February 18, 2002

"Yellow Rose" Does the Two-Step with Uncle Sam
By John Kamensky

As promised, President Bush has imported some elements of the Texas performance budgeting approach to the federal government. His fiscal year 2003 budget proposal released earlier this month, is significantly different than previous federal budgets. First, the budget is organized by agency, not by budget function codes, as had been the case for nearly 50 years. Second, each agency chapter highlights its key activities and includes an assessment of the agency's performance in meeting the objectives of selected programs. And third, each agency chapter includes a red-yellow-green "traffic light" scorecard as to whether the agency is meeting the management criteria the President set forth last year.

The agency-by-agency approach, along with the performance and management assessments, are highly reminiscent of the Texas approach. In Texas, the state budget highlights key performance targets and there are quarterly reports to the Governor on progress toward those targets. In addition, along with his budget proposal to the Legislature, the Governor provides a report card on each agencies' performance.

The reformatted federal budget also includes a section that explains the new performance budgeting approach and gives examples of how tradeoffs were made in funding (or not funding) specific programs. For example, the budget increases funding for housing vouchers instead of public housing programs because vouchers have been shown to be more effective. Coincidentally, the General Accounting Office (GAO) in January 2002 released a valuable new report assessing agency progress in linking performance plans with budgets and financial statements. The GAO report provides helpful best practices as agencies attempt to improve their performance budgeting efforts

Linking Performance to Resources in the Federal Budget. The reformatted federal budget begins with a helpful "note to readers" that explains the new format. In it, the Office of Management and Budget (OMB) describes the new performance budgeting approach as "far from perfect" but intended to spark "a spirited discussion" on how to better measure performance.

In addition, the explanatory chapter on "Budget and Performance Integration" (Chapter 1 - Analytical Perspectives, 3.2MB) says this budget "marks a significant step on the long road to a results-oriented government." It describes the problems of the current system, such as performance and cost data being recorded in different systems and the lack of integration for decision-making. The chapter also reviews the OMB assessments of 126 programs across agencies, which it rates as "effective," "moderately effective," "ineffective," or "unknown." Government Executive conveniently assembles these assessments in one place(the Budget has them scattered by agency). The GovExec summary shows that OMB rates 43 programs as "effective," 22 as "moderately effective," 41 as "ineffective," and it cannot make an assessment in 20 cases where the data are too poor to tell.

OMB says "the Budget devotes dollars to programs that are rated as effective." A good example of OMB's assessment can be found in the Department of Labor section of the budget. There, OMB says it supports expansion of the Job Corps program, even though it is the Department's costliest program per trainee, because evaluations show that "participants get jobs, keep them, and increase earnings over their lifetimes." This shows a direct connection between performance and the budget.

OMB's Scorecard Assessment of Agencies' Capacity to Integrate Performance with Budget. In addition to the program performance assessment, OMB created a scorecard and rated the 26 major agencies on whether they meet the management criteria set by the President, including the degree to which they integrate their performance and budget systems. All but three agencies received a "red" mark on the budget and performance integration component. The Department of Transportation, the Environmental Protection Agency, and the Small Business Administration (SBA) each received a "yellow." None received the coveted "green." Some observers suggest that this scoring is just a gimmick; however, the agencies don't think so. One acquaintance in SBA said that the only increases SBA received in its budget were in areas related to the President's Scorecard and that "for the first time program staff are paying attention to the annual performance plan."

While agencies' program performance ratings by OMB got less press attention than the OMB management scorecard "traffic light" assessments, the performance assessments are probably far more significant because OMB has publicly signalled for the first time that performance counts. As OMB Director Mitch Daniels remarked upon releasing the budget: "There are plenty of places to reduce spending when you separate the effective programs from the ineffective programs." This may be increasingly important in the future to non-defense agencies, given that the portion of the budget devoted to non-defense, non-interest, non-entitlement programs is slated to decrease over the next five years - after increasing during the past 25 years. As OMB increasingly finds itself choosing among which domestic programs to fund, agencies are now on notice as to what the yardstick will be - measurable performance.

GAO's Assessment of Agencies' Progress in Performance Budgeting. Several weeks before the budget was released, GAO issued its third report assessing agency progress in performance budgeting. It concludes that its four-year-long series of reviews shows that "agencies continue to tighten the required linkage between their performance plans and budget requests." But more importantly, GAO describes how the planning, budgeting, and cost accounting structures are inter-related for different agencies in the existing system. It also observes that there is no one right way to create alignment between these three structures, but that each agency must develop its own approach. "While alignment is not sufficient to guarantee results-based accountability, it is a necessary action to . . .improve congressional decision-making and to help federal managers improve service delivery by providing them with information on program results," states GAO.

OMB agrees with the GAO assessment: "Account and activity alignment should eventually fit the nature of each agency and bureau." OMB also offers some helpful advice: "The agency's main goals could be listed, along with the outcomes that measure success in achieving each. This could provide an organizing framework for the integrated plan and budget document." As an example, it shows how the Immigration and Naturalization Service restructured its accounts to better align programs and dollars, moving from a series of funded activities (Border Patrol, Inspections, Investigations) to an overall "immigration enforcement account" that has the objective of securing the ports of entry against unlawful entry (p. 11 of Analytical Perspectives, Chapter 1).

As agencies respond to OMB's new emphasis on performance, the next GAO assessment may show more than just incremental progress. After all, Texas made a big leap when it started, why not the federal government?