Performance Budgeting in the States of the United States 1/
In developing PFM reforms it makes sense to look at other countries for best practices. Often people forget, however, that in the larger countries of this world the most exciting reforms often take place at the state or provincial level. Examples of states being more innovative than central or federal government can be found in countries as diverse as China, India or the US. The fifty states in the US provide a broad spectrum of PFM reform experiences, especially in the area of performance budgeting. The National Association of State Budget Officers recently prepared a report, “Investing in Results: Using Performance Data to Inform State Budgeting”. The range of methodologies described within this report is sure to provide country officials with useful insights for their reform efforts.
Just like at the national level, the citizens of Texas, Wyoming or Florida demand accountability and transparency in government. States have found that the use of performance data can support and measure the results of budgetary decision-making. Some states have invested heavily, perhaps more than the US federal government, in developing what is usually called performance budgeting. The term is used broadly in the report: all practices where information on spending goals and performance are incorporated as part of the budget cycle and are used to inform future budget allocations.
While the experiences from state to state vary considerably, a common thread seems to be that actual implementation of performance budgeting continues to be a challenge. The report spells out a number of interesting lessons learned.
• Agency Engagement and Buy-in
1. Having high level leadership is key, but because elected and politically appointed officials come and go, having civil servant by-in is critical too in sustaining the initiative.
2. Agencies must see the value in the initiative. Creating quick-wins, such as allowing agencies to retain savings derived from good performance (in part) can provide tangible benefits. Combining an improved focus on efficiency and effectiveness with the right incentives can result in performance budgeting becoming a tool for agencies to make better decisions and improve outcomes.
3. Agencies must build knowledge and capacity, and be held to accountable for results. Training on how to collect, interpret, use and report data is crucial. Budget office staff in turn need to build a knowledge base about their agencies.
• Role of legislature
4. Establishing performance and strategic planning in a statutory framework can help ensure continuity. Statutes must be written to ensure flexibility, allowing administrations to align the methodology with leadership efforts.
• Purpose and Design
5. While what gets measured gets managed, too many measures can be burdensome, resulting in a lack of focus. Similarly, a careful selection of the measures is required to ensure they are meaningful and useful.
6. Performance based initiatives can be linked to other good government efforts, such as “Lean Process” and “Pay for Success”. This can assist with continuity through changing administrations, varying priorities, and sustaining reforms through both fiscally difficult and prosperous times.
• Sustaining the Initiative
7. A performance budget system should be considered a continuous process of strengthening what works, improving or eliminating what does not, and making on-going adjustments as conditions change.
8. Recognizing performance budgeting is a tool, not a cure-all, is important.
In addition to these general lessons, the report provides an annex with the history and methodology of performance budgeting implemented in eight states 2/ who have been innovators. These provide specific examples on how state officials have adapted, changed, and continued efforts through different administrations and changing priorities. For example, Iowa, one of the states described has a long history of performance initiatives, dating back to the 1980s. Starting with output indicators in the budget, Iowa transitioned into budgeting for results and outcome measures in the 1990s. After the 1998 elections, the administration achieved a landmark with the passage of the Accountable Government Act, which focused on strategic plans, performance planning and measurement, results based budgeting, return on investment analysis, and performance audits, all reported on and documented on their website.3/ Again, elections re-focused the efforts in 2010, and currently, the state is using the performance reporting system to identify “Lean Government” opportunities, initiate effectiveness and efficiency measures, and establish cost per unit bench marks. Iowa has proven that using a solid performance reporting system can be the basis for easing the transition in changing government priorities and initiatives.
Overall the report is highly recommended. It is sure to provide helpful hints and ideas for government entities around the world struggling to establish, maintain, or re-energize performance budgeting within their government. The complete article may be found at: http://www.nasbo.org/investing-in-results.
1/ Celeste Kubasta is Public Financial Management Advisor at CARTAC, the IMF’s Regional Technical Assistance Center for the Caribbean. She has worked for the US Treasury as PFM Advisor in Lebanon, Iraq and Malawi. Before that she worked for 16 years as Chief Assistant Executive Budget Analyst in the US state of North Dakota
2/ These are: Connecticut, Iowa, Minnesota, Nevada, Oregon, Utah, Virginia, and Washington.
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