[Analytical Perspectives]
[Budget and Performance Integration]
[1. Budget and Performance Integration]
[From the U.S. Government Publishing Office, www.gpo.gov]
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BUDGET AND PERFORMANCE INTEGRATION
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1. BUDGET AND PERFORMANCE INTEGRATION
This Budget marks a significant step on the long road to a results-
oriented government. It starts using performance measures to develop
policies, to make budget decisions, and to improve everyday program
management. The Administration is creating a government that promotes
the outcomes that Americans want--such as better education for our
children, the freedom to travel safely, and protection of our health--
and does this in a cost-effective and efficient way.
Achieving better program performance--particularly better performance
for each dollar spent--is a high priority of this Administration.
Congressional interest, reflected in the Government Performance and
Results Act of 1993, set agencies to identifying performance goals,
planning to achieve them, and reporting on results.
What has been missing is systematic use of these measures to make
decisions. In particular, performance measures are not directly linked
to the budget--and yet it is the budget that drives policy development,
allocates resources, and has undeveloped potential to support better
management.
Past and planned results are not shown with budget requests,
let alone linked in a cost-and-results relationship.
Program managers responsible for achieving results often do
not control the resources they use or have flexibility to use
them efficiently.
Performance and cost data are recorded in separate systems
and not integrated to provide timely, analytical, feedback to
decision-makers and managers.
Americans cannot readily assess program results, and cannot
compare performance and cost across programs.
Budgeting for Results. Eager to make government work better, the
Administration used all of the performance information it could gather
in making decisions for this Budget. It also began the transition to
change the burden of proof, asking agencies and advocates to supply
evidence of program effectiveness instead of assuming effectiveness in
the absence of evidence to the contrary. In addition to funding high
priority programs, the Budget devotes dollars to programs that are rated
effective. The Budget proposes reforms for ineffective programs, reduces
their funding or terminates them. Policy changes are proposed to
increase program effectiveness and to improve the efficiency of programs
and support services. The first section of this chapter, Budgeting for
Results, analyzes shifts in resources and changes in policies made on
the basis of this intense focus on performance.
Foundation for Results. To create a foundation for continual
improvement in the effectiveness of government, the President has begun
to make results the focus of the budget process. Planning and evaluation
will be integral to budgeting. The budget takes the first steps toward
showing expected results and the resources requested to achieve each
result. To give managers full information about programs and to
encourage efficient use of resources, the budget needs a uniform measure
of the full annual cost of the resources used that will be charged to
each program and activity.
In October, the President transmitted to Congress the Managerial
Flexibility Act of 2001. Title II of that Act will charge employing
agencies for the full annual accruing cost of Federal pensions and
retiree health benefits, as reflected in this Budget. The Administration
is developing proposals to charge for support services, capital assets,
and hazardous substances cleanup where these resources are used. As
explained in the second section of this chapter, Foundation for Results,
these proposals do not change total budget outlays, budget concepts, or
public-private cost comparisons. However, they would provide a better
assessment of program costs.
Managing for Results. Budget and Performance Integration is one of
five interrelated initiatives in The President's Management Agenda,
rolled out in August. The others are Strategic Management of Human
Capital, Competitive Sourcing, Expanded Electronic Government, and
Improved Financial Performance. The third section of this chapter,
Managing for Results, shows that the objective of these five initiatives
together is to create a transformation to year-round performance
orientation through all levels of the Federal government.
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``We are not alone...''
Governments here and around the world are devising strategies to assess and manage for results--both outputs
(i.e., products and services delivered) and outcomes (i.e., the end result that is being sought, such as clean
streets or reduced crime).
Here in the United States, a growing number of States, counties and municipalities use ``performance
budgeting'' as a tool for making policy and management decisions. Charlotte, North Carolina, and Dayton, Ohio
undertake regular performance measurement. Sunnyvale, California has become internationally recognized for
performance budgeting--allocating funding for tasks rather than for personnel, equipment, and supplies, with
quantified objectives that are expected to be achieved with the funding. Indianapolis' budget provides mission
statements, allocations by outcome objectives, and comparative performance measures.
State governments are also using these tools. Missouri, Texas, Louisiana and Virginia use performance
information extensively in the central budget office, while most States use performance information at the
agency level.
Successful implementation of performance-based budgeting has not been limited to this country. Over the past
two decades, every year an increasing number of the 30 countries in the Organization for Economic Cooperation
and Development are adopting a performance-based approach to management. New Zealand focused on ``buying
outputs'' ten years ago. Australia and the United Kingdom are the leaders in focusing on outcomes. Canada and
the Netherlands are close behind, with France and Japan still in the early phases of transforming to an outcome-
focused approach.
Australia develops effectiveness and efficiency outputs for its outcomes, and prices each output. The British
system is more structured than Australia, employing performance service agreements, aim (or mission) statements,
overarching objectives, performance targets, and statements of responsibility for delivery (achieving the
targets). In linking resources with outcomes, the British Cabinet Committee's annual budget review allocates
monies three years forward, making decisions on both broad outcome levels and the resources needed to achieve
the outcome levels.
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BUDGETING FOR RESULTS
Testifying before Congress last May, the Director of OMB signaled his
intention to focus on performance. ``Our main focus of the next months
will be working toward full integration of budget and performance
information, and using performance data to help make program and budget
decisions.'' He described three specific steps in this direction.
``First, we will insist that agencies develop a credible
linkage between resources and performance. We need to be able
to answer the question: `What are we getting for what we are
spending?' As we work to establish this linkage, we expect to
make some changes to the traditional process of how we review
budget requests, and the nature of our passback to the
agencies on their requests.
``Second, we intend to improve our ability to understand the
true cost of each program. Full costing of certain program
budget accounts will necessitate significant accounting
changes, and we are developing a legislative proposal
permitting us to assign currently unallocated costs and
present these in the budget.
``Third, you should see a more robust presentation of
performance information in the FY 2003 President's Budget. We
also intend to explore how a significant restructuring of the
budget document itself might enhance public and Congressional
understanding of government performance.''
``Work is already underway on these and several related initiatives.
These tasks will engage nearly every OMB office, and will comprise a
significant part of the workload over the next year.'' The Director
concluded: ``We believe that this work will lead to a big potential
payoff in improved effectiveness and efficiency of government.''
OMB staff and agencies collected evaluations, studies, and performance
documentation of all sorts from all sources to assess which programs
were effectively improving desired outcomes. Within the Executive
Branch, preliminary assessments of these materials were discussed, and
agencies were urged to improve program performance and to improve
evidence of effectiveness and linkage with program cost.
Below are some of the results of this performance-oriented process of
policy development and budget allocation. The examples illuminate ways
in which policy makers and program managers can help government better
serve its citizens. Deliberately, they are chosen to represent ``best
practice''--examples from which other program managers and policy makers
can learn. They are presented in five categories: (1) funding effective
programs, which have demonstrated benefits greater than cost; (2)
shifting resources toward more effective
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programs from less effective ones that have similar purposes; (3)
setting program targets and strategies based on understanding
performance and cost relationships; (4) adding incentives to enhance
program effectiveness; and (5) improving efficiency in programs and
support services.
Funding Effective Programs
Programs in this category are effective. They deliver real benefits
for Americans--healthier babies and families, more disadvantaged youths
off drugs and in school or job training, and advancing knowledge that
can improve health and sustain economic growth. These programs have
undergone evaluation, not only documenting their effectiveness, but
developing understanding of the reasons for their success so that policy
makers and program managers can sustain and build on it.
Agriculture: Numerous government and private studies show
that the Special Supplemental Nutrition Program for Women,
Infants and Children (WIC) is one of the nation's most
successful and cost-effective early intervention programs. The
program saves lives and improves the health of women, infants
and children who are nutritionally at risk. The Budget
reflects this demonstrated success by fully funding the
program in 2003 to enable all eligible persons who seek
services to receive them. The request is sufficient to provide
7.8 million persons with supplemental foods, nutrition
education, and preventive health care each month in 2003. A
contingency fund is available to serve an expanded number
should that be necessary.
Commerce: Although the U.S. gross domestic product (GDP)
statistics are widely regarded as among the best in the world,
they require continual improvement to keep pace with the
nation's rapidly changing economy. Additional funding is
proposed for the Bureau of Economic Analysis to improve and
speed production of its statistics, on which government and
business decision-makers depend.
Health and Human Services: Community Health Centers provide
high-quality health care that reduces hospitalizations and
emergency room use, and prevents expensive chronic disease and
disability. The Budget expands the number of centers by 1,200
to serve an additional 6.1 million patients by 2006. Together
with the National Health Service Corps, the Centers increase
the number of health care providers in underserved areas.
Health and Human Services: The 1997 National Treatment
Improvement Evaluation Study found that treatment decreased
primary drug use by 48 percent, alcohol and drug-related
medical visits by 53 percent, and criminal activity by as much
as 80 percent. Welfare dependency, and homelessness also
declined. The Budget supports an additional 52,000 drug
treatment slots.
Health and Human Services: Funding for the National
Institutes of Health, the world's leading research institution
for biomedical and behavioral research, will increase to
double its 1998 level. NIH conducts research in its own
laboratories, but the vast majority of its funding supports
researchers in universities, hospitals, and research
institutes around the country through peer-reviewed grants.
NIH has supported great advances in the detection and
treatment of disease, and its recent work on the human genome,
cancer, and many other diseases gives promise of accelerating
breakthroughs.
Labor: The Budget will support four more Job Corps centers
for residential vocational training for disadvantaged youth
than in 2001. At a unit cost of roughly $31,700 per service
year, the Job Corps is the Department of Labor's costliest
training program. However, evaluations have demonstrated that
its benefits exceed its costs. Job Corps participants get
jobs, keep them, and increase earnings over their lifetimes.
National Science Foundation: The NSF, a leader among Federal
agencies that fund basic research, will get more funding and
programs transferred from other agencies. Of NSF's grants, 94
percent are competitive, based on merit review. Each year,
one-third of NSF's research and educational programs are
evaluated for integrity, efficiency, and quality of results,
so that all programs are reviewed in a three-year period. Of
the dozen 2001 Nobel prize winners in the sciences, NSF
supported eight for the research that won them the award. NSF
quickly redirects resources to areas of emerging opportunity,
and invests one-quarter of its research budget in areas where
major breakthroughs are likely.
Shifting Resources toward More Effective Programs
Comparison of programs for similar purposes can lead to the conclusion
that some are more effective than others. Shifting resources toward the
better programs is one way to improve results, while the other programs
seek ways to focus or reform their efforts.
Commerce: Funding for technology innovation in the
Department of Commerce was increased for the National
Institute of Standards and Technology, a world leader in high-
tech and basic industrial standards including work that led to
the 2001 Nobel Prize in physics. The Patent and Trademark
Office will also have more resources and set targets for
faster patent and trademark processing. The Budget channels
resources to higher performing programs by reducing funding
for Manufacturing Extension Partnerships and the Advanced
Technology Program, and terminating the Technology
Opportunities Program.
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Housing and Urban Development: Housing vouchers are lower in
cost per unit, at only 85 percent of the cost of Public
Housing, and benefits are higher. More voucher recipients (26
percent) than Public Housing dwellers (8 percent) live in
census tracts with less than 10 percent poverty; evaluations
are finding better educational, social and behavioral outcomes
from the greater opportunities available in these
neighborhoods. The Budget increases funding for housing
vouchers, expands opportunities for families to choose housing
that best fits their needs, and provides more help to see that
vouchers are used effectively.
Labor/Training: This Budget begins a wide-ranging reform of
Federal investments in training and employment. In 2002, there
are at least 48 overlapping training and employment programs
scattered around 10 agencies. For several programs that are
duplicative or have a history of poor performance, funding is
reduced or terminated, reducing the number of programs from 48
to 28. For the many other training programs where performance
measures are inadequate or not comparable, a multi-year effort
will begin to assess relative effectiveness, shift resources
to programs that prove effective, and eliminate ineffective or
duplicative programs.
Labor: The backlog of the H1-B visa program will be
eliminated by shifting funds from an ineffective grant
program, and reforming the visa review process.
Research: Rigorous peer review of proposals for research is
an effective tool in selecting projects that are most likely
to yield useful results. The Budget more than doubles funding
for USDA's National Research Initiative, and reduces other
agricultural research, in an effort to increase peer review.
Also to promote merit-based competition, NOAA's Sea Grant
program, and the Interior Department's toxic substances
hydrology program will move to NSF.
Corps of Engineers: For the Corps navigation program, the
Budget funds improvements for those waterways with the
greatest economic return, and limits funding for those with
little commercial traffic.
Setting Program Targets and Strategies
As programs learn to link performance and cost, they can set targets
in their annual performance plan in line with their budget request. This
helps to gain support for their request and holds them accountable to
achieve the targets. Understanding relationships between cost and
performance helps to achieve better performance, to gauge the additional
cost of additional performance, and, in some programs, to set
appropriate fees.
Commerce: The National Weather Service, an effective
program, got an increase in funding and specific targets to
increase hurricane warning lead time two hours by 2005, double
tornado lead time to 22 minutes by 2015, improve aviation
forecasting accuracy by 13 percentage points by 2007, and
improve temperature and river forecasts for a pilot region by
2004. Lives will be saved by more timely evacuations; airline
and energy industry costs and energy use will be reduced.
Health and Human Services: The Food and Drug Administration
plans to increase the speed of processing generic drug
applications to act on 75 percent within six months of receipt
in 2003, up from 50 percent in 2001. FDA will also triple
inspections of foods it regulates that are imported into the
United States.
Housing and Urban Development: HUD has set a target to raise
the minority homeownership rate to 50 percent in 2003.
Justice: The Budget supports a six-month standard for
processing all immigration applications. The Immigration and
Naturalization Service will streamline and redesign its entire
process, improving efficiency to reach this target. This will
be done with a clear focus on thorough and timely screening of
all applicants to ensure security. Justice has also set
targets for immigration enforcement, prison crowding, and
detention cost and quality.
Social Security Administration: SSA has targeted an increase
in retirement claims processed within 14 days from 84 percent
in 2001 to 87 percent by 2003, an increase in customer
initiated services available electronically from 21 percent to
40 percent; and an increase in callers access to SSA's 800
number within five minutes of their first attempt from 92
percent in 2001 to 94 percent in 2003.
Transportation: DoT manages programs to improve safety in
all modes. They have set targets to reduce the number of
serious airport runway incursions from the 52 last year. The
Department also hopes to reduce highway fatalities and
injuries by increasing seat belt usage to 90 percent by 2005,
and reducing alcohol-related fatalities to 11,000 by 2005.
USAID: The Budget increases funding for global efforts to
combat HIV/AIDS. A rapid scaling up of the program will focus
on four countries (Cambodia, Kenya, Uganda, and Zambia) to
reduce HIV prevalence in young adults by 30 percent, increase
the proportion of infected, pregnant women getting
antiretrovirals to prevent mother-to-child transmision to 7
percent, and increase the percentage of orphans receiving
community services to 12 percent.
Adding Incentives to Enhance Program Effectiveness
Even effective programs can further enhance their results by adding
incentives for grantees, contractors, and employees. For less effective
programs, this could
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provide a crucial boost to the search for innovation, efficiency, and
new strategies.
Agriculture: The Food Stamp quality control system measures
how accurately States determine Food Stamp eligibility and
calculate benefits. While the system is necessary to ensure
program integrity, the current system's sole focus on payment
accuracy does not recognize State efforts to achieve other
important program goals, such as promoting access among
working households. As part of Food Stamp reauthorization, the
President proposes rigorous, but fair, reforms to the quality
control system and performance bonuses for payment accuracy
and customer service.
Commerce: The Administration will propose that
reauthorization of the principal legislation governing marine
fisheries conservation enable the use of transferable fishing
quotas in appropriate circumstances. This strategy can improve
economic incentives for fishing investment and activity, which
help both profitability and environmental sustainability.
Currently, 20 percent of major marine fish stocks are over
fished and another large fraction has unknown population
status.
Education: Vocational Rehabilitation State Grants are
already rated effective, but States vary widely. As part of
the initiative to integrate performance measures and budget
decisions, companion Incentive Grants will be allocated to
States based on their performance in helping individuals with
disabilities obtain competitive employment.
Energy: The Power Marketing Administrations provide an
unusual example of improved incentives. PMAs receive their
power from hydroelectric dams operated by the Corps of
Engineers and the Bureau of Reclamation. In 2003, three
additional PMAs will join Bonneville Power Administration in
directly paying the Corps' operating and maintenance expenses,
permitting the PMAs to negotiate directly with the Corps over
their maintenance and upgrades.
Health and Human Services: The effective Temporary
Assistance for Needy Families (TANF) program began in 1996.
TANF includes a system of high performance bonuses to reward
States that have excelled in a variety of areas, including
employment outcomes and continued access to benefits. The
bonus to reward States with a reduction in out-of-wedlock
births is less effective and so is being eliminated, with the
funds redirected to develop new approaches to reduce
illegitimacy and promote family formation.
Labor: The Federal Employees' Compensation Act will charge
agencies for the full cost of FECA administration as well as
workers' benefits, and will implement a number of reforms to
strengthen program integrity, discourage frivolous claims, and
promote benefit equity.
State: OMB and the State Department are coordinating an
effort to right size the government's overseas presence.
Information is being developed on how many employees from
which agencies are stationed overseas and what they are doing.
OMB and the State Department are developing a proposal whereby
the many agencies that the State Department hosts will be
charged for the full cost of the space and services that they
use, providing a new incentive to balance cost against the
benefit of overseas presence.
Treasury: The United States proposes to negotiate a
significant increase in the level of assistance provided to
the poorest countries as grants rather than loans. The U.S.
will focus this aid on countries with sound policy
environments and demonstrated performance, and on operations
that raise productivity. The institutions which distribute the
aid will be asked to develop reliable performance and output
indicators. The U.S. will increase its contributions in 2004
and 2005 conditional on specific actions and the achievement
of results.
Improving Efficiency in Programs and Support Services
If the Federal role is appropriate and the program is effective or
undergoing reform, then attention turns to the most efficient way to
produce outputs. This is more difficult than in the private sector,
where market price summarizes the value of the timeliness, accuracy,
quality, and other characteristics of outputs. But attention to
efficiency can result in the public getting more government services at
the same or less cost.
Agriculture: The Farm Service Agency and the Natural
Resources Conservation Agency will work to reduce the
reporting burden of the farmers they serve by 10 percent, and
to increase the technical assistance to priority locations and
the eligibility determinations they provide, while reducing
cost.
Agriculture: Rural Development has had considerable success
centralizing loan servicing through a single, national office
and information system. The Budget proposes that the Farm
Service Agency emulate that success by establishing a service
center to centralize farm loan servicing.
Defense and Veterans Affairs: To increase the cost-
effectiveness of providing medical care, the Department of
Defense and the Department of Veterans Affairs will begin to
coordinate with each other. They will share information to
speed delivery of health services and ensure the safety of
veterans who get care from both DoD and VA. They will also
share resources instead of constructing new facilities,
purchase supplies together, and coordinate patient
transportation.
Education: The Department of Education will reform the
process of collecting Federal elementary and secondary
education information from States in order to reduce
administrative burden, maxi
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mize the usefulness of data, and improve accountability for
results. This reform will permit staff to focus on results,
thereby releasing the Department from a culture of compliance
and shifting to a culture of accountability.
Education: The Department of Education's costs for
administering student financial assistance programs will be
consolidated in a single discretionary account. Requests will
be tied to unit cost targets for major tasks, such as
applications processing, loan origination, and loan servicing,
and to annual estimates of participation in various programs.
These changes will enable the Department to measure its
progress in meeting productivity and cost-efficiency goals.
Health and Human Services: HHS is a many-layered bureaucracy
with 40 Human Resources offices competing for recruits, more
than 50 Public Affairs offices, and more than 20 Legislative
Affairs offices. These will be consolidated into four Human
Resources offices and one each for Public Affairs and
Legislative Affairs. Three building maintenance and
construction offices will be consolidated into one this year,
and two more will be folded in next year, in order to
concentrate expertise and set priorities for capital projects
across the Department.
Justice: To use detention space efficiently, the Department
of Justice will create a National Clearinghouse for Detention
Space; State, local, and private providers will electronically
post vacancies, rates, services, and other data. Justice will
also explore purchasing private prisons.
Labor: DoL is providing focused compliance assistance to
help employers prevent labor law violations or correct them
voluntarily. Efforts include making the rules more
understandable, posting them on the Web, providing on-site
consultations, and developing interactive electronic tools to
help employers and others understand occupational safety and
health regulations.
These examples show that there are Federal programs with documented
effectiveness. These programs attract support in the President's Budget.
They show that making decisions based even on today's rough performance
measures can improve results--by allocating resources to more effective
programs, stimulating program reforms, providing constructive
incentives, and cultivating good program management. The integration of
performance measures in the budget process encourages their use in
making decisions that improve results.
FOUNDATION FOR RESULTS
Measurement leads to improvement, but it is hard to find good measures
in the Federal government. For instance, currently many program managers
cannot get a consistent, full measure of the costs of their programs
from agency budget systems. Frequently they do not actively participate
in developing performance measures for the performance plans required
under the Government Performance and Results Act (GPRA). The goal of the
Integration Initiative is to give program managers better information on
costs, involve them in a process of setting goals that are commensurate
with the resources requested, and then hold them accountable for
results.
In the same vein, while some agencies have made good progress in
performance reporting under GPRA, a lot more needs to be done. Even
information about the relationship of existing performance measures to
the budget costs for specific programs is frequently not available for
decision-makers and the public. This Administration has devoted
substantial time and effort over the past year to integrating goals and
costs, including making major changes in the budget volume.
Notwithstanding this effort, it continues to be difficult to
systematically assess either the effectiveness of programs, or their
relative efficiency when compared to like activities in other areas of
government and the private sector.
This lack of full, consistent information is the result of long
standing barriers in agency organizations and reporting systems, some of
which are built into law. To just begin to correct these deficiencies,
the following steps are needed:
The government's program managers must participate in the
development of broad objectives and annual performance goals,
and link those objectives and goals to an annual budget
request.
Agency reporting systems must be able to report on these
goals, objectives, and costs in an integrated information
system that can be aggregated into the President's Budget
request and the agency budget justification that is
transmitted to the Congress. Agency reporting systems must
also provide acceptable after-the-fact evaluation and
financial information on how well goals and costs have been
achieved.
Making results the focus of the budget requires three significant
changes. First, planning and evaluation--both oriented toward outcomes--
must be thoroughly integrated into the budget process and documents.
Second, the alignment of budget accounts--and especially their
subdivision into ``program activities''--should be reviewed so that the
budget can readily relate resources used to the results produced, and so
that good management is supported. This can be done separately for each
agency. Third, accounts and activities should be charged consistently
for the full annual cost of the resources used. This requires
legislation.
In October, the Administration transmitted legislation to the Congress
to charge the employer's share of the full accruing cost of retirement
benefits to Federal employers. A companion bill to complete full charg
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ing for other resources used to produce outputs is being developed for
transmittal following this Budget. Together, these changes are important
steps toward a more results-oriented government.
The broad objectives of the Integration Initiative are clear enough,
but, as with performance measurement in general, translating these
objectives into specific goals and making the changes necessary to meet
the goals is much harder and takes a long time. Many program managers,
budget officers, performance measurement staff, and other government
officials are struggling with this translation.
Integrating the Process
The first step in infusing planning and evaluation into budgeting is
to produce greater collaboration. Some agencies report that these
functions are already carried out by ``the same'' staff, and others are
considering mergers. So far, the results of collaboration are usually
more evident at the bureau than at the departmental level. Planning is
more likely to precede budgeting at bureaus, and a crosswalk between
performance goals and budget cost is often provided.
The Environmental Protection Agency is an example of an agency that
has made substantial progress. It has an integrated staff to create the
budget, set output targets, and evaluate implementation. Another useful
practice is followed by Health and Human Services, which holds a
department-level joint plan and budget review for each of its operating
divisions to prepare for the Secretary's budget submission to OMB.
The second step is to make a serious commitment to outcomes--and to
evaluation of relevant programs to understand how outcomes can be
improved. A results-oriented budget starts from the agency's strategic
plan and its priorities. What outcomes will the agency espouse? How do
its programs and activities help to achieve each outcome? Targeting an
outcome, which the agency may influence but cannot control, seems risky.
Yet without a serious commitment to outcomes, the agency's programs may
be efficient--but only accidentally will they be effective. Moreover,
agencies without this commitment are likely to have so many
``performance measures'' that few capture attention, get agency
priority, or aggregate into results that the public cares about. Below
are two examples of outcomes related to agency outputs. Note in the
first example how an outcome--highway safety--may be produced by the
outputs of several different agency programs and activities taken
together.
Transportation. To reduce highway fatality and injury rates,
DOT will test automobiles to ensure compliance with safety
standards; promulgate new or revised safety standards in
several areas; invest in infrastructure improvements to reduce
conditions or factors most associated with highway fatalities,
such as single vehicle run-off-the-road crashes (which cause
38 percent of all deaths); and increase research into how the
growing levels of driver distractions may increase accident
rates.
Veterans Affairs. To improve the overall health of veterans
through high-quality, safe, and reliable health services (an
outcome), VA has sharply increased its score on the Care Index
(a measure of the degree to which VA follows nationally
recognized guidelines for the treatment and care of patients
with one or more of five major ailments) and on the Prevention
Index (a measure of the degree to which VA follows nationally
recognized prevention and early detection recommendations for
eight diseases or health-risk factors).
Finally, a single streamlined, integrated plan-and-budget document
should eventually be produced. So far, agencies have included budget
amounts in their annual performance plan, first at an aggregate level
and then in more detail. They have also included performance measures in
their budget justifications, sometimes linked with program resources.
Plans are relatively streamlined; budgets rarely are--not even in the
sense of a streamlined overview with supplementary volumes. The
Department of Labor and some other agencies are working toward a single
integrated document. But few have learned a lesson from great chefs:
``reductions'' take more time, but they have more flavor!
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Improving Alignment
Account and activity alignment should eventually fit the nature of
each agency and bureau. Alignment needs to be considered with care.
Consideration might begin with the question: What general principles for
alignment contribute to creation of a results-focused budget?
Attention naturally turns to programs for the public that carry out
the agency's mission. The agency's Strategic Plan, which is based on its
authorizing legislation and involves wide consultation, is a potential
starting point for identifying strategic goals and the outcomes that the
agency seeks to improve. If the agency's perspective or environment have
changed enough to affect its strategic goals (e.g., the Department of
Justice after September 11th), they need to be brought up to date. 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.
The traditional--indeed Constitutional--purpose of the budget accounts
is to control budgetary resources. That emphasis will continue, and no
changes in budget concepts or total budget outlays are proposed as part
of the Budget and Performance Integration Initiative. But the account
structure needs review to ensure that it supports, or at least does not
hinder, good management. From that perspective, all of the resources
used by a bureau or other organization should be financed from one or
more budget accounts associated with it. At an aggregate level,
resources would be managed by those accountable for achieving results.
Bureaus are clearly visible in the budget account structure of almost
all Departments. Many accounts finance an entire bureau or office. Where
there are more accounts, there is often a good managerial reason: a
major program may have an account of its own; large mandatory transfers
or grants may be in a separate account from administration and other
complementary discretionary activities; if the bureau conducts programs
and activities for very different major purposes, separate accounts may
support better decisions. But multiple small accounts for similar
purposes are usually unnecessary. And multiple accounts for different
inputs or different activities leading to the same output or outcome may
inhibit a manager striving for the best results. Some account
consolidation might be useful.
The ``program activity'' sections that subdivide budget accounts offer
an opportunity to improve linkage between resources and results. In
accounts that finance provision of goods, services, grants, transfers,
credit, insurance, or regulation for the public, program activities
could align the resources used with the results achieved--usually an
output for the public, such as loans made--with related performance
measures that influence desired outcomes, such as the percent of loans
made to first-time homeowners and the percent that
[[Page 11]]
remain in payment status. This is sometimes current practice. But in
other cases, these subdivisions may show inputs, some-but-not-all of the
funding for an output, or an intermediate process that contributes to
several outputs. Such practices make it difficult to show the full
annual cost of resources used to achieve specific results. They also
splinter responsibility for achieving results that Americans value.
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Immigration and Naturalization Service Program and Account Restructuring
In 2003, the Administration is proposing a realignment of the Immigration and Naturalization
Service's (INS's) account structure. In the past, INS had three accounts: salaries and
expenses, construction, and immigration support. A person looking at the INS accounts could
not determine how much money was spent on immigration enforcement or immigration services.
Even looking at various fee accounts, one could not see how much of the money collected from
application fees went to processing the application versus enforcing immigration law. The
new structure provides the full picture of how much money collected from application fees
went to processing the application versus enforcing immigration law. The new structure
provides the full picture of how much money is spent to fulfill the agency's dual missions
of enforcement and services.
This proposal realigns the INS budget and account structure with the Department of Justice's
and INS's Strategic Plan objectives, making it easier to track resources with results. It
not only changes the account structure but also collapses the current program structure from
13 different programs to six programs that directly link to performance objectives. It
organizes similar enforcement actions together and clearly separates immigration services
and support operations. The support and administration account is temporary, capturing the
overhead and support costs that could not be easily spread in the first year. INS plans to
spread these costs in the 2004 budget. This will complete the realignment of funding to
allow for linking funding with performance goals--so the public knows what it is getting for
its money.
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Thoughtful long-term reforms are needed in budgetary structure to
manage for results. The Federal Aviation Administration is improving its
budget accounts for capital and research by aligning funds under
performance outcome goals. The agency is also streamlining these
accounts to increase managerial flexibility to achieve performance
outcomes. A more extensive example of an agency working on this problem
is the Immigration and Naturalization Service. The presentation on the
previous page shows their prior account structure, how they transformed
it, and how it lines up with INS's performance objectives.
Charging Full Annual Budgetary Cost
To show the full annual budgetary cost consistently across all
programs requires more than improving account and activity alignment. It
also requires providing budget authority to cover the resources used for
each program and oversight account, and charging all accounts for the
full annual cost of using resources. Currently this is not
systematically done.
Civilian retiree health benefits have all been paid
centrally for the whole government; military health benefits
have been paid centrally by DoD and the small uniformed
services. Costs are not shown when the benefits are earned;
only when they are paid.
Pensions for new civilian employees and for military
employees were reformed in the mid-1980s, with employers
paying their share of the accruing cost. But costs for
employees hired earlier under the Civil Service Retirement
System are only partly charged, and several small systems are
pay-as-you-go, which creates an uneven effect across programs.
Support goods and services are often paid centrally by
agencies or provided to programs at less than full cost. There
are indications that programs use different amounts and kinds
of support in these circumstances than when they pay full
cost. In other instances, agencies may allocate cost to the
programs, leaving managers feeling burdened.
Capital costs are most problematic. From the program
manager's perspective, they may be zero if financed centrally,
some share of acquisition cost if that is allocated, the
rental value if office space is rented from GSA, or a
substantial bite out of their budget for a rare capital
acquisition.
In sum, program costs are often lower than annual operating costs--by
widely varying amounts--and sometimes higher. The Budget and Performance
Integration Initiative will improve on this and begin to create more
complete and uniform measures of annual budgetary cost across the
government. That will begin to permit the fair comparison of the cost of
one program with another.
Two complementary legislative proposals--one already transmitted to
the Congress and the other under development--would apply ``best
practice'' consistently to show a more complete measure of budgetary
cost where and when resources are used.
To show resources where they are used, the second proposal
would include a straightforward but powerful requirement: the
full annual budgetary cost of resources used by programs shall
be charged to the budget account or accounts that fund the
program. More than one program might be funded by a single
account so long as the amounts used are separately
distinguished. These provisions would be deliberately general,
leaving how they would be applied to case-by-case decisions on
alignment.
To show support services where they are used, the second
proposal would create intra-governmental support revolving
funds (ISRFs) from working capital, franchise, and other
support revolving funds. Any support goods and services
provided to more than one bureau would move into an existing
fund or a newly created one. Like all other accounts, ISRFs
would be charged for the resources they use and would charge
programs and other customers enough to operate on a self-
sustaining basis.
Three other provisions of legislation would use pairs of budget
accounts to change when costs are shown in the program accounts without
changing the timing for the budget totals. These cover all major cases
where resources are used long before or long after they are paid for.
Pensions and retiree health benefits are earned as Federal
employees work; they are paid much later, after the employees
retire. The legislation already transmitted would require
program and other employer accounts to pay the employer share
of the accruing cost of these benefits to retiree benefit
accounts, where they are offsetting collections. These
accounts would pay the benefits when they come due.
Similarly, programs that generate hazardous substances would
be required to pay the accruing cost to clean up contaminated
assets at the end of their useful life. These payments would
go to funds responsible for the cleanup.
In contrast, capital assets are bought before they are used.
In this case, an agency Capital Acquisition Fund (CAF) would
be created. Following good budget practice, the CAF would
request budget authority (BA) up front to acquire assets that
are included in the budget, and outlays would be recorded when
payment was made. However, this BA would be in the form of
borrowing from Treasury authority. The CAF would then borrow
for the period of the asset's useful life; collect annual
capital user charges in proportion to asset use, and make the
mortgage payments to Treasury.
The General Accounting Office supported these concepts for budgeting
in the United States in a recent report, Accrual Budgeting: Experiences
of Other Nations and Implications for the United States. (February
2000).
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Full Funding for Federal Retiree Costs. To make quick progress on
these practices, the Administration split the required legislation into
two parts. In October, the first bill--``Budgeting and Managing for
Results: Full Funding of Retiree Costs Act of 2001''--was transmitted to
Congress as Title II of the Managerial Flexibility Act of 2001.
The proposal charges to salary and expense accounts in all Federal
agencies--most of which are funded by discretionary appropriations--the
employer's share of the full annual accruing cost of retirement benefits
above and beyond the amounts that are charged now. The bill requires
charges for:
the full accruing cost of the Civil Service Retirement
System and the parallel Foreign Service and CIA pensions,
retired pay for the small uniformed services (Coast Guard,
Public Health Service, and NOAA),
retiree health benefits for civilian employees in the
Federal Employee Health Benefit Program, and
retiree health benefits for the seven uniformed services.
For the latter, accrual of health benefits for those 65 and
over will start in 2003 under existing law, and accrual of
benefits for younger retirees is proposed to start in 2004.
Existing liabilities are amortized by mandatory payments from the
general fund, and benefit payments are mandatory.
This component of cost was proposed first because it could be
implemented largely by changing the amounts paid from and to existing
accounts. These costs are displayed by account in the 2003 Budget for
2003 and beyond, with comparable estimates published for 2001 and 2002.
The bill does not change total budget outlays or the surplus/deficit;
it shifts costs from central mandatory accounts to increase the affected
discretionary accounts on the civilian side by $9.2 billion. The
additional discretionary amounts were treated as an adjustment in this
Budget.
Thus, the Budget requests sufficient funding by account for this
conceptual change, except for programs that are funded by user fees.
Under OMB Circular A-25, the costs of the latter programs are expected
to be covered by their fees. The adjustment for accounts producing
support goods and services is made in their customers' budget accounts.
This legislation would fully fund the employer share of all Federal
pensions, retired pay, and retiree health benefits by agency payments to
the retiree benefit funds each year as they are earned by employees. It
would amortize past unfunded liabilities on a regular schedule by
payments from Treasury to the retiree benefit funds. The legislative
language requires the appropriate amounts to be paid out of all salary
and expense appropriations, just as they are now for the Federal
Employee Retirement System (FERS) and the Military Retirement System
(MRS).
These charging practices would go a long way to close the gap between
current budgetary cost and uniform full operating cost so that cost and
results can be compared with each other and across programs.
The bill would not change the government cost that would be compared
with private offers in a public private competition. These costs are
already included in the OMB Circular A-76 comparison. But it moves
toward the possibility of fair competition without the current
burdensome process.
Full Budgetary Cost and Performance Integration. As discussed above,
the Administration is developing a second proposal to charge uniformly
for other resources where and when they are used. It is intended for
transmission to Congress after this Budget. Implementation would start
in the fiscal year 2004 Budget, but with additional implementation in
future years. This proposal covers the 24 CFO Act agencies, except that
the Director of OMB may extend the support goods and services provisions
to other agencies.
While still under review, this proposal's key goal is to facilitate
the full annual budgetary cost of resources used by programs being
charged to the budget account or accounts that fund the program. More
than one program may be funded by a single account so long as the
amounts used are separately distinguished. How this is worked out in
each agency--and how closely it hews to the spirit of aligning costs
with outputs and outcomes--will determine where the costs defined in the
other provisions will be charged. To retain the current degree of
flexibility to deal with changing circumstances, the proposal will
include limited transfer authority.
None of the budgetary changes in this proposal will affect the
``bottom line'' of the budget as a whole, or the basic budgetary
concepts of budget authority, obligations, and outlays. They do increase
the amount of discretionary budget authority that must be appropriated
to capture the full cost of programs. The effect of this will be that
programs that produce outputs for the public will recognize
discretionary spending in the budget at the time when they incur costs.
Therefore, for each program, the budget account would show the total
budgetary resources used to pay annual operating cost. Comparison of
resources and results will be systematic when allocating resources; and
managers will have timely feedback and better resource control with
which to achieve better results.
MANAGING FOR RESULTS
What you measure is what you get. The greatest initial impact from
integrating performance and budgeting is that we will begin to get
better results for each budget dollar. In the slightly longer run,
managing for results will continually improve program outcomes. The
President's Management Agenda launched this ef
[[Page 14]]
fort last August. The Agenda includes five government-wide initiatives
that are intended to work together as a mutually reinforcing set of
reforms. In addition to Budget and Performance Integration, they are
Strategic Management of Human Capital; Competitive Sourcing; Expanding
Electronic Government; and Improving Financial Performance.
The Strategic Management of Human Capital Initiative will align human
resources with programs and their outputs, so that real as well as
budgetary resources will be focused on producing results. The
Competitive Sourcing Initiative will give program managers more choice
in the character and cost of the inputs they buy with the budgetary
resources they control. The Expanding Electronic Government Initiative
will help programs to coordinate and deliver services. And the Improved
Financial Performance Initiative will integrate financial and
performance information that, together with Budget and Performance
Integration, will provide timely, analytical feedback to managers. These
Initiatives place more authority and accountability for outputs at the
operating level, use working groups and intermediate levels of
management to coordinate programs to influence outcomes effectively, and
focus top management on policy development and oversight.
The basic idea is to align authority, staff, and all resources used
with specific bureaus and programs, to provide flexibility in the use of
those resources, and to hold managers and staff accountable--with
rewards when successful--for achieving agreed-upon results. Following
the spirit of accountability, this Budget is presented by Agency rather
than by cross-cutting functions.
These five government-wide Presidential initiatives were selected
because in each area the Federal Government is operating below
potential, yet there is also a clear path to improvement with a major
pay-off at the end. As a goal post, each of the initiatives included
standards setting forth the characteristics that would define the
success to be achieved over the next three years. OMB is working with
agencies to customize the progress that each agency should make this
year to achieve full success within three years. Agencies will earn
``green lights'' on progress for each quarter in which they meet the
milestones along their agreed pathway to success.
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Strategic Management of Human Capital
A growing portion of the Federal workforce will become eligible to
retire over the next decade. Good human resource management is needed to
ensure that people with the necessary skills are hired, trained, and
retained to provide public services. Human resources, as well as
budgetary resources, need to be aligned with programs and activities
that produce results. Aligned managers should be delegated the authority
they need to get the job done, including more flexibility to hire and
manage personnel, rather than hampered by excessive layers of review.
The Integration and the Human Capital initiatives both link rewards to
individual and group success in reaching performance goals. Below are
examples of good practice.
Treasury implemented knowledge management systems to help
preserve and share the experience and institutional memory of
retiring employees.
The Veterans Affairs Healthcare Network for Upstate New York
involves its employees in developing work unit ``stretch''
goals at least 10 percent higher than the consensus
expectation for the amount of work that will be accomplished.
Employees have a stake in their success through a ``goal
sharing'' incentive program, where modest awards are based on
reaching goals at the regional and unit level. Since the
program began, the program has reduced cost per patient and
improved customer service and satisfaction.
The General Services Administration's Public Buildings
Service allocates regional office budgets based on nine
performance measures. Targets are set for each measure, and a
portion of the Performance Excellence Pool goes to regions for
each goal they exceed. Organizational and individual
performance has improved across the measures, with lower costs
and better efficiency, effectiveness, and customer
satisfaction.
Competitive Sourcing
The President's Management Agenda includes an initiative to acquire an
increasing proportion of commercial goods and services through
competition among and between public and private sources. The process,
as defined in OMB Circular No. A-76, relies on a performance-oriented
statement of work and a comparison of the full costs to the taxpayer for
each source. Last March, OMB set a target for agencies to compete or
convert to contract not less than 5 percent of their FAIR Act
inventories of commercial work performed by Federal employees in 2002.
Agencies were asked to compete an additional 10 percent of their FAIR
Act inventory in 2003. The agencies will retain all of the savings
achieved through Competitive Sourcing.
Innovation and efficiency are stimulated when agencies compete the
acquisition of support goods and services from providers in their own
agency, other agencies, or the private sector. Savings are generated
which can be put to use in support of the agency's mission. The
Department of Defense has competed 218 competitions since 1955, of which
57 percent were retained in-house, and 43 percent converted to contract.
When retained in-house, the average savings were 34 percent.
However, OMB Circular A-76 is a cumbersome and complicated process. It
requires developing a performance-based contract, conducting a
management study to design a most-efficient-organization for the in-
house bidders, and making an elaborate cost comparison. The process
needs to be reformed to allow program managers to be free to acquire the
support goods and services that best meet their needs.
Expanding Electronic Government
E-government can improve the coordination, efficiency, and
effectiveness of delivering information and services to the public.
These projects may bring together programs producing different outputs
toward common outcomes, and help them to deliver services from the
customer's perspective. In order to make the government truly ``citizen-
centered,'' agencies will have to work together around the needs of
citizens and businesses--not agency boundaries. Citizen-centered
government will use the Internet to give citizens the ability to go
online and interact with their government. Below are some interesting
examples.
The Department of Commerce is using the Internet to serve
businesses interested in international trade and minority
contracting opportunities. Census uses e-government for its
economic surveys of firms, and will use it more for the 2010
census of population.
The Department of Labor's Occupational Safety and Health
Administration accepts health and safety complaints over the
Internet. In addition, individuals can use the Internet to
discover lost pensions, and a pilot project allows people to
calculate their approximate retirement benefits on-line.
The National Science Foundation was the first agency to
perform all of its critical interactions with its proposal
applicants through the web. Over 99 percent of the proposals
the agency receives are submitted electronically.
The Social Security Administration is rapidly expanding
online customer service options. These include making
retirement claims, receiving Medicare replacement cards,
checking account status on-line, getting access to change
one's address and telephone number, and making direct
deposits.
Improving Financial Management
Financial management is a natural complement to budgeting. Better
account and activity alignment with performance is needed; resources
should be charged where they are used. This congruence would facilitate
accounting, and the emphasis on performance would provide incentives
for, as well as facilitate, cost accounting. Performance, budgeting, and
accounting information potentially could be entered using standard
analytical software at the program and activity level, where
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it would be familiar and used as timely feedback, making it likely to be
accurate. All entries should be fully coded to the Standard General
Ledger. The modules as a whole could then be uploaded and consolidated.
Transportation is implementing a new Department-wide
financial management system that is geared towards capturing
transactions at the source, automating the matching of
expenditures to the obligating document, and obtaining
electronic approvals. By capturing transactions at the source,
this process reduces the likelihood of erroneous payments and
posting the charges to the wrong contract. All organizations
in DOT are working to convert to the new system by the end of
calendar year 2002.
The Treasury Franchise Fund consists of eleven ``business
activities,'' each with a separate account established to
facilitate financial reporting. Although the audited financial
statements of the Fund are presented on a consolidated basis,
its financial system generates individual financial statements
for each business activity. Revenue and expense data are
recorded and reported by business line. Direct and indirect
costs are identified by each business activity and reported
internally on financial reports.
The Social Security Administration included a comprehensive
footnote disclosure in its Accountability Report that
described the method they use to classify operating expenses
by strategic goal. SSA aligns its strategic goals with its
request for new budget authority as part of its annual budget
request. They applied the same method to allocate primary
administrative expenses to each strategic goal and reconciled
that to the operating costs reported on the Statement of Net
Cost.
The Department of Education is using activity-based costing
in its student financial assistance (SFA) programs to improve
efficiency. SFA has worked with managers to define program and
business activities, assign cost, and map the activities. A
user-friendly reporting tool provides managers with on-line
multidimensional views of the results. Quarterly management
reports are provided to managers showing the cost of their
business processes and providing insight into the drivers of
those costs. Managers are being assigned cost reduction
targets, which this system and benchmarking with private
industry and other agencies will help them to meet.
The Environmental Protection Agency provides integrated
financial and programmatic data to the agency's managers to
support decision-making based on costs. For example, EPA is
tracking the cost for all major IT projects by phase. Agency
cost accounting for the Superfund program has resulted in over
$2.8 billion in cost recoveries. And the agency's accounting
structure has been redesigned to provide the costs of
achieving the goals, objectives, and sub-objectives embodied
in their Strategic Plan and budget.
All five of the President's Initiatives thus contribute to the
performance orientation and effectiveness of the Federal Government.