[Analytical Perspectives]
[Budget and Performance Integration]
[1. Budget and Performance Integration]
[From the U.S. Government Printing Office, www.gpo.gov]
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BUDGET AND PERFORMANCE INTEGRATION
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ANALYTICAL PERSPECTIVES
1. BUDGET AND PERFORMANCE INTEGRATION
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1. BUDGET AND PERFORMANCE INTEGRATION
A year and a half ago, the Administration began an effort to improve
budgeting and management to achieve better results--and to do so
consistently. It was called the President's Management Agenda. One of
the major problems identified was lack of budget and performance
integration (see box). For seven years, agencies had developed Strategic
Plans and Annual Plans under the Government Performance and Results Act
(GPRA). But these plans were not integrated into the budget, and the
budget drives policy making, allocates resources, and provides
incentives to program managers. The budget showed dollars requested, but
not the cost of producing an output or achieving a goal. As a result,
the plans were not linked to reality and driven by the cycle of budget
preparation and execution. Also as a result, budget dollars could not be
allocated systematically to achieve the best outcomes per dollar spent.
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At the Start: Budget and Performance Were Not Integrated
Past and planned results were not shown with
budget requests, let alone linked in a cost-
and-results relationship.
Program managers responsible for achieving
results often did not control the resources
they use or have flexibility to use them
efficiently.
Performance and cost data were recorded in
separate systems and not integrated to
provide timely, analytical feedback to
decision-makers and managers.
Americans could not readily assess program
results, and could not compare performance
and cost across programs.
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The Administration is using complementary approaches to strengthen the
link between budget dollars and results achieved.
Using Performance Information to Make Budget Decisions. One of these
approaches focuses on the use of performance information to make budget
decisions. Starting with the Budget for 2003, the Administration
collected and used all of the performance information available in
making budget decisions; this increased demand for performance
information. For this Budget, the Administration created a new Program
Assessment Rating Tool (PART), which was applied to individual programs
comprising about 20 percent of agency budgets. The PART questionnaire
asked about the program's purpose, performance measures, alignment with
budget, and results, as well as its planning and management practices.
The PART summarizes but does not create information. To the extent that
it is influential in making budget decisions, however, it creates demand
from policy makers, program managers, and program advocates for the kind
of information used to make the rating. The Administration plans to
improve the PART this year and apply it to more programs.
Linking Performance and Cost in a Performance Budget. The other
approach will create a framework of information and incentives covering
all programs in the agency and across government. Agencies have been
asked for a revised strategic plan (draft due in March 2003) that would
be a template for their 2005 budget. This places the plan in a realistic
context, requiring the agencies to focus their goals and set priorities.
The plan is to analyze how all of the programs that influence each goal
exert their influence--and how well they do it. Performance measures
must include the outcomes desired (measuring progress in carrying out
the program's purpose) and outputs produced (the tools used). To the
extent possible, the full annual budgetary cost of resources to produce
these outputs are to be requested in separately identified lines in the
budget along with measures of what is produced--ready for monitoring and
analysis of the effect of resources on performance. (This link between
cost and production is routine in business, but rare in government.)
Performance results, cost, and evaluations would provide feedback for a
cycle of using linked performance and cost data year-round to improve
budgeting and management.
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An Assessement of Progress
This is an ambitious list. Yet precisely these objectives are behind
the Standards for Success by which the Budget and Performance
Integration Initiative is rated on the President's Management Agenda
scorecard. In the summer of 2001, the standards were created, reviewed
by outside experts, and approved by the President's Management Council--
the Chief Operating Officers of the major agencies. The ``Scorecard
Standards for Success'' are reprinted at the end of the chapter
``Progress on the President's Management Agenda'' in the new Performance
and Management Assessments volume of this Budget.
The Budget and Performance Integration Initiative is one of the most
challenging of the items on the President's Management Agenda. While no
green status scores have been achieved yet, gains in a half-dozen
departments and independent agencies testify to fundamental improvement
in their ability to relate resource requests to results produced. Nine
agencies out of 24 have reached yellow status for this Initiative, and
several others have made notable strides toward linking budget dollars
with improvements for citizens.
OMB Director Daniels testified in September 2002, ``I see this as a
common sense idea upon which people of different philosophies should
agree. For those who think that government does too much, costs too
much, and is too big, basing funding on results makes sense. But those
who believe government should be more active, should have greater
influence on people's lives, also should want resources invested in
programs that produce results.''
The remainder of this chapter has three sections. The first section
describes the approach of increasing the use of performance measures to
make budgetary and management decisions. The second describes the
substantial progress made in the past year in building an information
and incentive framework to support continuing improvement in results.
The third describes the ways in which the other four Management Agenda
initiatives interrelate with the Integration Initiative.
Budgeting and Managing for Results. Eager to make government work
better, last year the Administration used all of the performance
information it could gather in making decisions for the 2003 Budget. It
also began a transition to place the burden of proof on agencies and
advocates to supply evidence of program effectiveness instead of
assuming effectiveness in the absence of evidence to the contrary.
For the 2004 budget, emphasis broadened to creating better ratings of
program effectiveness and using them to make budget, policy, and
management decisions. To make ratings more systematic, OMB developed a
Program Assessment Rating Tool (PART), a diagnostic questionnaire that
was used to rate programs that comprised about 20 percent of each
agency's total budget. Common performance measures were developed in
several program areas and used for cross-cutting comparisons. The first
section of this chapter analyzes this effort to use ratings to budget
and manage for results.
Foundation for Results. To create a foundation for continual
improvement in government effectiveness, agencies increased
collaboration among planning, budget, financial, and program staff. Some
agencies began to give program managers control over resources, while
making them accountable for achieving results. Agencies are revising
Strategic Plans to be delivered to OMB in March. They are refining
goals, improving outcome measures, and relating programs to outcomes.
These forthcoming plans, according to OMB guidance, are to be
considered the template for an integrated ``performance budget'' for
2005. The annual performance plan and the budget justification will
become an integrated document organized by strategic plan goals. For
each goal, the plan analyzes the relationships from goal to outcomes to
programmatic effects on outcomes to resource requests.
Half of the agencies took steps toward creating an integrated
performance budget this year--ahead of schedule--showing programs in
relation to the strategic goals they are intended to achieve. These
early performance budget justifications reveal efforts to link full cost
to program activities, and to explain how program activities work
together to achieve the agency's goals.
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. As it has before, the
Administration will propose to reflect program costs more accurately by
moving toward charging program costs to the appropriate programs,
including the accruing costs of retirement and retiree health care
benefits. The Administration has also developed proposals to charge for
support services, capital assets, and hazardous substance cleanup where
these resources are used. 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.
A Complementary Management Agenda. Budget and Performance Integration
is one of five interrelated initiatives in The President's Management
Agenda. The others are Strategic Management of Human Capital,
Competitive Sourcing, Expanded Electronic Government, and Improved
Financial Performance. They are all interrelated .They all give program
managers the ability to deliver services more effectively. The third
section of this chapter shows some of their progress toward making
federal programs more effective.
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BUDGETING AND MANAGING FOR RESULTS
Testifying before Congress in May 2001, the Director of OMB signaled
his intention to focus on performance. ``Our main focus. . . .will be
working toward full integration of budget and performance information,
and using performance data to help make program and budget decisions.''
Budgeting for Results, 2003. OMB staff and agencies followed up,
collecting evidence on which programs were improving desired outcomes.
Budget decisions were influenced by performance information. For each
agency, the Budget included a table listing selected programs with an
assessment of the program's effectiveness and a brief explanation of the
assessment.
The results of this performance-oriented process of policy development
and budget allocation were analyzed a year ago in Chapter 1 of
Analytical Perspectives. Five analytical categories were discussed.
First were programs that had been identified in the review process as
effective--yielding real benefits for Americans. Many of them received
increased funding, including the Special Supplemental Nutrition Program
for Women, Infants, and Children (WIC); the Bureau of Economic Analysis,
which produces gross domestic product (GDP) statistics; Health Centers;
drug treatment; the Job Corps; and the National Science Foundation.
In the second category, the review process compared programs for
similar purposes and identified some as comparatively more effective.
Funding was shifted toward these programs. In the third category,
performance measures were used to set targets for better results, with
or without more funding. A fourth use of performance measures was to
provide incentives to states and other recipients who achieved the most
with federal grants, or to charge costs so management decisions would
balance cost against results. And fifth, performance measures were used
to drive improvements in efficiency in programs and support services.
Like the scorecard system, the immediate use of existing performance
measures to make budget decisions was a motivational success. Agencies
saw that having good performance measures and being able to demonstrate
effectiveness, or at least improvement, in performance was going to make
a real difference in their budgets. Performance became a factor to
address in agency budget development.
Budgeting with the PART, 2004. Shortly after the 2003 Budget was
published, OMB set out to strengthen the process for assessing the
effectiveness of programs by making it more rigorous, systematic, and
transparent. OMB staff developed a questionnaire, the PART, designed to
provide a consistent tool for rating programs. Questions are designed to
be answered ``yes'' or ``no'', and require a brief narrative, including
evidence to support the answer. In scoring, half of the grade depends on
program results.
The story of the development and application of the PART can be found
in ``A Tool to Evaluate Federal Programs,'' in the new Performance and
Management Assessments volume of this Budget. It includes a one-page
summary of the PART for each rated program, scorecards showing the
status and progress of each of the five Management Agenda Initiatives
for each agency, and a chapter ``Progress on the President's Management
Agenda.'' Upon publication of the 2004 Budget, all of the completed
PARTs will be posted on the OMB website, www.OMB.gov.
The PART was not designed to obviate the need for the many other
judgments that must go into budget decision making, such as setting
priorities. While a high PART score, good performance measures, and
documented influence on outcomes give programs an advantage in budget
decisions, as shown by the examples below, they are demonstrably not the
only factors considered.
The PART was applied to 234 programs of different types, sizes, and
expected levels of effectiveness. Of the programs rated, 6 percent were
found effective; 24 percent moderately effective; 15 percent adequate;
and 5 percent ineffective. The remaining 50 percent of programs were
given a new rating, developed in December after discussion with the
President's Management Council, called ``results not demonstrated.''
This rating was applied to programs for which adequate long-term and
short-term performance measures have not been established, or where
there is no data to indicate how the program is performing under the
measures that have been established. It was applied regardless of the
program's numerical score.
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Availability and Use of Performance Information
``. . . .there are important questions to be asked regarding the availability and use of
performance information at each stage of the traditional budget process--i.e., budget
preparation, budget approval, budget implementation or execution, as well as audit and
evaluation. . . .a limited scope of inquiry risks missing important opportunities for
applying and capturing the benefits from performance-informed budgeting.''
Performance Information and Budgeting
In Historical and Comparative Perspective
Rita M. Hilton and Philip G. Joyce
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Effective Programs. In the 2004 Budget, the PART-rated programs in the
topmost ``effective'' category all received budget increases, or were
held level.
As they were last year, the Bureau of Economic Analysis
(the producer of GDP statistics), and the Health Centers were
in this top category. Their budget increases were significant.
Health Centers, moreover, had low cost per patient and the
next to highest number of patient visits per worker in the
common measures assessment. Two programs rated effective last
year, the WIC nutrition program for women, infants, and
children, and the Job Corps, were not included in the PART
evaluation this year. Both got funding increases.
Newly rated effective programs that got budget increases
above 6 percent included the Energy Conservation Improvement
program in the Department of Defense (funding was doubled),
the International Nuclear Materials Protection and Cooperation
program in the Department of Energy, the National Weather
Service in the Department of Commerce, and NASA's Mars
Exploration program.
Other programs deemed effective included coin production at
the United States Mint, bank regulation by the Office of the
Comptroller of the Currency, thrift regulation by the Office
of Thrift Supervision, the Advanced Simulation and Computing
program in the Department of Energy, basic research in the
Department of Defense and the Medicare Integrity program at
the Department of Health and Human Services.
There were 56 programs in the moderately effective category.
Budget outcomes were more varied, but on balance were
favorable. Three out of five got increased funding; about one
in five, a reduction.
Ineffective and Results-Not-Demonstrated Programs. The PART
assessments were often particularly valuable when programs were deemed
ineffective or simply without demonstrable results. Some of these
programs have been funded for many years without regard to whether they
achieved program goals. PART reviews have led to reform proposals in the
Departments of Education and Labor.
The PART rated the Vocational Education State Grant program
ineffective. In high schools, national evaluations and annual
performance data show that vocational education has little or
no benefit for student academic performance, job skills, or
postsecondary degrees. In community colleges, there is no
accountability for how the funds are used and no meaningful
connection to student outcomes. The reform proposal in this
Budget will give States and school districts the flexibility
to design high quality programs, provided they meet strict
accountability standards for student performance. They may
also use this funding for Elementary and Secondary Education
Title I programs. Postsecondary school funding will be
distributed competitively to community and technical colleges
and will be based on a rigorous assessment that student
outcomes are being achieved.
Overlapping programs at the Department of Labor would be
similarly reformed: the Workforce Investment Act adult
program, the dislocated worker program, and the Employment
Service state grants would be folded into a single block grant
that would allow the States and the Secretary to target
resources where most needed. Underexpended resources will be
shifted to where they will do more good. Overlap with
Department of Education programs will be minimized by using
the Department of Labor's youth formula resources for out-of-
school youth and non-school programs.
Use to Improve Management. The PART improved program management this
year. As OMB and agencies began answering questions together, different
views about the program's purpose sometimes emerged; these were
sometimes clarified in the ensuing discussion or even reconciled. There
were discussions about program planning, analyzing how the program could
best influence its desired outcome, and what initiatives might be taken
to remove obstacles. Ideas for improving management were considered.
Indeed, some agencies and programs applied the PART themselves for this
purpose.
In a wider context, many of the PART summaries--for effective as well
as ineffective programs--included recommendations for program
improvement. These recommendations, accessible on OMB's website, will
encourage program improvements throughout the agencies next year.
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Expanding Use of These Tools. The Administration plans to improve
these tools and expand their use. Given the fact that use of the PARTs
for budget decisions creates a demand for information to respond to
these questions--and given the parallels between these questions and the
GPRA planning and budget integration tasks described in the next
section--there may be useful additional information to be gained if some
of the PART questions addressed these tasks more precisely.
Given the high proportion of programs without good
performance measures, it is vital to communicate the
importance of including outcome measures in the Strategic Plan
that show how the program is making a difference for
Americans. Since programs influence outcomes, but do not
control them, and often influence them only after a lag, it is
also important to measure intermediate outcomes or
characteristics of outputs that monitor the route by which the
program affects the desired outcome. And finally, in order to
match resources with the tools that programs use to influence
these outcomes, it is important to include output measures. As
shown in Chart 1.1, outputs and outcomes are complements, not
alternatives; outputs are needed in the equation to relate
resources to outcomes.
One PART question asks: ``Is the program budget aligned
with the program goals in such a way that the impact of
funding, policy, or legislative changes on performance is
readily known.'' That question can be read in different ways,
and could usefully be subdivided so that one question can
specifically relate to the database changes the agencies need
to link cost and performance.
FOUNDATION FOR RESULTS
It is a major undertaking to institutionalize a reform as profound as
infusing a performance orientation into federal budgeting and
management.
Integration starts with increasing collaboration among planning,
budget, financial, and program staffs. Program managers must be given
authority--program management authority, budget authority for full cost,
and staff supervision--and then held accountable for results. The
agency's Strategic Plan should capture the overarching purposes of the
agency in a limited number of strategic goals. It should have outcomes
that measure progress toward the goals and should explain how each
program contributes toward the desired outcomes. Activities that
contribute to the same outcome should coordinate and monitor progress.
The agency should develop a ``performance budget,'' organized like its
Stra
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tegic Plan, that matches resources with outputs and justifies resources
requested by their effectiveness at influencing the desired outcomes. In
the past year, most agencies have made progress in implementing some of
these changes, and each of them has been implemented by some agencies.
Collaboration. Breaking down the ``stovepipes'' that separate
planning, budgeting, financial management, and evaluation is essential
to integration. A plan is only realistic if it drives a budget request;
a budget request is not meaningful unless justified by a plan. Budgets
are more meaningful when they tell the cost of producing an output or
achieving a performance goal. Budgeting and accounting form a continuum,
with the budget reporting proposals and the accounting reporting what
happened. Moreover, the next year's plan and budget should build on the
past record of cost and performance.
Wherever progress is reported in this section of the chapter, its
foundation is greater collaboration among such staff units, and between
them and the operating programs.
For example, in the Department of Justice, planning,
budget, and financial management teams at all departmental
levels worked together. They identified major program
activities (``decision units''), and requested budget
authority to reflect the full cost of outputs produced by each
of the decision units.
The Department of State, which is just beginning to use its
new Strategic Plan to manage for results, has merged its
budget staff and planning staff into an office called Resource
Management to link budget and performance on a daily basis.
And the Department of Transportation, where the budget
submission was formatted as a performance budget, pulled it
all together with help from the planning and budget staffs
under the leadership of the Chief Financial Officer.
Strengthening Programs. A program manager who is authorized to manage
the program, controls budget authority that covers the full cost of
resources used, and has authority over program staff can focus his
attention on getting results. With this combination of authority and
some flexibility, a program manager has the tools necessary to be
accountable for results, efficiently producing effective outputs.
The other four Management Agenda initiatives all help to strengthen
programs. Aligning staff with programs, and giving managers more
flexibility to hire staff and reward good work, are key goals of the
Strategic Management of Human Capital Initiative. Giving program
managers flexibility in buying support goods and services is a key goal
of the Competitive Sourcing Initiative. Increasing program effectiveness
by electronic delivery of services is a goal of the Electronic
Government Initiative. Providing programs with timely financial
information and more accurate financial management are key goals of the
initiative to Improve Financial Performance. Together, these changes
focus programs on good management, make them increasingly effective, and
attract civil servants to opportunities to do worthwhile work under
conditions that permit doing it well.
What the integration initiative contributes to this process may seem
technical, but it is actually just common sense budgeting. It seeks to
align budget accounts with programs, and to align sub-accounts with an
output or cluster of related outputs. In each of these accounts or sub-
accounts, budget authority would be requested to cover the full cost of
the resources used. This would link budgetary cost with outputs, which
is the first step in routine comparison of costs and benefits.
The Department of Veterans Affairs (VA) has completely
restructured its budget so that accounts are aligned with
their programs. The 2004 budget justification shows how the
old account structure transforms into the new; it also shows
how each account in the new structure contributes to the
Department's strategic goals and objectives. VA consulted with
its Congressional Committees on these changes and has included
the changes in the 2004 budget database. The new structure, VA
believes, will improve delivery of services to veterans.
The Department of Justice worked at a finer level of
detail. Within each account, they aligned ``obligations by
program activity,'' in effect, sub-accounts, with one or more
related outputs. They show the outputs, the full cost of
producing them, and the outcomes they are designed to
influence. These changes also are in the 2004 budget database.
Chart 1-2 provides an example of the new account and program
activity structure in the United States Marshals Service.
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The National Aeronautics and Space Administration (NASA)
modified its account and program activity structure to show
the full cost of its programs. NASA's budget development was a
paper-less electronic process, and it is carried down to the
project level at which NASA will manage.
Harnessing Programs to Strategic Goals. For the past seven years, GPRA
has required agencies to produce a Strategic Plan every three years,
explaining the agency's mission and its strategic goals, and discussing
how these goals will be achieved over the long term. Plans are generally
grounded in the major laws that the agency implements. In crafting a
plan, the agency is required to consult with the Congress, with other
agencies, and OMB, and to conduct outreach to the public. The plans
should be analytical--explaining how agency programs will help reach
their goals, and what external factors may affect success.
Draft revised Strategic Plans are due to OMB in March 2003, and most
agencies are far along in preparing their revisions. OMB Circular A-11
instructions for preparation are unchanged, but for one significant
addition: these plans are intended to provide the template for a fully
integrated performance budget for 2005. Instead of separate instructions
for a performance plan and a budget justification, the instructions will
require an integrated performance budget.
This change brings a dose of reality to strategic plans. Do the
agency's programs really achieve their goals? Are they designed and
coordinated for that purpose? Is there a place for everything, and if
not, what should be done about it? Is it possible, in sum, to present
each goal, the outcomes that assess progress toward the goal outcome,
and what the agency does to influence each outcome? As agencies acquire
an overview of themselves, they are increasingly focusing their goals,
improving their strategies for achieving goals, and shifting the balance
and coordination of their program portfolio to get better results. This
transformation is particularly impressive in agencies that are large,
diverse, and decentralized.
The Department of Health and Human Services is developing a
``One HHS'' plan with goals which stretch across the
Department and are designed to improve public health for
everyone. Its goals include promoting healthy behavior and
other preventive steps, strengthening the public health system
to respond to bioterrorism, enhancing the capacity and
productivity of health research, improving the quality of
health care services, and increasing access. Considerable
thought has gone into selecting these goals, the strategies to
achieve them, and the right combination of program activities
to get the most public benefit for the cost.
The Department of the Interior is also crafting a Strategic
Plan to integrate its decentralized activities. The four major
sectors of its plan are resource protection, resource use,
recreation, and
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serving communities. This framework is useful in searching for
the right balance among these categories, and also in
comparisons to identify the most cost effective way of
achieving goals within each. Programs in many bureaus are
participating in achieving Departmental goals.
Sorting through programs to determine the best strategy is
no easy job. The Department of Housing and Urban Development
(HUD) has already done a good job of figuring out what
combination of services and housing is needed to prevent and
reduce chronic homelessness. HUD has just begun to think about
extending the same strategic approach to some other major
policy goals.
Using Performance to Manage. In agencies where developing good
performance measures is particularly difficult, the Departments of
Defense and State have developed Strategic Plans, chosen performance
measures, and are beginning to use them to coordinate and monitor
progress.
The Department of Defense (DoD) has crafted a balanced
scorecard to assess four risks and identify the right balance
in responding to them in order to minimize overall risk. The
risks are: force management risk, operational risk, future
challenges risk, and institutional risk. In each area, five to
eight measures have been chosen which will be calculated and
monitored by each DoD component, and reported to the Secretary
at least quarterly. They are collectively called ``the
Secretary's instrument panel,'' which acknowledges that he is
using them to steer. But primary responsibility for
performance tracking, linkage of plans, outputs, and
resources, and scorecards have been ``cascaded'' down to all
DoD components. Specific performance metrics are also being
reported by the military services and defense agencies. The
Secretary's greatly revised Annual Defense Report and
Congressional Justifications are incorporating all of these
metrics and linkages.
The Department of State and USAID are merging their 2003
Strategic Plans into one consolidated document that will link
all foreign operation and international affairs programs. The
new Strategic Plan framework has four high-level strategic
objectives and a reduction from 20 to 12 strategic goals for
better focus and clarity. Each of the Department's missions
around the globe, and each regional or functional office in
the Department, was asked to select five priority performance
goals and describe specific outcomes they would achieve in
support of each. Coordinating these outcomes with other
program managers working toward the same goal throughout the
Department, at overseas missions, and at the interagency level
creates a virtual team and an implicit strategy for moving
toward that goal. The restructuring of the Department's 2004
Performance Plan better conveys the linkages among policy
priorities, budget decisions, and program outcomes. Efforts
are also underway to automate the Mission and Bureau
Performance Plan processes to streamline performance
information with direct linkage to resources.
Creating a Performance Budget. Perhaps the best way to sum up the
accomplishments of the past year is to look at the first attempts to
create an integrated performance budget. The art of creating an
integrated performance budget is not yet fully developed or uniformly
applied. But the structure of a performance budget--explaining goals,
how they will be achieved, and what resources are required--encourages
an analytical justification which answers key questions in an organized
format.
The Department of Labor started from a good Strategic Plan
with many useful performance measures, created collaborative
teams, and plunged into the task of creating a performance
budget for the whole department. It was based on a uniform
format, and included tables showing full cost and how much was
funded by accounts other than the main program account.
The Department of Transportation (DOT) also started from a
good Strategic Plan, and decided early to capitalize on that
plan by presenting an integrated performance budget. Tables
were structured by strategic goal, performance goal, and
account. The highway safety goal, for example, commits to
reducing highway fatality rates from 1.7 per hundred million
vehicle miles in 1996 to 1.0 million by 2008. It analyzes the
causes of fatalities and explains precisely what contributions
it plans from 16 programs to help reduce them. One-third of
all fatalities result from vehicles leaving the road and
hitting something or overturning. Solutions range from road
engineering to rumble strips and reflective markers. Heavy
trucks are a disproportionate cause of fatalities; in
response, road inspections will be increased and commercial
driver education improved. The entire section on highway
safety leaves the reader with a solid sense that DoT has a
thoughtful plan for reducing fatalities. Chart 1-3 was
included in DoT's thorough analysis of the causes of traffic
fatalities.
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An Integrated Database. OMB has begun a multi-year effort
systematically to collect and publish integrated budget and performance
information. When the project is complete, information will be routinely
available to Congress and the public on how much agencies are spending
on outputs and other performance goals.
As agencies improve budget alignment and request resources where they
are used, OMB, Treasury and the agencies may find new ways to simplify
the collection of data linking performance with cost. This would move
the government toward an integrated 21st century information system.
This collaboration includes finding an Architecture--a blueprint for
developing a strategic information database--that is effective in
advancing Budget and Performance Integration and all of the other
Management Agenda initiatives.
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Charging Full Annual Budgetary Cost
To make good budgetary choices, decision makers require not
only measures of benefits, but a matching, uniform measure of
full annual budgetary cost. In preparing their 2004 budgets,
several agencies moved in that direction.
NASA has traced all of its costs to the program
activities for which they are used, even allocating overhead.
For each program activity, they propose to request budget
authority for all associated costs. The Department of Justice
has done that too, and the Department of Veterans Affairs has
done it at the more aggregated program level while tracking
appropriations within the program total. These agencies are
giving programs flexibility to get the best inputs and
incentives to achieve results. They are also providing better
information to decision makers.
The Department of Labor, the Small Business
Administration, and other agencies have calculated the costs
that would be associated with their activities and show them
in text tables in their budget justification. Labor shows how
much is financed in the program's account and how much is
financed elsewhere. These agencies are providing decision
makers with better information.
The first set of agencies has voluntarily agreed to charge
salaries and expenses, the full cost of support goods and
services, and an allocation for overhead to programs, and the
second set of agencies to show those costs. But in neither
case will the agency charge or show costs that are not
charged to the agency. Legislation is needed for that
purpose.
In October 2001, the Administration transmitted to the
Congress legislation to charge the employer's share of the
full accruing cost of retirement benefits to federal
employers as they are earned. ``Budgeting and Managing for
Results: Full Funding of Retiree Costs Act of 2001'' would
charge to salary and expense accounts in all federal agencies
the employer's share of the accruing cost of pensions,
retired pay, and retiree health care. Existing liabilities of
the retirement funds for these benefits would be amortized by
mandatory payments from the general fund, and the benefit
payments would continue to be mandatory.
Agencies have made full accrual payments to the Federal
Employee Retirement System (FERS) and the Military Retirement
System (MRS) since the mid-1980s. The Civil Service
Retirement System and associated Foreign Service and Central
Intelligence Agency systems, which are for employees hired
earlier, are only partly funded. At the time the legislation
was transmitted, Congress had recently enacted a law to shift
health care for Medicare-eligible military retirees to an
accrual basis. Retired pay for the three small uniformed
services (the Coast Guard, Public Health Service, and
National Oceanic and Atmospheric Administration Commissioned
Officers), and retiree health care for civilians and for
military retirees who are not Medicare-eligible, is not
accrued at all.
The Administration will work with the Congress to enact
legislation that charges federal employers their full share
of the accruing cost of all retiree benefits as those
benefits are earned, and to amortize the unfunded liabilities
of the retirement funds by payments from the general fund.
The legislation would not change total budget outlays or the
deficit; the benefits are already required by law. The
amounts involved are shown as memorandum items in the Budget
Appendix.
The General Accounting Office (GAO) supported these concepts
in a report on Accrual Budgeting: Experiences of Other
Nations and Implications for the United States (February,
2000). The Congressional Budget Office (CBO) reviewed them in
The President's Proposal to Accrue Retirement Costs for
Federal Employees (June, 2002). The Comptroller General,
Association of Government Accountants, and the American
Institute of Certified Public Accountants supported the
proposal.
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[[Page 13]]
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Charging Full Annual Budgetary Cost--Continued
Charging appropriately for retiree benefits would go a long
way to permitting agencies to charge programs uniformly for
the full annual budgetary cost of the resources they use.
Legislation to cover two other types of cost would be needed
to complete the job.
Some agencies, notably the Departments of Energy
and Defense, acquire assets that generate hazardous
substances which the agency is required by law to clean up at
the end of the asset's operating life. Currently, these costs
are paid long after the asset is acquired and after its
period of use as well. Good budgeting requires that the
estimated cost be considered when the asset is acquired and
when it is used.
From the standpoint of showing the cost of usage,
capital assets are also problematic. From a program's
perspective, the cost may be: 1) zero if they are financed
centrally, 2) the program's share of the acquisition cost if
it is allocated among programs, 3) the rental value if office
space is rented from GSA, or 4) a substantial bite out of
their budget for an occasional capital acquisition. One way
to show a uniform annual cost for the use of capital without
changing the Constitutional requirement to get an
appropriation up front would be to create agency Capital
Acquisition Funds (CAF). Following good budget practice, the
CAF would request budget authority (BA) up front to acquire
assets, and outlays would be recorded in the budget when
payment was made. The BA would be in the form of authority to
borrow from Treasury. The CAF would then borrow for the
period of the asset's useful life, charge programs each year
in proportion to asset use, and make the mortgage payments to
Treasury.
Discussions along these lines have been held with GAO, CBO,
and others with encouraging interest. Draft legislation has
been developed, discussed with agencies, and improved. As
agencies make progress in developing performance budgets and
improving the alignment of budget accounts and sub-accounts
with program outputs, the advantage of having a fully uniform
budgetary measure of the annual cost of running programs and
producing outputs becomes greater. Such a measure would
permit continual comparison of cost with benefits among
similar programs and over time. These changes, like the ones
for retiree costs, can be made without changing the basic
budget concepts of BA, obligations, and outlays or the
deficit or surplus of the budget as a whole.
------------------------------------------------------------------------
A COMPLEMENTARY MANAGEMENT AGENDA
Each of the other Management Agenda initiatives makes programs more
efficient and effective. Each encourages more cross-cutting
collaboration to coordinate programs so that they influence outcomes
effectively. Collectively, all the initiatives highlight the importance
of top management policy development and oversight. This final section
of the chapter discusses the complementarities of these initiatives with
Budget and Performance Integration. It also notes particular examples of
progress agencies have made in the past year.
Chart 1-4 provides a perspective on the relationships of the other
Initiatives and the Integration Initiative. Budgetary and human
resources would be aligned with programs and reported by financial
management; all elements focus on getting and rewarding results.
[[Page 14]]
Strategic Management of Human Capital
A large proportion of the federal workforce will become eligible to
retire by 2005--40 percent of all workers, and 71 percent of senior
executives. A key factor in attracting new entrants into federal service
is shaping their jobs so that they carry out clear and worthwhile
missions--and do so under conditions which give them a chance to be
effective. Surveys show that many young people are avoiding federal
service because they believe they are more likely to be able to ``make a
difference'' in the non-profit or private sectors.
For agencies to meet policy goals and objectives, both human and
budgetary resources need to be aligned with programs and activities that
produce results. Managers should be given the authority they need to get
the job done, including more flexibility to hire and manage personnel.
Reducing layers of review and program overlap is equally important to
improve performance and results. Both the Integration and Human Capital
Initiatives support linking rewards to individual and group success in
reaching performance goals. Changes like these raise the prospect that
civil servants will feel they can be effective.
Progress So Far. Perhaps the greatest change the Human Capital
Initiative has made so far is to develop in agencies the understanding
that human capital management is a tool to propel mission
accomplishment. People are assets for the organization; they become more
valuable with investment in their special skills and knowledge. At the
same time, organizations need to think strategically about the abilities
they will need to meet future challenges. The Office of Personnel
Management (OPM) has been helping agencies to elevate the level of
analysis that supports this approach. Agencies have collected data to
assess what skills will be needed in future years, analyze what the gaps
are, identify where leadership succession needs urgent attention, and
set priorities for training and development programs.
Few agencies have moved into the implementation stage of better
managing their human capital, which explains why most are still red in
status. But this year, they will begin implementing their new human
capital plans. To help, OPM is restructuring itself to be more
responsive to agency needs, and is working closely with OMB and
Executive Branch agencies. It offers policy guidance and links to
exemplary products on its website.
The Administration is continually evaluating each agency's progress
and the hiring, classification, pay, performance management, and other
human capital tools that are available to help agencies become as
productive as possible. Several personnel reforms, including authorities
to streamline and speed up the hiring process, were enacted as part of
the Homeland Security Act of 2002.
Rewarding top performers and those with critical skills is preferable
to the traditional practice of evenly spreading raises across the
federal workforce regardless
[[Page 15]]
of performance or contribution. For 2004, the Administration proposes to
allow managers to increase pay beyond annual raises for high-performing
employees. A new $500 million fund will be established in OPM and
allocated among agencies based on plans submitted to and approved by
OPM. The Administration also proposes to eliminate the current pay
structure for senior managers and increase their pay ceiling. Under this
proposal, each agency will adjust pay for its senior managers on the
basis of individual performance, which will help address the current
lack of meaningful senior manager appraisal systems.
Examples of Success. While few agencies are implementing strategies to
address all six standards for success in human capital management, there
are numerous examples of impressive change.
The Social Security Administration (SSA) is an example of
effective leadership planning and knowledge management. SSA
uses succession planning, hiring and retention flexibility,
aggressive developmental programs, and cost/benefit analysis
of training. It anticipates vacancies, targets critical
positions to designate ``understudies,'' and is managing the
retirement wave with early-out flexibility.
The Department of Veterans Affairs provided automated data
tools to help managers and staff with workforce planning. It
assesses organizational and geographic needs in relation to
goals, documents barriers to its efforts, and seeks ways
around them.
The Department of Labor worked with consultants to identify
competencies for mission-critical occupations and devised
strategies to address its competency gaps.
The Departments of Energy, Health and Human Services, and
Labor have linked performance expectations for their
executives to agency strategic goals and objectives. These new
Senior Executive Service appraisal systems are designed to
distinguish and reward top performers.
The Department of Transportation adopted an effective human
capital strategy for staffing the new Transportation Security
Administration (TSA). It hired tens of thousands of federal
screening employees, and at the same time embraced its
authority to conduct screening pilot projects at five airports
utilizing contract screeners. TSA decided for the long term to
harness the law enforcement resources of state and local
governments to staff airport checkpoints, rather than hiring
3,000 of its own officers. Finally, TSA aggressively
outsourced most administrative activities.
The Human Capital Initiative has become a powerful agent for change in
the past year. It has the attention and support of agency heads, and
agencies are making headway toward meeting the initiative's standards
for success.
Competitive Sourcing
The Competitive Sourcing and Integration Initiatives share the goal of
giving program managers more flexibility--in this case, by increasing
the ease with which they can acquire the support goods and services
needed to accomplish their mission. The previous cumbersome and limited
process for acquiring support is being replaced by one which makes
competition recurrent, simplifies the competitive process, and permits
the use of a ``best value'' cost and technical trade-off in selecting
the winning source.
These changes are intended to bring innovation and efficiency into
public services, to build an environment in which agencies explore new
options, and to encourage learning from commercial practices. They are
expected to improve contract administration information systems and
increase the use of electronic commerce.
OMB is revising its old, burdensome Circular No. A-76, ``Performance
of Commercial Activities,'' drawing on testimony from numerous
congressional hearings, participation on the Commercial Activities
Panel, chaired by Comptroller General Walker, and responses to OMB's
Federal Register request (67 FR 69769) for agency and public comments.
The revision seeks to encourage federal managers and employees
performing commercial activities to compete ( often for the first time--
to demonstrate their professional capabilities in much the same way as
their commercial private sector counterparts do on a recurring basis.
Both public-private and private-private competitions for commercial work
will be based on the principles of the Federal Acquisition Regulation
(FAR).
Principles of Competition. The proposed revisions to Circular A-76 are
designed to facilitate broader and more strategic use of competitive
sourcing as a management tool for improving agency performance. The
major proposed revisions include:
1. Requiring agencies to presume that all activities are commercial
in nature unless an activity is justified as inherently governmental. To
reinforce this presumption, agencies are required to submit annual
inventories of their inherently governmental positions, using a more
concise definition of ``inherently governmental.''
2. Eliminating the ``grandfather clause'' that currently permits
public reimbursable service providers working under commercial inter-
service support agreements (ISSAs) in existence prior to March 1996 to
perform work indefinitely without being subject to competition. Agencies
relying on public reimbursable providers will be required to develop
plans for competing work done by these commercial ISSAs.
3. Establishing standards for conducting competitions. Public-private
competitions take too long--longer on average than private-private
competitions. The revised Circular establishes time limits and requires
agencies to report when these are exceeded. Agencies, for example, will
be permitted the same time-frames to develop an in-house offer as the
agency is prepared to give to private sector offerors.
[[Page 16]]
4. Requiring that agencies generally comply with the Federal
Acquisition Regulation (FAR) in conducting competitions. The general
principles of the FAR are well established and enjoy widespread
familiarity within the procurement community. Greater application of
FAR-type principles and practices throughout the Circular is intended to
bring public-private competitions closer to mainstream source selection
and reduce confusion that may currently make it more difficult for
parties to compete.
5. Accountability for in-house performance after a contract is
awarded is now required that is similar to what is expected of private
sector contractors. Agencies relying on an in-house provider or a public
reimbursable provider will be required to document changes to the
solicitation, track actual costs, and terminate for failure to perform.
Alternative Approaches. The new focal point will be on ``standard
competitions,'' or direct conversions when appropriate. Recognizing that
agency needs cannot be met through a ``one-size-fits all'' approach, the
Circular's guidance is broader and more accommodating than the
procedures developed over the years for conducting cost comparisons. For
example, when conducting a standard competition, agencies will have
three options for considering non-cost factors.
An agency may conduct a source selection where the decision
is based on the low cost of offers that have been determined
to be technically acceptable.
Alternatively, the agency may conduct a ``phased evaluation
process.'' During the first phase, technical factors are
considered, and offerors may propose performance standards
different from those specified in the solicitation. If the
agency determines that the proposed alternative performance
standards are appropriate and are within the agency's current
budget, the agency could issue a formal amendment to the
solicitation and allow revised submissions. The technically
qualified offerors and the in-house offeror would then compete
based on price against the revised performance standard.
Finally, if non-cost factors are likely to play a more
dominant role, agencies may conduct an ``integrated evaluation
process'' with cost-technical tradeoffs similar to those
authorized by FAR Part 15. Private sector offers, public
reimbursable providers, and in-house providers may submit
higher performance standards than the solicitation. If the in-
house offer is not among the most highly rated proposals, it
could be eliminated from the competitive range. The Circular
recognizes that this integrated evaluation technique may not
be appropriate for all needs and should be tested before wider
application is authorized.
Expanding Electronic Government
Expanding Electronic Government focuses directly on improving the
government's effectiveness. It helps programs work together to improve
outcomes, such as better educational achievement and better health care.
It coordinates services to citizens, businesses, and government by
common internet sites. And it has a yet undeveloped potential to improve
not just the use of information technology, but the overall organization
and effectiveness of federal programs. This Initiative strongly supports
the work of the Budget and Performance Integration Initiative.
Improving Program Outcomes. Two of the E-government initiatives under
way are directly related to agency efforts to use performance
information to improve budget and management decisions.
A Performance-Based Data Management Initiative is under way
to streamline the collection of performance data so that it
will provide accurate and timely information to help inform
state, local, and federal management of education programs.
The Department of Veterans Affairs and the Department of
Defense are working jointly to improve services to veterans.
DoD's eligibility and enrollment system will be the base for
veterans' enrollment, providing seamless services as veterans
leave the military. The two Departments are working together
on computerized patient records, which will improve the
quality of patient care, since many veterans and their
families use both systems.
Coordinating Service Delivery. The most visible and effective of the
E-government initiatives deliver services via the internet directly to
citizens, businesses, or government. Agencies that provide similar
services must work together to deliver them in seamless, coordinated,
electronic form. Information about the service and often the service
itself can be delivered this way in minutes or hours instead of weeks or
months.
FirstGov.gov is the American citizens' gateway to the
federal government. Last year, it was completely redesigned to
provide government services within ``three clicks.'' The
Office of Citizen Services was created to facilitate one-stop
shopping for citizens who do business electronically with the
government. This strategy has increased the number of site
visitors by 50 percent. Last summer, FirstGov.gov was named by
Yahoo ``One of the Top 50 Most Incredibly Useful Web Sites.''
GovBenefits.gov provides one-stop access to information and
services of almost 200 government programs representing more
than $1 trillion in annual benefits. GovBenefits.gov receives
over 500,000 visitors per month and appears on USA Today's
list of ``Hot Sites.''
IRS Free Filing is a new point of access to free online tax
preparation and electronic filing services provided by
Industry Partners to reduce taxpayer burden and costs. As of
January 2003, this service is available to a substantial
majority of taxpayers at www.firstgov.gov or www.irs.gov.
Recreation.gov provides online access to America's
National Parks and public recreation areas. The
[[Page 17]]
site links to 1900 federal, state, and local parks and
recreation centers; it has over 750,000 site visitors per
month.
Similarly, federal internet sites deliver effective services to
businesses, governments, and federal agencies.
Businesses are helped by E-government projects that make it
easier to comment on proposed regulations, identify the
regulations that affect them, and find opportunities to sell
to the government and expand their international trade.
State and local governments use E-Grants.gov to apply for
federal grant programs. A single electronic application will
allow grant applicants to enter identifying information once;
using a single identifier for each grantee allows the
government to track and oversee grantees.
Federal agencies are supported by many E-government
projects. Common sites have been created for hiring, security
clearance, training, and employee payroll. Other sites help
with acquisitions, travel, and intra-governmental payments.
Sharpening the Focus of What Government Does. The Expanding Electronic
Government Initiative seeks to rationalize the use of information
technology across the federal government. Its initial focus was on
reducing overlap and redundancy in IT investments. To assess
commonalities across government--and to categorize the data in IT
systems in useful ways--the Federal Enterprise Architecture team
developed a Business Reference Model that identifies different lines of
business. It was used to question possible redundancies in the funding
requests for new and expanded IT investment submitted for the 2004
Budget.
Additional uses for the Federal Enterprise Architecture are under
consideration, including recording the outcomes that agencies are
attempting to influence and the outputs they produce. The value of a
common Architecture across the federal government that could support all
of the Management Agenda has become increasingly clear. To make a
lasting E-Government transformation, it would be useful to integrate
with categories that have been developed with the Congress for budget
justification and execution and that are already in agency IT systems,
providing considerable historical data for analysis and comparison.
As agencies revise their Strategic Plans to create performance
budgets, they are focusing goals, measuring outcomes, and coordinating
programs to achieve them. Goals in different agencies overlap; the same
process of increasing focus and coordination is needed across agencies.
By recording the new agency goals and measures in relation to each
other, a modern Architecture could evolve. E-government projects would
help them to come together to achieve their common goals, rationalizing
not only the use of IT but the strategies for achieving outcomes. The
same evolving Architecture could also be the key to a 21st century
integrated budget, performance, and accounting system providing rapid
analytical feedback for government decision making.
Improving Financial Management
The Improved Financial Performance initiative complements the Budget
and Performance Integration Initiative because successful financial
performance ensures that accurate and timely financial information is
available to measure past activities, affect current operations, and
better predict the outcome of planned activities. In fact, to meet the
standards for success fully under the Improved Financial Performance
Initiative--to get a ``green'' score--requires that agency financial and
performance systems be integrated. Integration makes the true cost of
programs more transparent.
More Integrated Financial and Performance Information. A major step
toward integration of financial and performance information was taken
this year. For 2002, agencies must submit combined Performance and
Accountability Reports that contain the audited financial statements and
performance results for the same period. More importantly, the due date
for this report moves from February 27, as was the case in 2001, to
November 15 in 2004. In short, performance results and audited financial
information for 2004 will be available 45 days after the close of the
fiscal year, and in time to inform the 2006 budget process.
OMB also requires agencies to produce comparative and quarterly
reports. To meet these more frequent and accelerated due dates, agencies
must reinvent their business processes, develop estimating techniques
and methods, and improve their underlying systems. In addition to
meeting these reporting requirements, these new systems must be
sufficiently robust to provide budget, financial, and performance
information to support day-to-day operations and decision-making.
Better Cost Measurement. A number of agencies such as the
Environmental Protection Agency are beginning to implement full cost
accounting systems. Cost accounting helped the Department of Veterans
Affairs, the Department of Justice, and the National Aeronautics and
Space Administration to calculate budget requests for each of their
programs and activities as they restructured their budget accounts and
``program activity'' lines in this budget (discussed earlier in this
chapter). As more agencies align their budgets with strategic plans, the
demand for sound cost information will escalate because it is essential
for measuring program performance and improving program effectiveness.
Using Performance Information. One example of managing integrated
financial and performance information is in an area of particular
vulnerability, erroneous payments. Federal agencies make hundreds of
billions of dollars of benefit payments each year. Today, the 57 Federal
programs responsible for distributing more than $1.2 trillion each year
in benefit payments must submit with their budgets an estimate of their
erroneous payments and goals for reducing them. These agencies will also
report on their expected performance against these goals.
Results are already apparent. The National Food Stamp erroneous
payment rate fell from 8.9 percent
[[Page 18]]
in 2000 to 8.6 percent in 2001, its lowest ever, and the Department of
Agriculture is aggressively enforcing its quality control program in
states with high error rates. Also, for the first time ever, California
and Michigan, with Food Stamp payment error rates of 17.4 percent and
12.5 percent respectively, are being assessed cash sanctions called for
under the law. And Medicare reported a continued decrease in its
erroneous payment rate from 6.8 percent in 2000 to 6.3 percent in 2001.
Conclusion
A year and a half ago, the Administration embarked on a Management
Agenda intended to make government results-oriented. At that time, there
was little assessment of the effectiveness of existing programs.
Performance information was not consistently at hand when budget
decisions were made. Costs and results were not linked; budget requests
were not organized to fund a plan to achieve specific results. A great
deal has been accomplished since then to increase the influence of
performance information on budgeting and management. However, the
Management Agenda has only been partly fulfilled. More still needs to be
done to make government routinely effective.