make decisions. It isnot, however, required that they be used together. A line-itembudget can be used with a different kind of base, even a base ofzero if decision makers so choose. With the possible exception ofzero-based budgeting, other types of budgets are compatible withany standard meanings of budgetary base. Changing from onebudgeting system to another does not guarantee that a particularbase will be used.

Deciding What Is Off-Budget

Deciding which programs or functions are “off budget” is anotherdecision that is separate from the choice of budgetary system. Forthe purposes of this discussion, “off-budget” funds are defined asthose included in a government’s Comprehensive AnnualFinancial Report (CAFR) but not appropriated by the legislature.A program that is off-budget has its own budget and is subject tofinancial controls, but it is not included in the general budget’stotals. By definition, changing the budget system does not affectitems that are not in the budget. Virtually all governments in theUnited States place some programs off budget but governmentsare not uniform in defining the programs that are off-budget andthose that are on-budget. Usually, off-budget functions are“performed by entities termed public enterprises, publicauthorities, special districts, or government corporations.”19 Off-budget programs usually have their own sources of revenue andmay be directed by statute as to how that revenue may be used.

The Governmental Accounting Standards Board (GASB)established a recommended fund structure for state governmentsto comply with generally accepted accounting principles. Underthese principles, the state’s CAFR must include all funds, accountgroups and component units for which the state is financiallyaccountable. GASB indicates that the state’s CAFR would bemisleading or incomplete without inclusion of certain off-budgetfunds. GASB designates three major categories of funds:

• Governmental funds track basic government activities(e.g., General Fund, Road Fund).

• Proprietary funds track government activitiesgenerally financed and operated like a private businesseither for others (e.g., state parks) or for costingsupport services for state agencies (e.g., computerservices).

19 Axelrod, p. 16.

The choice of budgetsystem does not affectthe designation of off-budget items.

Most states, includingKentucky, follow GASBrecommendations forfund structure.


18

• Fiduciary funds track assets held for others and cannotbe used to support the government’s own programs(e.g., employee retirement funds).

Under generally accepted accounting principles, mostgovernmental funds are on-budget, while some proprietary fundsand virtually all fiduciary funds are off-budget.

Table 1 shows the fund structure used in Kentucky. Note thatfunds are divided into the three major groups identified by GASB:governmental, proprietary, and fiduciary. The two columns to theright indicate whether the funds are on-budget or off-budget.With a few exceptions, governmental and proprietary funds areon-budget and fiduciary funds are off-budget.

According to the Kentucky Controller, both off-budget funds andon-budget funds are tracked in the same way in the state’saccounting system. The same type of information is availablefrom the state accounting system for on-budget as well as off-budget funds, with the exception of the university funds.University funds, such as the foundations, are reported in theuniversity’s accounting system, which is independent of the stateaccounting system. The Finance Cabinet tracks each universityfoundation through the audited financial statement that issubmitted annually.

As in most states, the Kentucky state budget does not generallyinclude information on off-budget funds, but there are exceptions.For example, the Budget Reserve Trust Fund, the state’s rainy dayfund, is included in the budget because the budget contains amechanism for how these funds are to be appropriated.

In Kentucky mostgovernmental andenterprise funds are on-budget, while mostfiduciary funds are off-budget.

Both on-budget and off-budget funds aretracked in the Kentuckyaccounting system.


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Table 1Fund Structure Used by Kentucky

On-Budget

Off-Budget

Governmental Funds - track basic government activities0100 General Fund X0200 Capital Projects Fund X0300 Debt Service X

Special Revenues Funds – dedicated to specific operations other thanexpendable trusts or major capital projects

1100 Road (Transportation) Fund X1200 Federal Fund X1300 Agency Revenue Fund X1400 Other Special Revenues Fund X

Proprietary Funds - track government activities generally financed andoperated like a private business

Enterprise Funds – public corporations and state agencies providingservices to the general on user-charge basis, and state risk managementpools

2100 State Park Fund X2200 State Fair Board Fund X2400 Insurance Administration Fund X X2900 Kentucky Horse Park Fund X

Internal Service Funds - inter-agency/government services3100 Fleet Management Fund X3200 Computer Services Fund X3500 Prison Industries Fund X3600 Central Printing X3700 Property Management X3800 Risk Management Fund X X

Fiduciary Funds - track assets held for others; cannot be used to support thegovernment's own programs.

Pension Trust Funds – retirement systems5100 Kentucky Employees' Retirement System

FundX

5200 State Police Retirement System Fund X5300 Teachers' Retirement System Fund X5400 Judicial Retirement System Fund X5500 Legislators' Retirement System Fund X5600 County Retirement System Fund X5700 Kentucky Retirement System Insurance Fund X

Expendable Trust Funds - held as a legal trustee, expendable fordesignated purposes

6200 Unemployment Compensation Fund (FederalBenefits)

X

6210 Unemployment Compensation Fund (Tax Receipts) X6300 Other Expendable Trust Fund X6310 SSDI Fund X6350 Tobacco Settlement Fund

Agency Funds - held for custodial purposes only7100 County Sinking Fund X7200 Special Deposit Trust Fund X


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BUDGETING IN PRACTICE: STATEEXAMPLES

A primary function of any budgeting system is to collect andorganize information on program expenditures and spendingrequests so that legislators can make decisions about the amountof funds to appropriate to particular programs. The previoussection of the report explained the major conceptual differences invarious budgeting approaches, such as line-item budgeting andperformance budgeting. The manner in which the difference inbudgeting systems may be most apparent to legislators is in thetypes of information provided in briefing documents to supportagency funding requests, because different budgeting systemsyield different types of decision support information forlegislators.

Legislators are free to base appropriation decisions on any factorsthey choose. However, it is likely that the nature of thebackground information they receive in budget request briefingdocuments will both inform and constrain their understanding of aparticular program and their assessment of its needs for funds. Inother words, how budget information is provided can affect thebudgeting decisions legislators make.

To make differences in the types of information usually providedby different budgeting systems more concrete to legislators, staffobtained budget requests and briefing materials from states with avariety of budgeting systems. These materials were used todevelop examples of differences in the information provided tolegislative decision-makers.

To provide examples that were comparable across states, budgetsfor state departments for elderly services were reviewed. It wasexpected that programs for the elderly would be fairly uniformbecause of the large federal involvement in such programs.

Five states were chosen for the comparison examples. The statesand their predominant budgeting system are shown below.Because these states utilize a variety of budgeting systems, theyprovide an opportunity for concrete comparisons of the types ofbudget information legislators receive from the different systems.

Different budgetingsystems yield differentdecision information forlegislators.

Programs for theelderly were selected fora comparison of budgetinformation.


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State Predominant Budgeting SystemKentucky Incremental program budgeting based on line-item

expenditure information.Iowa Combination – Modified zero-based budget with

some performance information.Louisiana Performance-based budgeting now under

implementation.Massachusetts Combination – Abandoned most elements of

performance- based budgeting.Texas Performance-based budgeting system under

continuous development since 1993.Source: National Conference of State Legislatures, “Legislative BudgetProcedures,” March 1999, and information obtained from each state.

Kentucky

Although legislators in Kentucky appropriate at the broadprogram level, the budget information they receive is presented inthe traditional line-item format.20 As noted in the previoussection, this means that budget information is focused on fundsource and general categories of inputs, such as personnel.Budget decisions reflect an incremental approach, with the basebudget for a program reviewed as one total. Detailed descriptionsof intended program activities are only included for amounts andactivities that represent a change from the base budget. Someperformance information is required for education programs;however, there is no structure in place to systematicallyincorporate performance information into budget deliberations.

According to the 2000-02 Branch Budget Request Manual, inpreparing budget requests, Kentucky agencies are to take thefollowing steps.

1. Submit a Current Services budget for existing activities orthose that can be funded within the allowable CurrentServices budget amount.a. The allowable Current Services budget amount is the

budgeted amount of the previous fiscal year plus aspecified inflation adjustment (2.4% per year in FY2001–2002).

b. Agencies are instructed to review existing programfunding, determine if any can be reduced or

20 Note that the discussion of the budgeting system in Kentucky contained inthis document is limited mostly to the example programs. The Auditor ofPublic Accounts is required by HB 502 to prepare a complete description of thecurrent flow of budget information and how it would need to change to supportperformance-based budgeting, so this report does not address these issues.

Kentucky budgetinformation providesthe basis for comparison


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eliminated, and reduce the Current Services budgetrequest accordingly.

2. Submit detailed Additional Budget Requests for newprogram expenditures or expenditures for existingprograms that exceed the allowable Current Servicesbudget amount.a. New expenditures are to be thoroughly documented

and justified, both fiscally and programmatically.b. The Current Services Budget must be assigned the top

priority of the Cabinet. Each Additional BudgetRequest is to carry a Cabinet-wide priority ranking.All Additional Budget Requests are to be rankedbelow the Current Services Budget.

3. Submit a Capital Budget Request with projects assigned aCabinet-wide priority ranking.

The major implications of these instructions can be observed inthe example budget briefing documents from the Office of AgingServices. 21

Base Budget. Exhibit KY-1 shows a portion of the initialbriefing document prepared for Kentucky legislators regarding theamount requested by the Cabinet for Health Services for theOffice of Aging Services. The initial display of informationbreaks out the base, or current services, budget by fund sourceand expenditure category. This highlights the source of fundingfor the program and the amount spent on program inputs. Adetailed report on personnel trends is also provided to legislators.In this case, the report indicates that total full and part-timepositions in the Office of Aging Services increased from 30 in FY1999 to 32 in FY 2000 and FY 2001.

21 This discussion relies on examples from the operating budget. Thecomplexity of the capital budget was considered excessive for the purposes ofthese examples.

The initial informationKentucky legislatorsreceive is about the basebudget.


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Exhibit KY-1Kentucky Office of Aging ServicesCurrent Services Budget Summary

FY 1999Actual

FY 2000Budget

FY 2001Budget

Modified Current Services BudgetBy Fund SourceGeneral Fund 23,241,655 23,337,000 24,021,100Restricted Funds 122,140 12,640,300 4,965,500Federal Funds 15,984,549 17,158,500 17,153,800Total 39,348,344 53,135,800 46,140,400

By Expenditure CategoryPersonnel Costs 1,489,565 1,724,300 1,829,300Operating Expenses 188,378 207,700 211,600Grants, Loans, Benefits 37,667,822 51,198,800 44,094,500Capital Outlay 2,570 5,000 5,000Total 39,348,344 53,135,800 46,140,400

Source: Cabinet/Agency Request, 2000 General Assembly Operating Budget Summary, BR-10A,obtained from LRC Budget Review staff.

While an overall program description is provided to legislators(Exhibit KY-2), funding amounts in the base budget are notshown by either the particular program activities they fund or byany measure of program achievements.

Exhibit KY-2Kentucky Office of Aging Services

Program NarrativeAging services are carried out by the Office of Aging Services, designated as the StateUnit on Aging (SUA) by the Federal Administration on Aging. Under the OlderAmericans Act, the SUA is responsible for aging issues on behalf of all older persons inKentucky. The SUA is required to carry out a wide range of functions related to servicedelivery, advocacy, planning, coordination, interagency linkages, information-sharing,brokering, and evaluation. These functions are to focus on the development orenhancement of comprehensive and coordinated community-based systems designed tohelp elderly and adult Kentuckians maintain independence and dignity in their ownhomes and communities. Programs include the following:

Nutrition Services Supportive ServicesSenior Community Service Employment Elder RightsLong-Term Care Ombud Homecare ProgramAdult Day and Alzheimer’s Respite Personal Care Attendant ProgramState Health Insurance Assistance In-Home Management

Source: Staff summary of “2000-02 Kentucky Branch Budget – Current Services Budget Request: ProgramNarrative/Documentation Record. Operating Budget Report A-4.”

Base budget amountsare not tied toparticular programactivities or outcomes.


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As part of the required program narrative, agencies are instructedto submit information that justifies current services expenditures.Agencies are encouraged to submit quantitative data onperformance or outcome measures. Examples of the performancedata submitted by the Kentucky Office of Aging Services areshown in Exhibit KY-3.

Exhibit KY-3Kentucky Office of Aging ServicesReported Performance Measures

Quantitative DataFY 1999Actual

FY 2000Budget

FY 2001Budget

Nutrition ServicesTotal congregate and home-delivered meals 3,291,700 3,258,800 3,258,800Persons who received meals for nutritional needs 38,200 37,900 37,900Supportive Services1-hr. units of service 1,778,000 1,760,300 1,760,300Persons receiving services encouraging independence 113,500 112,300 112,300Long-term Care OmbudsmanNumber of complaints investigated 6,100 6,200 6,200Adult Day/Alzheimer’s Respite½ hour units of service provided 1,069,200 1,059,000 1,042,800Persons prevented from early institutionalization 1,400 1,400 1,400State Health Insurance ProgramClients receiving benefits counseling and assistance 8,000 15,000 15,000

Source: Staff summary of “2000-02 Kentucky Branch Budget – Current Services Budget Request:Program Narrative/Documentation Record. Operating Budget Report A-4.”

The reported performance indicators do not meet the usualstandard for performance budgeting for three major reasons.First, the measures are primarily for program outputs (number ofmeals served, number of complaints investigated) rather thanprogram outcomes (reductions in incidence of nutritionaldeficiencies, improvements in measures of long-term carequality).

Second, the indicators that may be taken as a measure of outcomeor achievement (persons prevented from early institutionalization)are not substantiated or independently verified. Thus, it is unclearwhether the number reported is for all persons who receivedservice units, or whether there is some specific count ofindividuals for whom the likelihood of institutionalization wasdemonstrably changed because of the services received. It wouldbe difficult to believe that every unit of service delivered wasequally successful in preventing institutionalization.

KY agencies areencouraged to submitmeasures ofperformance.

Reported performancemeasures are mostly foroutputs rather thanoutcomes…

…are not independentlyverified…


26

Finally, the reported performance measures are not linked tofunding amounts in the base budget. They are reported toprovide overall support for the base budget, but do not allowlegislators to tie direct funding amounts to particular currentprograms that appear to be more, or less, successful in achievingprioritized policy goals established for the whole Office.

Additional Funding Requests. In contrast to the base budget,which is shown as a single total amount, requests for budgetincreases must be itemized and prioritized (Exhibit KY-4). Itemsin this category generally account for a major portion oflegislative discussion of agency budget requests. In this example,funding above the allowable current services increase is requestedto cover costs above the allowable increase for certain currentservices (Priority 1), to expand services to a new population(Priority 2), and to institute a new program (Priority 3). Althoughthe funding requests for these activities are itemized, the budgetdocuments do not include a statement of performance goals forthe new spending, nor a definition of performance measures thatwill be used to evaluate progress toward program goals.Legislators must judge the competing additional funding requestsfor all programs on the basis of the narrative descriptions ratherthan on projections of what outcomes are expected to be achievedwith the new funding. Without such initial information, legislatorshave reduced ability to later judge whether the new funding waseffectively used.

The Kentucky budgeting system does not have a regularmechanism to track the performance of new program activities.For example, if legislators decide to fund the new family respiteand support program in the upcoming budget, then the subsequentbudget for that program becomes part of the current servicesrequest. The agency would not have to separately document theachievements of that particular program. Thus, legislators are notregularly presented information that would allow them to trackand compare the success of the new programs for elderly servicesand make subsequent priority funding decisions on that basis.

…and are not tied tospecific funding amounts

Additional budget itemsare reported in priorityorder with itemizeddollar amounts butwithout performancemeasures.

Additional fundingitems approved in onebudget become part ofthe base in subsequentbudgets.


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Exhibit KY-4Kentucky Office of Aging ServicesAdditional Operating Budget Items

AdditionalBudget Item Priority Description

FY 2001Request

In-HomeManagement 1 Maintain current services for 130 clients 130,000Community-Based Services

2 Expand current services to 2,480Homecare clients, 196 Respite clients, and488 Personal Care Attendant clients 6,685,300

FamilyCaregiverSupport Program

3 Establish new program to provide familyrespite and support services for 1,600clients, and client information and supportservices for 2,500 clients 1,043,300

TotalAdditional 7,858,300

Source: Cabinet/Agency Request, 2000 General Assembly – Operating Budget Summary, BR-10A.

Iowa

In the early 1980s, the executive branch in Iowa began requestingthat agencies develop and report measures of output. In FY 1997,the executive branch Department of Management instituted“Budgeting for Results.” Under this structure, agencies are toinclude performance goals and measures in all budget requestssubmitted to the Governor.

Overall state goals for human services are developed by theCouncil on Human Investment, a citizens group appointed by theGovernor and chaired by the Governor’s designee. The Council isto define policy goals and benchmarks for state human servicesexpenditures. One of the Council’s activities is an annual surveyof Iowans that attempts, in part, to gather opinions about theeffectiveness of specific state programs.

Under the Budgeting for Results approach, agencies develop theirown performance measures and include them with fundingrequests in their submissions to the Governor.22 Funding requestsare made by program activities rather than by organizational unit.Exhibit IA-1 displays the mission statement and goals for theIowa Department of Elder Affairs.

22 Paul Epstein and Wilson Campbell¸ “GASB SEA Research Case Study:Iowa,” in State and Local Government Case Studies on Use and the Effects ofUsing Performance Measures for Budgeting, Management, and Reporting,Governmental Accounting Standards Board, April 2000.

The Iowa ExecutiveBranch instituted“Budgeting for Results”in 1997.

Agencies must includeperformance measuresin funding requests tothe Governor.


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Exhibit IA-1Iowa Department for Elder AffairsMission Statement and Policy Goals

• Mission Statement – The Iowa Department of Elder Affairs exists to respond to theneeds and opportunities of an aging society by promoting the development ofopportunities and comprehensive service systems for older individuals.

• Vision Statement – To establish Iowa as the recognized leader in promoting andproviding quality services, helping to make Iowa unsurpassed as a place for olderpeople to live, work, retire, and pursue individual, family and community goals.

• Critical Issue – As Iowa’s aging population continues to increase, we must beprepared to meet the changing needs of an older population and the effect it will haveon all other systems including families and communities.

• Policy Statement – To actively support the enterprise-wide planning initiative tobuild strong, self-sufficient families and strong, safe, healthy communities for peopleof all ages. The Department of Elder Affairs will support communities in developinga flexible infrastructure of improved services that support quality of life for olderpeople.

• Policy Goals in support of the enterprise-wide planning initiatives regardingstrong families and strong communities.1. Increase state capacity for effectively and flexibly addressing the changing

needs of an aging society from a wide perspective, including economic, health,and social issues.

2. Increase planning behaviors and sharing responsibility by individuals for theirown aging as well as the freedom to manage their own lives, protection againstabuse, neglect, and exploitation.

3. Increase societal recognition of aging issues and the contributions of seniorcitizens.

4. Enhance opportunities for older Americans to remain productive and activecitizens throughout their lives.

5. Increase awareness among people of all ages of the choices involved in planningfor a healthy life.

6. Increase employment opportunities for older adults.7. Assure elders have access to housing suitable to their needs.8. Assure adequate services and resources to meet older Iowans changing needs.9. Implement a set of strategies to meet these goals by working collaboratively

with the public and private sectors.Source: Iowa Legislative Fiscal Bureau, State of Iowa FY 1997-98 Annual Budget forms for theDepartment of Elder Affairs, P.1-2.

The administrative units within the Iowa department areAdvocacy, Senior Employment, Protective Services, andOmbudsman. However, the agency’s budget request to theGovernor is stated in terms of funding for particular programactivities, without regard to the unit in which spending occurs.An example of the information included in the Budgeting forResults forms is presented for the Case Management Program forthe Frail Elderly (CMPFE). Exhibit IA-2 shows information theagency reported about Case Management.

Budget requests are byprogram rather than bybudget unit.


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Exhibit IA-2Iowa Department for Elder Affairs

Performance Measures

• State Policy Objective- Length of time older Iowans areindependent.

• Program Purpose – Increase time that older Iowans stayin communities independent, productive and safe.

• Performance Measures – Number of days elderly Iowansare supported on CMPFE before accessing nursing facilityMedicaid.

Source: LRC staff replication of chart from Iowa Department of Department ofElder Affairs, FY 99–00.

Performance MeasuresCase Management

FY 97Actual

FY 98Estimate

FY 99 RequestBase

FY 99 RequestAdditional

Number Screened 7,329 10,172 8,918 2,313Number Assessed 3,403 4,272 3,653 1,064Number of Clients 6,315 8,115 8,115 1,157

Source: Iowa Department of Management Budget Worksheets, FY 1999, BudgetUnit Performance Measures, Department of Elder Affairs, Aging Programs &Services.

Total Client Days on CMPFE

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Actual SFY 96 Actual SFY 97 Projected SFY98

Projected SFY99

Projected SFY00


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Funding Request by Program Area

Program Purpose FY 98 GFActual

FY 99 - 00GF

RequestDifference Program Result

Impact onState PolicyObjective

and ProgramResult

Data SupportingRequest

Case ManagementIncrease time that olderIowans are able to stayin communitiesindependent, productive& safe.

$2,274,307 $2,728,233 $507,926 # of days elderlyIowans aresupported onCMPFE beforeaccessing nursingfacility Medicaid.

Length oftime olderIowans areindependent.

Expand Statewide $500,000 $500,000 Full statecoverage.

Make serviceavailable toall olderIowans whoneed help toremain intheir homes.

Implement finalphase of statewidecoverage plan.

Restore funding forinsufficient federalfunding

$6,332 $6,332 Restore servicelevel.

Continue toprovideservice atcurrent level.

Federaladministrativefunding is formuladriven based ontotal programfunding. It isindependent ofsalaryannualization &increased supportcost and hasremained virtuallystatic.

Internal DepartmentReallocation

$368 $368

Salary Annualization $1,259 $1,259Source: Iowa Governor/Department Budget Work Session documents, Department for Elder Affairs.

Examination of the performance measure for CMPFE highlightsseveral issues of concern for legislators who might be asked to useit as a basis for funding allocations. First, the performancemeasure was developed solely by the agency and may not reflectthe priorities of legislators. Also, it was not independentlyverified. This may be particularly important because only twopoints of actual data are presented, then projected for three years–at a 77% increase.

The most significant issue of concern is causality. The purpose ofperformance measures is to demonstrate the effectiveness of theprogram in question. In this particular example, the stated objectiveof the program is to increase the number of days that elderly Iowansavoid nursing home Medicaid. The most useful performancemeasure would be the number of days elderly Iowans avoidednursing home Medicaid because of program services. In otherwords, the true performance measure of the program is the numberof nursing home Medicaid days actually saved by the CMPFE. This

The reported indicatorillustrates severalconcerns about use ofperformance measures.

Absence of a causal linkis the greatest concern.


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is not measured by the total number of days that clients spend onCMPFE before they access nursing home Medicaid.

In fact, such a measure, particularly if coupled with incentives orsanctions for program managers, could cause a result opposite tothe one desired. For example, one means to increase the numberof days on CMPFE is for the program to recruit, within eligibilityguidelines, those who are relatively younger and healthier andavoid those who are older and sicker, and therefore closer toneeding nursing home care.23

Simple expansion of the program could also increase the numberof days on CPMFE. If the program is already serving those inmost critical need, then expansion is likely to bring in healthierindividuals—thus increasing the average number of daysrecipients receive services. The point is that care should be takento ensure that performance measures are valid, adequately captureprogram effects, and reflect achievements of stated objectives.

Performance budgeting in Iowa has been almost entirely anexecutive branch exercise. According to staff of the IowaLegislative Fiscal Bureau, the legislature has not incorporated theBudgeting for Results forms into its deliberations. Legislatorsfind the separate set of forms confusing, and the combination offunding streams into crosscutting programs, justified by one ortwo measures, inadequate. At this point none of theappropriations subcommittees base budgeting decisions on theBudgeting for Results information. Instead, legislators require theLegislative Fiscal Bureau to prepare traditional budget forms fortheir review. Exhibit IA-3 is an example of the legislative budget-briefing document for the Department for Elder Affairs. In amanner similar to Kentucky, the base budget request is shown byfund source and expenditure category, with only additionalrequests itemized and justified.

Massachusetts

Like many states, Massachusetts faced severe budget pressures inthe early 1990s due to a national economic recession. In craftingbudget recommendations for FY 1993, state policymakers werefacing a projected $1.6 billion shortfall.24 As one strategy foraddressing budget pressures, Governor William Weld proposed theimmediate statewide institution of a new system of“program/performance budgeting.” Governor Weld articulated the 23This is not to imply that the program in Iowa has taken such action, just toillustrate the possibility for such action to occur.24 Peter J. Howe, “Weld Budget to Stress Goals for Agencies,” Boston Globe,January 6, 1992, Metro section, p.15.

Coupled with incentivesor sanctions, theperformance measurecould impedeachievement of theprogram objective.

Budgeting for Resultshas not been embracedby the Iowa legislature.

In 1993 the governorproposed performancebudgeting to helpaddress a budgetshortfall.


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principles of his suggested system in his FY 1993 budget message(Exhibit MA-1).

Exhibit IA-3Legislative Budget-Briefing Document

Department for Elder AffairsRank Description Funding Source FY 2000

DepartmentRequest

Base StateFederal Support

Intra StateFees, Licenses

OtherTotalFTE

3,574,34914,635,212

703,371130,650

60,11019,103,692

25.00001 Restore funds for 3.0 FTEs, responsible

for a variety of activities includingMoney Mgmt, data analysis & GCOA.

StateFTE

139,3673.00

002 Restore funds for Elderly Services for avariety of services to older Iowans suchas adult day care & respite care providedby Area Agencies on Aging.

State 312,373

003 Restore funding for local RSVP projectsutilizing the knowledge, experience andavailability of older Iowans.

State 24,840

Source: LRC staff replication of “State of Iowa FY 2000 Annual Budget, Department of Elder Affairs, Aging Programs,Schedule I,” from the Iowa Legislative Fiscal Bureau, January 2000.

Exhibit MA-1Excerpt from FY 1993 Massachusetts Budget Message

Governor William F. WeldA “no stone unturned” approach to budgeting – Traditionally, we added to a base that was rarely examined. Now, weare asking our managers to build their budgets from the bottom up, to look hard at their operations and to describe, ingreat detail, the services they provide.

Management Flexibility – Program budgeting brings service cost and service delivery face to face. With the ability tojudge which programs and services are working and which are not, and the flexibility to move resources, as needed,among programs, managers will be empowered, and made accountable, to meet their service delivery goals.

A four-year financial plan – We are introducing a four-year financial plan that for the first time will provide more thana 12-month vision of the direction and cost of state programs. While we cannot bind future Legislatures with this plan, itis a first step to help us understand how decisions made today affect future spending.

Appropriation at a higher organizational level of responsibility – Appropriating funds at the current level of detailfrustrates managerial flexibility, stifles creativity, and distracts management from its proper focus. We propose to replacethe current appropriation items with agency-based appropriations, and to establish service delivery groups for which eachagency head will be held accountable. While appropriations as we know them will change, the new service deliverygroups (SDGs) will provide more usable information than ever before, without interfering with the Legislature’s ability toamend the proposed agency appropriation.

Fiscal and performance accountability – Claiming success without providing the means to measure success is a hollowassertion. Program budgeting provides the tools for a real assessment of performance, with quantitative goals for thedollars to be spent and the services to be delivered. Based on such an assessment, we can reward good management,provide incentives for innovation and creativity, and hold bad management accountable.


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The Governor’s recommended budget reduced 731 line-itemexpense categories in the budget to 128. The number ofaccounting funds fell from 35 to 5. Within these five funds, 342service delivery groups were identified. A service delivery groupwas defined as units organized to perform complementaryfunctions, such as all programs for early childhood education, orall services to the elderly. A total of 758 outcome targets werespecified for all service delivery groups. For example, theDepartment of Elder Affairs was to report “the number of elders itis able to redirect from inappropriate nursing home settings tolong-term care.” Its target for the year was 483. Agencies were tobe allowed to transfer up to 10 percent of total funds amongservice delivery groups to better achieve outcome targets.Outcome measures and fund transfers would have been reportedquarterly to legislative committees.

The recommendation for the reduction in the number of funds wasbased on the rationale that over 97 percent of appropriations weremade from a very small number of funds. Exhibit MA-2 showsthe change in the number of funds that the Governor proposed forinclusion in the budget. In addition to fund consolidation, theGovernor also proposed that the legislature appropriate lumpsums to agencies, rather than making line-item designations ofspending. An example of this is the fact that eight FY 1992appropriation categories were reduced by the Governor to a singletotal recommended amount in FY 1993 for the Executive Officeof Elder Affairs (Exhibit MA-3).

Additionally, the FY 1993 performance budgeting structure proposedby Governor Weld and used in the preparation of his budgetrecommendations incorporated two other major changes. First, bothreceipts and spending from all fund sources (general funds, federalfunds, and trust and special revenue funds) were reported for eachservice delivery group. The existing system had presented separatereports for each fund type. Second, the cost of fringe benefits, suchas health insurance or retirement system contributions, was reportedas a line item for each service delivery group rather than aggregatedas a lump sum amount for all employees in state government. Also,indirect costs, such as the value of office space in government-ownedbuildings, were reflected in the agency’s budget. This was done in anattempt to identify the full cost of each service delivery group as anaid to priority setting and efficiency reviews. Examples of how thesechanges were refected in budget documents for the Executive Officeof Elder Affairs are presented in Exhibit MA-425

25 Fiscal Year 1993 Investments in Success: A Framework for Growth. HouseNo. 1, Budget Submission of Governor William F. Weld and LieutenantGovernor Paul Cellucci, Volume III – Supporting Schedule, January 22, 1992.

Line-items would havebeen reduced from 731to 128, and funds wouldhave been reduced from35 to 5.

The proposed structurealso combined allrevenue sources andreflected indirectprogram costs.


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Table of Budgetary Funds

Fund Name

FY92 FY93 (3)General Fund 010 010Commonwealth Stabilization Fund (1) 011 011Commonweath Tax Reduction Fund (1) 012 012

Intragovernmental Service Fund (2) 015 015Revenue Maximization Fund 016Highway Fund 101 101Local Aid Fund 102Anti-Trust Law Enforcement Fund 106National Heritage and Endangered Species Fund 108Victim and Witness Assistance Fund 110Inter-City Bus Capital Assistance Fund 111Mosquito and Greenhead Fly Control Fund 113Inland Fisheries and Game Fund 114State Transportation Fund 119Springfield Transportation Fund 120Housing Partnership Fund 121Motorcycle Safety Fund 132Enviormental Challenge Fund 134Job Replacement Fund 146Toxic Use Reduction Fund 149Clean Enviroment Fund 151New Permitting and Compliance Fund 152Underground Storage Tank Fund 154Child Care Fund 155Environmental Law Enfocement Fund 156Public Access Fund 157Harbor and Waterways Fund 158Marine Fisheries Fund 159Watershed Management Fund 160Low Level Radioactive Fund 161Head Injured Fund 162Tourism Fund 163Health Care Access Fund 164Ponkapoag Golf Course Recreational Fund 165Commonwealth Fiscal Recovery Fund (2) 702

Fund Number

(1) Budgetary subfunds of the General Fund in FY91 and FY92. Stand -alone budgetary funds in FY93(2) Stand-alone budgetary funds in FY91 and FY92. Budgetary subfunds of the General Fund in FY93.(3) FY93 fund structure is based on legislative changes recommended as part of House 1.

Exhibit MA -2

Report of Budgetary Accounts

Excerpt from FY 1993 Massachusetts Budget SubmissionVolume II - Line Items


35

Fiscal Year 1991 Fiscal Year 1992 Fiscal Year 1993

Expenditures Appropriation

Governor's Appropriation Recommendation

EXECUTIVE OFFICE OF ELDER AFFAIRSOffice of the Secretary of Elder Affairs

91000000 Office of the Secretary of Elder Affairs Services and Operations 121,031,824

91100100 Elder Affairs Administration 2,169,486 2,144,14391100101

Elder Affairs Retained RevenuePlanning and Administration 187,38891100200 Coordination of Care (Alloc of 4402-5000) 941,90591101603 Home Care Reserve 8,276,00091101630 Home Care Services for the Elderly 71,795,097 72,002,30591001632 Retained Revenue for Home Care, Respite Care and Home

Health Services 1,606,53991101633 Home Care Program Administration Contracts 37,869,054 30,977,00091101634 Home Care Administration Retained Revenue 4,23891101635 Demo Grant Program in Fall River 110,548 123,19891101640 Demostration Projects and Studies on Alternative Care

Programs for Elderly 325,17691101645 Reserve for Development of Long Term Care Insurance and

Database 23,73691101660 Program of Congregate and Shared Housing Services of the

Elderly 766,845 755,73491101900 Programs Providing Local Services to the Elderly Including

Volunteer Program 3,752,787 4,554,77191109002 Grants to Councils on Aging 2,154,603 2,046,873

Department Total 121,707,402 120,880,024 121,031,824

Secretariat Total 121,704,402 120,880,024 121,031,824

Exhibit MA-3

Secretariat/DepartmentAccount Number and Description


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Secretariat DepartmentBudgetary Appropriation Number and Description*Service Delivery Group Number and Description

BudgetaryAppropria-tion

Federal GrantSpending

Trust &OtherSpending

FY93TotalSpending

Fringe &IndirectCost Est.

Executive Office of Elder AffairsOffice of the Secretary of Elder Affairs

9100-000 Office of the Secretary of Elder Affairs Services and Operation

ELD-0001 Long-Term Care for Frail Elders to Prevent Institutionalization 114,291 114,291 409ELD-0002 Activities Planned/Managed at Local Level to Meet Unique Needs of Elders 2,093 8,692 10,785 21ELD-0003 Congregate and Home-Delivered Meals to Elders Across the State 3,717 14,271 60 18,048 21ELD-0004 Elder Volunteer and Employment Programs 931 1,770 70 2,770 10

Appropriation Total 121,032

Department Total 121,032 24,733 130 145,894 461

Secretariat Total 121,032 26,503 130 145,894 461

Exhibit MA-4Fiscal Year 1993 Resources ($000)

*Figures Include Federal, Trust and Special Revenue Accounts. For listings of non-budgetary accounts in those Service Delivery Groups, see Volume 2.


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Secretariat DepartmentBudgetary Appropriation Number and Description*Service Delivery Group Number and Description Output Description

OutputGoal

EXECUTIVE OFFICE OF ELDER AFFAIRS

Office of the Secretary of Elder Affairs

9100-000 Office of the Secretary of Elder Affairs Services and Operations

ELD-001 Long Term Care for Frail Elders to Prevent Institutionalization 35,404

483

65

ELD-0002 Activities Planned/Managed at Local Level to Meet Unique Needs of Elders 400,000

ELD-0003 Congregate and Home-Delivered Meals to Elders Across the State 7,000

ELD-0004 Elder Volunteer and Employment Programs 13,100

140

Percentage of elderly Protective Service cases that are successfully resolved

Number of communities served by Serving Health Information needs of Elders

Number of Clients receiving home care, respite care and managed care

Exhibit MA-4 Cont'dFiscal Year 1993 Output Measures

g gcare

Number of nursing home and home care clients visited monthly by Elder Services

Number of meals (in thousands) served to elders at congregate meal sites and through home delivery to homebound seniors

Number of special needs children served monthly by Foster Grandparents

Number of elders served by Municipal Councils on Aging


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Governor Weld’s performance budgeting system forMassachusetts was never actually implemented by the legislature.House leaders agreed with the basic idea, but differed with theGovernor on the specifics of defining service delivery groups andoutcome measures. The Chair of the House Ways and MeansCommittee had committee staff develop an alternate performancebudgeting approach. In contrast, the Chair of the Senate Waysand Means Committee refused to use either set of performancebudgeting documents, so all Senate decisions were based on thetraditional line-item information. The Free ConferenceCommittee on the budget rejected statewide performancebudgeting, but retained it as a pilot project in five agencies.According to legislative budget staff, even that effort falteredwhen the two major officials interested in performance budgeting,the Governor and the Speaker of the House, left office.

Another impediment to successful implementation inMassachusetts was the lack of time and training for agencypersonnel responsible for quickly reorienting their programinformation to a whole new budget format. A 1992 Boston Globestory quoted an administration source on the topic:

“They [Cabinet secretaries] don’t seem to be catching ontoo well. Some of them are not thinking about everythingfrom scratch but just tinkering around the margins of lastyear’s budget,” the source said. “[Weld’s chief fiscal aidePeter] Nessen may have to make a lot of them go back anddo it over again.”26

Another article provides an example of the frustration agencyheads experienced from their involvement in the failed effort.This highlights a cost of attempting to implement a new budgetingsystem without adequate planning.

[Middlesex District Attorney Thomas] Reilly also saidhe is disappointed in the appropriation because hisoffice is one of a few state agencies that actually triedWeld’s new concept of performance-based budgeting.Under that system, line items are eliminated anddollars are linked to stated goals and output.

Initially, Reilly said he was enthusiastic aboutperformance budgeting, but says his staff wasted time

26Howe, p. 15.

The legislature did notimplement the proposedperformance budgetingstructure, butestablished a pilotprogram.


39

working round-the-clock on a document he believesultimately was ignored.27

According to staff of the National Conference of StateLegislatures, the Massachusetts experiment in performancebudgeting failed because there was not broad agreementbetween the Governor, the legislature, and agency heads aboutwhether, or how, it should be implemented. Little interest inthe approach remained after Governor Weld left office, partlybecause no strong institutional base of procedures and relatedskills was developed in either the executive or legislativebudget staffs.28

The degree to which the Massachusetts legislature has movedaway from the proposed format is illustrated in the following e-mail response from a House Ways and Means staff member toan LRC request for a copy of current legislative budget briefingpapers.

The short answer to the question of whether … ElderlyAffairs briefing papers are readily available fordistribution is “No.” This information used in ourbudget process is generated primarily for the use of theCommittee Chairman and a few other legislativeleaders. Consequently, it is produced for a highlyinformed audience, in an obscure budget format, withlittle narrative support, and consequently is notintuitively obvious nor of much assistance to thegeneral reader.

Texas

Texas has the most advanced performance budgeting system ofany state. The government had a long history with thedevelopment and use of performance measures at the agencylevel, and began to formally incorporate these in its biennialbudgeting process in 1991. Performance budgeting wasimplemented in all state agencies and universitiessimultaneously rather than being phased in. After initiallyallowing the number of state-agency performance measures toballoon to over 11,000, the number has been trimmed to about6,000. Approximately half of those are designated as “key

27 Toni Locy “Middlesex DA Says Weld Budget is Insufficient,” BostonGlobe, January 27, 1992, Metro Section, p.14.28 E-mail from Ron Snell of National Conference of State Legislatures,January 4, 2001

The effort failed due toa lack of broad supportand a lack of training.

Texas has an advancedperformance budgetingsystem.


40

performance measures” to be used by policy makers as theymake budgeting decisions.29

Among the stated objectives of the Texas legislature inadopting a system for strategic planning and performancebudgeting were to:

• Focus the appropriations process on outcomes,• Strengthen monitoring of budgets and performance,• Establish standardized unit-cost measures,• Simplify the budget process, and• Provide rewards and penalties for agency success and

failure.

A key feature of performance budgeting in the state is theextensive cooperation between the governor and legislature inreviewing agency performance measures and using them as abasis for funding decisions. Although the governor isstatutorily designated as the chief budget officer, the legislaturehas responsibility for major features of the budgeting process.30

In order to support its extensive budgeting involvement, thelegislature created the Legislative Budget Board (LBB) in 1949with the following members:

• Lieutenant Governor – Chair,• Speaker of the House – Vice Chair,• Chair of the House Appropriations Committee,• Chair of the House Committee on Ways and Means,• Chair of the Senate State Affairs Committee,• Two additional members of the Senate appointed by the

Lieutenant Governor, and• Two additional members of the House appointed by the

Speaker of the House.31

29 Laura Tucker¸ “GASB SEA Research Case Study: Texas,” in State andLocal Government Case Studies on Use and the Effects of UsingPerformance Measures for Budgeting, Management, and Reporting,Governmental Accounting Standards Board, 2000.30 Texas House of Representatives, House Research Organization, Writingthe State Budget, State Finance Report No. 77-1, February 1, 2001.31 Texas Legislative Budget Board, “Legislative Budget BoardDescription,” http://www.lbb.state.tx.us/WEB.NSF (AccessedJanuary 22, 2001).

The Texas legislaturehas extensive budgetingresponsibilities.


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Members are supported by a staff of approximately 140employees. The LBB was given statutory authority for anextensive set of budget responsibilities. These include theresponsibility to:

• Adopt a constitutional spending limit,• Prepare a general appropriations draft bill,• Prepare official budget estimates,• Prepare a performance report,• Guide, review, and finalize agency strategic plans,• Prepare fiscal notes, impact statements, and• Take necessary budget execution actions.32

One result of the extensive shared budgeting responsibility inTexas is the major involvement of both the Executive Office ofBudget and Planning and LBB in developing and mandatingagency reporting of performance measures in their budgetrequests to both the governor and legislature. Since the early1990s, the two branches have worked jointly to produce asingle set of performance measures for each agency, reportedin a uniform format, that is used throughout the budgetingprocess—from agency request through final budget enactment.At the beginning of each budget cycle, LBB and the Office ofBudget and Planning jointly produce detailed instructions foragency preparation of budget request forms. Agencies arerequired to report the set of performance measures authorizedby the LBB and governor and can only change an authorizedmeasure with approval.

To make the process manageable, LBB developed andadministers an extensive electronic performance budgetinginformation system. Agencies are required to submit fundingrequests and the associated performance measureselectronically to the Automated Budget and Evaluation Systemfor Texas (ABEST). The system replaced the formerbudgeting system based on input costs and contains all data onagency strategic plans, appropriations requests, executive andlegislative staff appropriation recommendations, appropriationbill versions (throughout the legislative process), and allperformance measures. Output and efficiency performancemeasures are reported quarterly, while outcome measures arereported annually. The LBB has not published an estimate ofwhat it cost to establish the ABEST system.

32 Texas Legislative Budget Board, “Current Responsibilities,”http://www.lbb.state.tx.us/WEB.NSF (Accessed January 22, 2001).

The legislature andgovernor jointly developperformance measuresfor each agency.


42

Once the budget is adopted, agencies have the responsibility tomeet their performance targets and must explain a significant(10 percent or more) failure to do so in the next budget request.Although rewards for exceeding targets, and penalties for notmeeting targets, are authorized under the Texas system, theyhave been used infrequently. Examples of allowable rewardsinclude increased funding, increased program flexibility,reduced reporting requirements, and expanded responsibility.Penalties are generally the opposite of allowable rewards.Beginning in 1998, agencies with “outstanding” performancecould be rewarded with salary enhancements. In order to beeligible for the reward, agencies must meet two criteria:achieve or exceed 80 percent of key performance targets forthe fiscal year, and have at least 70 percent of theirperformance measures certified as valid and reliable by theState Auditor’s Office.

To improve managers’ ability to meet their performancetargets, the legislature allows them the flexibility to transfer upto 35 percent of the funds appropriated from one strategy toanother. This degree of flexibility has been increased from anearlier 10 percent. Legislators have less control over howfunds are spent, but the rationale is that they gain in theirability to hold agencies accountable for promised results. 33

Another key player in the Texas performance budgeting systemis the Office of the State Auditor. The office is attached to thelegislative branch and is charged with responsibility forauditing and certifying the validity of reported agencyperformance measures. This is done to let policy makers knowthe extent to which they can rely on the information submittedby agencies. Performance measures can receive one of fourpossible ratings:

• Certified without qualification,• Certified with qualification,• Factors prevent certification, or• Inaccurate.

Additionally, the agency system for data collection is reviewedto ensure that sufficient internal quality controls are in place.Another issue reviewed is whether the agency actuallyincorporates the measures into management decisions.However, the Auditor does not comment on whether the 33 Maria Pilar Aristigueta, Managing for Results in State Government.(Westport, CT: Quarum Books, 1999), p. 174.

Agencies must explainany failure to achieveperformance targets by10 percent or greater.

Agencies are given theflexibility to transfer upto 35 percent of theirbudgets from one use toanother.

The State Auditorreviews and certifiesagency performancedata.


43

performance measures mandated by LBB and the Office ofBudget and Planning are adequate or appropriate for measuringdesired agency outcomes.

Texas Department on Aging. The Texas Department onAging is used to provide an example of how performanceinformation is incorporated in the state’s budgeting process.The Department states as its goal:

…to enable older Texans to live dignified, independent,and productive lives within a safe living environmentthrough an accessible, locally based, comprehensiveand coordinated continuum of services andopportunities.34

Four program strategies were defined to achieve the goal. Theconnections strategy incorporates resources devoted toinformation provision, benefits counseling, case managementand ombud services. The nutrition strategy centers onproviding meals, along with nutrition counseling andeducation. The independence/productivity strategy providesassistance with transportation and services for independentliving. Administration is broken out as a separate component.

All budget information for the Department is stated in terms ofthese four components rather than in the traditional line-itemstatement of inputs, such as personnel, operating expenses, andcapital purchases. Exhibit TX-1 shows the breakdown for FY1999.

LBB and the Office of Budget and Planning developed 19performance measures for the Department on Aging. They arebroken down into three major categories: overall outcomes,outputs, and efficiencies. Budget requests and appropriationsare stated in terms of these performance categories. ExhibitTX-2 replicates a portion of the LBB 2000-01 budgetrecommendations for the Department. A feature to note is thatthe total recommended funding amount is $6 million less thanrequested, but the recommendation does not reflect anassociated reduction from the target in any of the performancemeasures. According to staff of the LBB, this is because theaffected outcome measures were stated in percentages, such as

34 Texas Legislative Budget Board, Fiscal Size-Up 2000-01 Biennium:Texas State Services, January 2000.

The Department onAging budgets by fourstrategies:

1. Connections2. Nutrition3. Independence4. Administration

Performance measuresare included in budgetdocuments, withassociated requestamounts in the basebudget.


44

percent of clients served who are low-income.35 Thesepercentages would not necessarily change even if fewer clientsare served.

Exhibit TX-1

Funding for Aging Services in Texas

$10.0

$35.0

$13.8

$2.2

FY 1999 $Millions

Nutrition

Information &Assistance

AdministrationConnections

Source: LRC staff replication of chart titled “Funding for Aging Services in TexasFY 1999,” provided by the Texas Department of Aging.

The budget request amounts shown in Exhibit TX-2 are for thebase, or continuation, budget. Although not shown in thisparticular form, agencies are also required to submit a priorityranking of all strategies contained in the base budget. Thisinformation is used in the event that reductions to the basebudget are made. It also allows legislators to shift dollars fromone strategy to another.

35 Telephone conversation with Texas Legislative Budget Board analystassigned to performance measures for the Department on Aging,April 16, 2001.

Base budget strategiesare prioritized.


45

Exhibit TX-2

Legislative Budget Board: Legislative Budget Estimates for the 2000-2001 BienniumDEPARTMENT ON AGING

Mission: The Department on Aging is the state's visible advocate and leader in providing for acomprehensive and coordinated continuum of services and opportunities so that older people canlive dignified lives.

Requested2002

Recommended2002

A. GOAL: Services Distribution To enable older Texans to live dignified, independent, and productive lives within a safe livingenvironment through an accessible, locally-based, comprehensive and coordinated continuum ofservices and opportunities.Outcome (Results/Impact):Percent of Older Population Receiving Services Who are low-income.

81% 81%

Percent of Older Population Receiving Services Who AreModerately to Severely Impaired

25% 25%

Percent of Old Population Receiving Services Who RemainedIndependent Due to Services

85% 85%

Percent of Nursing Homes with a Certified Ombudsman 73%

A.1.1 Strategy: Connections $12,348,031 $11,123,031Provide a statewide, locally-based system that connects people with the services and benefits theyneed through ombudsman services, Options case management, information and legal assistanceOutput (Volume):Number of Certified Ombudsmen 860 860Number of Persons Receiving Options Case Management 8,730 8,730Number of Unlicensed Assisted Living Facilities Identified 300 300Efficiencies:TDOA Cost Per Certified Ombudsman 2,864 2,864TDOA Cost Per Options Case Management Client 256 256

A.1.2. Strategy: Nutrition Services $37,431,654 $37,431,654Provide a statewide, locally-based system of nutrition services that includes meals, counseling, andeducation designed to promote good health and to prevent illness.Output (Volume):Number of Congregate Meals Served 4,170,000 4,182,000Number of Home Delivered Meals Served 4,497,800 4,497,800Number of Meals Reimbursed by USDA 15,130,000 15,130,000Efficiencies:TDOA Cost per Congregate Meal 3.25 3.25TDOA Cost Per Home-delivered Meal 2.95 2.95ExplanatoryUnit Cost Per Congregate Meal 3.61 3.61Unit Cost Per Home-delivered Meal 3.28 3.28


46

Exhibit TX-2 (Continued)DEPARTMENT ON AGING Requested

2002Recommended

2002

A.1.3. Strategy: Independence/Productivity $16,346,292 $11,476,292Provide a statewide, locally-based system of services designed to maintain person independencethrough the provision of supportive services, transportation, and senior center activities; and provideopportunities for increased personal productivity through community service volunteering.Output (Volume):Number of Persons Receiving Homemaker Services 4,026 4,026Number of One-way Trips (Demand-responseTransportation Services)

1,391,465 1,391,465

Efficiencies:TDOA Cost Per Person Receiving Homemaker Services 416 416TDOA Cost Per Person One-way Trip 3.24 3.32Total, Goal A: Services and Opportunities $66,125,977 $60,030,977Efficiencies:TDOA Cost Per Person Receiving Homemaker Services 416 416

TDOA Cost Per Person One-way Trip 3.24 3.32Total, Goal A: Services and Opportunities $66,125,977 $60,030,977

B. Goal: DIRECT AND INDIRECT ADMINISTRATIONDirect and Indirect administrative and support costs

B.1.1. Strategy: Direct and Indirect Administration $ 3,003,504 $ 3,003,504Direct and Indirect administrative and support costs

Grand Total, Department on Aging $69,129,481 $63,034,481

Method of FinancingSubtotal, General Revenue Fund $13,631,221 $7,536,221

Federal Funds $55,498,260 $55,498,260

Total, Method of Financing $69,129,481 $63,034,481

Number of Full-Time-Equivalent Positions (FTE): 35 35

Schedule of Exempt Positions:Executive Director, Group 2 $65,000 $65,000Board Member Per Diem 4,400 4,400

The Department on Aging requested funding for two additionalprogram strategies in the FY 2002-03 request. According tobudget instructions, each exceptional (or additional) itembeyond those in the base must be itemized and prioritized(Exhibit TX-3).

New proposed strategiesare itemized andprioritized.


47

Exhibit TX-3Summary of Exceptional Items Request

Texas Department on Aging FY 2002Priority Item All Funds FTEs

1 Volunteer Programs Expansion $3,465,000 0.02 Texas Caregiver Initiative $2,500,000 0.0

Total $5,965,000 0.0Source: Texas Department on Aging, Exceptional Item Request Schedule, 77th Regular Session, AgencySubmission, Version 1, 9/12/2000.

In addition to the current information presented in the budgetrequest, the LBB publishes a summary of key agency budgetand performance indicators for the preceding five years(Exhibit TX-4). This allows policy makers to quickly seetrends in agency performance on selected measures. In thissummary, it is reported that in FY 2000 the Departmentattained its four outcome targets and eight of the 15output/efficiency targets.

Legislators receivetrend information onperformance measures.


48

Exhibit TX-4


49

Exhibit TX-4 Cont’d


50

The most recent audit of the performance measures reported bythe Department indicated that most of them were inaccuratebecause of weak data control systems (Exhibit TX-5).However, in theory, some of the measures represent a seriousattempt to isolate the effect of program activities. For example,in Iowa, a major performance measure was the number of daysthe frail elderly received case management services before theyaccessed Medicaid long-term care, which does not isolate theeffects of the services. In contrast, the similar measure inTexas is the percent of older population receiving services whoremained independent due to the services received.

Satisfaction with the System. To assess users’ satisfactionwith the performance budgeting system, staff of the HouseAppropriations and Senate Finance Committees conducted twosurveys in 1998. First, they surveyed agency heads andreceived 176 responses. Key findings of the survey were thatmost agency heads found the strategic planning process to behelpful to their agency (88%), while somewhat fewer thoughtthat appropriations should be made only on the basis ofprogram strategies (69%). However, only 17% were in favorof including input information (salaries, operating expenses) inthe budget.

A major complaint of agency heads is that the measuresdefined by LBB and the Office of Budget and Planning do notaccurately capture the most important indicators of agencyperformance (54%). Perhaps because of that, most (69%) wereopposed to rewards and penalties based on the measures. Theirmost frequent suggestions for improvement were to allowagencies greater involvement and flexibility in the definition ofperformance measures.36

A second survey was sent to the 40 members of the HouseAppropriations and Senate Finance Committees. Since only 17of the 40 members of the Committees responded to the survey,results should not be interpreted to reflect the opinions of alllegislators with budgeting responsibility or of all legislators ingeneral. Of those who chose to respond to the survey, just overhalf (53%) thought that information on performance measureswas always, or almost always, useful. A slightly larger 36 Texas State Auditor’s Office, Performance-Based Budgeting SurveyResults, March 1998.

The state auditor foundmost Dept. of Agingperformance measuresto be inaccurate.

Legislators on budgetcommittees and agencyheads were surveyed.

Most agency headspreferred performancebudgeting, but believedthe performancemeasures do notaccurately representtheir agencies.

Only seventeenbudgeting legislatorsresponded to the survey.


51

percentage (65%) believed that performance budgetingsignificantly improved accountability in the use of publicresources.

Exhibit TX-5Results of Performance Measures Review

Department on Aging

Agency 340Department on Aging Fiscal Year 1996

Description Classification Results Certification CommentsPercent of Older PopulationReceiving at LeastOne Service

Outcome 9.23% inaccurate Since the performance measures "Number of People Assisted Through the Options for independent Living," "Number of Congregate Meals Provided," and "Number of Home Delivered Meals Served" were determined to be inaccurate, this measure was also inaccurate.

Number of People Assisted Through the Options for independent Living Program

Output 4,990 inaccurate Numerous sampling errors were found. Errors were due to discrepancies in the date of services received.

Number of Congregate Meals Provided

Output 7,443,702 inaccurate Based on the sample, the amounts reported to ABEST could be verified. However, numerous errors in reporting existed in the database of at least two of the Area Agencies on Aging.

Number of Home Delivered Meals Served

Output 6,546,578 inaccurate Based on the sample, the amounts reported to ABEST could be verified. However, numerous errors in reporting existed in the database of at least two of the Area Agencies on Aging.

Cost per Congregate Meal Efficiency $2.18 inaccurate The actual result is $2.55. The 14.5 percent error rate was due to a data-entry error. Since the "Number of Congregate Meals provided" was determined to be inaccurate, this measure was also inaccurate.

Cost Per Home Delivered Meal Efficiency $1.93 inaccurate The actual result is $2.06. The 6.3 percent error rate was due to a data entry error. Since the performance measure "Number of Home Delivered Meals" was determined to be inaccurate, this measure was also inaccurate.

Source: Office of the Texas State Auditor, An Audit Report on Performance Measures in 26 State Agencies: Phase 11 of the Performance Measures Reviews August 1977, p.12.


52

As would be expected, approximately three-fourths oflegislators responding said that they get budget informationfrom a variety of sources, including agency testimony, publictestimony, staff, and constituents. This indicates thatperformance measures represent only one of several types ofinformation used to make budgeting decisions. However,nearly all (94%) said they found the explicit statement ofagency missions and goals to be useful. A higher percentage oflegislators (35%) than agency heads (17%) said they wouldlike information on input categories included in the budgetinformation packet. The responding legislators also differedfrom agency heads in that a much higher percentage (76%compared to 31%) believed that penalties and rewards shouldbe tied to performance measures. In their general comments,legislators suggested that the sheer volume of performanceinformation should be reduced and that it be displayed in amore user-friendly fashion.37

Louisiana

Louisiana developed a performance budgeting system that isstructured much like that of Texas, although the process of howit came to a similar structure was very different. In Texas, theperformance budgeting initiative was driven by a succession ofgovernors, with support provided by the Legislative BudgetBoard. In Louisiana, performance budgeting has beenimplemented almost entirely through the efforts of theChairman of the House Appropriations Committee.

Texas had a long history with the use of performance measuresby agencies, but replaced line-item appropriations by object ofexpenditure, with appropriations by broad program strategy,only in the early 1990s. In contrast, Louisiana adoptedprogram budgeting in 1987. Under program budgeting,legislators appropriated agency budgets by broad programcategories and agencies were given great flexibility in movingdollars from one program area to another. Yet an effectivesystem for monitoring agency performance was notimplemented at the same time. Legislators came to believe thatthey had little actual control over state government spendingpatterns, and no real way to hold agencies accountable, eitherfor what they bought or what they accomplished.

37 House Appropriations and Senate Finance Committees, MemberPerception of the Performance-Based Budgeting System, October 1998.

The Chair of the HouseAppropriationsCommittee led the effortto adopt performancebudgeting in Louisiana.

Legislators thoughtagencies had too muchflexibility and too littleaccountability.


53

In response to this lack of control, the legislature adopted Act1465: The Louisiana Government Performance AccountabilityAct of 1997. The Act mandated four major agencyrequirements:

1. Long-Term Strategic Planning – Agencies arerequired to develop five-year strategic plans and updatethose plans no less than every three years. The plansmust specify broad visions, agency mission, specificgoals to implement the mission, objectives for meetingthe goals, strategies for achieving the objectives, andsuggestions of key indicators for evaluating the successof chosen strategies.

2. Short-Term Operational Planning – Agencies arealso required to develop an annual plan that specifiesexactly what actions they intend to take to implementthat year’s portion of the long-term strategic plan. Theoperational plan is supposed to identify annualperformance targets and explain exactly howachievement of those targets will facilitate achievementof the agency’s long-term goals. The annualoperational plan must be submitted with the annualbudget request.

3. Submission of Annual Performance Budget –Agency budget requests to the governor, the governor’sbudget recommendation to the legislature, and thebudget enacted by the legislature in appropriation billsmust all be organized by program. At each stage,budget documents must identify the program objectiveand include annual performance targets directed towardits achievement.

4. Regular Reporting of Performance Indicators –Each quarter, agencies are required to report the currentstatus of the performance indicators identified in thebudget. These reports are submitted electronically tothe Louisiana Performance Accountability System(LaPAS). As an Internet-based system, all reports canbe reviewed by anyone with Internet access, includingmembers of the public and press. With each newbudget submission, agencies must explain a failure offive percent or more in achieving any performancetarget in the previous year.

In response, thelegislature adoptedperformance budgetinglegislation in 1997.


54

As in Texas, Louisiana executive and legislative budget andauditing staff play key roles in guiding the development ofagency performance budgets and performance measures.Budget staffs in both states impose both a general structure andspecific performance indicator definitions on agencies. InTexas, the executive Office of Budget and Planning and LBBwork together to come to such decisions jointly before they areimposed on agencies. Then the staff of the Office of the StateAuditor evaluates the reliability and accuracy of each indicatorreported, without commenting on whether the indicator isoptimal for measuring agency performance. In Louisiana, theexecutive Office of Planning and Budget and legislative staffof the House Appropriations Committee work moreindependently of each other and, to date, the Senate has notbeen much involved in the process. Also, as a standing requestof the Chair of the House Appropriations Committee, twobranches of the Legislative Audit Office review agencyperformance measures. The financial audit branch evaluatesthe reliability and accuracy of each indicator, while theperformance audit branch evaluates whether the measure is anappropriate indicator of agency achievement.

Exhibit LA-1 shows how the FY 2001 governor’s performancebudget recommendation was displayed for the program toprovide subsidized part-time employment for the elderly by theGovernor’s Office of Elderly Affairs. Included are totalfunding by fund source, a statement of program objectives, andassociated performance targets. Similar information isdisplayed in the actual appropriations bill.

While the information displayed in the actual budgetdocuments is fairly limited, the total budget request packet thatmust be prepared by agencies for submission to the executiveOffice of Planning and Budget and legislative fiscal staff ismuch more detailed. Budget instructions identify a total of 112forms that must be included, if relevant to the program. WithFY 2000 state funding of $25 million and a total of 66 staff, theOffice of Elderly Affairs could be considered a relatively smallprogram. Yet its budget request packet incorporated 90required budget request documents for a total packet size ofapproximately 175 pages. Included in these forms are detailedline-item listings of spending within each program for objectssuch as salaries, printing, travel, and specific categories ofoffice supplies. The forms even list the individual salary ofeach employee (by name), along with the dollar amount ofsuggested raises. Thus, while Texas abandoned its line-item

Legislative andexecutive budget staffsdefine performancemeasures for agenciesand the LegislativeAudit Office evaluatestheir validity.

Budget request packetsalso include extensiveinformation on objectsof expenditure.


55

listing of objects of expenditure to focus only on performanceinformation, Louisiana displays the budget documents inperformance terms, but maintains extensive line-iteminformation on planned expenditures for inputs in backgrounddocuments.38

38 Louisiana Office of Elderly Affairs, Budget Request Forms for the FiscalYear Ending June 30, 2001, submitted November 10, 1999.

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57

Although program objectives and performance targets arereported for the continuation budget, the specific fundingamounts are not tied to particular objectives, nor are theobjectives assigned priority rankings. Requests for funding ofnew or expanded services must be itemized and justified. Theexpected impact on performance measures must also be noted.New service requests do not have to be prioritized.39

Agency heads in both Texas and Louisiana express frustrationthat the structure and measures imposed by the executive andlegislative budget staffs do not always accurately reflect theessential nature of their programs or give them the flexibility tomeet changing conditions. They were also concerned thatsome indicators measure factors outside their control.40

An additional frustration expressed by agency officials inLouisiana is that they get conflicting decisions from the fourgroups involved in directing their budget preparation.Examples of this frustration were reported in the GASB reviewof the Louisiana system:

We are kind of in a Catch-22, trying to makeeverybody happy because we don’t want our budgetcut…One of them [legislative and executiveplanning staff] would call us and…would say, ‘Yesthat sounds good and reasonable.’ A week later, theother one would call us and tell us, ‘Why don’t wedo this?’ And they weren’t talking to each other. Inthe process, one gets mad because their stuff didn’tget in; we have four bosses we are trying to satisfy.Nobody wants to take the responsibility. That hasnever been told to us. Whose responsibility is it asto what goes in? So we have had meetings aftermeetings trying to put this together.” Anotherdepartment manager said, “One problem inLouisiana is there are so many control agencies thatdifferent people were giving different instructions.That irked me to death. I got audited and they toldme to do it differently than the budget office toldme. That is not fair.

39 Memo from Ray L. Stockstill, Director of Office of Planning and Budget,“Preparation of Fiscal Year 2001 – 2002 Budget Documents,”September 1, 2000.40 Paul D. Epstein and Wilson Campbell, “GASB SEA Research CaseStudy: Louisiana,” in State and Local Government Case Studies on Use andthe Effects of Using Performance Measures for Budgeting, Management,and Reporting, Governmental Accounting Standards Board, 2000.

Spending requests forthe base budget areneither itemized norprioritized. Requestsfor new services areitemized.

Agency headscomplained about a lackof coordination in thedefinition of requiredperformance measures.


58

Executive planning staff also expressed frustrationat reaching agreement on plans and indicators: It isvery difficult to get five or six key players to speakwith a common voice. Each of them has their ownagenda, or his own perception. We have tried tohave working groups of representatives from theoversight groups: the auditors, the legislative fiscaloffice, our office, the house and senate staff. Westill run into situations where the agency will calland say, “Well, the analyst over at the [legislative]fiscal office told me I have to do this.” That willcontinue until we really hone this to a good workingprocess. 41

The GASB review also indicated the frequent comment bybudget participants that, with over 6,000 required performanceindicators defined, there are simply too many for legislators toadequately review. That volume, coupled with even moreextensive background documentation, results in a massiveamount of information for budget committees to assess.

The ability to distill budget information and display it in waysthat make it useful to legislators, who must ultimately make allbudget decisions, is apparently critical. Many comments in theGASB interviews indicate that the single most important factorcausing agencies to take their preparation and implementationof performance targets seriously was a demonstrated interest onthe part of legislators.

Executive planning staff described a dramatic changein appropriations hearings before and after Act 1465was implemented to bring performance informationinto the budget process: “Before 1997-98, when ouroffice presented an executive budget in theappropriations bill to the legislature, the budgetanalyst would go to the table, and we would start adetailed presentation of what we added or subtractedfrom the budget. The questions from the committeewould revolve around things like, “Why are yougetting these new cars? Are we spending too much onpaper clips or travel?” They were all input andresource oriented. As soon as we started doing realperformance based budgeting, that changed. Now thebudget analyst goes to the table and gives a briefoverview at a high level on what has changed in thebudget, what has changed at the total expenditure

41 Epstein and Campbell, “ Louisiana.” p. 30.

Many state officials saidthere were too manymeasures reported andthey were not reportedin a user-friendlymanner.

Use of the measures bylegislators causedagencies to take theirdevelopment seriously.


59

level, and a few of the items that caused that. Then,our performance analyst goes to the table and gives anoverview of the program structure, talks about majorchanges in performance, and the major factorsaffecting that performance. And then we bring theagency program manager to the table. The questionsthat the committee asks revolve not around dollars butrevolve around performance: “You mean to tell methat you are only going to do X in one year?” Thatprogram manager has to sit there and defendperformance; that has resulted in a true change in howthe budget is reviewed by the legislature.42

42 Epstein and Campbell, “Louisiana.” pp. 10-11.


61

CONCLUSIONS

At the request of the Program Review and InvestigationsCommittee, staff reviewed the literature and selected casestudies on states’ use of performance budgeting. Based on allthe information that forms the basis for this report, it is clearthat performance budgeting has many compelling arguments inits favor. Its stress on accountability for results achieved byprograms could produce a more effective government thatconcentrates on the problems that Kentucky residents most careabout. Unfortunately, so few states have implementedperformance budgeting so recently that there are no modelstates with long-term success that Kentucky can emulate. Atthis point, there is evidence that performance budgeting can beimplemented; the jury is still out—and may be for some time—on whether the reform accomplishes its mission of makinggovernment more accountable and effective.

This quality is not unique to proposed changes in the budgetarysystem. Public policy reforms are usually adopted based on thequality of the arguments behind them and with a less than idealamount of practical experience for support. So even thoughperformance budgeting does not have a long track record, it ispossible to review the budgeting literature and the efforts atimplementing PBB so far to help clarify the theory behind itand learn from what other states have done. The followingconclusions are drawn from that review.

1. Legislators must determine the budget decisions theywant to make and the information they need to makethose decisions. First, legislators must decide whether theywant to fully revisit each element of an agency’s basebudget, or whether they want to assume that the basebudget amounts will be reauthorized unless specialinformation warrants a change. If legislators want tocompletely review existing spending patterns, then theywould need more detailed information about currentprograms. Adequate development and review of suchinformation on the base budget would require a major timecommitment on the part of agency staff, executive budgetstaff, and legislative budget staff. It would also represent amajor additional time commitment by legislators on budgetcommittees.

Legislators must decidehow thoroughly theywant to review eachagency’s base budget.


62

Second, legislators must decide whether they want tocontrol agency spending on categories of inputs (e.g.,salaries for elder case workers) or whether they want tohold agencies more accountable for results (e.g., reductionin cases of elder abuse). If legislators want to makebudgeting decisions on the basis of what agencies achieverather than what they purchase, then they will need torequire that agencies begin to track and report indicators ofwhat they achieve. While it is possible to track both whatis purchased and what is achieved, it is really only possiblefor legislators to hold agencies to strict limits for one or theother. If spending categories are fixed by the budget, thenagencies’ achievements may be constrained. Ifperformance targets are specified in the budget, thenagencies must be given some spending flexibility to shiftresources to achieve those targets.

2. It should be understood that performance budgeting isa tool that can improve accountability in the use ofpublic resources. To date it has not been shown to be agood tool for improving efficiency in the use of publicresources. In some cases performance budgeting has beenadopted in a time of budget shortfalls on the theory thatbetter performance monitoring can result in lower costs.There are three major reasons that this is not necessarily thecase. First, states with extensive performance budgetingsystems have focused on demonstrating results desired bythe public. Examples might be a reduction in substandardreading scores by low-income elementary students orincreases in the length of time that elders avoid nursinghome care. Such results are not likely to come cheap.Under a line-item budget, decision makers can demonstratea commitment to a program by counting the input resourcesallocated to the program. Achieving specific, measurableresults may take even more resources.

Second, development of extensive systems for datacollection, and validation, analysis, and reporting ofperformance measures can represent a major expense.States that have implemented performance budgeting haveapparently not tracked or reported the actual costs ofimplementation, so there are no good estimates. Also, thefull application of performance budgeting is still in its earlystages. Complete understanding of program outcomes formany programs could require long-term tracking of thosewho receive services. For example, the effects of earlychildhood tutoring programs might not be fullydemonstrated until several years after a child left the

Legislators must decideif they want to controlspending on inputs orhold agenciesaccountable for results.

Performance budgetinginformation systemsmay be costly to developand maintain.

Performance budgetingis more a tool forimprovingaccountability, ratherthan efficiency, in theuse of public resources


63

program. This type of long-term tracking could beexpensive.

Finally, most of the performance budgeting systems usedby states are geared toward helping decision makersprioritize spending among strategies for meeting variousobjectives. The greatest attention has been paid to holdingagencies accountable for achieving the desired objectives.Materials reviewed did not provide examples of situationswhere legislators were given information for selectingamong various strategies for meeting the same objective,based on the cost (or efficiency) of each strategy. Thus theconclusion is that the current state of performancebudgeting has more to do with accountability in achievingobjectives than efficiency in spending public resources.

3. If a state is to implement performance budgetingsuccessfully, a key decision maker in the budget process,either the governor or a leader in the House or Senate,must take a strong advocacy role in promoting thechange. Other key decision makers must offer at least tacitagreement to the change. Leaders must also require thatperformance budgeting skills and procedures be developedand institutionalized in budget staffs so the system surviveswhen the elected officials championing it leave office.

4. There should be widespread agreement among decisionmakers on the objectives they wish programs to achieve.Performance budgeting encourages systematic strategicplanning and clear objectives. Conflicting views on whatprograms are supposed to achieve make it impossible foragencies to effectively implement programs to meetspecific objectives. Since developing performancemeasures is often complex and costly, and many programsmay take a long time to achieve results, frequent changes inobjectives also make performance budgeting more difficult.

5. Performance measures should be carefully defined toaccurately capture outcomes due to program activities.Those who develop measures should attempt to capture theactual effect of program activities in achieving desiredoutcomes. It is neither fair nor accurate to hold agenciesaccountable for factors beyond their control. Those whodevelop performance measures should strive to designmeasures that capture the important features of theprogram, rather than those features easiest to count.

Performance budgetingefforts need a strongchampion.

Performance measuresshould be linked to theresults caused by theprogram.

There should bewidespread andconsistent agreement onthe objectives ofprograms.

Choices are stated interms of differentobjectives, rather thanstrategies with differentcosts for achieving thesame objective.


64

6. Sufficient technical and staff resources should bedevoted to initial training and ongoing maintenance ofthe system. Most of the work in developing andmaintaining a performance budgeting system is done bybudget staff of the executive and legislative branches.These staffs must be given adequate training and resourcesto accomplish the task. There should be clear designationof who has the ultimate responsibility for making decisionsabout performance measures. Clear designation ofresponsibility would minimize the problems encountered inLouisiana, where agency officials received conflictingdirections and no one had the authority to make the finaldecision.

7. Performance measures should be independentlyvalidated on a regular basis. A well-defined andpertinent performance measure is useless if it is inaccurate.Data collection and analysis systems should be subject toregular review to inform legislators and the public aboutthe degree of confidence they should have in reportedmeasures. According to a study of performance budgetingby the Urban Institute, “Where the legislature has a stronganalytical arm that it calls on to review the data, as inFlorida and Texas, more and better use of the performanceinformation appears to have taken place.”43

8. Careful planning should limit the number ofperformance measures to a small set of well-craftedindicators rather than allowing the number to balloonto an exhaustive listing. States that have undertakenperformance budgeting have often started with the “kitchensink” approach to developing indicators. Agency officialsand legislators can be quickly overwhelmed by the sheertask of reporting and reviewing huge lists of numbers. Ashorter list of meaningful indicators, presented in a mannerthat is friendly to the reader, will likely yield greateracceptance of performance budgeting than an exhaustivelist of everything that can be counted.

9. If they want agencies to take performance monitoringand reporting seriously, legislators must demonstratethat they take it seriously. Agency officials in the statesreviewed said that the biggest incentive they had for payingserious attention to their performance indicators was close

43 Blaine Liner, Harry P. Hatry, Elisa Vinson, Ryan Allen, Pat Dusenbury,Scott Bryant, and Ron Snell, Making Results-Based State Government Work(Washington, D.C.: Urban Institute, 2001), p. 13.

Adequate technicalresources, training, anda clear designation ofresponsibilities areimportant.

Measures should beindependentlyvalidated.

The total list ofmeasures should beshort, clearly defined,useful, and easy tounderstand.

Agencies will only takeperformance targetsseriously if legislatorsshow that they do.


65

questioning by legislators in budget hearings. If legislatorswho are making budget decisions do not demonstrate thatthey care about the performance reports, then agencies willnot devote significant resources to efforts to demonstratethat they are meeting performance targets.

10. It should be acknowledged that performance budgeting,or any other so-called “rational” budgeting system,provides only part of the information that policymakers use to allocate funds among competing needs.As Irene Rubin noted in her book The Politics of PublicBudgeting, “public budgets are not merely technicalmanagerial documents; they are also intrinsically andirreducibly political.”44 No system of budget informationwill ever replace the balancing that occurs when those withcompeting interests seek resources from a limited pool.Individual legislators must balance the interests of theirconstituents with the interests of the state as a whole. Thenthe whole budgeting process must balance the interests ofall the elected officials with decision-making roles.Information from the budgeting system can informbudgeting decisions and make the trade-offs more explicit,but it can never replace the resource allocation decisionsthat legislators were elected to make.

44 Irene Rubin, The Politics of Public Budgeting, (Chatham, NJ: ChathamHouse, 1993), p. 1.

Performanceinformation will notdrive politics out ofbudgeting.

67

BIBLIOGRAPHY

Aristigueta, Maria Pilar. Managing for Results in State Government. Westport, CT: QuarumBooks, 1999.

Axelrod, Donald. Budgeting for Modern Government. New York: St. Martin’s Press, 1995.

Epstein, Paul and Wilson Campbell. “GASB SEA Research Case Study: Iowa,” in State andLocal Government Case Studies on Use and the Effects of Using PerformanceMeasures for Budgeting, Management, and Reporting, Governmental AccountingStandards Board, April 2000.

_____. “GASB SEA Research Case Study: Louisiana,” in State and Local Government CaseStudies on Use and the Effects of Using Performance Measures for Budgeting,Management, and Reporting, Governmental Accounting Standards Board, 2000.

Howe, Peter J.. “Weld Budget to Stress Goals for Agencies,” Boston Globe, January 6, 1992,Metro section, p.15.

Joyce, Philip. “Performance-Based Budgeting” in Roy T. Myers (ed.), Handbook ofGovernment Budgeting. San Francisco: Jossey-Bass, 1999.

Liner, Blaine, Harry P. Hatry, Elisa Vinson, Ryan Allen, Pat Dusenbury, Scott Bryant, andRon Snell. Making Results-Based State Government Work. Washington, D.C.: UrbanInstitute, 2001.

Locy, Toni. “Middlesex DA Says Weld Budget is Insufficient,” Boston Globe, January 27,1992, Metro Section, p.14.

Louisiana, State of. House Appropriations and Senate Finance Committees, MemberPerception of the Performance-Based Budgeting System, October 1998.

Louisiana Office of Elderly Affairs. Budget Request Forms for the Fiscal Year Ending June30, 2001, submitted November 10, 1999.

Lu, Haoran. “Performance Budgeting Resuscitated: Why Is It Still Inviable?” Journal ofPublic Budgeting, Accounting and Financial Management, 10 (1998), 151-72.

Massachusetts, State of. Fiscal Year 1993 Investments in Success: A Framework for Growth.House No. 1, Budget Submission of Governor William F. Weld and LieutenantGovernor Paul Cellucci, Volume III – Supporting Schedule, January 22, 1992.

Melkers, Julia and Katherine G. Willoughby. “The State of the States: Performance BasedBudgeting in 47 out of 50,” Public Administration Review 58 (1998), 66-73.

Mikesell, John. Fiscal Administration. Fort Worth, TX: Harcourt Brace, 1999. p. 186.

68

National Conference of State Legislatures, Legislative Budget Procedures(http://www.ncsl.org/programs/fiscal/lbptabls/lbpc3t1.htm), accessed February 12,2001.

Osborne, David and Ted Gaebler. Reinventing Government, How the Entrepreneurial SpiritIs Transforming the Public Sector. Reading, MA: Addison-Wesley, 1992.

Priest, Paul. Texas Legislative Budget Board analyst assigned to performance measures forthe Department on Aging (telephone conversation), April 16, 2001.

Rubin, Irene. “Budgeting for Accountability: Municipal Budgeting for the 1990s,” PublicBudgeting and Finance 16 (1996), 112-32.

_____. The Politics of Public Budgeting. Chatham, NJ: Chatham House, 1993.

Schick, Allen. Budget Innovation in the States. Washington, D.C.: Brookings, 1971.

_____. “The Road to PPB: The Stages of Budget Reform,” Public Administration Review 26(1966), 243-58.

Snell, Ron. National Conference of State Legislatures, e-mail, January 4, 2001.

Stockstill, Ray L., Director of Office of Planning and Budget State of Louisiana. “Preparationof Fiscal Year 2001 – 2002 Budget Documents,” memo, September 1, 2000.

Texas House of Representatives, House Research Organization. Writing the State Budget.State Finance Report No. 77-1, February 1, 2001.

Texas, State of. “Current Responsibilities,” http://www.lbb.state.tx.us/WEB.NSF (AccessedJanuary 22, 2001).

Texas Legislative Budget Board. Fiscal Size-Up 2000-01 Biennium: Texas State Services,January 2000.

Texas Legislative Budget Board, “Legislative Budget Board Description,”http://www.lbb.state.tx.us/WEB.NSF (Accessed January 22, 2001).

Texas State Auditor’s Office. Performance-Based Budgeting Survey Results, March 1998.

Tucker¸ Laura. “GASB SEA Research Case Study: Texas,” in State and Local GovernmentCase Studies on Use and the Effects of Using Performance Measures for Budgeting,Management, and Reporting. Governmental Accounting Standards Board, 2000.

Tyler, Charlie and Jennifer Willand. “Public Budgeting in America: A Twentieth CenturyRetrospective,” Journal of Public Budgeting, Accounting and Financial Management9 (1997), 189-219.

Upson, Lent D. “Half-Time Budget Methods,” The Annals of the American Academy ofPolitical and Social Science, 113 (1924), 69-74.

69

APPENDIX A

PRED

OM

INAN

T B

UD

GET

APP

RO

ACH

Stat

e or o

ther

Juris

dict

ion

Trad

ition

al/

Incr

emen

tal

Perf

orm

ance

-B

ased

Prog

ram

-B

ased

Zero

-B

ased

Com

bina

tion

Com

men

ts

Alab

ama

�

Alas

ka�

Arizo

na�

The s

tate i

s req

uired

to co

nver

t all a

genc

ies to

a pr

ogra

m-ba

sed b

udge

t by F

Y 20

06.

Arka

nsas

�

Califo

rnia

�Ge

nera

lly, tr

aditio

nal b

udge

ting i

s use

d with

prog

ram-

base

d pre

senta

tions

, inclu

ding a

lloca

tions

offun

ding a

nd pe

rsonn

el by

prog

ram

area

.Co

lorad

o�

The G

ener

al As

semb

ly ca

n req

uire d

epar

tmen

ts to

subm

it zer

o-ba

sed b

udge

t req

uests

. The

Gene

ral A

ssem

bly al

so ha

s ente

red i

nto pe

rform

ance

-bas

ed m

emor

anda

of un

derst

andin

g with

certa

in de

partm

ents

or ag

encie

s.Co

nnec

ticut

�Al

thoug

h the

budg

et is

prog

ram-

base

d and

prog

ram

meas

ures

are d

isplay

ed in

both

thego

vern

or's

docu

ment

and t

he Le

gislat

ive B

udge

t Rep

ort, m

uch o

f the w

ork o

n the

budg

et is

more

tradit

ional

(majo

r obje

ct, lin

e item

) tha

n pro

gram

-bas

ed.

Delaw

are

�St

arts

with

a zer

o-ba

sed b

udge

t, but

comb

ines t

his w

ith pe

rform

ance

and t

radit

ional

appr

oach

es.

Florid

a�

The s

tate h

as en

acted

requ

ireme

nts fo

r per

forma

nce-

base

d bud

getin

g tha

t are

being

phas

ed-in

.Cu

rrent

prac

tice i

s mor

e tra

dition

al.Ge

orgia

�

Hawa

ii�

Idaho

�

Illino

is�

The b

udge

t is tr

aditio

nal w

ith so

me as

pects

of pr

ogra

m-ba

sed.

Indian

a�

Budg

et ins

tructi

ons r

equir

e som

e pro

ducti

vity d

ata.

Iowa

�Th

e bud

get is

a co

mbina

tion a

s req

uired

by co

de. E

ach b

udge

t is m

odifie

d zer

o-ba

sed (

75pe

rcent)

comp

leted

for e

ach p

rogr

am le

vel.

Perfo

rman

ce m

easu

res a

re to

be in

clude

d at e

ach

level.

Kans

as�

Altho

ugh s

till la

rgely

base

d on t

radit

ional

metho

ds, p

erfor

manc

e mea

sure

s are

requ

ested

ofag

encie

s and

revie

wed b

y the

gove

rnor

and L

egisl

ature

in fo

rmula

ting t

he bu

dget.

Kentu

cky

�

Louis

iana

�Ac

t 146

5 of 1

997 m

anda

tes pe

rform

ance

budg

eting

.

Maine

�Cu

rrent

statut

ory l

angu

age c

alls f

or st

ate go

vern

ment

to ful

ly im

pleme

nt pe

rform

ance

budg

eting

for th

e 200

0-20

01 bi

enniu

m.

Maryl

and

�Th

e bud

get is

orga

nized

into

prog

rams

. Som

e atte

ntion

is pa

id to

perfo

rman

ce m

easu

res,

with

atre

nd to

ward

incre

ased

relia

nce o

n the

m.Ma

ssac

huse

tts�

The l

egisl

ative

budg

et inc

orpo

rates

prog

ram-

base

d bud

getin

g and

trad

itiona

l bud

getar

yan

alysis

meth

ods.

A co

mpre

hens

ive ov

ervie

w of

each

agen

cy's

coun

t of fu

ll-tim

eem

ploye

es, p

rogr

ams a

nd th

eir sp

endin

g lev

els, a

nd ad

minis

trativ

e spe

nding

ispr

epar

ed by

the g

over

nor's

Bud

get B

urea

u and

the H

ouse

and

Sena

te W

ays a

nd M

eans

Comm

ittee b

udge

t staf

f.

PRED

OM

INAN

T B

UD

GET

APP

RO

ACH

Stat

e or o

ther

Juris

dict

ion

Trad

ition

al/In

crem

enta

lPe

rform

ance

-Ba

sed

Prog

ram

-Ba

sed

Zero

-Ba

sed

Com

bina

tion

Com

men

ts

Mich

igan

�Th

e bud

get is

perfo

rman

ce-b

ased

, alth

ough

appr

opria

tion b

ills co

ntain

objec

ts of

expe

nditu

re in

some

insta

nces

.Mi

nnes

ota�

The b

udge

t is m

ostly

trad

itiona

l, but

partly

prog

ram-

base

d. T

he st

ate is

attem

pting

tobr

ing pe

rform

ance

mea

sure

s into

cons

idera

tion.

Miss

issipp

i�

Miss

ouri

�

Monta

na�

Nebr

aska

�Th

e app

ropr

iation

stru

cture

is pr

ogra

m-ba

sed.

Requ

ests

are b

uilt in

a tra

dition

al an

dmo

dified

zero

-bas

ed st

ructu

re.

Neva

da�

The t

radit

ional

struc

ture i

s mov

ing to

ward

a pe

rform

ance

-bas

ed st

ructu

re.

New

Hamp

shire

�

New

Jerse

y�

The s

tate h

as a

prog

ram-

base

d bud

get, b

ut it i

s con

struc

ted an

d disp

layed

by

depa

rtmen

t. Alth

ough

ther

e are

seve

ral s

umma

ry pa

ges s

howi

ng pr

ogra

m all

ocat

ions

acro

ss or

ganiz

ation

al lin

es, m

most

of th

e bud

get is

orga

nizati

onall

y org

anize

d. Al

so, th

ebu

dget

stil d

isplay

s allo

catio

n by s

pend

ing ob

ject (

.e.g.,

salar

ies, m

ateria

ls an

d sup

plies

,etc

.) as

well

as by

prog

ram.

New

Mexic

o�

New

York

�

North

Car

olina

�In

1997

, the g

over

nor s

ubmi

tted a

perfo

rman

ce-b

ased

budg

et tha

t the G

ener

alAs

semb

ly did

not a

dopt.

North

Dak

ota�

Ohio

�

Oklah

oma

�Th

e stat

e use

s inc

reme

ntal b

udge

ting.

Howe

ver,

durin

g the

last

seve

ral y

ears

the st

ate

has b

egun

to m

ove t

owar

d pro

gram

-bas

ed bu

dgeti

ng, w

ith m

ixed r

esult

s.Or

egon

�Bu

dgeti

ng is

pred

omina

ntly t

radit

ional,

but a

lso ha

s elem

ents

of pe

rform

ance

-bas

ed(a

pplic

ation

of be

nchm

arks

), pr

ogra

m-ba

sed (

suba

genc

y lev

el or

prog

ram

identi

ficati

on)

and z

ero-

base

d (inc

ludes

disc

ussio

n of 1

0 per

ent to

20 pe

rcent

redu

ction

pack

ages

).Pe

nnsy

lvania

�

Rhod

e Isla

nd�

South

Car

olina

�Th

e Hou

se W

ays a

nd M

eans

Com

mitte

e is p

lacing

grea

ter em

phas

is on

agen

cyac

coun

tabilit

y rep

orts

for F

Y 19

96-9

7 in d

evelo

ping b

udge

t rec

omme

ndati

ons f

or F

Y19

98-9

9.So

uth D

akota

�

Tenn

esse

e�

Defin

ed by

statu

te, bu

dgeti

ng is

zero

-bas

ed. H

owev

er, th

e stat

e pra

ctice

s a co

ntinu

ation

of re

quire

d pro

gram

s plus

esse

ntial

impr

ovem

ents.

Texa

s�

PRED

OM

INAN

T B

UD

GET

APP

RO

ACH

Stat

e or o

ther

Jurid

ctio

nTr

aditi

onal/

Incr

emen

tal

Perfo

rman

ce-

Base

dPr

ogra

m-

Base

dZe

ro-

Base

dCo

mbi

natio

nCo

mm

ents

Utah

�

Verm

ont

�A

comb

inatio

n of tr

aditio

nal a

nd pe

rform

ance

-bas

ed bu

dgeti

ng is

used

.Vi

rgini

a�

Prog

ram

budg

ets or

ganiz

e the

App

ropr

iation

Act,

and p

erfor

manc

e mea

sure

s are

comi

ng in

to us

e as a

way

to e

xami

ne ag

ency

acitiv

ites.

Mos

t exe

cutiv

e bud

gets,

howe

ver,

begin

with

some

calcu

lation

s of a

base

, i.e.,

the a

ppro

ximate

amou

ntsre

quire

d to c

ontin

ue cu

rrent

activ

ities a

nd ca

seloa

ds.

Was

hingto

n�

Wes

t Virg

inia

�Th

e star

ting p

oint in

cons

iderin

g the

requ

est fo

r the

next

fisca

l yea

r is th

e cur

rent

level

of fun

ding a

nd th

e add

itiona

l mon

ey ne

cess

ary t

o main

tain t

he cu

rrent

level

after

factor

ing in

infla

tion,

etc. P

erfor

manc

e mea

sure

s are

agen

cy or

depa

rtmen

t matt

ers,

and p

rogr

ams a

re ra

nked

with

in ag

encie

s or d

epar

tmen

ts in

orde

r of im

porta

nce.

Ther

e is l

ittle d

iscus

sion i

n leg

islat

ive he

aring

abou

t thes

e matt

ers.

The e

mpha

sis is

oncu

rrent

levels

and w

hethe

r fun

ds ar

e ava

ilable

to en

hanc

e pro

gram

s or a

dd pr

ojects

orpr

ogra

ms.

Wisc

onsin

�

Wyo

ming

�

Amer

ican S

amoa

n/rDi

strict

of C

olumb

ian/r

Guam

�

North

ern M

arian

a Isla

nd�

Trad

itiona

l bud

getin

g is u

sed w

hen i

nform

ation

on ze

ro-b

ased

budg

eting

is no

tsu

bmitte

d by t

he de

partm

ents.

Puer

to Ri

co�

U.S.

Virg

in Isl

ands

n/r

Tota

l: St

ates

2710

010

Tota

l: St

ates

and

Terri

torie

s28

111

10

Sour

ce: N

ation

al Co

nfere

nce o

f Stat

e Leg

islatu

res,

Dece

mber

1997

.

Key:

n/r =

no

resp

onse