Budgeting: Can Performance Management Help?

Jun 24, 2019
Senior Advisors, Government Finance Research Center
Principals, Barrett and Greene, Inc.

Wouldn’t it be nice to have a magic formula for coming up with the most important expenditures to be made in formulating a budget? When people talk about “performance-based budgeting,” that’s almost what it sounds like. In fact, a number of us studying the field have preferred to talk about “performance-informed” budgeting, to remove the notion that this is a purely scientific, formulaic approach.

Whatever you call it, for many states and localities, the mere effort to inform budgets with performance measures is elusive. As Andrew Kleine, author of City on the Line, writes, “Outcome budgeting is a work in progress.”

A 2015 National Association of State Budget Officers “spotlight” explains that, “Whether states use a performance-based approach to budgeting is not typically a straightforward ‘yes’ or ‘no’ answer; in fact, performance budgeting use at the state level should probably be viewed along a continuum from minimal to extensive use, with significant variation on how this is accomplished.”

But what stands in the way of using performance information to build budgets? One major challenge is the fact that the elected officials who are responsible for passing a budget may have concerns other than that tax dollars are used most wisely. Not to appear cynical, but there’s little question that a decision which will garner more votes come election day may have an edge over one that’s predicated on data.

Perhaps more important legislators, particularly in larger states, tend to be overwhelmed by performance information, and simply don’t have enough hours in their weeks to use the information that’s being offered up to them.

“We hear about budget officers or analysts being uncertain of how much the information is really being used by legislatures in actually making budgetary decisions,” John Hicks, executive director of the National Association of State Budget Officers told us for a book we’re writing about performance management. “If either the executive or legislative branch of government doesn’t act, use, or thoughtfully consider this information then the energy wanes,”

In a dream world, one of the great benefits of using performance information to make a budget would be to provide the kind of data that could overcome inertia in legislatures or city councils. But it’s not easy to find cases in which the information is put to that purpose. A 2011 study at the University of Georgia looked back at the impact of performance budgeting on the 2007-2009 recession and previous ones. It found little sign that performance information was used in making cuts. The study, published in Public Administration Review, found some evidence that performance data were used in good times, but not during downturns.

Meanwhile, a Louisiana study in 2012 found that over half of individuals in agencies didn’t think their legislators were paying attention to performance information when creating their budgets.

Why? Both executive and legislative branch representatives tend to be concerned about the relevance of the specific measures to the decisions with which they are confronted. They also worry about inaccuracy of the measures, and a difficulty in finding the information that was particularly on target for the issue at hand.

The ultimate reality is that performance budgeting can, at best, only be applied to spending decisions that are truly under the control of city or state decision makers. But that only represents a portion of the substance of budgets. Dollars spent on debt service, other liabilities, public school funding and Medicaid (which is largely governed by federal rules) are not inclined to be affected by legislative thinking, but are for more likely to be formulaic in nature and are often governed by variables like case loads for Medicaid, or student populations for the schools.

This is also true for budgeting at the federal level. Phil Joyce, Senior Associate Dean and a Professor of Public Policy in the University of Maryland's School of Public Policy summed up that issue in a paper he delivered at the 2018 Association for Public Policy and Management (APPAM). He pointed out that “You have to keep in mind 70 percent of the federal budget is on autopilot and there’s no way that performance information is feeding into that 70 percent of the budget. Then the other 30 percent is half defense and half non-defense.”

On the positive side, there tends to be a great deal more use of performance information for budgeting at the agency levels of government. Says Joyce: “Most of the action is not in what happens in the legislature or the budget office, but what actually happens in the agencies when they’re implementing their budgets

“I don’t think it has been well recognized that agencies have flexibility in terms of their management and resources. You can call that budget execution or management, but it involves them making decisions about resources and that’s part of performance budgeting.”