    [Analytical Perspectives]
    [Performance and Management Assessments]
    [2. Budget and Performance Integration]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 9]]

                      2. BUDGET AND PERFORMANCE INTEGRATION

                                 I. INTRODUCTION

      The American taxpayer expects the Federal Government to implement
    programs that will ensure the Nation's security and provide critical
    services. Taxpayers deserve to have their money spent wisely to create
    the maximum benefit. The Executive Branch should be held accountable for
    program performance by the American people. For the Federal Government
    to be held accountable, the American people must have clear, candid
    information about each program's success and failures. The
    Administration is providing this type of information. More importantly,
    in all cases, the Administration is implementing detailed plans to
    improve program performance.
      The role of the President's Budget and Performance Integration (BPI)
    Initiative is to ensure that Federal dollars produce the greatest
    results. To accomplish this, agencies and OMB identify which programs
    work, which are deficient, and what can be done to improve the
    performance of them all. In some cases, it may be necessary to
    reallocate funding to more effective programs. This and other decisions
    about programs are ultimately made jointly by the Congress and the
    President, but the analysis of program performance can help the
    Executive and Legislative Branches make more informed decisions. To
    expand the use of information about program performance, OMB is
    launching ExpectMore.gov, a user-friendly website that provides the
    public with performance information about Federal programs. (Greater
    detail about ExpectMore.gov will be provided in a subsequent section.)
      The Budget and Performance Integration Initiative measures its success
    in two principal ways:
        Improved Program Performance: Through the use of performance
              assessments, programs will have the information they need to
              improve their performance every year. The initiative requires
              each agency to identify opportunities to improve program
              management and design, and then develop and implement clear,
              aggressive plans to get more for tax dollars every year.
        Greater Investment in Successful Programs: Overall, scarce
              resources need to be allocated to programs that benefit the
              Nation most effectively and efficiently. Program performance
              will not be the only factor in decisions about how much
              funding programs receive. However, the Congress and the
              President, equipped with information about program peformance
              can consider performance to a greater degree in their
              decision-making and invest primarily in programs that provide
              the greatest return on the investment of taxpayer dollars. If
              poor performing programs are unable to demonstrate improved
              results, then that investment may be reallocated to programs
              that can demonstrate greater success.
      Currently, the Initiative is showing great progress toward the first
    goal. Programs are becoming more efficient and more effective through
    implementation of meaningful improvement plans.
      Many programs are demonstrating improved results.
        The Department of Veterans Affairs is reducing the time
              veterans wait to get medical appointments. From 2001 to 2005,
              the Veterans Health Administration (VHA) substantially reduced
              the number of new veteran enrollees unable to schedule an
              appointment for medical care from a high of 176,000 to 22,494.
              VHA remains a leader in customer satisfaction, with an
              inpatient satisfaction score of 84 out of 100 on the American
              Customer Satisfaction Index, slightly higher than the score of
              79 for comparable private sector services.
        To reduce fatalities from automobile accidents, the National
              Highway Traffic Safety Administration promoted greater seat
              belt use among high-risk groups such as younger drivers, rural
              populations, pick-up truck occupants, 8-15 year-old
              passengers, occasional safety belt users, and motor vehicle
              occupants in States with secondary safety belt use laws. As a
              result, nationwide seat belt use increased from 73 percent in
              2001 to 82 percent in 2005, an all-time high.
      Agencies are also identifying the steps they will take to improve each
    program's performance even more. All programs, regardless of whether
    they perform poorly or well, should strive to perform better each year.
      Progress toward the second goal of improving resource allocation is
    slow. Overall high performers received larger funding increases than
    those that did not perform as well, but in general, recommendations to
    reduce funding for ineffective programs or those that can not
    demonstrate results have been less successful.

         II. HOW THE BUDGET AND PERFORMANCE INTEGRATION INITIATIVE WORKS

      There are several aspects of the Initiative designed to maximize
    program performance:
        Assess performance with the PART (Program Assessment Rating
              Tool)

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        Publish a Scorecard to hold agencies accountable for
              managing for results, addressing PART findings, and
              implementing follow-up actions
        Broadcast results on a new website, ExpectMore.gov
        Implement inter-agency program improvement

      Comprehensive Assessment by the Program Assessment Rating Tool (PART)

      How do we ensure programs are improving every year? First, we assess
    their current performance. In order to improve program outcomes, it is
    critical to have a good understanding of how the program is currently
    performing. To date, we have assessed the performance of 80 percent of
    all Government programs using the PART.
    ------------------------------------------------------------------------

                                          What is the PART and How is it Used?

    The PART helps assess the management and performance of individual programs. With the PART, agencies and OMB
     evaluate a program's purpose, design, planning, management, results, and accountability to determine its
     overall effectiveness. Recommendations are then made to improve program results.

    To reflect that Federal programs deliver goods and services using different mechanisms, the PART is customized
     by program type. The seven PART types are: Direct Federal, Competitive Grant, Block/Formula Grant, Research and
     Development, Capital Assets and Service Acquisition, Credit, and Regulatory. The PART types apply to both
     discretionary and mandatory programs. ExpectMore.gov also classifies each program by its specific program area
     (such as environment, transportation, education, etc) so we can accelerate the improved performance of programs
     with similar missions.

    Each PART includes 25 basic questions and there are additional questions tailored to different program types.
     The questions are divided into four sections. The first section of questions gauges whether a program has a
     clear purpose and is well designed to achieve its objectives. The second section evaluates strategic planning,
     and weighs whether the agency establishes outcome-oriented annual and long-term goals for its programs. The
     third section rates the management of an agency's program, including the quality of efforts to improve
     efficiency. The fourth section assesses the results programs can report with accuracy and consistency.

    The answers to questions in each of the four sections result in a numerical score for each section from 0 to 100
     (100 being the best score). Because reporting a single weighted numerical rating could suggest false precision,
     or draw attention away from the very areas most in need of improvement, numerical scores are combined and
     translated into qualitative ratings. The bands and associated ratings are as follows:

    ------------------------------------------------------------------------
                                Rating                               Range
    ------------------------------------------------------------------------
    Effective....................................................     85-100

    Moderately Effective.........................................      70-84

    Adequate.....................................................      50-69

    Ineffective..................................................       0-49
    ------------------------------------------------------------------------

    Regardless of overall score, programs that do not have acceptable performance measures or have not yet collected
     performance data generally receive a rating of ``Results Not Demonstrated.'' This rating suggests that not
     enough information and data are available to make an informed determination about whether a program is
     achieving results.

    PART ratings do not result in automatic decisions about funding. Clearly, over time, funding should be targeted
     to programs that can prove they achieve measurable results. In some cases, a PART rating of ``Ineffective'' or
     ``Results Not Demonstrated'' may suggest that greater funding is necessary to overcome identified shortcomings,
     while a funding decrease may be proposed for a program rated ``Effective'' if it is not a priority or has
     completed its mission. However, most of the time, an ``Effective'' rating is an indication that the program is
     using its funding well and that major changes are not needed.

    ------------------------------------------------------------------------

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                Publish a Scorecard To Hold Agencies Accountable

      Agencies are achieving greater results with the help of the habits and
    discipline established through the Budget and Performance Integration
    Initiative (BPI). These agencies recognize that the PART can be a useful
    tool to drive the agencies to improved performance.
      The President's Management Agenda established clear, Government-wide
    goals or Standards for Success (http://results.gov/agenda/standards.pdf)
    for several key areas, one of which is Budget and Performance
    Integration. Agencies have developed and are implementing detailed,
    aggressive action plans to achieve these goals. Most importantly,
    agencies are held publicly accountable for adopting these disciplines.
    The Standards for Success for the BPI Initiative are below:
         Meets quarterly with senior agency managers to examine
              reports that integrate financial and performance information
              that covers all major responsibilities of the Department.
              Agency achieves planned improvements in program performance
              and efficiency in achieving results each year;
         Develops strategic plans that contain a limited number of
              outcome-oriented goals and objectives. Annual budget and
              performance documents incorporate measures identified in the
              PART and focus on the information used in the senior
              management report described in the first criterion;
         Demonstrates that it has performance appraisal and awards
              systems for all Senior Executive Service (SES) and managers,
              and more than 60 percent of the workforce, that effectively:
              link to agency mission, goals, and outcomes; hold employees
              accountable for results appropriate for their level of
              responsibility; differentiate between various levels of
              performance (i.e., multiple performance levels with at least
              one summary rating above Fully Successful); and provide
              consequences based on performance. In addition, at a beta
              site, there is evidence that clear expectations are
              communicated to employees; rating and awards data demonstrate
              that managers effectively planned, monitored, developed and
              appraised employee performance; and the site is ready to link
              pay to the performance appraisal systems. The agency is
              working to include all agency employees under such systems;
         Reports the full cost of achieving performance goals
              accurately in budget and performance documents and can
              accurately estimate the marginal cost of changing performance
              goals;
         Has at least one efficiency measure for all PARTed
              programs; and
         Uses PART evaluations to direct program improvements, and
              PART ratings and performance information are used consistently
              to justify funding requests, management actions, and
              legislative proposals. Less than 10 percent of agency programs
              receive a Results Not Demonstrated rating for two years in a
              row.
      Each quarter, agencies received two ratings. First, they are rated on
    their status in achieving the overall goals for each initiative. They
    are then given a green, yellow or red rating to clearly announce their
    performance. Green status is for success in achieving each of the
    criteria listed earlier; yellow is for an intermediate level of
    performance; and red is for unsatisfactory results.
      Second, agency progress toward reaching the Budget and Performance
    Integration standards is assessed separately. This is reviewed on a case
    by case basis against the work plan and related time lines established
    for each agency. Progress is also given a color rating. Green is given
    when implementation is proceeding according to plans agreed upon with
    the agencies; Yellow for when some slippage or other issues require
    adjustment by the agency in order to achieve the initiative objectives
    on a timely basis; and Red when the Initiative is in serious jeopardy.
    In this case, it is unlikely to realize objectives absent significant
    management intervention.
      As of December 31, 2005, nine agencies achieved green status on the
    Budget and Performance Integration Initiative Scorecard. The agencies at
    green are:
    1.          Department of Energy
    2.          Department of Labor
    3.          Department of Transportation
    4.          Department of State
    5.          National Aeronautics and Space Administration
    6.          National Science Foundation
    7.          Small Business Administration
    8.          Social Security Administration
    9.          U.S. Agency for International Development
      The Scorecard is an effective accountability tool to ensure agencies
    manage the performance of their programs. Although a scorecard rating is
    not directly linked to any specific consequences, it is quickly
    understood at the highest levels of the Administration as an indicator
    of an agency's strength or weakness.
      The Government-wide scorecard reporting on individual agency progress
    is published quarterly at http://results.gov/agenda/scorecard.html.

                       Broadcast Results on ExpectMore.gov

      This year, a new website, ExpectMore.gov, will provide Americans with
    candid information about which programs work, which do not, and what all
    programs are doing to get better every year.
      Up until now, Americans have had limited access to information on how
    the Federal Government performs. In many cases, the Federal Government
    performs well. In some cases, it performs better than the private
    sector.
      This site will contain PART summaries for all programs that have been
    assessed to date. The site will provide the program information a
    concerned citizen would need to assess a program's performance. Each
    assessment includes a brief description of the program's purpose, its
    overall rating, some highlights about its performance and the steps it
    will take to improve in

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    the future. For those interested in more information, there are links to
    the detailed program assessment, as well as that program's website and
    the assessment summaries of other similar programs. The detailed PART
    assessment includes the answer to each PART question with an explanation
    and supporting evidence. It also includes the performance measures for
    the program along with current performance information. In addition,
    there is an update on the status of follow-up actions to improve program
    performance.
      A visitor to the site may find, at least initially, programs are not
    performing as well as they should or program improvement plans are not
    sufficiently ambitious. We expect this site to change that. The website
    will have a variety of benefits. It will:
        Increase public attention to performance;
        Draw greater scrutiny to agency action (or inaction) to
              improve program results:
                --Improvement plans will be transparent
                --Statements about goals and achievements will
                    be clearer; and
        Create demand for better quality and more timely performance
              data.

                   Implement Inter-Agency Program Improvement

      The Administration continues to look for new ways to improve the
    performance of programs with similar purpose or design by using the PART
    to analyze performance across agencies (i.e., cross-cutting analysis).
    Cross-cutting analysis can improve coordination and communication by
    getting managers from multiple agencies to agree to a common set of
    goals and placing the focus on quantifiable results. This type of
    analysis breaks down barriers across the Federal, State, and local
    levels so all are working toward the same goal. Only topics that are
    expected to yield meaningful results are selected for cross-cutting
    analyses. This past year the Administration completed cross-cutting
    analyses of block grant programs, Small Business Innovation Research,
    and credit programs.

      Block Grants. One of the most common tools used by the Federal
    Government is the block grant, particularly in the social services area
    where States and localities oftentimes award grants to local service
    providers. Block grants are embraced for their flexibility to meet local
    needs and criticized because accountability for results can be difficult
    when funds are allocated based on formulas and population counts rather
    than achievements or needs. In addition, block grants pose performance
    measurement challenges precisely because they can be used for a wide
    range of activities. The obstacles to measuring and achieving results
    through block grants are reflected in PART scores: they receive the
    second lowest average score of the seven PART types: 8 percent of block
    grant programs assessed to date are rated ineffective, and 45 percent
    are results not demonstrated.
      The characteristics that distinguish high performing block grant
    programs from low performing ones are:
         Top management is committed to managing for results;

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         Strong, outcome-oriented performance measures and goals are
              used by management and grantees;
         Performance information is relevant, transparent and
              accessible so management and grantees can easily find out what
              works and replicate it
         Program performance is incorporated into managers' and
              employees' performance appraisals.
      The goal of this cross-cutting analysis was to share best practices
    for block grant programs across agencies. During this past year, the BPI
    Initiative led a seminar where multiple agencies learned lessons about
    performance measurement, accountability, data collection, and reporting
    for block grants.
      All block grant programs will integrate the lessons from this work
    into aggressive improvement plans that ensure:
         Grantees and subgrantees strive to achieve outcome-oriented
              goals;
         Data on whether those goals are achieved are collected and
              made public; and
         Information about proven interventions and how to implement
              them is shared widely.
      The long term impact of this work will be visible over the coming
    years as we monitor the ability of these programs to create better
    outcomes for the citizens they serve.

      Small Business Innovation Research (SBIR). The SBIR program sets aside
    2.5 percent of Government research and development contract and grant
    funding for small businesses. The goal of the program is to assist small
    businesses in undertaking and obtaining the benefits of research and
    development leading to commercial products, while assisting agencies in
    achieving their missions. Approximately $2 billion was spent last year
    in SBIR programs.
      All Federal agencies with Research and Development budgets above $100
    million per year must publish a list of technical topics that they would
    like to support, after which small businesses are encouraged to submit
    research funding proposals addressing opportunities in those areas.
    First, agencies provide winning companies seed funding to explore the
    feasibility of their projects and, if deemed promising after initial
    investigation, funding is provided for subsequent research and
    development. Awards generally are limited to less than $1 million per
    project. Agencies monitor the progress of the selected projects and
    report key data annually to the Small Business Administration.
      A team, consisting of agency and OMB representatives, is carrying out
    the following activities:
         Assessing the program's impact;
         Focusing on improving program administration;
         Determining if legislative reform is needed;
         Developing common long-term and annual measures; and
         Developing a database that tracks commercialization and
              sales in a consistent manner.

      Credit Programs. The Federal Government is one of the world's largest
    lenders. At the end of 2003, the Government held a financial asset
    portfolio of nearly $1.5 trillion, including direct loans, loan
    guarantees, defaulted loans, and non-credit debt owed to agencies. Many
    agencies lack the data, processes, or overall understanding of the
    credit lifecycle (origination, loan servicing/lender monitoring,
    liquidation, and debt collection) needed to effectively assist intended
    borrowers while also proactively reducing errors, risk, and cost to the
    Government. Some credit program PART scores reflect these fundamental
    inefficiencies. More information about the performance of credit
    programs is available in chapter 7 in this volume.
      The Budget and Performance Integration initiative identified the
    ``back office'' function of the five largest credit agencies
    (Agriculture, Education, Housing and Urban Development, Small Business
    Administration, and Veterans Administration) and Treasury as an
    appropriate target for analysis. The Deputy Director for Management
    created a Council to address improvements in these back office
    functions. The Federal Credit Council convened its first meeting in
    March 2005.
      In order to create accountability in credit programs, the President's
    Management Agenda scorecard has been expanded to include a set of
    standards for credit program management. The standards include criteria
    for red, yellow and green status related to:
         loan origination;
         servicing and/or lender monitoring; and
         debt collection.
      The first scorecard will be published subsequent to the President's
    2007 Budget, with quarterly scorecard reports describing individual
    agencies' milestones for addressing weaknesses.
      Many agencies lack the systems and data to conduct regular analysis
    consistent with minimum private sector standards, resulting in larger
    than anticipated losses to the Government. For example, institution of
    early warning systems to identify high-risk borrowers and provide
    targeted intervention at agencies currently without such systems could
    reduce defaults substantially, given the size of agency portfolios. The
    Council is working to improve compliance with the provision of the Debt
    Collection Improvement Act that bars certain borrowers through increased
    reporting to, and use of, private credit bureaus. This permits better
    identification of delinquent Federal debtors and avoids extending
    additional credit to poor credit risks. Savings to the Government are
    expected to be up to $100 million per year.
      The Council has substantially completed the Sharing Lender Performance
    Data (SLPD) portal that allows comparison of private lenders' default
    and delinquency rates, and other portfolio data, across agencies. This
    will result in better decisions to approve lender participation in
    programs, provide benchmarks for ranking lenders, and could provide an
    additional monitoring tool to reduce borrower defaults through early
    action.
      Initiatives of the Council aim to improve management functions and
    have the potential to reduce delinquent debt by up to $10 billion, in
    addition to substantial

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    cost savings on the front end in the form of reduced administrative and
    subsidy cost expenses.

      Community and Economic Development Programs. The Federal Government
    spends more than $16 billion annually to support local economic and
    community development. In 2004, agencies and OMB participated in a
    crosscutting review of the 35 Federal programs that make up this effort.
    Based on PART analyses, input from agencies, and other program
    information, the team identified common problems that reduced the
    effectiveness of this Federal spending. They concluded that the
    programs, taken together, were duplicative, not well-targeted, and in
    many cases lacked clear goals, and a system to measure community
    progress and evaluate program impacts.
      Last year's budget proposed to consolidate 18 of the programs (which
    spend about $4.8 billion) in a new Strengthening America's Communities
    Initiative. For 2007, the Administration re-proposes program
    consolidation--this time in HUD and Commerce. The consolidation will be
    accompanied by three major reforms to make more effective use of these
    resources by: 1) better targeting funds to places that lack the means to
    create conditions for economic progress, 2) consolidating overlapping
    and/or ineffective programs into flexible grants that include rewards
    for community progress and results, and 3) coordinating the full set of
    Federal economic and community development programs within a common
    framework of goals, standards, and outcome measures.

                                  III. RESULTS

      As mentioned above, the BPI Initiative measures its success according
    to two measures:
        Improved Program Performance; and
        Greater Investment in Successful Programs
      There has been a good deal of success toward achieving goals of the
    first measure. The BPI Initiative has caused agencies to think more
    systematically about how they measure and improve program performance.
    Though there are many factors that impact program performance, it is
    clear that the BPI Initiative has framed the discussion around results.
    Agencies have developed ways to measure their efficiency so they can
    figure out how to do more with Americans' tax dollars.
      This marks the fourth year that the PART was used to (1) assess
    program performance, (2) take steps to improve program performance, and
    (3) help link performance to budget decisions. To date, the
    Administration has assessed 794 programs, which represent approximately
    80 percent of the Federal budget. Over the next year, the Administration
    will use the PART to assess the performance and management of most of
    the remaining Federal programs.
      With the help of the PART, we have improved program performance and
    transparency. There has been a substantial increase in the total number
    of programs rated either ``Effective'', ``Moderately Effective'', or
    ``Adequate''. This increase came from both re-assessments and newly
    PARTed programs. The chart below shows the percentage of programs by
    ratings category.

    [[Page 15]]

      The results demonstrate that the BPI initiative is having success
    focusing Agencies' attention on program performance. For example,
    approximately:
         1 in 7 programs has improved its PART rating;
         Half of programs rated Results Not Demonstrated have
              improved their ratings;
         80 percent of programs have acceptable performance
              measures;
         40 percent have achieved their long-term goals and 60
              percent have achieved their annual goals; and
         80 percent of programs have efficiency measures and about
              half of them have achieved their efficiency targets.
      Unfortunately, there has not been a similar level of accomplishment in
    the second measure: Greater Investment in Successful Programs. Though
    use of performance information has been limited, most in the Congress
    are aware of the PART. This topic was discussed extensively in a
    Government Accountability Office (GAO) report issued last year.
      GAO recommends that OMB select PART reassessments and crosscutting
    reviews based on factors including the relative priorities, costs, and
    risks associated with clusters of related programs, and reflective of
    congressional input. Additionally, GAO recommended OMB solicit
    congressional views on the performance issues and program areas most in
    need of review; the most useful performance data and the presentation of
    those data. As mentioned above, OMB is using the PART to improve the
    performance of similar programs in areas that are expected to yield
    meaningful results. OMB and agencies are also actively soliciting the
    views of the Congress in PART assessments, on improvement plans, and
    oversight efforts.

                                 IV. NEXT STEPS

      The BPI Initiative has identified several activities to improve its
    effectiveness over the coming year:
      Ensure Plans are Aggressive and Result in Improved Performance.--
    Rigorous follow-up on recommendations from the PART will accelerate
    improvements in the performance of Federal programs. This will ensure
    that the hard work done through the PART produces performance and
    management improvements. Additionally, implementation of these plans
    must be tracked and reported.
      Expand Cross-Cutting Analyses.--Use the PART to facilitate cross-
    cutting analysis where there is a higher return than approaching
    programs individually. The goal of these efforts is to increase
    efficiency and save

    [[Page 16]]

    dollars. We want to continue to build on the success of previous cross-
    cuts. Congressional guidance will be a factor in choosing topics for the
    next group of cross-cutting analyses.
      Maximize ExpectMore.gov Impact.--The Federal Government should be
    accountable to the public for its performance. This new web-based tool
    will provide candid information on how programs are performing and what
    they are doing to improve. The BPI Initiative will work to increase the
    reach and impact of this valuable information to improve program
    performance and accountability for results.
      Note.--A table with summary information for all programs that have
    been reviewed using the Program Assessment Rating Tool (PART) is
    available at http://www.whitehouse.gov/omb/budget/fy2007/sheets/part.pdf
    This table provides program ratings, section scores, funding levels, and
    other information.