Wednesday, October 16, 2013
Budgets, and budget reform, are sensitive topics at the moment, but it might be worthwhile to take a longer view of the issue to see what might be possible in the future, given the experiences of states and cities that have undertaken significant reforms.

The topic of performance budgeting has been talked about for decades.  Most state governments claim to be doing it.  The Government Accountability Office and others have written numerous studies about how it could and should be done at the federal level.  But the City of Baltimore has put in place an outcome-oriented budgeting system that is now in its fourth year of operation.  What does it look like?


Background.  The City of Baltimore has a population of 621,000 and is the 26th largest city in the U.S.  It is both a busy seaport and a health science center.  It has a budget of $3.6 billion (combined operating and capital spending) with about 14,000 city employees.

The city charter created a “strong mayor” who has significant authority over the budget process.  The mayor proposes a budget to the city council.  The budget is reviewed and approved by a Board of Estimates, which has 5 members, 3 of whom are appointed by the mayor.  It is then submitted to the City Council.  The Council, however, can only reduce the proposed budget; it cannot increase it.

The city has in place an award-winning management process, called CitiStat, which the mayor uses to oversee the strategies used to ensure progress on longer-term goals as well as the effectiveness of day-to-day city operations, such as responses to 311 service requests.  This evidence-driven process has been in place for more than a decade and used by three different mayors, so there is some sustainability of this management approach. 

The current mayor, Stephanie Rawlings-Blake, has modified the CitiStat process to include a strategic view of the city’s operations.  She committed to improvements in six priority outcomes for the city. These include:  better schools, safer streets, stronger neighborhoods, growing economy, cleaner and healthier city, and innovative government. These outcomes are all in the context of the city’s new 10-Year Financial Plan.

Starting in 2009, the previous mayor launched a reform of the budget process in order to better connect the performance management strategies generated via the evidence-based CitiStat to the financial resources needed to deliver on those strategies in a more effective manner.  Mayor Rawlings-Blake embraced this reform as a way to both make the budget process more transparent and to deliver on her six priority outcomes.

Kleine says that the Outcome Budgeting approach “was a natural progression from CitiStat, but it is more than an overlay.”  The new budgeting approach, he says, “has pushed performance measurement to every corner of city government, including dozens of mid-size and smaller agencies that do not participate in CitiStat.”  He also says “it focused the city on outcomes, whereas CitiStat is mainly concerned with operational metrics that can be updated frequently.”  He notes that the new budgeting approach has resulted in the CitiStat process including a stronger look at both costs and outcomes.

Overview of Baltimore’s Outcome-Oriented Budgeting Approach.  According to Baltimore’s budget director, Andrew Kleine, “Outcome Budgeting is a budget process that aligns resources with results.”  Instead of starting from the previous year’s budget and adjusting allocations up or down, Outcome Budgeting starts with what results matter the most to citizens.  The approach “shifts from an agency-centric view to a services-centric view. . . . Evidence plays a big role in the process.”

As a result, the budget is developed around a combination of various services that support the city’s six Priority Outcomes, not the various city agencies.  The city’s budget provides details for about 240 specific services that, in various combinations, support the Priority Outcomes.

Baltimore’s Budget Preparation Process.  Following are the key steps used in Baltimore’s budget preparation cycle:

Step 1:  Establish priorities.  The mayor and her senior leadership team define key Priority Outcomes to be pursued. Setting the priorities is informed via a citizen engagement process, including the Baltimore Citizen Survey.  For the current budget cycle, there are six Priority Outcomes.

Step 2:  Determine Resources. The mayor and her senior leadership team set broad spending parameters around each of the outcome categories. 

Step 3:  Create Results Teams.  A Results Team is created for each of the six Priority Outcomes.  These interdisciplinary teams are comprised of representatives from various city agencies, the mayor’s leadership team, and a member of the local community. Each team is staffed by someone from the city’s budget office, as well.  Interestingly, the teams are seen as a testing ground for potential future leaders among participating city staffers.

Step 4: Create Guidance Documents.  Each Results Team puts together a “guidance document” that outlines specific measurable goals to be achieved in the coming year and the actions to be taken to achieve them.  Once the documents are developed, the Results Teams sit down with the mayor and her senior staff for a “tollgate” review of the guidance before it is sent out to agencies.

The guidance document outlines specific, measurable goals, such as “increase school attendance” in order to reduce the dropout rate.  The guidance document for “better schools,” for example, includes a cause-and-effect map, along with examples of specific strategies to make progress against the goals.  It concludes with a list of criteria by which agency-offered proposals would be assessed. 

Step 5:  Agencies Submit Budget Requests.  The agencies use the guidance documents to prepare their budget submissions.  There is a web-based tool for them to submit their requests, service-by-service.  They no longer budget by program; the unit of budgeting is around “services.”  The Departmental budget requests, covering a total of about 240 different services, are submitted back to the Results Teams. 

Budget staff say the results are less opaque, especially for citizens, to understand. For example, the Department of Recreation and Parks used to report funding under 4 programs, such as “Regular Recreation Services,” “General Recreation Services,” and Special Recreation Services.” . . . . Now it reports on 12 services, such as: “Recreation Centers” and “Horticulture.”  See graphic for an example:





There are performance measures for each service, and trend data are reported when the Department submits its budget requests.  The following graphic shows an example of what the final budget proposal looks like for the “horticulture” service within the city’s Recreation and Parks Department, which is linked to the city’s “Stronger Neighborhoods” priority outcome:



Step 6:  Results Team Reviews and Ranks Requests.  The Results Teams have conversations with the agencies and rank their funding requests.  They create a spreadsheet of the service requests and associated dollars, and then prepare a memo to the mayor with recommended “portfolio investments” in each of the outcome areas, describing what could be achieved at, above, or below the current services provided.  Once the memos are completed, the Results Teams sit down again with the mayor and her senior staff for a second “tollgate” review to discuss the various memos.

Step 7.  Mayor Makes Decisions and Budget is Finalized.  The city’s budget staff compile and update the various Results Team materials and present a complete package to the mayor and her senior staff for decisions in a third and final “tollgate” meeting. She sees everything the city is doing.  Under the old approach, the mayor only saw the budget changes at the margins; now the mayor sees the full picture.  The city’s budget is then posted on-line, including a short citizen’s summary and more details, as well as agency-level information service-by-service.

How Does the Process Make a Difference in Outcomes?  City staff say that the budget process has made a difference in a number of different areas.  Services that did not demonstrate value were cut.  In contrast, services that could demonstrate effectiveness – such as youth violence prevention -- were protected from cuts during a period when the city was facing severe budget cuts.

New strategies have been developed to reduce costs, as well.  For example:

  • The Fire and Health departments now assign nurses to frequent 911 callers and this has reduced their call volume by about 50 percent.  This has resulted in substantial savings for the Fire Department.
  • The “Cleaner and Healthier City” Results Team’s decision process led to the city’s Transportation Department piggybacking on a Recreation and Parks Department mowing contract to reduce the cost of median strip mowing by $1.5 million. 
  • Results Teams invited agencies to make offers to run services that were currently housed in another agency. For example, the Department of Housing and Community Development’s code enforcement section proposed that it could leverage existing business processes to more effectively collect burglar alarm registration fees and false alarm fines.  It took over the function from the Police Department and significantly increased revenue collections.
  • The outcome budgeting process also led to the creation of a mayoral task force that recommended the city move toward a smaller, higher quality network of recreation centers.  As a result, the city has turned over nine centers to non-profit operators, closed nine centers, converted eight centers to after-school programming, increased staffing at 30 centers, and has undertaken a capital program to build four new centers and renovate several others.

The budgeting process is still evolving.  For example, at the beginning of the fiscal year 2013 budget cycle, the budget process began accepting enhancement requests that would allow services to request funding for new strategies that advanced one of the Mayor’s Priority Outcomes. In Fiscal 2014 the budget process funded 16 enhancement requests ranging from a Food Desert Strategy developed by the city's Planning Department to an evidence-based summer reading program in the school system..


Note:  If you are interested in learning more about performance budgeting, you may also find of interest a recent post on the Texas performance budgeting process, as well as an upcoming half-hour videocast by my colleagues in IBM on “Smarter Government Finance and Budgeting” on Wednesday, October 23rd at Noon, Eastern.


Graphic Credit:  Took the Picture Myself!