Performance Budgeting in the Aftermath

Performance Budgeting

In the aftermath of the "Great Recession" state and local governments along with the federal government are facing the prospects of surging budget deficits and the concomitant budget cuts or tax and fee increases requisite to restore a semblance of budgetary balance. As Americans face the prospect of reduced governmental services or the increased costs to provide them, they are exerting pressure on government "to show that they are providing good value for the money" (OECD. March 2008). In this context, state and local governmental entities are embracing the performance budget as a method of answering the question "why is our state spending money the way it is" (the Pew Center. N.D.)? In asking this question policy leaders are looking to incorporate "outcome measures reflecting the results of delivering a program's product and services," to the traditional "output measures referring to the products or services that a program delivers" (U.S. GAO. February 2005). How state and local governments utilize performance budgeting and its success in driving value has significant connotations for usage of performance budgeting at the federal level.

"Performance-driven budgeting is the process by which states use appropriate performance metrics to decide where and how they should spend their money to achieve desired results" (the Pew Center. N.D.). The trend in governmental policy making has been toward a comprehensive approach which utilizes informational metrics and incorporates the data "into the budget documents, but simply including information on performance in budget documents is a long way from performance budgeting" (OECD. March 2008). Of the advantages of performance budgeting is its flexibility of incorporation into budgetary considerations. In analyzing the use of performance budgeting, the Organization for Economic Co-Operation and Development emphasized three approaches which "link funds allocated to measureable results: presentational, performance informed, and direct performance" (OECD. March 2008).

In the presentational approach "information is not intended to play a role in the decision making and does not do so" (OECD. March 2008). The performance-informed approach utilizes information however, the information "does not determine the amount of resources allocated and does not have a predefined weight in the decisions" (OECD. March 2008). Lastly, direct performance "involves allocating resources based on results achieved" (OECD. March 2008). Clearly the direct performance approach provides the greatest utility for determining future funding levels yet, according to the United States Government Accountability Office (GAO), performance budgeting is used to identify potential impacts of a proposed policy change, make policy decisions that reduce cost while maintaining effectiveness, and make changes to improve program effectiveness. However, when determining funding levels and defining desired levels of service relative to funding, legislators currently rely on workload and output measures. (OECD. March 2008)